Timing is Everything
By Bob Pockrass
When Michael Jordan agreed to partner with Denny Hamlin in creating a new NASCAR race team a couple of months ago, Hamlin saw it as a signal that entering the fickle world of NASCAR team ownership was a move worth making.
“What really made me feel good about it probably was Michael’s team spent weeks working on it behind the scenes, looking at the business model, seeing where NASCAR is currently, where they feel like it’s going in the future, and they’ve deemed it a viable model for them,” Hamlin said.
The 23XI Racing team co-owned by Hamlin and Jordan is one of three new Cup teams getting ready to debut next season. All three have current or former drivers among the ownership groups. Former driver Justin Marks will debut the Trackhouse Racing Team and former driver Matt Tifft has partnered with current driver B.J. McLeod to form Live Fast Motorsports.
“You don’t see [Jordan] diving into many other businesses,” Hamlin said. “He’s very, very stringent when it comes to that because the name and brand is so important.
“Their word to me was, ‘We can’t go into business and go out two years later.’”
They all felt this was the right time to get in as the Next Gen car, scheduled to debut in 2022, should not require the engineering depth of the current car because teams will buy most of the parts and pieces from vendors. That, theoretically, should tighten the competition and should lessen the importance (and likely the price) of having an alliance with one of the elite organizations.
“The barriers of entry to the NASCAR sport over the past decade, decade-and-a-half, has just been insurmountable for somebody like me, who can’t come in and spend $50 million and scale up all this tech,” Marks said.
“When NASCAR announced it was going to this new car, a huge light went off in my head and saw it was a tremendous opportunity.”
The new car in 2022 will take a significant initial outlay of several million dollars, as teams have to buy all new parts and pieces, and put the cars together, but these new owners felt this was still the right time to get in, despite having one year of the current car.
“This thing came together so quickly,” said Hamlin, who had been discussing the idea of team ownership with Toyota Racing Development President David Wilson. “It is at least two-three years quicker than the timeline me and David were talking about.
“If you have someone like Michael who is as passionate as he is about the sport, you have to jump on that opportunity right away.”
Jordan, speaking shortly after the purchase announcement in September, indicated the deal came together so quickly that he didn’t know all the potential financial pitfalls nor financial potential. As a NASCAR fan who has Hamlin as a Jordan brand athlete, he wanted to get involved in the sport.
“We’re taking a risk not knowing the whole landscape of things,” Jordan said. “My passion is driving me more than the numbers.”
All three teams have made initial investments to obtain access to cars as well as charters – NASCAR’s version of a franchise that guarantees base revenue for competing each week as well as an additional amount of revenue based on the performance of the chartered car the previous three years.
A non-charter team has been getting about $18,000-$20,000 if it qualified for a race (about $650,000-$700,000 a year) and then purse money, which likely would be between $750,000-$2 million a year, depending on performance as the non-charter teams typically consistently run in the back half of the field. In 2021, non-charter teams are not getting any money for qualifying for a race — that money will be added to the purse, making performance (especially in the Daytona 500, which pays more than five times the purse of other races) even more critical.
A Cup team likely can guarantee at least $4-5 million regardless of performance over the last three years, and the best teams can count on another $1-3 million depending on performance during the season.
Charters of small teams (whose three-year performance guarantees are minimal) had been selling for $2-3 million prior to this season, according to publicly available documents. Industry sources indicated that those prices have increased dramatically, as there have been several bidders for the charters available this year.
Charters are allowed to be leased for one year over the next four seasons.
“You have to get the correct marketing partners to be able to ever dream of getting into that top-20 bracket,” McLeod said. “With that being said, the first way to speed that up is to own a charter, so that was [our goal].
“Honestly, it’s been over a year we’ve been dreaming of making this happen and really working on it, and the opportunity presented itself. We were going to do it either way. As soon as the opportunity popped up, we were going for this, so it may have been two months ago like it was or it may have been four years from now.”
Marks said the operations of a team with the new car is close to what he thinks he can bring in with sponsorship and the annual charter revenue.
“All you want is the cost to compete in line with the value proposition of sponsors,” Marks aid. “We’re not going to self-fund things in perpetuity.”
Marks is frustrated that he got outbid to purchase a charter, as Trackhouse will lease a charter from Spire Motorsports (which bought a charter from Leavine Family Racing). Hamlin purchased the charter from Germain Racing. Live Fast bought the assets of Go Fas Racing, which included a piece of the charter owned by Joe Falk and facilitated a partnership between Falk and Live Fast.
“From what we’ve looked at business plan-wise, with what we’re able to do marketing and what we’re able to do with winnings and the structure of the new car, which there’s still some questions, ... we have no problem feeling like we can sustain this team for several years,” McLeod said.
Each of the new owners felt this was the right time to get in and start a foundation for their teams so it doesn’t have growing pains along with the introduction of the new car.
“We built a structure of how to come into this sport while being very intelligent with our allocation of capital, very intelligent with our growth plans, even though the new car was delayed,” Marks said.
“There is still an opportunity to go racing in ’21, in a way that we could be competitive and start laying the groundwork for that new car.”
Why didn’t those with charters just stay for one more year? Leavine and Germain sold as they felt their losses in 2021 would be significant when looking at their potential sponsorship. The pandemic impacted all of their abilities to land sponsorship, opening up the door to those who had some money to invest.
All of the new organizations will have alliances. 23XI will get its cars from Joe Gibbs Racing, Trackhouse will be embedded in Richard Childress Racing in having its cars built, and Live Fast has 12 cars that it has gotten from Stewart-Haas Racing (including some that would have been at Go Fas).
Hamlin’s team is likely positioned best for quick success, as it has strong support from Toyota and already is looking to expand to at least two cars in 2022.
“Every piece has got to be right,” Hamlin said. “You have to have fantastic drivers, you have to have great crew chiefs ...It is tough to win.
Hamlin said he envisions himself, after retiring from driving, working at the shop, meeting with potential sponsors and talking with employees. He believes he can do it and not go broke.
“There are no guarantees in this. But all you can do is make sure that you put the best product you have available and the best people you can hire under your roof and that’s what we’re going to try to do.”
Tifft, a 24-year-old whose racing career has been sidelined because of seizures, sees this as a way for him to remain involved in the sport. McLeod has owned an Xfinity team for several years and started a part-time Cup team in 2020. They both expect to grow slowly.
“As long as NASCAR is around, we’re trying to be around,” Tifft said.
Stat of Note
Next July, Knoxville Raceway will become the third dirt track to play host to a NASCAR Camping World Truck Series event after Eldora Speedway (2013-19) and Bristol Motor Speedway (March 2021).
They Said It
“I’m very thankful for where I am and, yeah, I might not be 'Matt the race car driver' right now, but to be in a place where health-wise I can be running a NASCAR team alongside B.J. here, I’d say everything is all right.” – Matt Tifft