Full Throttle · Mike Neff · Monday June 18, 2007
There has been quite a bit of discussion this past week about the ramifications of Dale Earnhardt, Jr. moving over to Hendrick Motorsports. The possible cooling down of a heated rivalry between Junior and Jeff Gordon has been called into question, as has the passion of Junior’s fans and whether they can stick with their man through his transition to a once-despised organization. Certainly, the curiosity of the meshing of personalities at Hendrick and three big names in the sport will be a source of much conversation in the weeks and months to come. However, in the short-term, the business ramifications of Junior’s decision to move to Hendrick should push ahead of teammates getting along in the big picture, especially when Junior and his brand new organization don’t begin to work together until the end of 2007. In that financial department, discussion is in the form of crisp, green dollar bills, a talking point that’s been made especially clear through the large number of people that crowd around souvenir trailers each week. In this area, Hendrick’s acquisition of Junior has almost monopolized the merchandising side of the Cup series with one fluid stroke of his pen.
Of course, trying to find actual numbers to validate who sells the most souvenirs in the Cup series is very difficult. However, it is a common assumption that Junior leads that pack by a longshot, with Jeff Gordon having some cushion of his own in second place. Behind those two lurks the foursome of Tony Stewart, Jimmie Johnson, Kevin Harvick and Kasey Kahne, each with their own unique platform of merchandising revenue. Well, from that list it is interesting to note that, starting next year, HMS will have three of those drivers under contract. It is certainly the largest concentration of merchandising revenue ever garnered by a team owner in the history of the sport.
At the very least, if marketing and merchandising is really considered to have only been a force in the sport since the late ’80s, it can be pretty easily confirmed that there has never been an instance of the top two sellers in the sport being with the same organization. Junior garners somewhere around 30-35% of the souvenir market, while Gordon is in the 15-20% range. If you add Jimmie Johnson into the mix, you are looking at probably 50-60% or better of the souvenir sales that take place in the sport belonging to just one organization.
The fact that Henrick has pulled off such a coup in the merchandising side has not been mentioned very much, but it’s just as critical as the on track changes forced by the signing of Junior himself. The ramifications of this signing could have long reaching implications going forward on how both merchandising is handled and what is ultimately offered to the fans. Since Hendrick is now THE player in the merchandising side of the sport, he will be able to have a say and influence on what happens and what is marketed to the people at large. While ISC and SMI are the co-owners of the companies that create the majority of the souvenirs that the fans purchase, Hendrick will now be able to dictate to those organizations what will be provided to his drivers’ fans…after all, he owns a majority share of the market. Why wouldn’t he?
Imagine if George Steinbrenner or Fenway Sports Group purchased their huge rival and you had a combination of the two most marketable franchises in sports. If the Yankees and Red Sox were put together for marketing purposes, their organization could easily dictate to the souvenir companies what they could do and how they would do it. The two biggest franchises, with revenue numbers that, if combined, are in the neighborhood of three times as high as the next highest revenue stream, would be able to decide what is available for purchase with their name on it, basically dictating where the merchandising of baseball heads. Through some shrewd business negotiating, that is exactly what Hendrick has accomplished with this signing. He has the two biggest souvenir sellers, by far, under contract.
With that said, the possibilities for Hendrick are numerous. The diecast market has already been going through some pretty dramatic changes in recent years thanks to the consolidation of companies offering the cars from five down to two, which are actually both under the same management company at this point. With control of the market, Hendrick could decide to do away with 1/64th scale cars altogether for his drivers, even doing away with the lower end cars that are currently available through mass marketers like Wal-Mart. While this would eliminate some fans from the collecting habit, it would result in forcing them to purchase the higher end, bigger-scale car models, diecasts which offer a greater profit margin. Hendrick would also go the other route and go to the mass marketers himself, eliminating the small shops that deal in collectibles. By making the merchandise available through the mass marketers, he’d make more products available to more fans, taking advantage of the volume rather than the markup technique to make all the money he can. Keep in mind that all other items will also fall into Hendrick's hands, from T-shirts to hats to throw pillows and BBQ sets. The influence that Hendrick could have over the merchandise side of the sport is truly incalculable at this point in time. If Hendrick were so inclined, he could even decide to eschew the established companies that are currently in use by everyone in the industry and start his own souvenir and marketing company. Why not? He’s got the three drivers anybody needs for a merchandising program on board his team.
In the end, while there are several other reasons for the signing this marriage is exactly why Junior going to Hendrick seemed like it would have to happen as soon as Junior announced his intention to leave DEI. Hendrick is too good of a businessman to turn down the kind of dollars that Junior was bringing to the table. Not only is the potential there for something in the neighborhood of $50,000,000 in sponsorship dollars to come to the organization, there is also another $100,000,000 to $150,000,000 in souvenir sales. Granted, that is gross numbers and the monies available to the organization will not be that high, but it is still a very significant sum of money, and Hendrick could not turn his back on it.
The simple fact is, if he wasn’t before Rich Hendrick is now the most powerful man in NASCAR, by far, in terms of merchandising for his drivers. Hendrick will be making a ton of money over the next five years and can personally dictate how the merchandising of the sport moves forward over the next half decade.
Hopefully, he’ll use his power wisely.
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