NASCAR Race Weekend Central

Did You Notice?: NASCAR’s Business Model in Focus

Did You Notice? … NASCAR’s business model is the center of Speedweeks conversation? The sport enters 2018 with only 40 entries competing for 40 spots in its Super Bowl, Sunday’s Daytona 500 in the Monster Energy NASCAR Cup Series.

It’ll be the first time since 1969 that every car that showed up to make the 500 field will do so. As a result, it kills much of the excitement surrounding Thursday’s 150-mile qualifying races. The risk of a better starting spot just isn’t worth destroying primary equipment; we’ve seen people win plate races from fifth and 35th starting positions. That’s where NASCAR parity has its downside.

So instead of deciding who will make the grid, these small 20-car drafts will serve as glorified test sessions and practice for pit crews still adjusting to one person less over the wall. And while pit road might be a fascinating place, well, most fans don’t watch to see 16 seconds of whirring air guns and changing tires.

Why so few entries? A large part of the answer surrounds how the 500 field is set. 36 of the 40 spots are already secured through the charter system, which is also where most of the purse money goes for the race itself.

Take Danica Patrick. She secured a ride through Premium Motorsports in part because it gives her a guaranteed spot in the race. Instead of racing her way in, she could have run one qualifying lap, parked the car in her Thursday Duel and still made the starting lineup.

Compare that to a new team trying to fight for a spot. You’re spending six figures (at least) to bring a competitive car to one race with only 10 percent of the starting grid available to you. And if you place 10th, charter rules mean cars who run far worse than you will still earn more money.

It’s a business model that doesn’t work for the 500. It discourages new owners from making an attempt and pushes a top-down business model protecting the big teams from missing the field. A large part of the intrigue of NASCAR’s season opener, once a one-week affair, has now been whittled down to the day of the race.

Why has the Indianapolis 500, which also has struggled with entries in recent years, actually grown by comparison? Simple: it’s treated as an event. Not only does the typical IndyCar field grow significantly (from 20-22 cars to 33), there’s also a number of new faces making one-off attempts. Last season, it was Formula 1’s Fernando Alonso making a splash, and NASCAR drivers like AJ Allmendinger and Kurt Busch have also attempted the crossover. Add in the pageantry of Indiana, giving the track a Kentucky Derby-like feel, and fans come in droves for the series’ big moment.

NASCAR, on the other hand, has gone in the other direction with Daytona. Gone are the days when Mario Andretti, AJ Foyt, Al Unser Jr. and other famous drivers from other series tried Daytona. Danica Patrick? Puh-lease. She raced here last year. DJ Kennington? David Gilliland? Mark Thompson? Half the fan base might confuse them with names on their company’s board of directors. It’s not exactly a Hall of Fame roster of part-time entrants this year.

Add in the same amount of points given to the race winner (no bonus) and the parity of plate racing, and suddenly the glamour of the race is reduced. Without knowing the past history and glory of this event, you might not know it as little more than the season opener. A guaranteed, stable starting field limits the way you can brand a major in racing. Making the rules just like any other event doesn’t make it unique either.

The issues here bring us straight to the charter system in the first place. One way to benefit the sport is to turn Daytona into a true Super Bowl once again, opening up some rules on speed and removing the automatic bid teams get to qualify for the event. You want the old provisional system, leaving a few spots in the back decided by owner points? That’s fine. But 36 of 40 cars for the Super Bowl? That seems to erase two of the greatest hallmarks in racing: risk and speed.

Instead, you’re charging into the field through a check, bringing us front and center back to the charter system. Some might say that encourages stability in a sport where teams went belly up in the late 1990s and early 2000s. But these charter medallions are only worth money if other owners are out looking to purchase them. When demand is down, there’s no need for supply; it’s why these guaranteed spots only earned former owners like Tommy Baldwin a few million dollars when they cashed out.

Compare that to the Miami Marlins, the MLB team that just sold for $1.2 billion last fall. It makes NASCAR look like a third-rate sport financially by comparison. And the few million you get from selling the darn thing won’t bail you out of debt. You think BK Racing’s charter is worth more than the $9.1 million it supposedly owes Union Bank?

20 years ago, NASCAR didn’t care so much about the future of its private ownership. Teams like Bud Moore, Junie Donlavey and Junior Johnson were allowed to quietly fizzle as there were plenty of big-time corporate sponsors (and multi-car team owners) taking their place. But now that the tables have turned, the charter system is more about protection.

The few big-time owners left that have given a lifetime to the sport stand to lose a piece of the pie once new competition comes to the table. So with money dwindling to begin with, the charter system makes perfect sense. Wouldn’t you want to protect your profits when you see the walls closing in?

For the business model to change markedly, you need some injection of new blood. This offseason, my hope was for a new manufacturer, but the entrance of someone like Dodge won’t happen now until at least 2020. Some sort of major business story needs to jolt the sport and people with money into believing not only that can they come to play at big races like Daytona but that they can profit as well. As we all know, it’s not just about being competitive on the track; the people writing the checks need to make money off it.

That’s why a report by the Sports Business Journal raised eyebrows this week. The in-depth article touched on rumors that some aspect of the sport (or perhaps all of it) could be for sale sometime down the line. NASCAR, of course, vigorously denied such a claim.

Here’s what limited information we know.

  • SMI Chairman O. Bruton Smith, his company and even NASCAR CEO Brian France have been linked repeatedly to a potential bid to buy the Carolina Panthers. (Longtime NASCAR owner Felix Sabates is also involved.) The NFL team in Charlotte is for sale after Jerry Richardson agreed to give up a controlling stake after claims of sexual harassment in the workplace.
  • NASCAR, for all its excitement surrounding the charter system, has struggled to find new ownership. Its key stakeholders in the sport — four-car Joe Gibbs Racing (Toyota), three-car Team Penske (Ford) and four-car Hendrick Motorsports (Chevrolet) — have owners who are age 77, 80 and 68, respectively. Only Tony Stewart, whose interests are varied outside of the sport, has a major stake in a playoff-caliber team and is under age 50. And Stewart, while owning a stake in NASCAR has a first love involving dirt tracks and sprint cars. He’s not exactly next in line to be the sport’s CEO.
  • Track consolidation in recent years (combined with a multi-year agreement keeping them on the schedule) means all but five races a year are run by two entities: International Speedway Corporation and Speedway Motorsports, Inc. That makes tracks easy to package in such a deal.

Now, I don’t think NASCAR is going to be sold tomorrow. But reviving the sport is a two-part process. Just as a new generation of young drivers are poised to invigorate competition, new businesspeople need to find a way to change the model. So far, the charter system has done little more than allow those in power to sit on what they have, cutting costs and trimming the budget to face financial realities.

Does that mean a sale is what’s needed for part two? I don’t know. But certainly, removing the France family from a leadership role in any type of major changeover would turn heads and cause an opportunity for radical adjustments at a business level.

Quick Hits

  • Speaking of young drivers, ratings from the Advanced Auto Parts Clash, NASCAR’s 2018 exhibition, were up 29 percent year over year. That’s impressive considering the small field (17 cars), no Dale Earnhardt Jr. or Patrick and limited advertising. Clearly, some people are giving Chase Elliott, Ryan Blaney, William Byron and others a chance to win them over.
  • Ford fighting to the front in plate races is a decided advantage in a year where their speed will lag behind Chevy and Toyota elsewhere. Look how much Brad Keselowski has won at Daytona and Talladega Superspeedway the past two years. Couldn’t you see a scenario in which Fords use the fall Talladega race, the short track of Martinsville Speedway and a wild card, like the Charlotte Motor Speedway roval, to make the Final Four at Homestead-Miami Speedway? Don’t count out the Blue Oval Brigade juuust yet. It’s early, and there’s plenty of time to make up ground and plenty of smart drivers (like Keselowski) who can get it done even when a step behind.

HENDERSON: MANUFACTURER PARITY KEY STORYLINE IN 2018

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rg72

No one, to my knowledge, has ever pressed NASCAR on the real elephant in the room as the culprit for every ill in the sport for the last 15 years- when they went down the road of the Chase in 2004 and made the “product” for 35 weeks less relevant.
Brian France and others may get the softball questions about ratings and attendance and we get the resultant non-answers or answers so convoluted you forget what question was asked. No one ever explored the correlation between the Chase and the ratings/attendance decline. Someone can correct me if I missed it.
And this has led to the business model.

Moparjeff

I agree with you that the chase is the elephant in the room that NASCAR et. al. continue to ignore.

I think the media monopoly is also part of the problem. Reduced competition usually results in a decline in quality, and that has been true for tv coverage. Additionally, the ridiculous focus on a few drivers, regardless of their performance, is also part of the problem.

One more thing to add, in years well past, the machines were part of the draw to the sport. Casual fans could at least root for a manufacturer, and there were several to choose from, including Buick, Olds, and Pontiac up until not all that long ago. Now it is impossible to recognize the make or model of the cars (No one would know the new Chevy was a Camaro just by looking at it). NASCAR again ignores the problem and instead tell us that people just aren’t brand loyal anymore and so they will focus on ‘personalities’ instead. Well, bully for them, but William Byron’s personality isn’t going to attract new fans. However, if the new Camaro were an actual Camaro, that very well may attract new fans. It worked in the past.

DeLaun Fifield

@ Moparjeff
I would have agreed with your comments during the terrible days of the C.O.T. But the Gen 6 cars are VERY easy to distinguish as Ford, Chevy or Toyota. And “YES!” the new NASCAR Camaro VERY much resembles the street equivalent.

Its just too bad there isn’t anyone driving one that I would pay $400 for a pair of seats (my cost of tickets to the summer race at Daytona) to watch.

You might want to take a CLOSER look at the current batch of cars running now Jeff. I know it must be tough to not see a Challenger/Charger in the field , But there is always hopin’ to see them in 2020…

Russ

VERY much resembles its street counterpart? Front and rear yes. From the side its the same old thing.

Bill B

The charters have had more negative implications to the sport than positives.

Regarding the sale of NASCAR. Anything that separates the track owners from the governing body would be a win for the sport. The stranglehold (monopoly) ISC and SMI on race dates and tracks are not good for the sport and doesn’t allow changes to the schedule which might help ratings.

I’d wager that ratings went up for the clash because it was run on Sunday afternoon instead of Saturday night not because new and old fans embraced Elliott, Blaney and Byron.

Russ

Its hard to see what else nascar, and its twin ISC, can do try to breath life back into the sport. So its not hard to see them positioning themselves for a change in direction. Or, perhaps that the window for cashing in on the product may be about to close.
As to the charters and the teams that own them I perhaps see things differently. While ego does have some value it generally upstaged by cash. The old men who own the mega teams, even the major teams, with the exception of possible exception of SHR, are very successful businessmen. Its hard to believe that they would remain in the business if the teams weren’t profitable.
Regardless it appears that a major upheaval is on the horizon. The question is what will it be.

Bill B

I am sure it is profitable for those established mega-teams. They have economies of scale, have had success recently enough to recoup costs with purse money, and have built their shops and accumulated equipment over the 20 year period (late 80s to early 2000s) where sponsors were throwing money into the sport hand over fist, ratings were growing and tracks were being added.

For the start up teams or teams that haven’t had much success lately or didn’t enjoy the fat times of the 1990s and early 2000s…. not so much.

Russ

It goes beyond that. They have their fingers in many other facets of the business as well. And the most successful have been able to integrate the racing side of their organizations into their mainstream businesses.

Bill B

That is true for sure but most of the owners already have money and other established businesses as well. The old saying,,, “if you want to make a small fortune in racing you need to start off with a large fortune” has always been true. All I am saying is that it was much easier to enter the sport prior to 2000 then it is now. Only having a handful of open positions for each race is a major barrier of entry.

Russ

We agree on it being easier in the old days. But I suppose you can say that about any form of professional motorsports. And IMHO that the charters, as well as the top 35 before it, is as much about keeping others out as anything else. It almost forces anyone who wants to be involved to invest their money in a charter team rather than start a new team.
As to creating value for existing teams if they leave, I don’t believe it. The only value will be if somebody wants to buy it, and what they are willing to pay for it.

The Mad Man

When asked about going back to actual stock cars, the head honchos and certain people allegedly in the know say it can’t be done and yet in several racing series (One owned by NA$CAR) they run actual Mustangs, Camaros, and Challengers. So what’s the real reason for not running actual stock? As usual with anything involving the France family, it’s the bottom line.

The car kit is $250,000. The certification fee is $22.500 per car. Recertification (caused by wreck repairs) is $2,500 per car. So multiply that by 40 teams (just using 40 as an example since the field may involve 40 cars then times 6 {2 plate cars, 2 short-track cars, 2 cookie-cutter cars). Plus wind tunnel and 4 or 7 post shaker time. That’s a pretty good chunk of change to the Average Joe. Then there’s the sole-source suppliers who provide some sort of kickback to the head honchos. The best parts suppliers aren’t necessarily being used for the kit cars. Then there’s the “exclusivity clause” which eliminates competition for various companies who manufacturer various car parts, fuel, and other race-related items. Not to mention eliminating a multitude of potential sponsors for the teams. So look no further than the almighty dollar and the France family bank accounts as to why they don’t race actual stock cars.

As a former champion once said, “It’s never been about racing with the Frances. It’s always been about the money”.

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