Bob Leavine—the owner of Leavine Family Racing (LFR)—announced the sale of his NASCAR Cup Series team (along with its shop, inventory and charter) last week. Spire Sports & Entertainment will take control of the No. 95 car following the 2020 season. Detractors used the sale, the second Cup Series team exit in three years (Furniture Row Racing sold its team to Spire in 2018), to support the narrative that NASCAR’s sponsorship-reliant team ownership model is “broken” (LFR’s primary sponsor, Leavine-owned WRL General Contractors, was hit particularly hard by the recession). But one senior industry executive explained that simple overspending and a lack of emphasis on revenue generation is to blame for teams operating in the red. Chris Lencheski agreed: “If the current team owners agreed to take the nice but unneeded costs out of NASCAR, there would be more prospective owners willing to buy in” (which in turn would increase the value of team charters). The former team owner added, “[teams] also need to add more senior level executives with commercial experience [if they’re going to maximize revenues]. Too many go at it alone or are allowing street agents to broker sales with drivers.”
Our Take: NASCAR needs to find a way to curb spending, particularly on things that are not improving the on-track racing product (think: underbody aerodynamics, air charters, multi-million dollar coaches). Teams with annual budgets of $15 million to $20 million that utilize their resources responsibly should be able to turn a profit and compete for a championship. The problem is, Lencheski said, “There are always places to spend money in an attempt to go faster, and [some of] the owners are willing to spend more than they know they’re going to bring in to win.” The current senior racing executive we spoke to explained, “In every other sport the players are the differentiating factor, so the leagues can [simply] implement a salary cap and prevent teams from irrationally spending to win. If NASCAR curbed driver salaries, teams would spend more on engineering talent. If NASCAR placed a limit on salaries for engineering talent, teams would spend more time on computer simulations. If NASCAR limited computer simulations, teams would spend more on A.I.-powered command centers.” The hope is that the Gen-7 car (think: standard chassis vs. custom built, composite bodies vs. steel) will help reduce the ongoing arms race. But our source suggested it’s more than likely the overhaul set for 2022 will simply result in a reallocation of capital—not a reduction in costs.
While spending in the garage is the primary reason teams are upside down, a lack of human resource investment in senior sales and marketing means teams are not making nearly as much money as they should be (particularly those winning on the track). As the current senior industry executive we spoke to explained, “There were rumors Joe Gibbs Racing (JGR) put Furniture Row under by increasing their alliance costs (think: rates to supply pit crews). But Furniture Row didn’t invest enough in the sponsorship sales and marketing side of the operation. They just figured if the team won that sponsors would pay them more.” While selling sponsorships is certainly easier if the team is winning (which FRR did in 2017), it’s still necessary to “entertain B2B clients at a race, understand their business needs and develop marketing plans that will drive revenue.” Furniture Row preferred to spend that time and its financial resources on “making the car faster.”
Lencheski agreed that historically there has been a dearth of senior level, commercially minded executives within the sport. He said with some teams having the ability to leverage B2B relationships (see: Team Penske/Pennzoil and Hendrick Motorsport/Axalta), there is a real need amongst the remainder “to understand how to build sustainable revenue and create value that can be measured in the 8 weeks following the event [for themselves and their sponsors]” if they’re going to keep up.
NASCAR instituted a charter system in 2016 to help level the playing field and provide the sport’s sponsors and media partners with some certainty in terms of the number of teams racing each week and the quality of competition. The thinking was that the creation of team charters would also provide team owners with an asset of significant value that they could cash in upon exiting, which in theory would more than offset a decade or two of losses. But it hasn’t exactly worked out that way. While the current senior industry executive we spoke to suggested Leavine likely commanded “$5 million, $6 million, $7 million” for the right to his team’s equitable portion of future television revenues, it’s certainly not enough money for most team owners to be willing to sustain losses year after year. Remember, unlike in the big four sports, many NASCAR team owners are not billionaires. They need these teams to be profitable on an annual basis. Team ownership cannot just be an expensive hobby.
In theory, the cost controls associated with the rollout of the Gen-7 car, combined with the anticipated increase in media rights following the 2024 season, should result in a positive delta for fiscally responsible teams. But the current senior racing executive said the lack of appreciation in charter values—not the current annual losses (which he believes are overblown)—are what is preventing private equity (logical acquirers for teams based on their appetite for sports) from buying up teams. He simply didn’t think there were enough race teams capable of providing the double-digit returns sought.
Lencheski—who currently spends his days in P.E.—certainly didn’t dispute that the teams at the back of the pack were likely not going to generate 10x returns. But he said, “There are a few teams at the top who certainly can.” He cited the existing smart money within the sport (including Roush-Fenway, RCR and Ganassi) as evidence that there is plenty of money to be made in the sport—if costs are controlled whilst chasing performance.
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