Big Three Automakers' Woes Affect NASCAR's Economy
Thursday, October 23, 2008
For decades, the success of NASCAR's brand of high-octane, fender-banging stock-car racing has been intertwined with the fortunes of the U.S. automotive industry. NASCAR victories represented a nod to Detroit's ingenuity. And showroom sales, in turn, were credited to the exploits on race day. As the marketing adage went: "What wins on Sunday, sells on Monday!"
But with the Big Three U.S. automakers struggling to survive, they have begun to dramatically scale back their financial involvement in NASCAR, threatening the economic model that has driven the sport's popularity. Other corporate sponsors that helped transform stock-car racing from a workingman's pastime into the country's dominant form of auto racing also are scaling back their investment as a result of the sagging economy. Some companies may not renew their commitments -- many of which run more than $10 million -- when current contracts expire.
"The U.S. enjoyed a pretty robust economy that enabled the sport to grow, but that has changed significantly in the last six months," said Terry Dolan, manager of Chevy Racing. "And it's probably going to drastically affect what the sport may look like 12 months from now."
Sports of all stripes are feeling the brunt of the global economic crisis. With season-ticket renewals lagging in the National Basketball Association, Commissioner David Stern has announced cuts in staffing at league offices. The National Football League is revisiting its labor agreement with players as a potential way of paring expenses. The Washington Nationals still haven't found a buyer for naming rights to their new baseball stadium, while Philadelphia's NBA arena is bracing for another name change now that its rights holder, Wachovia Bank, has been gobbled up by Wells Fargo.
Individual and Olympic sports, which rely on corporate money more heavily, are feeling the squeeze as well. The U.S. Olympic Committee lost its $1 billion sponsorship from General Motors following the Beijing Games. In January, golf's hallowed Masters tournament lost its sponsorship from Cadillac. And insurance giant AIG, which averted collapse only after the federal government bought 80 percent of the company, is bowing out of its long-standing sponsorship of the U.S. Davis Cup tennis team, the Associated Press reported last week.
But NASCAR is expected to get hit harder than traditional stick-and-ball sports because of its overwhelming dependence on corporate dollars. The 43 cars that start every race are essentially 200-mph billboards, advertising Miller beer, M&Ms, Office Depot -- virtually every product in the basket of American consumer goods -- not to mention the U.S. Army and, as of last Sunday, the Federal Communications Commission, which is using the No. 38 Ford to publicize next year's conversion to digital broadcasting.
Corporate sponsors account for roughly 80 percent of the typical NASCAR team's budget -- roughly four times the percentage of an NFL team, which gets the majority of its revenue from the league's lucrative TV contracts and ticket sales.
But just four months before the 2009 season-opening Daytona 500, two of NASCAR's most revered teams, Petty Enterprises and Dale Earnhardt Inc., are searching for sponsors to bankroll four of the six racecars they intend to field between them.
To stay marginally competitive, seven-time NASCAR champion Richard Petty sold a controlling interest in his family's race team to an investment firm, Boston Ventures, earlier this year. Three other NASCAR teams have raised capital in the same manner. Now Petty Enterprises is entertaining three proposals to merge with a rival team -- among them, the one founded by the late Dale Earnhardt -- to remain viable.
"Nothing could stay as hot as NASCAR was," said Peter DeLorenzo, a former automotive advertising executive and editor of the Autoextremist.com blog. "It had to have some sort of a correction."
No sport came from more humble roots than NASCAR, which sprang from Southern dirt tracks, where moonshine runners faced off to prove whose souped-up Buick or Chevy was faster. Once the wild sport developed a following, automakers started funneling money to the front-running cars and touting their victories in newspaper ads to lure fans to their dealerships.
NASCAR teams were still fairly modest operations as recently as 1992, when Alan Kulwicki drove a Ford Thunderbird to the Winston Cup championship with a team of 19 people, including the secretary.