The Frontstretch: Menard's Departure To Yates Leaves DEI In Need Of Help by Tommy Thompson -- Wednesday October 1, 2008

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Menard's Departure To Yates Leaves DEI In Need Of Help

Thompson in Turn 5 · Tommy Thompson · Wednesday October 1, 2008


News that driver Paul Menard and his father’s sponsor dollars will soon part ways with Dale Earnhardt, Inc. seems to lend credence to the prediction by many that the company’s demise was inevitable. Old prophecies spurred by DEI owner Teresa Earnhardt’s failure to come to contract terms with her stepson have returned, with observers saying the worst is still to come for an organization which they claim forced the sport’s most popular and bankable personality to leave them behind.

I still believe that the extent to which Dale Jr.’s defection to Hendrick Motorsports has affected DEI’s seeming implosion can be debated. However, the issue of whether the company will experience serious business challenges in the near future no longer can. There’s no question that Tuesday’s official announcement concerning the desertion of Paul Menard and his valuable family sponsorship (Menards) to Yates Racing marks a substantial blow to DEI’s financial bottom line. Couple that with the expected loss of funding by the U.S. Army for the No. 8 team at season’s end, along with the lack of primary sponsorship for their No. 01 car, and the organization’s financial solvency is suddenly in serious jeopardy. At present, the primary sponsorship lineup for DEI’s four teams paints a pretty dismal picture, as Bass Pro Shop’s support of the No. 1 of Martin Truex, Jr. is the only funding set in stone for next year. That’s right; Menard’s departure leaves just one announced primary sponsor for four full-time race teams looking forward to the Daytona 500 in February. Businesswise, that’s not a desirable position for DEI or any Cup-level organization to be in.

The Menards sponsorship will keep going and going and going next season… right from DEI to Yates Racing.

At this juncture, smart money would bet on further bad news coming out of the DEI camp in the next several weeks… namely in the announcement of the suspension of operations of one or more of its teams by season’s end. Without a Top 5 finish in 29 starts this season, Regan Smith’s No. 01 is likely the first to be axed. Though the team has run primarily out of the company’s own pockets this season, that’s not an arrangement DEI can or will continue long-term. So far this year, Smith has only had a handful of primary sponsors, with DEI appearing on the hood of the race car for more than two-thirds of all races run. Their estimated $700,000 effort per race to self-fund the operation while continuing to court a full-time sponsor is admirable; but it’s a plan that common sense dictates will soon come to an end should a financial backer not be found.

So, yesterday’s official announcement of Paul Menard and his family’s fortunes move to Yates Racing next season has most assuredly sealed the fate of either the No. 01 or No. 15 team… or both. With so much financial backing left to search for in 2009, a strong possibility exists DEI will scale back to even a two-car operation in the coming months. And that’s even assuming the company can manage to put together enough funding to keep the No. 8 team — the “flagship” of DEI — afloat.

A late afternoon request for a statement from the company by to the Menard / Yates Racing announcement received no response; but in public comments to David Newton and ESPN, DEI President Max Siegel tried to make the best of a difficult situation. But at its core, Siegel’s comments suggested that the company is working towards shoring up team sponsorships for 2009, and that further details will be forthcoming. And why wouldn’t they? It’s much like proclamations we hear from struggling teams all the time, regardless of whether there’s any truth behind it.

Of course, there is nothing wrong with staying positive and not giving up; but try as they may, DEI finding two, let alone three quality corporate partners willing to jump on board at this late date would border on being a miracle in even the best of times. And with a $700 billion bailout package for the U.S. Economy being debated by Congress as you read this, it’s clear these are far from the best of times to convince companies to invest in race teams at around $20 million at a pop.

Of course, those teams don’t need a national news flash at this point to know the economy is… shaky, to say the least. With the financial sector meltdowns of the past few months, companies like Washington Mutual, Wachovia, or Countrywide are no longer potential racing partners for investors to get the cash they need. And besides the trouble lenders are now experiencing, many companies that might otherwise be potential sponsor candidates are now circling the wagons to weather the tightening credit supply. Clearly, it will not be easy to convince them in these lean economic times that going “big time” racing is a prudent financial decision.

But that is where DEI now finds itself … begging for help in a climate where companies are looking for help from someone else simply to stay afloat. It’s a tough enough climate to begin with; but the root of DEI’s problem runs far deeper, with a decline in performance of their race teams over the past several years now impossible to ignore. The teams consistently running up front are the ones who are able to obtain and maintain lucrative sponsorship deals these days; but with no cars in the Chase and no wins since Martin Truex, Jr.‘s triumph at Dover last June, it’s no longer as easy a sell for DEI as it used to be. With the exception of Bass Pro Shops, no sponsor is stepping forward to obligate themselves to a lengthy deal with an organization that is by and large fielding also-rans in the final race results.

Instead, this organization is falling into the category of NASCAR’s dreaded “lower middle class” — a group that is quickly watching all their financial support get stripped away by those above them. Note that Richard Childress Racing, with all three of its drivers in contention for the Sprint Cup championship, have taken the valuable Caterpillar support from Bill Davis Racing, another subpar performing team. Likewise, UPS will set sail from Michael Waltrip Racing to the powerhouse Roush Fenway organization in 2009, one that can presently boast of having three of its five teams in the 12-car Chase for the Sprint Cup Championship. These companies are both examples of two plum corporate sponsors that undoubtedly never gave DEI a thought, as they pursued the best race teams available in which to spend their huge marketing dollars.

So with the walls crumbling fast and furious, would DEI had been better off had Teresa Earnhardt conceded control of the race team to her stepson as he demanded? The answer is probably yes – at least to an extent. There’s no doubt that the sport’s Most Popular Driver would have been a cinch to continue to attract sponsors to the No. 8 team; but beyond that, who knows? The bottom line is this is a performance-based business; and the fact remains that in 2008, DEI has not performed to the standards of what was once considered a top-tier organization.

And that’s not to say they haven’t tried, either. On the technical side, in a move that Junior endorsed, DEI has partnered with RCR on their engine program over the past 12 months. Facility upgrades and new equipment, as Dale Jr. believed were needed, have also been obtained, in large part through the acquisition of Ginn Racing at what is believed to have been “fire sale” prices. But even with additional resources, it is difficult to predict what Dale Jr. would have contributed to the operation of four race teams that hasn’t now already been done at DEI. In the end, he can only drive one car … and you need four successful teams to have four prominent sponsors at your side.

Indeed, had Dale Jr. succeeded in his negotiations to wrestle control of DEI from his stepmother he would have, as he has with his own Nationwide Series race team, realized that it is difficult for a program to go it alone without outside financial and marketing support during lean times. Like the alliance between JR Motorsports and Hendrick Motorsports he’s successfully constructed today, Junior would likely be doing the same thing DEI President Max Siegel is doing now — searching for partners that would make the perfect fit for this organization.

In one word, Junior would be looking for… help. And with or without his leadership, help is exactly what is now needed at DEI — be it in the form of an even closer partnership with RCR, taking on a co-owner capable of infusing the organization with money and assistance in recruiting lucrative sponsors, or making a shrewd move in picking up a big-name driver — like the rumored comeback of Rusty Wallace that surfaced on SPEED TV late Tuesday night. But even under that best-case scenario, Teresa Earnhardt will still have to make some tough decisions over the next few months. Will she give up her ownership autonomy by allowing for additional investor support, or risk the longterm health of the organization like BDR, Chip Ganassi Racing, or the Wood Brothers have already done? Before Tuesday, she wasn’t in a position where she had to make that choice. But now … it’s definitely an option on the table.

And that’s my view from Turn 5.

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10/01/2008 09:06 AM

Dale Jr. leaving DEI had very little effect on the team . Jr. wasn’t accomplishing very much anyway . Menard leaving will result in very little change also . Nice guy , but has shown virtually no success at DEI . His fathers money will be missed of course , but remember that Teresa has a pretty sizable stack of millions herself . I’m sure you would agree that there are any number of NASCAR teams in far worse shape than DEI . Bass Pro Shops , Martin Truex Jr. and one of the best engine programs , not to mention one of the best shops in the sport , along with some of the most talented car builders in stock car racing . I don’t think i’d write them off just yet .

10/01/2008 09:22 AM

What will she do after next year after Martin Truex Jr. takes ProBass and leaves. Just like Tony Stewart said after Jr left, she will be left with a museum! Too bad she wouldn’t let Dale Jr. help her when he saw what was coming. She thought she knew it all, now she can reap her harvest. Nuff said!

10/01/2008 09:51 AM

It’s sad was it has become, a retail store that instead on preserving “The Legend” is exploiting his accomplishments by pasting his face along side of movie stars and singers just to make a buck. Enough already, cars, candy bars, etc. quit ruining his image. Our collections have lost value by her duplicating priceless items. Focus on your teams, the future, not the past. DEI is collapsing, rebuild the house that Dale built and keep it growing, leave our memories and collectibles alone.

Jeff G
10/01/2008 09:53 AM

I beg to differ with Michael. Jr. leaving had a gigantic effect on the company. He couldn’t very well finish races with so many blown motors.

He COULD bring in the sponsor dollars though. Granted,he is not, and never will be the driver his Dad was, (who is??)but he is good and has a fan base like no other.

Can you imagine if he were still there and UPS came over as a sponsor? All he would need to say to his fans would be, “use UPS whenever you can”.

I happen to be in an industry that one of our customers IS UPS. I talked to one of their VP’s and he told me that when they signed Dale Jarrett they made ALL (total contract) their money back in souvenior sales the FIRST year.

As for engines and car builders at DEI… Why are NONE of their cars in the chase??

It’s ALL about MONEY!! TEI will not survive. AND Teresa is NOT going to give up her millions!!

Bill B
10/01/2008 11:07 AM

What a power-house team RYR will have next year – Gilliland, Kvapil and now Menard. I’ll bet there are lots of teams sweating bullets right now,.

10/01/2008 12:18 PM

Bill B, you are quite mistaken, what a powerhouse “B” team Jack Roush will have and that is what will happen. You will also see this with Hendrick and Tony’s team. The more teams you can expand engineering costs over the better the group gets as a whole. I would think some of the rumors of Robby/DEI hooking up might be true since that would pull sponsors in on at least one car, drop one of the current cars (Menard’s old one) and that gives RCR a decent full house “B” team. I don’t see RCR letting DEI fail since they are somewhat hooked at the hip now (engine program) just like Roush/Yates. Robby G is a good driver (a bit of a head case) but in good equipment he can drive the wheels off a car. There is no way RGR will ever make it as a solo team and I think by now Robby is fully aware of that. I would also have to agree that went JR left that hurt DEI since they lost a ton of sponsorship and sales revenue.

10/01/2008 12:49 PM

DEI would not be in this position if Dale Jr was still there. Maybe they would not have been a Hendrick or a Roush type team but still a formidable opponent. I still feel like Junior only wanted a say in the racing side of the company, not the ENTIRE company. He urged for some changes and was ignored. Only after his announcement that he would be leaving did some changes occur. That signals a personal issue with the driver/step-son in my opinion. Dale Earnhardt Inc should be about racing not movies, a face on candy bars and anything else that brings in money. It should be about racing and putting all efforts into that. The way DEI is today is a slap in the face to the reason the company exists. A shame. But Teresa made her bed, she must therefore lie in it.

Kevin in SoCal
10/01/2008 12:53 PM

Rumor has it Yates is staying at two cars, and either Gilliland or Kvapil is out to make room for Menard.

10/01/2008 01:28 PM

Geez guys . Has it been long enough that you’ve forgotten the blatent power grab attempt by Dale Jr. , pushed from behind by his sister . Those two wanted complete control of DEI , something they apparently thought was their birthright even though Dale Sr.s will specifically left DEI to Teresa . Stop the poor Dale Jr. got screwed out of his fathers company by the wicked step mother . The facts disprove that theory .
If we look outward more than a week or two , I think there are a number of driver and sponsor opportunities for DEI , simply because it is Dale Earnhardt Inc. That name still carries a lot of weight among potential sponsors and drivers . They will be fine . Again , there are a number of teams that are in worse shape than DEI .

10/01/2008 01:50 PM

Michael there is no “star” power at DEI, Truex will more than likely bail next year when his extension is up so you are looking at who in this group with star power or anything close to star power after Martin T. The legacy only goes so far, take a look at Petty enterprises, certainly the King’s legacy is every bit as strong as Dale’s and Richard is still living to do promotions etc. It appeared that JR felt that DEI was going in the dumper and other than doing what he suggested (combine engine program with RCR) the team itself is heading on a downhill slide. Worse teams excluding one and two car teams maybe BDR and Ganassi might be in the same dire straights as DEI, but again neither of those teams once had the crew of drivers that DEI let go, or have fallen so convincingly when it comes to the win production over the years. Even the most politically correct driver in Nascar (Mark M.) bailed and that should tell you something.

Señor Obvious
10/01/2008 02:55 PM

Thank you Michael. It’s beating a dead horse but Dale and Teresa Earnhardt built and own DEI together. No matter what the red army feels, that power grab from the Kelly and the easily influenced Dale Jr. put DEI in the place it’s in now. It was no-win no matter what happened. Kelly should be ashamed of herself and Jr needs to grow a pair and think for himself.

10/01/2008 03:24 PM

Strange situation, either Jr’s decision had no impact what-so-ever or it put them in the dumper!! Depends on the posts by Michael or Senor, one suggests the door is being beat down by sponsors wanting to be part of the the TEI legacy or the other is blaming Jr. Jr moved on and had a great year, probably no worries that DEI is going down the tubes and racing in better equipment as a result. He moved on, doesn’t seem to toss TE under the bus at every chance and I don’t see him making comments about DEI either positive or negative. The buzzards are circling comments are coming from people within the Nascar group, not Jr.

scott b
10/01/2008 04:04 PM

Q. How many DEI employees does it take to change a light bulb?

A. With our rich history, we are confident someone will change the light bulb for us.

Q. How many MWR employees does it take to change a light bulb?

A. Two. One to break into the RFR shop and steal the new bulb, and one to drive the getaway car.

Q. How many Chip Ganassi Racing employees does it take to change a light bulb?

A. Why bother changing the light bulb, the power company is cutting us off for non-payment soon anyway.

10/01/2008 07:53 PM

RJ – I agree with you, it is in RCR’s best interest to keep DEI alive and well, although it may be a bit smaller next year.

While DEI did get hardware and “bricks & mortar” for cheap when they bought Ginn out, I think they also assumed a nasty bit of debt and litigation settlements in the process.

That had to hurt!

RCR will probably buy the #01 team to get 2009 points for the #33.

10/01/2008 09:12 PM

I don’t have any grudges against TE or DEI but enough comments from various sources seem to indicate there is a problem. They have lost Menards, possibly the Army sponsorship, The O1 car has been semi-funded all year. I don’t think Martin wanted to stay but with DEI pulling the option there wasn’t much he could do but 2009 will be a different issue. Mark’s departure creates a major issue since he still has a lot of sponsorship pull and is a well liked driver. I am not a JR fan but I also hate seeing people tossing him under the bus for trying to the correct thing “doing what is needed” to infuse some leadership into DEI. It appears in some recent moves by RC that he has moved some people over to DEI to provide some missing racing leadership.

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