Alex Meshkin

The Associated Press (AP) has reported Brian France, CEO of NASCAR, has directed his management to work with teams in developing new business models that can help them withstand the current economic crisis. As we are all aware, NASCAR teams rely on corporate sponsorship to fund the majority of their operating budgets, which is substantially different than any other major sport. Whereas, NFL, NBA, NHL and MLB teams participate in higher levels of revenue sharing as a result of a franchise business model.

“We’re trying to do more with less. That’s the difficult part of this economy,” France said following his state-of-the-sport address to media at NASCAR’s Research and Development Center. Just back in December, NASCAR issued a statement stating that NASCAR heading into 2009 was “strong”.

This outlook is a rather quick reversal, but perhaps the gravity of the current economic climate and mass sponsor deflections is making an impact.

Doing more with less? Working with teams to develop new business models? I apologize, but in my humble opinion, it’s a little too late for a half-baked plan. But even worse and what is frustrating is NASCAR’s continued unwillingness to restructure the distribution of television revenues to rightly supplement teams’ operating budgets.

What NASCAR needs is a business model which more closely replicates Formula 1 or a franchise structure like every other major sport. As a fervent advocate for team rights, I have repeatedly voiced the need to develop a franchise model that would enable teams to weather macroeconomic difficulties; and subsequently, become less cyclical and more stable during recessions and economic turmoil. The time for leadership, sacrifice and decisive action on behalf of the France Family is NOW. But to the contrary, the Brian France plan is nothing more than reinforcing their past strategies of working with teams to help locate and secure sponsors. While his intentions may be honorable; they are nevertheless naïve when considering there is a global economic recession; and specifically, when the NASCAR industry is in a depression of historic proportions. At this moment, I don’t believe there is a single corporation that is considering spending $15-$30 million required to fund a primary sponsorship program for a NASCAR Sprint Cup team. So I am rather befuddled with Brian France’s simplistic strategy to save the sport, which unfortunately in its current form will contribute to the sport’s certain collapse.

Is it possible that the past success of NASCAR is blinding Brian France from seeing the light? Reflecting back to 60 years ago to the earlier days of NASCAR, Bill France Sr. (Brian France’s grandfather) executed a flawless business plan to convince the then stock car racers and event promoters to become part of his newly formed organization and sanctioning body (NASCAR), whereby he gained complete control over stock car racing. The foundation of NASCAR’s “business model” problems ironically stem from the grand success of Bill Sr. and his unilateral control of a racing empire, including control over the majority of racing venues (International Speedway Corp) and the stock car sanctioning body. Over the past half-century, teams competing in NASCAR relied almost exclusively on corporate sponsors to fund their operations – enabling the France Family to retain a majority of the sports revenues and amass a large network of racing venues, and establishing NASCAR Holdings, an incredibly profitable wholly owned private company.

Those times have dramatically changed and for too long, NASCAR teams have tolerated the exploitation and willingly bore the total burden to exclusively fund their operations through advertising and sponsorship. The rapid increases in costs of racing and teams’ operating expenses of the past 5 years, combined with the minimal increase in sponsorship value – have brought the teams’ very existence into question.

One must wonder, how long can the France Family continue their racing monopoly? Historically, race teams have avoided conflict with the France Family; and the only entities to challenge the France Family’s monopoly have been race track owners, such as Burton Smith and Speedway Motorsports. Even through the France Family has weathered many possible anti-trust challenges with settling most disputes outside the judicial system; I believe the current financial crisis and advertising recession is about to test the resolve of the France Family and their prehistoric business model.

In a stark contrast to the past decade, NASCAR is falsely promoting an image of growth and strength by stating that 15 new organizations have applied for licensing to compete in the Sprint Cup Series. What they fail to mention and what many novices are unaware – almost all of those “new” teams are merely opportunistic racers attempting to profit by a method called: “start and park”, which allows them to collect sizable race winnings (in comparison to their expenses) with a team and car specifically built to just run one or two laps, enabling them to collect profits – all without adding ANY value to the sport. What a sad day it is for the diehard NASCAR fan.

As many of you know, I was the founder of Bang Racing which was NASCAR’s most successful first year team in history. At the young age of 23, I built and operated this highly successful team and we made history finishing 2nd in our first race (Daytona) and winning our 13th race (Michigan International Speedway), which was the first win for Toyota in NASCAR history. While all this is now historical facts found in the archives of NASCAR history, what is typically not understood is that even as a very competitive team, our business model was fundamentally flawed because generating a profit was nearly impossible. Simply put; the cost of running a NASCAR team far exceeds its sponsorship/advertising revenue potential and without significant “business model” changes by the France Family, teams are doomed for failure.

NASCAR must be the only sport where the most profitable teams are the biggest losers’ and where finishing dead-last or not even attempting to win makes more money than being a top competitor. Something is dreadfully wrong when the most competitive teams with great on track performance cannot survive because the costs of running their teams far exceed their revenue potential. The problem is clear: without teams receiving a larger share of the sports’ multi-billion dollar television contracts – there will be no strategy that can make viable a long-term solution for the sport – that is the simple reality.

However, being the “optimist”, I hope Brian France and will realize quickly that his family has the unilateral ability to deliver the change in business model the teams and sport require to survive.

On Sunday Morning, Bruton Smith conducted an interview with ESPN. After questioned about the challenging times that is facing NASCAR; Smith reaffirmed his desire to acquire NASCAR and said, “And it’s getting closer”, referring to the possibility of the France Family looking to sell NASCAR. Is Smith just stirring the pot? Or perhaps, is the France Family finally considering ending their strangle-hold on the sport?
Hypothetically, let us assume Smith’s statements are backed by an element of fact and that the France Family is looking to sell NASCAR. It is my opinion that a change in ownership from the France Family to Smith would not bring about the change needed to put NASCAR back on the track for growth. As discussed in my most recent blog entry, The Failing NASCAR Economy: A Time for Action! - NASCAR must act to bring forth changes to support its lifeblood – the race teams. A Smith regime would only continue the same old policies of providing the race tracks a disproportionate share of the television revenues as compared to the racing teams. These policies need to change – NASCAR Sprint Cup Teams must receive a greater portion of the television revenues earned by the sport – because without Teams there is no NASCAR. Yes, tracks are valuable, but as Formula 1 has proven, track owners and promoters are willing to host events without large subsidies from the governing body.
The best avenue to save our sport and put it back on track, allowing it to grow into the next decade, is for an entrepreneurial executive; who understands the sport, new media and the market trends to lead a leveraged buyout – partially funded by a team franchise model – where 43 Sprint Cup Teams would receive a minority ownership and participate in profit sharing to ensure the stability of the premiere NASCAR series – the Sprint Cup.
The impending fluctuations expected in the number of competitors in the second most watched sport in country – the Sprint Cup Series, is completely unacceptable. A new ownership structure must include policies and an agreement to secure the future of the Sprint Cup Series by enabling Team Owners to purchase Franchises and receive votes in the future of the sport that they have all built. This new structure would eliminate the sanctioning body from competing with teams for sponsors and create a more healthy sport to ensure its long term future.
2008 has been the year of “change” – Americans want “change”, NASCAR Fans want “change”, NASCAR Teams want “change”. If the France Family provides the opportunity for “change” in the leadership of NASCAR – let us all hope that it is the “right change” that comes to Daytona Beach.

Most will agree that the current economic recession will have a significant financial impact on NASCAR teams and the sport as a whole – but does it really need to be this way? In 2009, there will be significantly less Sprint Cup teams competing on a weekly basis – and yet, in economic downturns other sports such as the NFL or NBA do not have reductions in teams. Why is this so?  The answer is rather simple – other sports operate as a democracy with all teams participating in the economic benefits of the television contracts; while NASCAR on the other hand, is structured much closer to a dictatorship – with the profits being retained by NASCAR Corporate which is owned solely by the France Family.
Let’s examine the recent history and evolution of NASCAR: during the global economic expansion following the tragic events of 2001 – 9/11 & the death of Dale Earnhardt Sr., NASCAR experienced unprecedented interest from corporate sponsors; and growth was fueled by new television contracts with Fox and NBC. Because of NASCAR’s unique business model, which is vastly different than other sports, the industry flourished from 2003 until recently, gathering new teams, with investors and manufacturers flocking to the industry.
As a point of reference, NASCAR is the ONLY major US sport without a franchise model including profit sharing agreements. NASCAR Teams operate in a free market where teams must survive without much financial assistance from NASCAR Corporate; and where new teams can easily compete if they have the financial backing. I was a personal beneficiary of this policy – and at 23 years of age secured an agreement to led Toyota Motorsports into the NASCAR Craftsman Truck Series and went on to build  their competitive platform for their NASCAR operation.
I am very fortunate to have realized my lifelong dream of owning and operating a top tier NASCAR team; and even more rewarding to have brought Toyota Motor Sales their first two NASCAR victories. However, this so-called free market is a complete farce! The teams must secure over 90% of their operating budgets from corporate sponsors – a/k/a advertisers. What is more infuriating, and what is not common knowledge, is that NASCAR and its sister company ISC retain the vast majority of the sport’s healthy television contract revenues, and even compete against the teams  for corporate sponsors -  the  lifeblood of the race teams.  As many know, AT&T was forced to leave Richard Childress Racing (RCR) as a primary sponsor because NASCAR Corporate signed an agreement with Nextel (now Sprint) with an exclusivity provision precluding other wireless and telecommunication companies from sponsoring any racing team. So with teams on the verge of a depression – and with automotive manufactures and corporate sponsors reducing their involvement – NASCAR is busy lining their pockets at the expense of the teams.
The most fundamental precept is that without teams – there is no NASCAR; but somehow teams have failed to act on this most basic concept to leverage their position within the sport. Maybe in the past the very wealthy owners such as Rick Hendrick, Jack Roush and Roger Penske were complacent and satisfied with receiving a nominal share in the television revenues; but in today’s economic climate and the ultra competitive advertising marketplace – teams who want to keep standing on their feet, need to act now and demand a fairer share in revenues – not for personal profit; but simply to survive.
The management of NASCAR has a real opportunity to bring forth a “rescue plan” to save teams from closing their doors and fracturing the appeal of NASCAR; which could have irreversible effects on future television contracts and ultimately the profits of the France Family. The beauty of the NASCAR “dictatorship” is that they don’t need to hold a vote or seek the opinions of others; instead, they can just swiftly act to provide an increase in the teams’ alterative revenues, which would enable teams to offer sponsors a lower cost of entry to advertise in NASCAR.
You can’t expect any company to spend $20M to sponsor a NASCAR Team – the ROI isn’t remotely competitive. NASCAR needs to think long term and be willing to sacrifice some of their short term earnings for long term stability and growth in the NASCAR economy.

In my posting NASCAR Sponsorship 2.0, I previously discussed how teams have a real opportunity to leverage their “content” through digital channels creating supplemental advertising revenue to offset their losses in traditional on-the-car sponsorship. Some may ask, is there really an opportunity in digital advertising for NASCAR teams? A recent report from eMarketer, projects online advertising for sports sites will double from 2008 to 2012 – to $2 billion.

The sports site online advertising market is mostly untapped by NASCAR and remains a huge opportunity for race teams to tap into and ensure their continued viability in these difficult economic times.
While the most dedicated NASCAR fans are not your typical early adopters of online services; there still remains a tremendous opportunity to harness the power of the loyal demographic who embraces the internet as a regular source of news and entertainment. According to Quantcast, NASCAR.com generates approximately 3.7 M monthly unique users and peaks at over 6.5 M during the beginning of the season. So while the audience may be limited in numbers, the unmatched advertiser loyalty provides a desirable market opportunity to distribute content directly to fans through digital channels for racing teams such as Hendrick Motorsports, Roush Fenway and Joe Gibbs Racing. Unlike the franchised sports teams of the NFL, NBA, NHL and MLB; NASCAR Teams have complete autonomy of their online presence and content. This provides a significant value proposition where teams can leverage their content through a variety of online business models to create interaction with fans and ultimately new sources of advertising revenue. This would likely result in considerable exposure for their existing sponsors; and consequently create a new advertising inventory that would be measurable and provide a clear Return on Investment (ROI).
As a former NASCAR Team Owner, Sports Marketer and Digital Media Entrepreneur; I have succeeded in bringing new sponsors such as eBay and Toyota into NASCAR, and leveraged online advertising to unlock revenue sources from digital channels that created a history making NASCAR racing team. The potential has never been greater and the most successful teams have the largest market opportunity to generate significant value that can be monetized in the digital economy.