NASCAR’s ‘broken’ business model: Why race teams are calling for change
October 7, 2022
NASCAR race teams, unhappy about the state of financial negotiations with the sanctioning body, took the highly unusual step Friday of bringing their concerns to the media.
Four team representatives — Jeff Gordon of Hendrick Motorsports, Dave Alpern of Joe Gibbs Racing, Steve Newmark of Roush Fenway Keselowski Racing and Curtis Polk of 23XI Racing — met with a small group of reporters in an uptown Charlotte hotel to detail their disappointment and dissatisfaction with how NASCAR has reacted to their requests for a “fair” deal beginning with the 2025 charter agreements.
“There’s a total misalignment of interests,” said Polk, who is the longtime advisor for 23XI co-owner Michael Jordan. “As a result, the economic model is broken for the teams. … The sustainability of the teams in this sport is not very long-term unless we have a fundamental change in the model.”
Below,
The Athletic’s Jeff Gluck and Jordan Bianchi break down what’s happening, the issues at hand and what it means going forward.
Why are the teams upset?
For most NASCAR teams, sponsorship dollars make up between 60-80 percent of their overall revenue. That means when a brand like Mars Inc. (primarily through its M&M’s brand) decides to pull its millions of dollars in funding, JGR
can no longer afford to re-sign a star driver like Kyle Busch unless it finds a new revenue source.
That has placed teams in a precarious position compared to those in other sports. RFK, which is under the Fenway Sports Group umbrella, said Major League Baseball teams have sponsorship account for 8-12 percent of their overall revenue; in the NHL, it’s 17-18 percent. Even in the
English Premier League, which sells jersey sponsorship, that money only accounts for roughly a quarter of the total revenue.
Where does the rest come from? Revenue sharing of things like TV rights fees — which is where NASCAR teams are seeking a change (the current $8.2 billion TV deal expires after the 2024 season).
Teams feel NASCAR has enough money to strengthen their organizations to the point where sponsorship isn’t a critical piece to merely surviving each season but NASCAR is not being responsive to those needs.
“It’s a wonderful sport. People are in love with it and it produces a lot of money,” Polk said. “Let’s just be fair about it. Let’s be fair and equitable. That’s all we’re asking for.”
What do teams want from NASCAR?
The teams, who have been meeting with NASCAR through the Team Negotiation Committee (or TNC) have a mission statement for the talks: “All well-managed teams should be able to compete for a Cup championship and make a reasonable profit.”
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There are three items there.
First, “well-managed” refers to a team that spends smartly and doesn’t go crazy with its expenses.
Second, the “compete for a Cup championship” emphasizes the continued desire for parity instead of a handful of cars dominating the season every year.
Third, teams said they aren’t trying to double or triple their profits; they simply want to make a profit or at least break even (even powerhouse Hendrick is currently losing money each season, according to Gordon).
“At this point, I think the majority of teams would just appreciate not having a loss,” Newmark said.
Polk referenced the Formula One model. F1 is owned by Liberty Media, which is equivalent to the France family owning NASCAR; but in that series, teams receive 50 percent of F1’s revenues.
What has the timeline looked like?
According to the TNC (which is separate from the Race Team Alliance that unites the teams), executives and NASCAR officials began the discussions earlier this year. They worked in tandem behind the scenes and had kept the conversations private until now.
The TNC gathered the baseline financial information of seven organizations that were representative of the 16 charter owners and compiled them to give NASCAR a general idea of what a team had to spend on things like cars, pit crews, tires, travel and other essentials. Polk said NASCAR sat in on meetings, spoke with CFOs from various teams and took many notes without disagreement.
“I don’t think there’s anybody in NASCAR leadership that I’ve spoken to directly who doesn’t understand the team economic model is broken and needs some repair,” Polk said, though he added there has yet to be a conversation with NASCAR chairman and CEO Jim France.
The TNC then came up with a seven-point proposal, which was presented to NASCAR in June. Despite teams urging NASCAR to give them a response in the months since, Polk said the summer passed by with silence until NASCAR presented a counteroffer last week.
That counteroffer was highly dissatisfying, the TNC said, and showed the gulf between the two sides.
“We finally did get a response from them — and we’re very far apart,” Gordon said.
The TNC declined Friday to share any specific portion of its seven-point plan.
What was NASCAR’s counteroffer and why didn’t the teams like it?
The team representatives said NASCAR offered a small increase in revenue but also proposed a dramatic cost-cutting to save the teams money.
In other words: Instead of giving teams a much more significant share of TV revenue, NASCAR offered to help them reduce current expenses.
But the teams feel that’s untenable because there would be no way to reach those targets without “massive layoffs within our teams,” Polk said. Costs are already built into the new Next Gen car (all teams are required to buy the parts and pieces from a single-source supplier), and the only way to reduce more costs would be to sharply reduce the workforce within the NASCAR industry.
Teams believe that’s no way to run a major-league sport.
“I don’t know of another sports league — or business, for that matter — who came to prosperity through cutting,” Alpern said. “That’s fact. They don’t go together.”
Polk said the pressure to cut costs would stifle innovation and therefore impact competition in a negative way — ultimately diluting NASCAR’s product instead of strengthening it.
“You get to a solution by investing in your content,” Polk said. “We are the content — the teams, the drivers, the cars. That’s what people are paying for — to see us. You don’t make the sport better by trying to cheapen the content.”
Does NASCAR really have additional money it could give teams, or are teams just being greedy?
When International Speedway Corp. and Speedway Motorsports Inc. went from publicly traded companies to going private in 2019, financial disclosures filed with regulators were eye-popping to the teams.
Polk said the TNC’s calculations in the wake of those numbers showed 93 percent of value in NASCAR resides with the France family and the racetracks; only 7 percent of the value is connected to the race teams through their charter values.
To be clear, that’s value (what someone would pay to purchase it) and not revenue (actual dollars coming in). In terms of how the $820 million per year in TV money is split, 10 percent goes straight to NASCAR, 65 percent goes to the tracks (which are mostly owned by NASCAR and SMI) and 25 percent goes to race teams through the purse.
The TNC representatives emphasized they are not looking for a specific percentage of TV money from NASCAR, but rather an overall business model shift that would put the teams on more stable ground.
Newmark called these conversations a “pivotal moment” and said it would have “a monumental impact on the future of our sport.”
“Our goal throughout this process is stability, longevity and the idea of hopefully bringing a new paradigm to the sport which lifts all the stakeholders,” Newmark said.
This sounds like it could get ugly. Could we be headed toward another situation like the CART/IRL split which crippled open-wheel racing?
IndyCar was America’s premier form of racing until it infamously fractured into two series in 1996 and opened the door for NASCAR’s rise.
With the teams/drivers firmly in one camp and NASCAR/racetracks in another, is it possible something like that could happen again? Would drivers and teams dare to form their own series — or threaten to do so as a bargaining chip?
TNC representatives certainly gave no hint of such a thing on Friday.
“We love this sport,” Polk said. “This is the No. 1 motor racing series in America, if not the world, and all we’re looking for is a fair deal.”
Said Newmark: “Right now the focus is on trying to make sure we can get a deal that continues to grow the sport. … That’s the singular objective at this point.”
What is NASCAR’s response to all of this?
NASCAR released a statement shortly after publication.
“NASCAR acknowledges the challenges currently facing race teams,” the statement said. “A key focus moving forward is an extension to the Charter agreement, one that will further increase revenue and help lower team expenses. Collectively, the goal is a strong, healthy sport, and we will accomplish that together.”
