The National Association for Stock Car Auto Racing, more speedily known as NASCAR, is an engine for profits. The roots of NASCAR sound like urban legend, as Prohibition-era bootleggers modified their cars to shuttle moonshine down from the Northeast to Southern states. When the liquor was free to flow again, these drivers found themselves still itching to race, so impromptu events were set up in Florida in the post-WWII era. It wasn't long before the close-knit group of drivers, mechanics, track owners, and financiers sought to organize and standardize their efforts.

In Pictures: 8 Money-Saving Tips For Sports Fans

Today the business of NASCAR is essentially a massive extension of a family-owned enterprise, as the world's largest governing body of racing was founded by Bill France Sr. in 1948 and is run by his grandson today.

NASCAR oversees six distinct racing series on the national level, as well as regional circuits, overseeing a total of more than 1,500 races per year. The Sprint Cup Series, in addition to being the most well known and the highest level of competition, is by far the most profitable venture.

Today we'll be looking at the economics of NASCAR, a sport that has a different business model than other major sports like football, baseball, and basketball.

Advertising and Sponsorship
Corporate sponsors provide a much larger slice of the revenue in racing than you'll find in other sports. While a company might pay a pretty penny to have naming rights for a new football or baseball stadium, there aren't as many opportunities for advertising inside the stadium itself. Derek Jeter and Peyton Manning don't have the Coca-Cola (NYSE: KO) logo splashed across their jerseys - at least, not yet- that's out of bounds in those sports.

But in NASCAR, advertising is literally a head-to-toe phenomenon, as both drivers and cars are covered in branding. NASCAR brings in roughly $3 billion a year in sponsorship money - more than twice what the NFL earns. NASCAR's headline sponsor Sprint (NYSE: S) paid an estimated $750 million for 10 year's worth of naming rights to the most popular racing circuit. (The NFL's big event is not as profitable as you'd think; find out more in The Not-So-$uper Bowl.)

The total corporate sponsorship for a driver's car can go for upwards of $20 million for a racing season. That's a huge amount of money, but it can be justified the same way as any other ad budget - how many eyeballs is your message going to reach? And in this respect, auto racing is at the top of the list. In a typical year over 75% of the most attended sporting events in the country are NASCAR races. Popular racetracks like Daytona and Indianapolis can pack in over 200,000 people who will be staring at those logos for hours upon hours.

Effects of Recession
With the broad economy still reeling from the biggest recession in decades, companies have been cutting back on their advertising budgets, hampering both corporate NASCAR and the individual driving teams. Driving teams count on sponsorships to support the huge costs associated with putting a top-level car in the field 30-40 times per year.

In some drastic cases, driver teams have been forced to sit out races because their sponsorship money dried up. In other cases, teams will put their car out for a few laps to ensure an appearance fee, but be unable to incur the costs to finish the race, and simply pack it up while the race is still running.

Ratings and Revenue
NASCAR is also the second-most watched sport on TV, following the NFL. High ratings mean that NASCAR can command large fees for multi-year contracts with TV stations that broadcast multiple races per year. NASCAR's current eight-year TV deal began in 2007 and is worth $4.5 billion, or $560 million per year, making the current contract 40% more valuable than the previous multi-year deal.

Part of this money goes to corporate NASCAR, and part goes to the owners of the individual racetracks where events are held. There are publicly traded racetrack owners, most notably International Speedway Corporation (Nasdaq: ISCA), which operates 13 facilities and is the home for more than half of the Sprint Cup Series' 38 race schedule.

After nearly 20 years of growth, NASCAR has slipped a bit since 2005. Television ratings have seen a downward trend in recent years, partly due to the increased competition with other professional sports in the fall. The NASCAR season now runs a full 10 months on the calendar following recent changes to the end-of-year championship format.

The TV revenue is vital because NASCAR can't compete with sports like football and baseball in terms of ticket sales. A race is run just once per year on a specific track, but Yankee Stadium will sell out 80 home games this year, and even the NFL with its lighter schedule will still have eight home games per season. This puts a heavier emphasis on merchandising and sponsorship.

International Expansion
NASCAR aims to increase both the reach and breadth of its brand internationally. With races currently broadcast in over 150 countries, the demand to see races abroad is growing, despite the competition from other racing circuits like Formula One. Exhibition NASCAR races have been run in Japan, Australia and Mexico, and future tracks may be built outside the United States.

Foreign auto makers are also tiptoeing into the car side of the business, once dominated by Ford (NYSE: F), Chevrolet and Dodge. Toyota (NYSE: TM) put some cars on the track in 2008, and Honda (NYSE: HMC), Audi and Nissan (OTCBB: NSANY) have all expressed some interest in entering cars in Sprint Cup races.

The Finish Line
Because the corporate side of NASCAR will remain partially private for the foreseeable future, nobody can say for sure exactly how much money is made in each corner of the business. But between ticket sales, merchandising, television and media rights, royalties and licensing fees, there is plenty of profit being made at the highest level.

Individual ownership teams, meanwhile, are forced to slug it out in the trenches based on how they finish in races - the quality of their cars and their drivers - and how much funding they can bring to the table. It's a unique sport with a unique business model, but it's got some of the most loyal fans on the planet, and its continued growth both here and abroad seems to be a bankable prospect.

Get a rundown of the latest financial news in this week's Water Cooler Finance: Greece Attacks And Google Hacks.

Related Articles
  1. Personal Finance

    Who Is Next in the Athleisure Trend?

    Which companies are jumping on the growing athleisure wear trend and how can investors start getting in on this?
  2. Personal Finance

    Top 10 Most Valuable Sports Teams in 2015

    Cleats, pads and profits: we take a look at the top 10 most valuable sports teams in the world.
  3. Fundamental Analysis

    The Economics of FanDuel

    Part of fantasy sports’ success lies in one-day and week-long contests serving as an alternative to season-long games. FanDuel, a leader in this space, has recently surpassed a $1 billion valuation.
  4. Personal Finance

    The Future Outlook of the Golf Industry

    The popularity of golf peaked in 2003. To regain popularity and survive, the industry is adapting to appeal to a younger generation of players.
  5. Stock Analysis

    How Nike (NKE) Continues to 'Do It'

    Other than style, do sneakers from any maker really differ that much? That's debatable. But this is certain: Nike sets the standard for selling an image.
  6. Entrepreneurship

    Nike and the NBA, a Perfect Duo?

    What does Nike's recent eight-year contract partnership with the NBA entail for its largest competitor Under Armor?
  7. Economics

    The NBA’s Business Model

    Drawing interest domestically and abroad, the NBA has seen its popularity and revenue streams rapidly increase over the past few years.
  8. Personal Finance

    Is ESPN a Sport Monopoly?

    With such a dominant presence in sports as demonstrated through substantial ratings and a firm online presence, some may consider ESPN a sports monopoly.
  9. Economics

    3 Main Reasons Las Vegas Sports Teams Keep Folding

    Learn why a unique labor force, competition for entertainment dollars and the stigma of gambling have kept professional sports out of Las Vegas.
  10. Investing News

    Why FIFA Can't Give the 2022 World Cup to Qatar

    Learn about the high price tag for the 2022 World Cup in Qatar, along with allegations of human rights abuses and bribery scandals in the bidding process.
  1. Why is Manchester United (MANU) carrying so much debt?

    The takeover of Manchester United by the Glazer family beginning in 2005 saddled the historic club with substantial amounts ... Read Full Answer >>
  2. What are Manchester United's (MANU) largest revenue sources?

    Manchester United is one of the most popular U.K. soccer teams. Its principal stadium is Old Trafford, located in the heart ... Read Full Answer >>
  3. Does Manchester United (MANU) own Old Trafford stadium?

    Old Trafford Stadium was built for and is currently still owned by Manchester United Football Club (Man Utd.). This means ... Read Full Answer >>
  4. What's the biggest sports endorsement deal ever signed?

    According to Forbes, basketball player Derrick Rose holds the largest endorsement deal as of 2014; the deal is for more than ... Read Full Answer >>
  5. What are the biggest stadium naming rights deals of all time?

    The top three stadium naming rights deals of all time were all for stadiums hosting New York City teams. The largest was ... Read Full Answer >>
  6. What is the difference between a mutual fund and money market fund?

    The Herfindahl-Hirschman index can be used to determine competitive balance in sports. Competitive balance is desired in ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!