Happy days are here again for the business of NASCAR.
Well, maybe.
As America slowly pulls itself out of deep recession, the business side of NASCAR is doing pretty much the same.
While things are looking up, NASCAR’s team owners and business development managers are not yet saying the business of racing is back to a pre-recession level. But signs point to light at the end of the tunnel.
When the national economy came to a screeching halt in fall 2008, so did the business side of NASCAR. Literally overnight, major corporate sponsors that only a year or two earlier were standing in line for the opportunity to put their names on the side of a stock car were calling race teams asking if they could drop their sponsorship obligations. And it wasn’t just one or two races they were talking about. Some were talking about pulling out of up to a third of their commitment of 38 races.
Some sponsors pulled the plug altogether. It got pretty ugly for a while.
By the start of the 2009 season, NASCAR’s team owners and business development executives had come to the stark realization the sport that had been living “the good life” for nearly a decade had run full speed into a wall – one that didn’t have a SAFER barrier.
And it hurt.
As a blizzard of pink slips fell across the North Carolina motorsports corridor that is home to the majority of NASCAR’s race teams, business development managers found themselves struggling to retain the financial support of corporate partners who themselves were scrambling to stay afloat.
In a financial downturn, and especially one that includes major layoffs, a company’s marketing budget often becomes the first item to be heavily scrutinized. A $20 million NASCAR budget is definitely going to be among the first to be picked apart.
But that was then and this is now.
With the sport’s major organizations (Hendrick Motorsports, Roush Fenway Racing, RCR, Penske and Joe Gibbs Racing) operating with annual budgets of $75 million to $100 million, sponsor partnerships have taken on a critical role in the way these teams do business. And despite some difficulties over the past 18 months adapting to the new rules of the game, organizations such as these are moving ahead.
Recent media coverage about the lack of major sponsorship for two of the sport’s biggest names, Tony Stewart and Jeff Gordon, has raised speculation about the sport’s health. Nothing could be further from the truth.
Sources say Stewart has a deal pending, and observers agree the close relationship between DuPont and Gordon may have initially slowed response to his sponsorship search.
As the marketplace thaws out, transactions are taking place – albeit at a slower level. And new names have entered the sport this year, sponsors like Tire Monkey, Panasonic and eBay Motorsports, just to name a few.
Although national unemployment figures are still near double digits, corporate America is looking to spend its marketing dollars once again.
“It’s still very difficult for corporate America to sponsor anything, yet alone NASCAR,” said Andrew Campagnone, vice president of motorsports with Wunderman, one of the sport’s largest marketing agencies. “But I think we’re starting to get a little bit more traction from companies wanting to take a look at our sport because they see the value.”
A consensus of leading corporate marketing executives says NASCAR is still an excellent opportunity for their brands to increase market share. But since the recession, the way business is conducted has changed dramatically.
The new landscape of NASCAR sponsorship is one of smaller dollar amounts, increased scrutiny by current and potential corporate partners and more involvement by the team in activating the sponsorship.
A decade ago, the cost of primary sponsorship of a Cup car with one of the sport’s major teams was approximately $350,000 per race. In the middle of the last decade, when interest in NASCAR was at a peak, that price skyrocketed to $750,000 to $1 million per race, depending on the driver involved. For the 2011 season, primary sponsorship has come back down to the $400,000-$500,000 per race range, a price business development managers and agency executives say is a corrected amount that better reflects the true value of the sport in today’s market. Programs targeting specific drivers can increase that figure.
Race teams that were slow to adapt to this new adjusted value in sponsorship dollars, thinking pricing would return to pre-recession levels, ended up losing potential new deals while, at the same time, putting a strain on some of their longstanding sponsor-team relationships.
As recently as a decade ago, NASCAR’s top teams could boast of having a long list of companies interested in shelling out big dollars to sponsor a race car. The process of engaging that sponsorship usually began with one or two people representing the interested company that would take a presentation from the team. They took that information to the company’s chief marketing officer, who in turn took it to the company’s chief executive officer, who had the power to approve a $20 million deal, and the sponsorship was essentially done. This all came with little to no regard on how the sponsorship was to be activated. NASCAR was a hot commodity, and everyone who was anyone was looking to get involved.
That was then.
Today’s sponsorship deal is much more of a partnership between the two entities, one that benefits both equally, even though one – the sponsoring company – is paying out money. And the process is far more lengthy and involved and can, in many cases, take a year or longer to complete.
More and more potential sponsor partners are looking for a detailed activation plan. Activation is the money a sponsor invests, in addition to the sponsorship rights fee, to enhance its presence and attendee experience at events. By going above and beyond the typical sponsorship, a company that activates successfully will gain more exposure and brand awareness.
“The sponsor game itself is about problem solving,” said Chris Marciani, business development manager at Michael Waltrip Racing. “You look at a corporation and you look at what their business is doing and you ask yourself as a developer, ‘How can I help this company solve its problems?’ if it has any, or ‘How can I help them be better and be more effective?’”
Sponsors want to have a strategy. They want to know what their return on investment will be and if they can attach a business-to-business situation to any opportunity. The appeal of a business-to-business component to a partnership is what is attracting today’s new sponsors to the sport.
Highlighting what a team can deliver outside of the racetrack has become a huge selling point for any sponsor-team partnership. It could be a business interest of the team’s owner, such as Roger Penske’s enormous car dealership and truck leasing interests – which fueled that team’s acquisition of Shell/Pennzoil as a sponsor in 2011 away from rival Richard Childress Racing. Or it could be a partnership with one of the team’s current sponsors. Being able to offer that business-to-business option to a current or potential new sponsor partner has become an invaluable asset.
“If we attach some of the business-to-business opportunities that some of these owners have, you’ll see a great deal of interest from new companies to come into this sport,” Wunderman’s Campagnone said. “I’m not saying you’ll see $20 million level. I’m saying $5 (million)-$8 million is a comfort level if they can get some type of increased value with a business opportunity.”
The renewal of interest in NASCAR brings with it a handful of questions.
Where are the sport’s 12- to 34-year-old fans? Why are there empty grandstand seats? And what is going on with the television ratings?
Everyone involved with the sport agrees NASCAR does a good job of promoting itself to the 25-to-54 demographic, both men and women. That group makes up the majority of its core fan base. However, there is an acknowledged disconnect between the sport and 12- to 24-year-olds.
“We as an industry have to do better to reach out to the younger generation,” Campagnone said. “Watching sports is very different for them. Their attention span doesn’t allow them to sit through a four-hour race. I think the interest can be there. I think we need to go out and touch them.”
Empty grandstand seats are being explained as being a result of the current economy and overbuilding by track owners. Sponsors are being told those seats will fill up again as the economy improves. Business development managers and agency executives are quick to point out NASCAR races still can boast huge crowds and are often the largest single-day sporting event crowd in any given region.
However, for one longtime NASCAR sponsor, empty seats means success.
Best Buy, which has been involved with NASCAR since 2003, sees smaller crowds and lower TV ratings as being cyclical and a likely a part of their successful relationship with the sport.
“When I see empty grandstands, I believe people are at home watching the race on their big-screen televisions, bought at Best Buy,” said Paul Zindrick, who represents the electronics retailer – the largest retailer of big-screen televisions in the country. “If they’re not at home, they’re probably following the race on their computers or social networking about the race using their Sprint phones purchased at Best Buy.”
The decline in ratings, especially during the Chase for the Sprint Cup, isn’t as big an issue as you might think. Those involved with the business side of the sport agree it is a temporary situation and see little concern coming from current or future sponsors.
“We’re still a major sport,” Michael Waltrip Racing’s Marciani said. “We still have a significant television rating and a significant crowd at our events that bring together a very loyal fan base. If you take a step back and put it into context with our competitors, we’re still one of the top options to reaching a significant amount of people.”
The good news is the product on the track is the best it’s ever been. The racing is competitive and fun to watch. The product hasn’t changed. Times have changed. The fans’ engagement with the sport has changed a little bit, meaning they’re forced into making tough decisions with their entertainment dollars and leisure time.
The reality of NASCAR is the competition isn’t just on the racetrack on the weekend. More often than not, the toughest challenge takes place in the offices of race teams, where a successful outcome is a winner for both corporate America and millions of fans across the country.
