Economic crisis leaves many NASCAR Cup teams seeking sponsorship

As the 2008 season comes to a close, only 30 NASCAR Sprint Cup teams have announced full sponsorship for 2009. Six other teams have at least partial sponsorship and 10 haven’t announced any significant sponsorship, leaving owners trying to merge or sell and leaving employees worried about their jobs.
   
Throughout the sport’s history, sponsor commitments have varied from year to year. But 2009 is shaping up as a year of dramatic decline after nearly five years of steady growth which, at one point, saw more fully sponsored cars than grid spots. In 2004, there were 36 fully sponsored teams. In 2006, there were 41 fully-sponsored teams, and in 2007, 44 fully sponsored teams competed to fill the 43 starting spots. Of the 43 current full-time teams, 39 had full sponsorship in 2008.
   
And with full sponsorships ranging from $15 million to $25 million, the loss of 14 sponsored cars represents a drop in corporate investment in the sport of $210 to $350 million since the peak in 2007.
   
Among the companies leaving the Sprint Cup Series is Texaco, whose parent company Chevron is sixth in the Fortune 500 world rankings. Also leaving is 29th-ranked AT&T, which is being forced out because of Sprint’s series entitlement. The American Automobile Association is leaving as well, though the regional affiliate is remaining for a handful of races. Officials with Chevron and AAA said their marketing efforts were becoming more regional-based, with their franchises controlling the marketing budgets.
   
The situation is unlikely to improve significantly.
   
“If you don’t have a sponsor by now, you’re not going to get one,” says Chip Ganassi Racing co-owner Felix Sabates, whose team still needs to fill half a season for Juan Pablo Montoya after Texaco opted to leave the sport. “Because of the way the economy is right now, no sponsor is going to put money out there.
   
“If you have Montoya or somebody like that, you can get a sponsor. But if you don’t have a name, you’re not going to get a sponsor. The problem we have is the economy. When the economy changes, which it is going to change eventually – it always does – it will be easier. But right now, it’s tough. Anybody that will tell you different is lying to you.”
   
The dire situation has led teams to talk about merging. Chip Ganassi Racing and Dale Earnhardt Inc. announced their merger Nov. 12. Bill Davis Racing, Hall of Fame Racing, Gillett Evernham Motorsports and Petty Enterprises all have been part of merger talks.
   
“I’ve never quite seen the garage like this,” says team owner Bill Davis, who admits his Cup team might not be back in 2009 if he cannot find a sponsor. “But then again, we’ve never had these huge budgets and these huge payrolls. Maybe this garage is going through an adjustment period, just like the business world does. It happens. When things get tight, you adjust and scale back. Unfortunately, that involves hard times for some people.”
   
With the possibility of mergers and only two additional full-time teams announced for next year, it is likely that the number of full-time teams could drop from its current number of 43. Teams could disappear like sponsorless Dario Franchitti’s Chip Ganassi Racing team that suspended operations this year.
   
DEI’s merger with Ganassi will cost the sport one full-time car as the No. 01 team (currently driven by Regan Smith) won’t compete in 2009 and it could be more if Yates Racing decides to remain a two-car operation with the addition of DEI’s Paul Menard.
   
“The fact of the matter is, we’re in a tough economy,” DEI President Max Siegel said in the weeks leading up to the DEI-Ganassi deal. “It’s a competitive sport. Most every owner in the garage every day is looking to fund the program and get healthier.”
   
Sabates doesn’t see any teams being able to ride it out in 2009 without a sponsor, but it’s likely some will try. Yates Racing has been able to piece together enough sponsorship to run two teams throughout 2008 without full-time primary sponsors. Could it compete in similar fashion in 2009?
   
“It depends on how big the pieces are,” says team co-owner Max Jones.
   
Those that do field teams might do it with a leaner crew and a leaner budget, especially given the fragile state of the car manufacturing industry and cuts in marketing budgets at Ford, General Motors, Dodge and Toyota. Garage sources said teams could run an additional car for $7 to $10 million instead of the $12 to $15 million that most teams ask for.
   
“If you had a race team today, wouldn’t you see that as a necessity, that you’d reduce your expenses?” says Bruton Smith, whose Speedway Motorsports Inc. owns several race tracks. “There are so many things that a team owner can do to reduce expenses....If you had looked at that some years ago and somebody said $12 million [to sponsor a car], somebody would have went out and shot them. This is stock-car racing. We’re not Formula One.”

The Fight For Sponsorship

The teams looking for sponsorship all have something in common – they’re not part of NASCAR’s 12-driver playoff, the Chase For The Sprint Cup.
   
The organizations in the Chase – Hendrick Motorsports, Richard Childress Racing, Joe Gibbs Racing and Roush Fenway Racing – have 16 cars among them fully sponsored for 2009. One of Hendrick’s cars, the No. 88 of Dale Earnhardt Jr., has split sponsorship with Amp and National Guard.
   
RCR acquired two sponsors from teams that weren’t in the Chase – Caterpillar from Bill Davis Racing and General Mills from Petty Enterprises. To supplement General Mills’ sponsorship, BB&T is moving from RCR’s Nationwide car to a 10-race primary sponsorship with driver Clint Bowyer.
   
Roush Fenway Racing did lose one sponsor – Office Depot – after signing Aflac, which reportedly paid $26 million to sponsor Carl Edwards and hopes to sell about a dozen races to other sponsors. Roush Fenway also picked up UPS from Michael Waltrip Racing to replace AAA.
   
Tony Stewart, whose new Stewart-Haas Racing is absorbing Haas CNC Racing, is splitting up sponsorship among his cars. Office Depot (from Roush Fenway) and Old Spice, which has increased its commitment after having sponsored Stewart at JGR for several years, will be on Stewart’s car. Stewart’s team has lured the U.S. Army from DEI for 22 races and hopes to add another company for driver Ryan Newman.
   
While the big teams and big names are signing sponsors, teams such as Waltrip, Ganassi, DEI, Yates Racing, Bill Davis Racing and Petty Enterprises are among those looking. MWR still needs to find a half-season sponsorship to go with Aaron’s for David Reutimann’s car, and team executive vice president Cal Wells is worried that the big teams and big names are taking all the money.
   
“It’s a tough environment,” Wells says. “It’s a land grab. You’ve got the very successful teams, and because of that, the sponsors gravitate and they’re taking [them].
   
“It’s ridiculous what’s happening there. It’s frankly a little unhealthy for the garage right now. People are reducing sponsorship into partial deals and this and that. There are good, high-quality athletes that are available for smaller deals. It hurts the infrastructure of the garage.”
   
DEI Vice President John Story has seen his team lose the Army to Stewart, but he said prior to the team’s merger that he doesn’t agree with Wells entirely.
   
“We still have our own responsibilities and things we have to work on,” Story said. “I don’t think that has any effect on us.”
   
Popular Cup drivers also lure sponsors to other series. Earnhardt Jr. landed Unilever as a 10-race sponsor for his Nationwide Series team, where Earnhardt Jr. will split driving duties with veteran Mark Martin and young Brad Keselowski.
   
Unilever, which has been with Tommy Baldwin Racing and Gillett Evernham Motorsports, ranks 122nd on Fortune’s list of the biggest companies in the world with products ranging from Ragu to Klondike bars.
   
How come they’re not in Cup?
   
“We’ve been in Nationwide for about five years, and it really has been getting us awesome results,” says Mark Shaw, Unilever director of integrated marketing. “Based on the numbers and the results that we’re getting, we feel like it’s the right place to be. … I don’t think there’s any reason for us to be changing the recipe.”
   
Shaw says that his NASCAR budget is bigger for 2009 than 2008 but wouldn’t go into specifics.
    
Torrey Galida, the chief marketing officer for Roush Fenway Racing, which also handles sponsorship searches for Yates, recently had a disappointing phone call from a company that would have been new to the sport.
   
“We started talking to them back in June and had a couple of meetings, and they sent us inquiries and we educated them on the sport,” Galida says. “They came back last week and said, ‘We’re out for 2009.’ They felt like they were going to go with what was proven for them, which was national advertising. In this environment, they weren’t going to take a risk in something they haven’t tried.”
   
NASCAR teams need to convince companies that the sport’s long-standing reputation of serving its sponsors is worth taking that risk, says David Carter, executive director of the University of Southern California Sports Business Institute.
   
“At times like this, marketers go back to what they know, and in doing so, they incur a whole lot less risk,” Carter says. “But they also might incur a lot less return. What I would say to that potential sponsor ... is when other people are standing down right now, you really have a chance to differentiate yourself in NASCAR.”
   
Tom Reddin, CEO of Gillett Evernham Motorsports, indicated his team has all three of its cars mostly sponsored for next season. He says teams must go beyond traditionally proven methods to give back to sponsors.
   
His team has the luxury of an owner in George Gillett who also owns car dealerships, the Montreal Canadiens and the Liverpool soccer team.
   
“It’s hard work,” Reddin says. “One of the things we’re focused on is walking the talk on B to B [business to business relationships among sponsors]. We try to hold ourselves and our partners accountable to what has actually been executed. It is hard work to make it happen, but when you make it happen, it’s a big win for everybody.”
   
NASCAR officials say they believe there will be at least $80 million in new or additional money coming in from sponsors next year to help replace those companies that have cut back. That is less than in previous years.
   
Among the teams looking for sponsors is Yates Racing, which has two cars in the top 30 in points. But even the help from Roush Fenway’s sponsorship arm, it hasn’t inked a major sponsor for either car for 2009. Yates recently sold a 2008 three-race sponsorship to the Federal Communications Commission for $350,000 total – compared to the $684,210 per race received by a team getting $26 million for a season.
   
“Obviously we’d like to have full sponsorship,” co-owner Doug Yates says. “Everybody would. But we also know this is a rebuilding process and to be able to get to where we’re at, we’ve got to stick it out and make some decisions for the long run.”
   
With the 2009 season less than three months away, is there money still on the sidelines?
    
Ann Barker, who headed the NASCAR marketing efforts for Texaco/Havoline, says there might be.
   
“I talked to so many people in marketing in a very large organization; they’re saying they have to redo their marketing budgets, the last six weeks,” Barker said in early November. “There isn’t a business in the land that isn’t re-evaluating their budgets.”
   
Another theory is that because so many teams are looking for sponsors, potential sponsors will wait until December in hopes of driving the price down.
    
“I’m sure there is an element of that taking place,” Carter says. “But, should a sponsor wait too long or otherwise allow a team to falter and become less competitive due to a lack of funding, it may reduce not only the cost the sponsorship, but also the value of the marketing partnership.”
       
Companies also are hesitant to commit to full-year contracts, says Chip Ganassi Racing President Steve Lauletta says.
        
“You can do a direct mail program and you know you’re going to do four of them through the year – you can commit to the first one and you don’t have to commit to the other three,” Lauletta says. “You try to be as flexible as you can because if you get to July and somebody comes to your office and knocks on the door and says, ‘You need to cut 10 percent of your budget.’ If they’re all in contracts, you can’t cut.”
   
Petty Enterprises CEO David Zucker is lobbying for NASCAR to consider franchising as a way of guaranteeing owners spots in the field. One of the Petty cars is outside the top 35 in points, which means it isn’t guaranteed starting spots – and thus visibility for the sponsor.
   
“It’s the only major sport in America where there aren’t team franchises,” Zucker says. “[NASCAR has] a good argument. Their argument is they want to keep the ability for new teams to enter. But that’s something extremely hard to do. The days of the one-car teams joining the sport are probably slim.”
   
NASCAR has no plans to cut the size of the field or award franchises. Its system has worked in the past through the good and bad economic times.
   
“We’ve had various other times where the economy has been very difficult,” NASCAR Chairman Brian France says. “This probably to everybody is more significant, at least on the surface. So there is a big uncertainty about people’s ability to do all the things that they want to do financially, given the backdrop of the credit crisis and all the rest.
   
“We are nervous like everybody else. We’re taking every precaution we can in terms of getting costs out of our system on behalf of the team owners, on behalf of the track operators. But this is also a time when you can’t freeze either. You’ve got to still be aggressive and still push hard your product.”