Thompson in Turn 5 · Tommy Thompson · Tuesday May 22, 2007
U.S. District Court Judge Marvin Shoob's eleventh-hour ruling that allowed AT&T to display their company logo on the Richard Childress Racing No. 31 Chevrolet, piloted by Jeff Burton in Saturday night’s Nextel All-Star Challenge, has put NASCAR in a tenuous situation. The ruling has now prompted Sprint Nextel, NASCAR's Cup series sponsor, to join the legal wrangling to exclude the competing telecommunications giant from being able to continue to display the AT&T "globe" logo indefinitely. Both NASCAR and Sprint Nextel have a significant stake in prevailing in their attempt to exclude AT&T from participating as a team sponsor in the series.
In a Frontstretch column in February of this year, I wrote the following in an article titled Burton Once Again A Victim of Corporate Insanity:
"In 2003, Nextel, at the time ranked as the fifth largest wireless company, entered into a bidding contest against some much larger and much more financially solvent companies for the rights to sponsor NASCAR's top racing series. Names such as Bank of America, Visa, FedEx and yes – even AT&T were rumored to be vying for the very expensive advertising rights. In a surprise to many in the financial world, Nextel won the rights to the series name with what is considered the largest sports sponsorship in history. Nextel committed to more than $70 million a year for ten years. Not only is that an unimaginable amount for a company of their size, but also a clear indication that they were willing to gamble, in a big way, their future business success to that of NASCAR.
It appears that Nextel's management has made a number of good business moves, culminating in their acquisition by Sprint Corporation in 2005. The newly formed company is expected to eventually operate simply under the name Sprint, and the merger of the two wireless companies solidified them as the No. 3 wireless provider in the United States. But previously, Cingular Wireless purchased AT&T Wireless, a merger of the No. 2 and No. 3 providers, creating the largest cellular provider in the country. That’s all the more reason for the Sprint Nextel managers to not want to compete with them at the track.
As I wrote in my February commentary, Nextel management was always upfront as to what they wanted from their sponsorship of the NASCAR Cup Series during their negotiations to become the title sponsor.
“In return for the gargantuan sponsorship, Nextel made no secret of the fact that for $700 million dollars or more, they would expect to be the only wireless communication company allowed to advertise in the series. This became problematic, as both Alltel and Cingular were already established team sponsors, and in the end the sanctioning body and the new prospective series sponsor compromised and agreed to allow the two competitors to continue their involvement, but only as it stood at that time. If either company merged with another competitor of Nextel's, they would not be allowed to advertise the change at the track.”
NASCAR's last minute negotiating with prospective sponsor Nextel in 2003 to "grandfather" Alltel and Cingular was a good faith effort to protect both RCR and Penske from having their primary sponsors disallowed in 2004. Ironically, that intervention by NASCAR on the owners’ behalf has now came around to bite them. In his ruling, Judge Shoob writes, “Sprint Nextel knew that its exclusivity was going to be impaired because it agreed with NASCAR in the Nextel Sponsorship Agreement to grandfather in certain competitors.” To paraphrase, if I mayâ€¦No good deed goes unpunished!
Nothing surrounding last weekends legal maneuvering has changed my opinion that Sprint Nextel's stance in disallowing the change of logos on the No. 31 Chevy is anything but understandable. As I wrote in last winter's article, "The reasoning behind Nextel not wanting an open-door policy in the Cup series extended to its competitors is sound. They have paid profusely to have NASCAR Cup racing as their advertising platform. It's their show for the next ten years. It makes no sense to allow others, intent on gaining market shares from them, to pay only $15 million dollars a year for a team sponsorship and be afforded an opportunity to share advertising space with them at the trackâ€¦and in Victory Lane."
It is apparent that the ruling has heightened the Nextel Cup Series title sponsor’s concern as to the legal validity of their agreement with the auto racing organization. Though the temporary ruling allows for the RCR entry to display the AT&T signage prominently on their racecar, Nextel has now entered the legal fray, supporting NASCAR and pleading their own case that more than $700 million in sponsorship fees entitles them to considerably more protection than Judge Shoob believes is appropriate. But in the end, I look for Sprint Nextel to attempt to void their sponsorship agreement with NASCAR if their joint legal appeals prove unsuccessful.
A pullout of the Sprint Nextel sponsorship would certainly result in a fair amount of anxiety for the sport. In a prepared statement following the court decision to allow the displaying of the AT&T branding, NASCAR, through its Public Relations outlet, issued the following statement:
"It is important to understand that Sprint Nextel is a cornerstone sponsor that benefits the entire industry by way of its contribution to the championship points fund, technology bringing fans closer to the sport, and its massive marketing and advertising campaigns." And that is true enough. From all indications, the title sponsor has lived up to its expectations and has accomplished a near seamless transition after taking over from longtime Cup supporter R.J. Reynolds and the Winston brand, a company that likewise had negotiated exclusionary clauses in their agreement with NASCAR to assure that no other cigarette competitors were allowed participation in the series.
Sprint Nextel has no interest in gambling on the possibility of having to award the Nextel Cup to their largest business rivals, AT&T. Winston, the title sponsor for more than three decades, never had to have the Marlboro Man prance around Victory Lane, hoisting the Winston Cup above his head; Nextel shouldn’t be allowed to suffer the same fate with its changing landscape of cell phone competitors. If this decision is allowed to stand, replacing Sprint Nextel will become considerably more difficult of a task for NASCAR than they experienced when Winston left the sport. Not being able to allow protection from business competitors in return for the title sponsorship will greatly reduce the value of such a business venture, and, in so doing, reduce the financial well being of the series as a whole.
NASCAR is walking a tightrope throughout all of this, as they, in essence, compete against team owners for sponsor dollars. They have not always been prudent in their exclusionary agreements with smaller associate-type sponsorships, and they cannot, on one hand, operate a racing series that requires their participants to attract large corporate contributions, and, on the other hand, issue wholesale exclusions of those very companies. However, in consideration of the huge contributions required of the title sponsor, certainly some accommodations are reasonable.
NASCAR, along with its new litigation buddies Sprint Nextel, have filed for an emergency appeal of Judge Shoob's decision with the 11th U.S. Circuit Court of Appeals in Atlanta. As this article goes to press, a hearing is expected at any time. With both AT&T and NASCAR / Sprint Nextel now committed to a legal battle, it is likely, regardless of the outcome of the appeal, that neither party will concede immediate defeat and accept whatever decision is handed down. NASCAR, in particular, is compelled to pursue ultimate vindication of their exclusionary agreements. Sponsors come and go in the sport, yet NASCAR will still remain, charged with continuing to maintain the present funding to finance its growth and steadily increase that funding over time. Without being able to entice series sponsors with the protection that exclusionary clauses promise, the organization will find signing future lucrative deals with corporate America easier said than done.
And that really is not good for stock car racing.
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