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.
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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.
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.
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