So That’s Why They Call Them Stock Cars
What do Victory Lane and Wall Street have in common? You’d be surprised.
In 1992, the automotive refinish coatings business of chemical giant DuPont signed an agreement to sponsor Hendrick Motorsports’s No. 24 car. At the time, the deal seemed relatively minor; Nascar was still a second-tier sport. In fact, managers at the DuPont coatings unit were just hoping the investment would lock up business with Hendrick founder Rick Hendrick, who owns a nationwide network of car dealerships, many of which have auto-body shops.
The deal has worked out much better than that. Over the past 15 years, Nascar’s popularity has skyrocketed. And the driver of the No. 24 car, Jeff Gordon, has gone on to win 79 races, catapulting him to the top of the Nascar pantheon. “The sponsorship has become a prominent source of branding for many of our lines,” says Ray Anderson, vice president of DuPont Refinish Americas. “It’s become a corporate asset.”
Indeed, a stock-car sponsorship may well be the best investment vehicle in the corporate world. Stock-car fans are wildly loyal to Nascar and, by association, Nascar sponsors. A survey conducted by Performance Research found that 71 percent of Nascar fans “almost always” or “frequently” choose a product because it is involved in the sport. By comparison, less than half of professional golf fans made the same assertion.
This devotion hasn’t been lost on Wall Street. According to one study, publicly traded companies that announced Nascar sponsorships between 1995 and 2001 enjoyed mean gains in stock value of $324 million (net of market influences, market risks, and the costs of the sponsorships) within two days of the announcement. That worked out to a 1.3 percent gain in share prices. Consumer automotive businesses saw a nearly $500 million average boost in market cap. “I had expected these to be lousy investments,” says Stephen Pruitt, a professor of finance at the University of Missouri at Kansas City and co-author of the study. “But Nascar produced the biggest gains by far of any sponsorship in sports.”
Pruitt is currently working on another survey, examining the market-cap impact of event sponsorship — college football bowl games, golf tournaments, Nascar races, and the like. While the results have yet to be released, Pruitt does say Nascar is leading the pack. “Nascar,” he says, “is the king of all events.” — J.G.