Industry watchers say the countersuit may signal a change in how Nascar does business. Then again, Nascar may not have any choice. Given the merger mania currently gripping Wall Street, it’s likely that a number of team sponsors will want to revisit their driver/owner contracts. Alltel, for example, was recently bought by a group of private-equity firms — and word is that the wireless provider might be a takeover target of larger telcos. (Alltel turned down an interview request from CFO.) “AT&T found a legal loophole,” says DeGaris of Sponsorship Research. “Who knows if Alltel will try to jump through it as well?”
For the moment, AT&T doesn’t appear to be backing down. Nascar watchers say the outcome of the case could prove vital to the long-term financial stability of the sport. Asks DeGaris: “Will the teams and the tracks be able to get together and follow a strategy that has been successful for the Olympics and for the NFL, and market as one?”
During flush times, team owners and promoters almost always let Nascar take the lead. But in leaner times, the sport’s all-for-one mentality may be sorely tested. “Traditionally, this deal has worked because everybody has believed in certain things,” says Hendrick CFO Lampe. “You need to protect the title sponsor, you need to protect licensing. We believe that philosophically.“
Lampe pauses, then adds: “But if the growth slope flattens out, what happens? Does everybody panic? Does greed overwhelm the thing?”
John Goff is a senior editor of CFO.
The Cost of Tomorrow
Nascar’s new “Car of Tomorrow” is supposed to save racing teams money. But it could do the opposite.
To help keep racing costs in check, Nascar restricts what teams can do to their cars. “We can’t fix everybody’s problems,” says Nascar president Mike Helton. “But with the rules-making process, we try to keep the sport to where it can be affordable.”
That push can best be seen in the much-trumpeted Car of Tomorrow, essentially a set of car specifications that all teams must follow by next year. The new car design should make racing safer. In theory, the design will also make racing cheaper, since teams will no longer be allowed to build different race cars for different tracks.
Whether teams end up spending less money remains to be seen. Racing observers believe it will cost Nextel Cup teams $100 million in aggregate to make the switch. Further, several teams have already been hit with stiff penalties for violating the design specs. Before the race in June at Infineon Raceway in Sonoma, California, two Hendrick Motorsports teams (Jeff Gordon’s and Jimmie Johnson’s) were fined $100,000 each, and their crew chiefs suspended for six races, for violating the standard.
Moreover, Nascar’s attempts to take the costs out of racing have not always been successful. “It’s often the law of unintended consequences” at work, notes Stephen Pruitt, a finance professor at the University of Missouri at Kansas City. A few years back, for example, teams discovered that springs with six coils performed better than four-spring coils. They were a lot more expensive, however. So, Nascar issued a rule prohibiting six-coil springs. But deep-pocketed teams hired engineers to design a four-coil spring that performed like a six-coil spring. Says Hendrick Motorsports CFO Scott Lampe: “If Nascar wants to save us money, don’t change the rules.” — J.G.