| 10/21/2008 3:00:00 PM | Email this article • Print this article | Caution Flags
Checkered future for NASCAR in downshifting economy
Jenna Fryer
AP Auto Racing Writer
CHARLOTTE, N.C. - The phone rang off the hook at Hendrick Motorsports in June 2007 as prospective sponsors lined up to spend their money on Dale Earnhardt Jr., NASCAR's most popular driver who had just signed a five-year contract with the team.
"We want in, and we know it's going to be expensive," was the message Hendrick heard over and over. Mountain Dew's AMP Energy and the Army National Guard ultimately teamed to pay the tab, estimated to be at least $30 million annually.
A mere 15 months later, the calls from sponsors aren't coming in as regularly to shops all across NASCAR. The weakening economy has made funding difficult to come by, and the financial meltdown has put once-solid teams on perilous ground.
"It's a scary time right now," said driver Jeff Gordon. "We see strong teams struggling to get sponsorship."
Two-time champion Tony Stewart learned just how scary when he decided in June to leave Joe Gibbs Racing's successful three-car operation to run his own team.
Stewart pulled in split sponsorship from Old Spice and Office Depot for his car, but he had to work to find funding for teammate Ryan Newman. He announced last week the U.S. Army signed a one-year deal to sponsor 23 races next season for Newman - winner of the Daytona 500 - but he still has 13 races to sell.
"I feel like with the economy the way it is right now, we're right in line with where we need to be," Stewart said. "It's more important to take the extra time and get the right people than to just get people."
As companies tighten their belts or even fail, sponsorship money that once flowed freely to all sports teams and leagues is in danger of drying up. And it's auto racing that could suffer the most, said Craig Depken, an economics professor at UNC-Charlotte who specializes in sports.
"It's primarily driven by the sponsors," Depken said, "and not just NASCAR. It's just about every motor sport there is."
With sinking auto showroom sales, declining attendance and rising operating costs, no form of motorsports is safe - not even the glamorous, globe-trotting Formula One Series.
Last week, the 2009 French Grand Prix was canceled when the cash-strapped French Motorsport Federation withdrew its backing of the Formula One race. FFSA's board of directors said it didn't want to risk a financial loss by holding the race next year, but will try the resurrect the world's oldest grand prix in 2010.
The Canadian Grand Prix had already been dropped from the 2009 schedule, leaving no races in North America, and Max Mosley, head of F1's governing body, warned that the whole series could be in peril if drastic cost reductions are not made within two years.
The soft economy already is affecting several teams in NASCAR, which is built around independent car owners who rely heavily on sponsorship to pay the bills. A collapsing economy could destroy it.
Operating costs are at an all-time high, and NASCAR's current business model calls for sponsorship dollars to make up at least 75 percent of its budget.
A decade ago, a top-name sponsor spent about $4.5 million. Today, it varies between $25 million - what Aflac Insurance reportedly will pay for sponsoring Carl Edwards next season - and the $30 million-plus that's on Earnhardt's car.
Not every car has the same kind of sponsorship deal. Some sponsors pay for "tip to tail" space on cars and have full control over which other companies are on the quarter-panels - the area above the rear tires - and on the fenders and decklid. Other sponsors sign away that right to the car owner, who can then sell those spots to other advertisers. Aflac, for example, wants to sell a handful of races next season to an "associate sponsor" to recoup some costs.
The top teams try to raise $20 million per car: at least $15 million a year from a primary sponsor and $5 million in associates and decals.
Because NASCAR has no union, pension or salary cap, there's no concrete operating model or budget for teams to follow uniformly. The top organizations field at least three cars, with four the limit.
In June, Forbes tabbed Hendrick as the most valuable team in NASCAR at $335 million, followed by Roush Fenway Racing ($313 million), Joe Gibbs Racing ($184 million), Gillett Evernham Motorsports ($150 million) and Richard Childress Racing ($130 million).
But it drops significantly after that. Only two other teams were valued at more than $100 million, and Robby Gordon Motorsports' single-car operation ranked 15th at $28 million.
An operating budget is estimated at $15 million-$17 million - not including driver salary - on the first one or two cars per team. Additional cars are cheaper, but the bulk of all funding is still tied to sponsorship.
The most lucrative sponsorships go to the marquee drivers, and savvy owners negotiate the driver's salary into the contract. Drivers such as Stewart, Jeff Gordon and Jimmie Johnson are believed to make at least $10 million a year in straight salary, and the sponsor can pay a chunk of that.
Revenue also comes from prize money and licensing. A top car owner can bring in up to $4 million in prize money a year, after the driver gets a cut of usually 40 percent.
Healthier team owners can pocket the prize money, while struggling teams must pump it back into operating costs. Rick Hendrick and others have lucrative outside businesses supporting their teams, but some have had to take on partners: Jack Roush teamed two years ago with Fenway Sports Group to raise the capital needed to operate at NASCAR's top level.
"The expense it takes to field a team, and all the infrastructure it takes, it's so expensive there's no other way to do it. You have to find these sponsors," Depken said.
"I think NASCAR is concerned. I don't think they're panicked yet, but I think they're concerned some of those marginal sponsors might go away. ... If they do, some of the smaller teams might have a tough time surviving," he said.
NASCAR argues quite the opposite, citing approximately $100 million of new money coming into the sport in 2009 in all three of its top series. Some of it is simply increased participation: Aflac went from an associate sponsor to a primary role, Wrigley stepped up its commitment to Juan Pablo Montoya, and Best Buy is spending more now with Elliott Sadler.
"NASCAR is still the best place to get the most for your investment," said spokesman Ramsey Poston. "But just like everyone else, we recognize that (over the) next eight, 12, 18 months, all companies are going to have to tighten belts and make very serious decisions about where they spend their budgets and ad dollars."
Smaller, new sponsors have joined NASCAR in its other two series; insurance giant Nationwide is having a successful first season as title sponsor of the second-tier series. NASCAR is still working to replace Craftsman as title sponsor of its Truck Series.
NASCAR believes it's still in good health and has no plans for cutting races or renegotiating any of its partnerships. Promoters are still willing to pay steep sanctioning fees - between $500,000 and $1.5 million, depending on the track, to secure a coveted Sprint Cup race. Kentucky Speedway is practically begging for a date, while Kansas Speedway is adding a hotel-casino complex to try to land a second race.
People still worry that widespread layoffs are coming and NASCAR may struggle to meet its 43-car fields as early as next season.
"A year ago, we had 53 cars showing up almost every week, and I don't think it benefits anyone in this sport if it gets down to where we can't get 43," said J.D. Gibbs, president of Joe Gibbs Racing. "It's never changed in that you need to be competitive to get good partners. That's life. But if this goes on for too long, and it's looking like it might, this entire industry is going to feel it, regardless if you're a successful big team or a struggling small team."
For most car owners, racing is their only business. As long as they don't have the same sponsorship levels as Childress, Hendrick, Gibbs and Roush, they'll never be able to beat them consistently on the track.
It's no coincidence that those top four owners claimed all 12 spots in this year's Chase for the Sprint Cup championship, and their drivers have won all but four of the 31 races this season.
"NASCAR needs to level the playing field," said team owner Chip Ganassi. "They can't just have Gibbs, Roush and Hendrick winning all the races. They've got to do more to help everyone else compete."
A successful open-wheel racing owner, Ganassi drivers won the Indianapolis 500 and season titles in the IRL and Grand-Am Series this year. But his NASCAR business isn't as strong, and sponsorship woes forced him to shut down Dario Franchitti's team in June. That put about 70 people out of work, adding to the more than 100 who were laid off last year when Dale Earnhardt Inc. swallowed land developer Bobby Ginn's financially strapped team.
Now many wonder if DEI itself might collapse as it heads into 2009 with full funding on just one of its four cars.
Earnhardt is no longer affiliated with his late father's team, but the tight economy has also affected him. The same guy companies were clamoring for last year is searching for sponsorship after the U.S. Navy decided not to renew its contract with his Nationwide Series team.
Since then, Earnhardt has been trying to bring in money. If he can't secure funding for a full season, he said he'll only enter what he can afford next year.
"You have to be thankful for whatever you do get," Earnhardt said. "A lot of these guys are going to walk around empty-handed next year."
Jeff Burton recognizes NASCAR is facing new struggles, and the veteran driver took time after his recent victory to thank fans for "making a real sacrifice to come to the races."
"This is a hard time for people. To be able to come and bring a family to the race is expensive," Burton said. "So if we can't put on a great show for them, then that would be a disappointing thing."
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AP National Writer Nancy Armour contributed to this story.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Weakening economy hitting most sports
CHARLOTTE, N.C. - The NBA got lots of attention last month when it said the bad economy was forcing it to lay off 9 percent of its work force. But there was little shock in the Charlotte Bobcats' organization, which had already seen two rounds of job cuts.
"We must become more efficient as a business in the current economic climate," president Fred Whitfield said of an organization that has lost millions since former BET founder Bob Johnson brought the NBA back to Charlotte in 2004.
Just like NASCAR, sports leagues all over the world are feeling the pinch from the current financial crisis.
Before this latest round of layoffs that cost about 80 league jobs, the NBA had already closed its Los Angeles office and scaled down its preseason trip to Europe to four games in four cities, with no local teams invited.
"We made the decision some months ago that the economy was going to be a bit wobbly so we began a belt-tightening," commissioner David Stern said this week in London.
Stern emphasized the NBA is still hitting its business targets.
"My guess is that by the time we tip off in a week or so, we will be down modestly in season tickets. ... We think we'll be up in revenue, but I just can't say for sure whether we'll be up or down in attendance because it's just so touch-and-go, because sports tickets are very much disposable income," he said. "So, we're not going to see a huge impact, but I dare say we will see some impact."
A look at some other sports leagues:
- LPGA: The LPGA doesn't have a network TV contract, and about a third of its tournaments are up for renewal this year. Two tournaments already are gone: the Fields Open in Hawaii and the Ginn Tribute in South Carolina. Safeway, which sponsored events in Portland and Phoenix, now will sponsor only the Portland event.
The LPGA is looking for title sponsors for Phoenix and Tulsa, Okla., where sponsor SemGroup filed for bankruptcy.
Although it appears trouble is looming for the tour, LPGA officials remain hopeful nothing will be interrupted.
"We are reasonably confident in next year's schedule being similar to this year's schedule in number of events and level of prize money," said Chris Higgs, senior vice president of tournament business affairs.
- Major League Baseball: Attendance fell this season after four straight record years, proving commissioner Bud Selig was wrong when he estimated the sport could break 80 million in attendance for the first time. But the economic slowdown is felt beyond the turnstiles: Team coverage in many newspapers has been cut back, leading to a decreased presence in print for teams. And MLB expects a decrease in car ads - long a major sponsor - forcing clubs and networks to search for other advertisers.
Sales of licensed goods - such as jerseys and caps - is flat when compared with last year. It would be down factoring out the All-Star game at Yankee Stadium, which produced extra revenue.
- NFL: Commissioner Roger Goodell said the NFL is not immune from the crisis, even though sponsorships are currently solid, attendance is still booming and TV ratings have been steady. But Goodell knows that could all change, and the market is having a direct effect on stadium construction in Dallas and New York, as rising bond rates have escalated costs.
"It affects our consumers, our fans, and so we are very sensitive to it," Goodell said. "We are trying to plan appropriately for it. I don't know of any business or any financial institution that's not going through the same types of analysis, the same type of evaluation of what we can do to better prepare ourselves in the current economic climate."
- NHL: Commissioner Gary Bettman said the league is still growing, noting that season ticket sales are up 4 percent from last year and single-game ticket sales are up 13 percent. But he worries that the weakened market could slow the success.
"I have no doubt that, over time, if it's long enough and bad enough, it will have some impact," Bettman said.
Deputy commissioner Bill Daly admits the sponsorship market is tougher, but said the league and clubs were still able to close deals this summer.
- PGA: Tour commissioner Tim Finchem knows he will have a tough sell next year to renew title sponsor contracts that expire in 2010.
"If the instability were to continue for a sustained period of time, we will have real challenges," he said.
The bulk of its event title sponsors are signed at least through 2010, and Wachovia is signed through 2014 to sponsor its hometown tournament. But tickets for 2009 were five days away from being printed when the Charlotte-based bank buckled under the Wall Street meltdown and fell into a bidding war between Citigroup and Wells Fargo.
"Luckily, we signed a contract through 2014," tournament director Kym Hougham said. "Somebody is going to honor it. We know the tournament will happen. We just don't know what the name is going to be."
- ATP: There's been no sign yet of companies not being able to fulfill their contracts with the ATP. Spokesman Kris Dent believes the tour "remains in pretty good commercial shape," based on multimillion-dollar renewal deals with three sponsors, and a new $35 million, five-year deal with British bank Barclays to be the title sponsor of its season-ending tournament.
- Formula One Racing: Drastic cost reductions are being discussed this week in Geneva at a meeting hosted by FIA president Max Mosley with the 10 team chiefs.
The Canadian Grand Prix already has been dropped from the 2009 schedule, leaving no races in North America.
Mosley has warned that current costs are "unsustainable," adding that if there are no reductions in place within two years, the series could be in peril.
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Sports Writers Ronald Blum, Mike Cranston, Doug Ferguson, Howard Fendrich, Dave Goldberg, Chris Lehourites, Paul Logothetis and Ira Podell contributed to this report.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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