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July 19, 2008
Hard times ahead?
By DAVID GREEN
General Motors' decision, announced this week, to end its sponsorship of races at New Hampshire and Bristol is in all likelihood just the beginning of some belt-tightening overall and in the auto industry in particular.
The move, along with other actions announced by GM on Tuesday, cannot help but make race fans a little wary.
GM North America president Tony Clarke advised "there will be modifications and changes in our promotional footprint" and told reporters, "We're not going to talk about the details today, and specifically NASCAR, but all those areas have been reviewed and will continue to be as we work these action plans through."
Economic trends move in cycles, and the cyclical movement is affected by factors such as the spike in oil prices. Manufacturer participation in auto racing is also cyclical. The presence of automakers in all forms of racing has never been a constant.
When the first oil crisis struck in the early 1970s, Ford and Chrysler were already out of NASCAR racing. The sport managed to survive the abandonment of the factories and persevered along with the rest of us through the earlier-edition energy dilemma.
When the American car companies got back on their feet, they made their way back into racing. It was a gradual involvement, not a big-splash type of promotion, but in the late 1980s and early 1990s, Ford, guided by Michael Kranefuss, and GM, under the leadership of Herb Fischel, established large-scale efforts in motor sports, with a particular emphasis on NASCAR. Those programs were the prototypes for today's efforts, including those by Dodge and Toyota.
Their money paid for technical development and promotion, both invaluable assets as NASCAR soared in popularity.
A generation earlier, the factories were heavily involved in racing to promote their powerful creations as Americans showed their fondness for horsepower as well as the over-the-top styling of the late 1950s. Factory participation abruptly ended when, in June 1957, the Automobile Manufacturers Association declared a moratorium on involvement in racing.
The reason was safety, not energy costs. Traffic fatalities were drawing the attention that gasoline prices are attracting today, and suddenly horsepower and speed were dangerous, not glamorous.
The factories -- especially GM -- continued to participate in various forms of racing, but not in an "official" capacity, until in 1962, Ford and Chrysler jumped back into NASCAR for another decade or so of support and promotion.
The down side of that period was that the relatively small number of factory-backed teams enjoyed a huge competitive advantage. The up side was that their lavish budgets made lots of perfectly usable hand-me-down parts available to the independents. It may have been impossible to compete for victories, but it was relatively easy to participate.
That model has radically changed. "Independent" is an anachronism in present-day NASCAR racing. Some fully-funded teams fail to make the 43-car cut these days, and more would if not for the protected top 35 car owners. Nowadays, all the teams are at least as much dependent on corporate sponsorship in general as they are in auto manufacturer support.
It may not be the monster that it became in the post-World War II era, but the car business is still an important vital statistic in America's economic health. Recent examinations tell us that the patient is not all that healthy.
That is bound to have an effect on NASCAR racing.
Just how much of an effect remains to be seen, but there's not much point in panicking. Best-case scenario: Racing will go on. Worst-case scenario: Racing as we know it will become a casualty of economic war. There isn't very much any of us as individuals can do about it.
July 19, 2008 | Permalink
Comments
David,
Cutbacks;the sky is falling; NASCAR is doomed. I tend to look at these predictions tongue in cheek. Race fans have nothing to fear. Racing will survive. As long as young guys and gals want to push the limits of acceleration, there will be racing, and people to watch it. It may not be today's bloated, myopic (IMO), NASCAR, but, there will be racing.
So, that's my opinion. Racing will survive, and who knows, maybe a forced change will make the racing overlords pay more attention to the fans, instead of their wallets.
Posted by: Keith | Jul 19, 2008 11:35:45 AM
Great Post David, But part of me wants to blame the "Big 3" for bringing it on themselves, This for the most part is why JGR switched to Toyota...Why be 3rd or 4th in the pecking order when you can assume #1 in a different Manufacture!...I personally had wished Robbie Gordon would have talked to Leew Wite and Jim Aust first before going to GEM. I enjoy the Kaizan philosophy of Toyota, and alll teams are doing better, I cannot say the same for GM or Ford...If so the Woods Brothers wouldn't be in dire straits like Doug Yates, and we would still have Morgan Mclure motorsports and I'm fairly certain that Haas/CNC would have more than 1 top 5 finish in 5 years
Posted by: Fam #5 | Jul 19, 2008 1:28:49 PM
NASCAR is going to be in a situation where it has to force its teams to share revenue and cap spending whether they want to or not because the largesse is not coming back from the factories like it has been coming.
Posted by: Mike Daly | Jul 19, 2008 1:56:07 PM
Mike Daly,
While it's no longer a shock that I sometimes agree with you, it's happened again. I see some problems, however. Will it be only T35 teams? The rich getting richer? What will qualify them? I see it as hard as long as NASCAR insulates itself from the teams.
Posted by: Keith | Jul 19, 2008 3:24:53 PM
Keith, good point. Right now I see it as there will be a revenue sharing plan between raceteams who commit to running the full scheule - basically the ten or eleven teams fielding the cars in the top 43.
Posted by: Mike Daly | Jul 20, 2008 12:49:10 AM
David, What a great read! Nicely done.
The purpose of my post is not to deminish the accomplichments of the King but your article shines a bright light on the effects of manufacturer participation in Nascar.
The average fan today is far more savy when it comes to the complexities of Nascar. If GM were to fully pull their support to race teams and a driver at Toyota or Dodge started to dominate the series, fans would see it (righfully so) as one team being better funded and the driver will never recieve the credit that the King did years ago.
This time around, I dont think fans will be as impressed with one driver (espesially Kyle Busch) and viewership will plummet. This will inturn force Nascar to pay closer attention to the fan and that could be a good thing.
Posted by: Bob | Jul 20, 2008 11:27:35 AM
Thanks for the feedback, guys.
Having worked as a journalist covering the auto industry for a few years, I have great respect for most of the men and women I met in that realm, in the traditional Big 3 American companies and in other brands as well. But I'm lukewarm, at best, about those companies having such power and influence in something that, to them, is an ancillary activity.
When times get hard, or when there are image problems such as the 1950s highway fatality statistics posed, they're going to cut back or cut out. There are now and always have been people in the car companies who were bona fide racers. But the companies themselves are not.
The problem is magnified today by the dependence on corporate sponsorships. Any weakening of the economy is going to have an adverse effect on that.
I don't mean to sound like a doomsayer. But it looks to me that NASCAR racing may be approaching its biggest test since the early 1970s and the 1-2 punch of loss of factory participation and the onset of a series of energy crises.
Posted by: David Green | Jul 20, 2008 5:04:56 PM
Bob, you did a good job of combining my comments in this post with the one I did July 12 comparing Kyle Busch's winning prowess with Richard Petty's 27-victory season in 1967.
I'm sure you are alluding to the fact that Petty won so many of those races because of the advantage his team enjoyed. No question, that's true.
You also offer a good assessment of the difference between then and now. Petty's achievements were good for the sport, especially in combination with his great personality.
I don't mean to disrespect the present crop of drivers, but it's my feeling that NASCAR had a more stable and established cadre of superstar drivers -- led by Petty, Pearson, Allison and Yarbrough -- when the first economic obstacles were thrown into the sport's path back in the early '70s.
Posted by: David Green | Jul 20, 2008 5:20:57 PM
Mike Daly (a/k/a Monkeesfan) - "NASCAR is going to be in a situation where it has to force its teams to share revenue and cap spending whether they want to or not because the largesse [sic] is not coming back from the factories like it has been coming."
How how do you suggest NASCAR "force" a private company to do anything?
Government intervention? Sorry that won't work, they don't have their fingers in NASCAR like the MLB anti-trust exemption.
And BTW... caps and revenue sharing has worked so well in other sports hasn't it?
Oh wait... it hasn't via "creative financing" and other under-the-table maneuvers the rich are still rich and the losers are still losers.
Posted by: marc | Jul 20, 2008 6:09:31 PM
Marc, my understanding is that NASCAR can set up its operation as it wishes it to be. It can reorganize itself and, instead of having team owners buy annual licenses, purchase franchises. I'm of the opinion that might be the best thing for them to do.
You're right -- they cannot "force" independent contractors (their own term for competitors) to do anything. But what's the alternative? Race in the other major stock-car racing series? Well, no -- there isn't one.
As for the success of revenue sharing, salary caps and other measures in other professional sports, I'd have to argue with you, at least in terms of competitiveness. I remember when "expansion team" was a label that, loosely translated, meant, "Don't expect to see any victories for a half-dozen or so seasons." The Yankees are a perfect example (to George Steinbrenner's consternation) that astronomical player salaries do not necessarily produce World Series championship titles.
Posted by: David Green | Jul 20, 2008 7:21:28 PM
Marc, here's how - put in the entry blanks of every race that the entry is required to turn over their books to NASCAR to verify they are complying with set spending limits and revenue sharing - i.e. if you're not limiting spending or sharing revenue, you don't race. They can work together with team owners on this.
And yes, caps and revenue sharing have worked superbly in oher sports - there is not a single example of a sport operating a spending cap and/or revenue sharing where it didn't work.
Posted by: Mike Daly | Jul 20, 2008 10:30:50 PM
There will not be revenue sharing in Nascar. There already is, it's called "winnings". Money dolled out each week to the teams based upon their finishes...otherwise known as Nascar revenue. And there will never, ever, ever, be an open accounting policy of race teams that is checked regularly by Nascar. It's too complicated and would make Nascar hire another force of employees to manage. Nascar is not going to take that money out of their pockets or deal with that hassle.
Nascar has, and always will continue to control spending in the sport by limiting the advantage of spending money on researching and testing the race cars and parts themselves; along with limiting expenses on testing and tires etc.
Racing is far different than other Major League sport and thus cannot operate under their model as Mike Daly continues to sell. Other pro sports have player unions and organized Ownership programs. Nascar does not. Other sports earn revenues from stadium ticket sales and concessions. Nascar does not. Other sports apply dollar values to the athletes. Nascar does not. Other sports leagues share their TV revenues with the Owners. Nascar does not.
Nascar does not fit in the "professional sports" box and it never will.
Posted by: Michael | Jul 21, 2008 10:34:51 AM
If you want to compare Nascar to another professional sport, it's closer to the PGA tour (professional golf) than anything else. Players are independent contractors, responsible for finding their own sponsorship. You make the cut, you win money. The golf courses are contracted with the PGA. The PGA controls competition by regulating the equipment and the design of the golf courses.
Posted by: Michael | Jul 21, 2008 10:55:37 AM
Michael, there is no revenue sharing in NASCAR. You're ignoring that the sport's insane economics are driving it to where spending caps and revenue sharing between raceteams are going to be imposed whether the sport wants to or not - because there isn't any other choice. So you're wrong - teams will eventually have to open their books to the sanctioning body and the sanctioning body will have to force teams to limit their spending and share revenue between them, because that is the only way out right now. The only amazing aspect is that it hasn't been done before even though the idea has been around for about ten or so years - I remember Dave Moody first expressing the idea back around 1998.
Posted by: Mike Daly | Jul 21, 2008 12:29:37 PM
This can be looked at from several views. Yes there are "Hard times ahead" for all Auto makers. Not just the Big 3, Toyota will hit a slump as well, I beleive they have already halted production for 3 months in a plant due to slow sales. This economy has caused the "Hard Times". Yes, the Big 3 has not kept up with the changing times and has slacked off in other ares as we are well aware of. I also see their point in cutting back in areas to save where they can in hopes of preserving the companies. I also think and IMO that there are different areas that could be cut tremendously and have a have huge effect in helping out, but they did not ask my opinion. I can see that they feel the "win on Sunday, sell on Monday" is gone because you can no longer tell one car from another unless you look closely at the front or you are a "die-hard fan" like myself and know who drives what make of car. So maybe they feel what is the use, their name is no longer branded in fans brain going around the track or pasted on the TV screen for everyone to see. I'm not sure if they will be able to stay in the sport or not, I just hope they can survive, my family's future depends on it.
Posted by: Graceann | Jul 21, 2008 12:34:20 PM
Mike, you can't say I'm wrong. There has never been any mention by Owners or Nascar to go to a revenue sharing plan. You personally just think it's some great idea that will save the sport. Unless your last name is France, please don't tell us what you know Nascar is going to do.
Race teams come and go every year. Multiply, down size, etc. NFL teams are constant.
And FYI, race winnings are shared revenue. That's all the IRL is doing with their "revenue sharing" plan. They have eliminated race purses from every race but Indi. And just paying a flat fee to every team.
Posted by: Michael | Jul 21, 2008 1:19:22 PM
Michael, I can say you're wrong because the sport's business practices are not working and are forcing it into the direction of spending caps and revenue sharing. "There has never been any mention by owners or NASCAR to go to a revenue sharing plan." That's irrelevent, because the economics are forcing it in that direction.
Race winnings are NOT shared revenue - shared revenue is between raceteams OUTSIDE of the competition arena.
Posted by: Mike Daly | Jul 21, 2008 2:30:42 PM
Mike,
Do some research on shared revenue in racing. Specifically the IRL. If you want to see revenue sharing, you will see an end to race winnings. What do you think the race revenues are? Sponsorship dollars are not team revenues.
Posted by: Michael | Jul 21, 2008 2:42:25 PM
I find this thread very interesting. Mike, don't you have to agree that enforcing a cap in racing is a lot tougher than in stick and ball sports? How do you control R&D costs, for example?
Michael, I agree with Mike that revenue sharing and salary caps do work, at least in stick and ball. You don't see dynasties any more, just 2-3 year runs when a more or less intact team can stay at or near the top, but then they fade and others come along. The NFL comes closest to being an exception, but the lack of no-cut contracts make it easier for teams to stay on top because they can dump the high-salary deadwood.
As for franchising, how does that mesh with multi-car teams? Allow 44 teams, each as a franchise? Max of four teams per owner? What about the "partnerships" like Roush-Yates and Haas-Hendrick? And the engine combines like DEI-RCR?
David: I remember seeing a stat somewhere that really showed what you mention about Petty, Pearson, Yarborough, and Allison. I forget what it was, but it was something like "every race that season saw one of those four in the top 3" or something. The four of them, and later Waltrip, really dominated as no one has since.
Posted by: Doug in CA | Jul 21, 2008 3:00:19 PM
Doug, you said it yourself. Those concepts are stick and ball sports. Nascar isn't stick and ball. And there is no solid proof that those concepts work. The Yankees pay huge player salaries and pay huge penatlies for carring those salaries and they do not rule MLB. The Washington Redskins throw good money after bad.
Revenue sharing will not change the competition in Nascar. I gurantee it. It will only sure that 43 cars show up each week. You don't need revenue sharing to do that. If you pay last place in winnings more than the cost of the race itself, someone will show up and put a car in the field.
Revenue sharing will have no impact on Hendrick, Roush, Gibbs, or Childress. They will still be just as competitive and just as ahead of the curve as the other guys.
Posted by: Michael | Jul 21, 2008 3:24:47 PM
Doug In CA, yes enforcing a spending cap and revenue sharing can be more problematic in racing, but it absolutely can be done. You can control R&D costs by including them in the cap.
Michael, don't lecture me about doing research when you should be doing so yourself. There is no shared revenue in racing; race revenues ARE NOT shared revenues, they are performance payouts from the racetrack and the sanctioning body to race entries. Shared revenue is an exchange of revenue BETWEEN TEAMS.
There is absolute proof that these concepts work in the higher competitive depth we see in sports with spending caps and revenue sharing. When you mention the Yankees you ignore that they have to pay a big luxury tax, a fairly recent addition to MLB's economic system. The idea that spending caps and revenue sharing would not affect Hendrick Motorsports is implausible because when they are limited in how much they can spend their competitiveness IS affected; there is no reason to think that if they were not able to outspend everyone like they have done over the last 15-plus seasons they would still be on top.
Spending caps and revenue sharing stopped the buying of titles in other sports; it absolutely will increase the depth of NASCAR.
Posted by: Mike Daly | Jul 21, 2008 4:29:12 PM
Michael, you seem to be afraid of spending caps and revenue sharing both for racing and on principle. Why?
Posted by: Mike Daly | Jul 21, 2008 4:35:47 PM
MD, I don't see it working either...I pondered it a bit, But what is problematicis the each team must find their own sponsors, each arena is owned by outside entities, and mostly Nascar as a whole is owned by the France Family, and in order to not be...(Big Word that vacates my venacular) The France Family would need to Sell Off Speedway Motorports. In my honest opinion I would limit the number of cars an owner could have at 2...Not 4 like Nascar wants. Just think of all the new drivers that would be available, along with all those potential sponsorship dollars
Posted by: Fan #5 | Jul 21, 2008 7:53:27 PM
#5, that's exactly the point: any form of revenue sharing in NASCAR would mean a top-to-bottom overhaul of the whole sport.
And Michael, just because there is some form of revenue sharing doesn't mean that all teams would spend the money equally wisely. The history of recent team sports is full of stories of teams that spend wildly and lose (N.Y. Knicks, for example) and teams that pinch pennies and win. If you give me and Daly a mil each, I betcha that after a year one of us - probably Mr. Daly - would have a lot more money than the other. There are probably teams out there that would pour big bucks into whatever is the automotive equivalent of the 8-track player, while others invest in cassette tapes.
I'm interested, Mike, in franchising. David Poole wrote a piece on it a while back, but I forget the details.
Posted by: Doug in CA | Jul 21, 2008 8:51:12 PM
Mike,
I'm sorry you can't see that all the IRL is doing is doing away with the race purses and deviding that money evenly among the teams. You can call it "sharing" if you want to, but it's the same pot of money. Nascar would do the same thing. They would not and could not take sponsor money from one team and give it to another. All they will do is eliminate the "winnings" from the races. In doing so you eliminate 40% of drivers income. So, all the teams will have to increase the driver salaries.
In regards to the Yankees, I clearly said in my post that they pay penalties for carrying those huge salaries. I'm fully aware of the luxury tax and do not need a lecture from you on it.
I'm not afraid of spending caps, it is just a concept that will not work in Nascar. It is managable in other sports because it only involves player salaries. One thing. There are far too many variables in racing.
It also will not work because there is no organized Ownership group in Nascar nor no organized driver group. Both of which allow salary caps, etc. to be viable.
It also won't work because no one in Nascar: not the France's, Owners, drivers, and sponsors, want their salaries and expenditures made public.
That's why Nascar has and always will control costs by controlling the race car itself. That is why the COT was created (right or wrong).
Posted by: Michael | Jul 22, 2008 10:37:51 AM
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