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Tickers in this Article: CLX, DD, WMT, PG, SWK, DEO
NASCAR racing is not everyone's cup of tea, but it arguably has the most direct ties to the economy of all major American sports. Unlike most professional sports teams outside the U.S., major U.S. team sports typically do not have corporate logos plastered all over their jerseys or playing fields. NASCAR races, though, feature 43 rolling billboards on major television networks for at least three hours at a stretch. Accordingly, it seems fair to wonder what the current sponsorship environment says about the economy. (To learn more, check out NASCAR: From Back Alleys To Big Bucks.)

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The Economics of the Decals
Like any other sport, it takes a lot of money to field a NASCAR team. Unlike most sports, where more than half of the cost goes toward player salaries, racing demands huge investments in equipment - multi-million dollar cars, multi-million dollar R&D, and millions more spent here and there on supplies and equipment, travel, and so on.

Since the team owners do not get a percentage of the gate, concessions or TV rights like they do in other sports, the economics of the sport are different. Prize money is important, but roughly two-thirds to three-quarters of the costs of running a team are underwritten by sponsorships. Major corporations pay $10 million to $20 million (on average) to have their logos on the prominent places of the car and to have the drivers basically serve as endorsers and PR agents.

In exchange, the sponsors get hours and hours of TV coverage, plenty of "ribbon-cutting" appearances from the drivers, and a certain amount of guaranteed loyalty. Hardcore NASCAR fans are indeed serious about their fandom and people actually will change brands based on which company sponsors their favorite drivers. Over time, these relationships can be iconic - even casual sports fans may associate Clorox's (NYSE:CLX) STP fuel additive with Richard Petty, or DuPont (NYSE:DD) and Jeff Gordon's "Rainbow Warrior" paint scheme.

The Situation Today
Unfortunately for the sport, major corporations are now questioning whether or not the $20 million it takes to sponsor a major driver is worth the money. Gordon's almost 20-year relationship with DuPont is ending soon and Wal-Mart (NYSE:WMT) recently decided to pass on picking up the sponsorship. Likewise, other well-known drivers like Tony Stewart are scrambling to find new sponsors - as Procter & Gamble's (NYSE:PG) Old Spice is dropping out - or altering long-term relationships - like Matt Kenseth's switch this year from Stanley Black & Decker's (NYSE:SWK) DeWalt to Diageo's (NYSE:DEO) Crown Royal).

Perhaps some of this is due to what may be a longer-term shift in fan interest towards NASCAR. Attendance has been soft this year and TV ratings have been on the decline, which means fewer eyeballs on those expensive decals. It may also be the case that corporations have begun to realize that they cannot easily quantify the value of these relationships and it is difficult to write checks with a lot of zeros if the return on those investments cannot be quantified beyond a shrug and a puzzled look.

The Bottom Line
All of that being said, it is hard not to see this scarcity of money in racing as a sign of the economic times. When times are fat, companies certainly find plenty of ways to spend money and they pull that in when the lean times come. Sponsorship has been a part of auto racing for decades and it seems improbable that it is going to change in any real way. As a result, investors may want to keep an eye on this as just another sign of when the economic recovery becomes "real"; when companies feel confident enough to write multi-million dollar sponsorship checks for sports again, it is probably safe to assume that business confidence is back to where it needs to be. (Learn more about some sports stock picks in The Professional Sports Portfolio.)

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