Economic Dependency

NASCAR Sprint Cup teams at Daytona Int'l Speedway this season. (HHP/Brian Lawdermilk Photo)

Corporate Dollars Have Become NASCAR Teams’ Lifeblood

Editor’s Note: This story was published Aug. 25, 2010.

NASCAR Sprint Cup teams at Daytona Int'l Speedway this season. (HHP/Brian Lawdermilk Photo)

For several decades auto-racing sponsorship involved little more than a local merchant, usually a neighborhood garage, giving the guy down the street a case of oil, a free tire or a few bucks to paint the name of the merchant’s business on the hood or quarter panel of his race car.

But those days have disappeared into the history books along with board tracks, roadsters at Indianapolis and knobby tires.

Today, sponsorship is the lifeblood of auto racing and it has evolved to the point that many teams — especially those in the upper levels of NASCAR — cannot survive without it.

While it’s an issue that dates back more than 25 years, the current economic struggles have increased conversations about how NASCAR’s top teams can reduce their dependency on sponsorship. In fact, it was among the topics of discussion when stock-car racing’s premier owners gathered recently in Concord, N.C.

But how did racing get to the point that legendary teams like Petty Enterprises, Yates Racing and Dale Earnhardt, Inc. were forced to either merge or go out of business when sponsorship dried up?

“It really started during the mid-1970s,” said Mark Yost, a former National Speed Sport News staff member and current Wall Street Journal writer who authored the book “The 200 MPH Billboard: The Inside Story of How Big Money Changed NASCAR.”

“Initially, even though they had prize money and champions, NASCAR was really — for the lack of a better term — a hobby sport,” Yost explained. “The car owners did most of the work themselves and they earned enough money through the purses to pay a lot of their bills. Plus a lot of them had regular jobs during the week.

“But as the sport became more professional, more of a full-time deal, you started to see full-time sponsors — and they were national sponsors.

“The marketing and sales people at these companies realized they had a captive audience that was very rabid about their driver, and very rabid about the products their driver used,” Yost added. “Initially, they were automotive products, but eventually it started to morph into consumer products.”

After the arrival of R.J. Reynolds as the title sponsor of the NASCAR Winston Cup Series in 1972, NASCAR’s marketing machine roared to life and it was running at full song by the mid-1990s as corporate dollars flowed into the sport faster than gasoline through a carburetor.

“The car owners became smart and realized these companies were spending a couple hundred-million dollars on national advertising and they were only getting $5 million of it,” Yost noted. “They realized that not only could they ask for more money, but with more money they could build more cars. That’s when you began to see these 20-car stables.”

As the popularity of NASCAR racing exploded, so did the cost. Alan Kulwicki won the 1992 NASCAR championship on a budget of less than $2 million, but only eight years later teams were spending more than five times that — and sponsors were willing and eager to pay the bills.

“I’m not saying we did anything wrong, because everybody wanted to win,” said Don Hawk, who worked alongside Kulwicki and then Dale Earnhardt and now serves as vice president of business development for Speedway Motorsports, Inc. “In that middle-1990s period, everyone had to decide how to beat (Jeff) Gordon and Earnhardt and the price of poker started to rise.

“So if it was Vegas, for a while you were sitting at a $50 minimum table. Then, all of a sudden — and it wasn’t economically driven, it was driven by everybody wanting to win races — we drove ourselves to the $100 table and eventually the $1,000 table.

“When it reached the 16, 18, 20 million-dollar numbers we started hearing, the thought process turned to where do we stop this thing?

“But part of it is the story of the goose and the golden egg. Whether it was on the track or off the track, as a sport we took advantage and got a little greedy because money was just flowing,” Hawk continued. “It was so easy. We were selling tickets at speedways. We were getting big numbers from sponsors. The drivers were getting big endorsements. They were getting big personal services contracts with the manufacturers.

“The whole thing got so big that we forgot about the goose and the golden egg,” Hawk added. “If you ever kill the goose that’s laying the golden eggs, you don’t get any more eggs — and that’s what tightened everything up. We let some of it get out of control.”

Today, the number of companies able to afford a NASCAR marketing program has grown smaller and the flow of money into the sport has been reduced.

“For the number of eyeballs you get, NASCAR is still a relative bargain,” Yost said. “But, in this economy, sales and marketing managers are having a hard time justifying spending $30 million on a program that outside its fan base is pretty invisible and requires a lot of commitment in other areas — hospitality, entertainment and all of that.”

So can NASCAR’s top teams truly reduce their dependency on corporate sponsorship?

“At some point every sound business in America has to figure out how to maximize revenue, which means they are going to have to cut expenses,” Hawk said. “I wouldn’t be surprised if NASCAR and the owners get together and talk about how this tire lease works. Start looking at the things we used to look at 10 years ago and say, ‘Man, maybe that made more sense, let’s go back to that.’

“At some point a car owner might even be brave enough to say, ‘I don’t need a crew chief and a car chief. I used to do this with a crew chief and six mechanics.’ I think there is going to be a lot of introspection within the industry. We saw some of that about a year ago and we are going to see more of it because if these teams want to keep racing, they’ve got to tighten up.”