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Thompson in Turn 5: Paul Menard’s Departure to Yates Leaves DEI in Need of Help

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 Earnhardt 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 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 Shops’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.

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-five 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 racecar 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 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 Frontstretch on 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. 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 Truex’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 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 HMS 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.