The 2020 NASCAR Cup Series season came to its conclusion last night with Chase Elliott winning his first career Cup Series championship. The sport will take the next three months off before beginning the ‘21 campaign with the 63rd running of the “Great American Race,” and it remains to be seen how many fans will be in attendance at Daytona International Speedway on Feb. 14 (tickets are currently on sale). But even if all 101,500 seats are empty—and the remainder of the 38-race schedule is run “behind closed doors”—NASCAR, its teams, tracks and race promoters should all still be able to operate in the black next year (depending on how much each spends). “You’re not talking about [anyone] making enormous profits, but you’re not talking about incurring enormous losses either,” said Speedway Motorsports chief strategy officer Mike Burch, who suggested NASCAR’s modular business model “enables [the sanctioning body, its teams, drivers and track operators] to look at their piece of the business and manage expenses relative to the current environment much quicker [than a big four league with an integrated model can].” MLB commissioner Rob Manfred recently told Sportico’s Barry Bloom that his league, the first big four sports season played in its entirety without fans, suffered $2.8 billion to $3 billion in operational losses in 2020.
Our Take: Sports that can break down into component parts (golf and tennis also fit the description) are able to adjust to dramatic shifts in revenue easier than those where everything is intertwined, because each business module (think: teams, tracks, promoters, governing body) can make difficult decisions in its own best interests without crippling another aspect of the sport.
The big four leagues by their very nature are highly integrated. Each has a collective bargaining agreement that ensures player salaries are tied to a percentage of league revenues. But those pacts—along with all of the lucrative long-term player contracts in place—were signed under the presumption that fans would be in attendance and revenues would be rising. If that’s not the case, existing player contracts as a percentage of team revenues are going to be significantly higher than anticipated. Burch compared the leagues’ tough spot to “what Detroit went through [in the early 1970s] when car sales began to decline and lower-cost competition from overseas emerged. Existing agreements with auto workers limited their ability to adjust the expense model—and ultimately to compete on a broader scale.” (Of course, a gasoline crisis that drove U.S. buyers to purchase smaller foreign-made cars didn’t help.)
Whereas a league’s collective bargaining agreement would need to be renegotiated before a big four sports team could gain financial relief on player contracts, “drivers are independent contractors of the race teams,” Burch said. That means NASCAR team owners can rework driver contracts without having to deal with an overarching labor agreement first. And because many drivers are contracted on a year-to-year basis, it’s easier for teams to “adjust for a lack of incoming revenues than [it would be for a team in a league with long-term contracts in place],” the Speedway Motorsports executive said.
There are also a few drivers capable of “self-funding” a race team. Just look at Bubba Wallace, rumored to be bringing $15 million to $20 million in sponsorship money to 23XI Racing. “In other leagues, the endorsement money goes directly into the players’ pockets,” Burch said. “But in NASCAR, a driver bringing sponsorship money in helps the team, which in turn helps the driver be more competitive on the track, boosting his or her value [from a driver and endorsement perspective].”
A 2021 season with few or no fans would significantly depress track operator revenues. But Burch says to look at “what costs can be taken off the table and how much is actually being lost” to understand how tracks can still be profitable. The sanctioning fees paid to host races are an operator’s greatest expense, and those contracts—renegotiated on an annual basis—will account for limitations on fans. As Burch reminds, “You don’t have to renegotiate terms [on renting the building] if you control your own venues,” in contrast to NFL venues, many of which are municipality-owned. The decision to jettison practice and qualifying on Friday and Saturday has saved the tracks in operation costs. And broadcast revenues, which comprise roughly 40% of track revenues, are safe—particularly with the sport’s ability to shorten races to fit a broadcast network timeslot.
