Feeling the pinch: NASCAR, teams struggling to find, retain sponsors as price of corporate backing falls an average of 30 percent

In April, one of America’s best-known business magazines called Tony Stewart the smartest team owner in NASCAR.

A month later, Old Spice, one of his major sponsors, dumped Stewart-Haas Racing and NASCAR, citing a shift in marketing strategy in deciding not to renew its contract for next year.

Old Spice’s decision is less an indictment of Stewart – or Forbes magazine, for that matter – than it is a reflection of how difficult corporate sales are for even the most respected race teams. Tracks and sanctioning body NASCAR face similar challenges.

Whatever explanation you prefer – the economy, shrinking attendance and TV audiences, skyrocketing costs – recent trends provide little comfort to the executives in Daytona and beyond.

To be sure, sponsors have cycled in and out of the sport for decades. Of late, though, the toll has been above the norm, starting with diminished support from the beleaguered automakers in 2008 and trickling down from there.

Even those teams and tracks able to keep current sponsors or land new ones are feeling the pinch. Companies have taken the upper hand after years of take it-or-leave it NASCAR negotiations.

Industry experts estimate the cost of NASCAR sponsorships have fallen by 30 percent, on average, in the past two years. In some cases, the drops have been steeper than that.

Kasey Kahne could offer yet more evidence of the changing times in the months ahead. He is the sport’s hottest commodity at the moment, having just signed to drive for Hendrick Motorsports beginning in 2012 while looking for a temporary driving home next season. He’s expected to be in search of a new primary sponsor, as well. Experts say the primary sponsor – or sponsors – will likely pay less than $20 million to sign Kahne, a considerable drop from what sponsors have been paying for top drivers.

Compare that scenario with Carl Edwards and Roush Fenway Racing two years ago. Edwards was the “it” driver at the time and, after opting to stay with Roush, landed Aflac as his top sponsor in a deal worth a reported $26 million annually. Drivers like Stewart and Dale Earnhardt Jr. have landed similar sponsorship packages in the past three years.

Not anymore. Any team with fewer than, say, four straight Sprint Cup championships would be laughed out of the room seeking such sponsorship riches in 2010.

“Across the board, I would say all of the companies have more leverage today,” says Jim Doyle, principal at Retail Sports Marketing, a company with extensive corporate experience in NASCAR. “It’s a tough sponsorship environment out there.”

And yet …

Despite the recent reality check, team executives and others in the sport see cause for optimism – and signs of stabilization.

Those who stuck with racing through the recession cut everything from companion TV ads to entertaining at the track as a way of reducing budgets.

In recent months, though, some team executives have seen hints of renewed confidence.

“Corporate America is still cautious, but now we’re starting to see them be a little bit more aggressive,” says Steve Lauletta, president of Earnhardt Ganassi Racing. Companies have taken small steps to invest the money needed to make their sponsorships work, the so-called activation encompassing everything from collecting fan and customer information from Web sites and giveaways to bringing top clients to the track for a prerace meet-and-greet with the driver and team executives.

Lauletta says the motivation remains the same: NASCAR still ranks as the nation’s most lucrative and popular motorsports league by a wide margin.

Companies are expected to spend $3.37 billion on all racing sponsorships this year, a 2.1 percent increase over 2009, according to trade publication IEG Sponsorship. Those figures reflect a combination of stock cars, open-wheel racing and other series. In 2009, motorsports-related sponsorship spending declined by 6 percent. It stands to reason that NASCAR, as the most popular American motorsport, will benefit as much as anyone from the slight uptick in spending after last year’s disappointing drop-off.

But no one expects a return to the roaring Nineties, or early-2000s, any time soon.

In NASCAR, trends aren’t just for lower rates, but also for shorter contracts. Volatility in the economy and in the sport left companies feeling like the young males they covet with their advertising: scared to commit. One- and two-year deals are suddenly en vogue.

Shorter deals, of course, are still preferable to expired deals.

Old Spice has plenty of company as a soon-to-be NASCAR sponsorship alum. Other notable departures in recent months include Allstate, Jack Daniel’s, DeWalt Tools and Jim Beam. Plenty of others retain huge investments, but have still reduced spending in the sport. Lowe’s offers a perfect example as one of the largest team backers with driver Jimmie Johnson and Hendrick Motorsports. At the same time, the home improvement retailer last year took its name off of the Charlotte NASCAR track, ending a contract with the erstwhile Lowe’s Motor Speedway worth $3.5 million per year.

Lagging TV ratings, though they have stabilized to some degree this season, remain a concern. Network executives note the number of people watching races ripples throughout the sport.

“If I was a team owner, I would be watching those rating points like a hawk because what those rating points mean is how much I can sell sponsorship on my cars for,” says David Hill, chairman of Fox Sports. “So, the more eyeballs I’ve got, the more likely it is that I’m going to be able to sign a deal for one or two of my cars next year. If they’re down, I might be able to sign a deal, but I’m not getting the dollars that I expect.”

Even top drivers recognize how much more challenging sponsorship sales have become in recent years.

“What we have to offer sponsors is still fantastic,” says Jeff Gordon. “The problem is the costs have gotten extremely high for the teams to operate as well as what we’re asking out of the sponsors. It’s gotten very expensive.”

Throw in two years of economic uncertainty and greater scrutiny on corporate spending and it’s easy to see why many in NASCAR have struggled to retain and recruit sponsors.

Even when sponsors are kept aboard, the terms aren’t what they used to be.

A typical example: Renewed contracts for sponsors at International Speedway Corporation, NASCAR’s largest track operator, carried annual rate increases as high as 10 percent before the recession. Flat rates — meaning no year-to-year increase – or smaller annual increases of 5 percent or less have become the new norm in sponsor negotiations, according to a recent report by Wells Fargo Securities.

In its most recent quarterly filing, Speedway Motorsports Inc., owner of major tracks in Charlotte, Las Vegas and Dallas-Fort Worth, among others, reported a 9 percent decrease in sponsor revenue for the first quarter of 2010.

Gordon ticks off a list of reasons why companies should stick with NASCAR, from brand loyalty to the audience NASCAR delivers.

Still, he acknowledges a far different terrain for a sport that spent much of the past two decades watching companies write bigger and bigger checks for a piece of the stock-car pie. Now, it seems, they’re dividing by pi instead.

“Cost and economy are the things that are affecting these sponsors the most and [how they are] making their decisions to come into the sport or stay in the sport,” he says. “If you’re judging where the sport is based on that, we’re in a tough position right now.”