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Automakers Apply Brakes to NASCAR

By Liz Clarke
Washington Post Staff Writer
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.

Today, Hendrick Motorsports, which appears en route to its eighth championship this season, boasts more than 500 employees and a racing compound that could double as headquarters for NASA.

"The first year when I went to [work at] Hendrick, I was getting accused of not spending enough money!" recalled Robbie Loomis, a former crew chief for four-time champion Jeff Gordon who now manages Petty Enterprises' two-car team. "This is the toughest economic times we've ever experienced."

But the cutbacks by Detroit's Big Three -- General Motors, Ford and Chrysler -- have struck at stock-car racing's heart.

Automakers fund NASCAR on several levels: making direct payments to flagship teams; providing technical expertise; setting up elaborate sales displays on racetrack grounds; buying title sponsorships of races; and equipping tracks with fleets of vehicles.

GM's annual investment alone was rumored to be $120 million-$140 million at the peak of its involvement in NASCAR. But it severed sponsorships with Bristol Motor Speedway and New Hampshire Motor Speedway this summer, and deeper cuts are promised as part of GM's $10 billion cost-savings program.

Ford officials announced yesterday that while they were extending their contract with Roush Fenway Racing -- its most decorated team in the elite Sprint Cup ranks -- they were also ending all direct financial support to teams in NASCAR's Nationwide and Truck series, considered developmental leagues. Dodge took a similar step in pulling out of the truck series, which also is losing Sears's Craftsman brand as its title sponsor at season's end.

NASCAR spokesman Ramsey Poston concedes that the sport is feeling the effects of the slowing economy, with unsold tickets, sponsor-less teams and slipping TV ratings. But relative to other sports, he said, NASCAR remains the most compelling vehicle for reaching consumers.

"We're still averaging 120,000 fans per Sprint Cup event, we remain the number two sport on television, and 17 of the 20 highest-attended sporting events are NASCAR events," Poston said. "All of those fundamentals continue to be strong."

But even optimists in the garage project lean times ahead.

Said J.D. Gibbs, president of Joe Gibbs Racing: "We're no different than any other business: Everyone is going to have to be real careful in the next few years."

Gibbs Racing is fortunate in that all three of its primary sponsors -- Home Depot, FedEx and M&M/Mars -- are signed through 2009. But plans to add a fourth race team are on hold until economic conditions improve.

The cost of sponsoring a front-running NASCAR Sprint Cup team is $20 million to $25 million a year. And belt-tightening alone can't compensate if a team loses a sponsor that accounts for $15 million to $20 million of that.

Automakers originally involved themselves with stock-car racing to experiment with new technology and incorporate those findings into the design of production cars. Today, NASCAR is essentially a marketing tool -- a platform for Ford, Chevy, Dodge and Toyota to show off their range of models to an enthusiastic, automotively inclined crowd.

A study by J.D. Power found that 56 percent of Ford owners classify themselves as race fans. The connection is even stronger among owners of Ford's F-series pickups, with 65 percent identifying themselves as NASCAR fans.

The argument is similar for the roughly 100 Fortune 500 companies that have sponsored NASCAR cars. Whether selling consumer goods or services, corporate America has been eager to tap into NASCAR's uncommonly brand-loyal fans.

But if corporations simply don't have the money, their marketing investment in NASCAR is likely to drop.

"With the global economic situation, I expect corporate America, when their contracts come up, not to renew at quite as strong a rate. The money just isn't on the table," DeLorenzo said. "NASCAR is really a glass-half-full bunch, but they're having trouble masking the fact that this is really affecting them. I think they never really believed a day would come when Detroit's almost-blind embracing of NASCAR would even wane."

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