NASCAR’s Merger-Mania: Good or Bad?
By Mike Mulhern
DOVER, Del.
So what to make of this merger-mania in NASCAR? The wave of mega-mergers and acquisitions washing over the sport has provoked considerable interest this season, and a little worry, in the stock car racing garage. What really is going on here? And is it good or bad for the sport?
The business of NASCAR, always just a little murky, and more than a bit Machiavellian, is suddenly increasingly complicated and confusing…as well as increasingly expensive.
Some veterans looking at this season’s lightning run of mergers – Jack Roush making a partnership deal with John Henry’s Fenway group, Ray Evernham making partnership deals with sportsman George Gillett and the Pettys, the Arizona Diamondbacks’ Jeff Moorad and Tim Garfinkel buying the Roger Staubach-Troy Aikens team, Bobby Ginn selling the remnants of his operation to Dale Earnhardt Inc., Richard Childress buying back some of the stock he had earlier sold to investment company Chartwell, Robert and Doug Yates cancelling a deal with Paul Newman and Carl Haas and then making a new partnership deal with Roush – and recall the worries NASCAR executives had when wealthy coalman J. D. Stacy arrived in this sport and plastered his name on the rear quarterpanels of half a dozen cars some years back.
Throw in NASCAR’s unexpected and sudden acquiescence in the monumental legal battle against AT&T, and the somewhat troubling TV scene, and the still-debatable car-of-tomorrow, and maybe it’s time to take a step back and try to see the bigger picture here…if that’s even possible.
Kyle Petty says the increasing consolidation of power among an ever smaller group of team owners is one of the most important stories in this sport today. And he kicks the media for generally ignoring it, and for focusing instead on trinket stories of no great significance:
“The whole model of a NASCAR team is changing. But the media is focusing instead on Jeff Gordon’s baby’s name and Dale Earnhardt Jr.’s new car number.
“While the media is focusing on that stuff, the very underpinnings of this sport are changing.
“When you get down to the consolidation of teams – Roush, Rick Hendrick, Gibbs, Childress, Chip Ganassi, Evernham, Roger Penske, DEI – you’ve only got seven or eight owners. And I could get those seven or eight guys into a room….
“There is strength in numbers. With 43 teams and 43 owners, there is no strength there. With five or so owners, and only six or seven primary engine builders and only four manufacturers, there is a lot of strength there. That’s a story that hasn’t been paid attention to, a story that nobody’s written.
“The consolidation of engine programs in this sport is an important but very quiet revolution.
“This appears to be a sport that is migrating more to the Formula One model: Strong team owners, strong sponsors, strong manufacturers….and Bernie Ecclestone (the F1 czar).”
When NASCAR, in 2000, signed that first multi-billion-dollar TV package, there were immediately complaints from some car owners about NASCAR’s traditional split of TV – 65 percent to the track owners (18 of the Cup tour’s 22 tracks are owned by either the Frances or Bruton Smith), 10 percent to NASCAR, and only 25 percent to be divided among the team owners themselves.
Those complaints were quickly squelched, publically at least.
However the TV money issues may not have gone away completely.
And Petty, though certainly not advocating any showdown, points to an increasing NASCAR weakness:
“We may say we owners want more TV money. They say no. We say we won’t show up.
“They’ll say ‘We’ll just bring in our Busch teams.’ But we’ll say ‘We won’t send our Busch cars either.’
“Half the Busch field today is owned by Cup owners.
“The underpinnings of NASCAR’s strength are slowly being washed away by this tide.
“NASCAR likes to say ‘The second-strongest racing series in the country is the Busch series.’ But it’s all because these Cup owners are sending their 21 Cup drivers over. If you pull that out, that’s not a strong series.
“And they’ve struggled all year to get a new sponsor for the Busch series.”
For teams, this sport’s economics, while remarkably strong, and on an upward curve, are changing very quickly and in some strange ways.
“If you look at this merger stuff, I’m going to pat myself on the back, because I said six to 10 months ago that I felt alliances among teams would be the way to go,” Petty says.
“The question is What do you want out of a deal: money now, money tomorrow, or money in 10 years?
“You’ve been around long enough to see it – this garage is so much follow-the-leader, monkey-see monkey do:
“‘Oh, you’ve got four teams. I’ve got to get four teams.’
“‘You got an open-wheel driver. I’ve got to get an open-wheel driver.’
“My point is who knows what’s going on?
“Look at the driver development program rage. Everyone had to get one. But just walk through this garage and show me how many drivers here came out of the driver development program. Jack Roush had a great driver development program, that everyone praised and copied and tried to emulate. But when it came right down to it, he had to ask Mark Martin to stay another year because he didn’t have anyone to put in the car. That was just smoke.
“All that stuff has come and gone, and ebbed and flowed.”
And now the hot issue is ‘merger.’
“What does Jack Roush get from Fenway? Nothing initially…but now you’re seeing cross-promotions with the Red Sox, now you’re Aflack and companies that are coming to this sport because of the Red Sox and that they can now do cross-promotions with Major League Baseball,
“ Petty says.
“So what do you want out of a merger? Do you want somebody to come in and invest in your team and spend money today? If so, there have been some deals done that are decent deals in my mind.
“But if you’re looking for an investor to come in and help you grow your business, then there are some deals out here that have been done that are in my opinion Economics 101 Stupid.
“I look at Fenway-Roush as a model program, because it has a ton of upside potential long-term.
“When people look for investors, they do that for one of two reasons: either to save your butt from bankruptcy, or long-term potential. Anything in between, don’t take an investor; grow your team yourself.
“So when I look at the Ginn-DEI, what a waste of breathe and waste of time.
“But when I look at Yates-Roush and what they’re doing over there, I say ‘Hmmmm, that’s a move of desperation…it happened so quickly.’ They first do one thing, then turn around and do something else.
“It’s the Yates saying ‘How can we stay in business?’ They’ve got two teams, one driver, and no sponsors. It’s September 21st and that’s awfully late in the year…..
“So it becomes a Team Ford thing: with Roush-Fenway-Yates all playing together.
“Now Richard Childress, in his original deal (with Chartwell Investments three years ago), and let’s give him credit for being the first guy to step out and find a group of investors, got an influx of cash that allowed him to expand his business. Now that was a plus, a huge plus.
“But of course sometimes being the first is not always the best place to be, because everyone gets to see how you did it.
“When I look at Ray’s deal with Gillett, that’s got a lot of upside potential too. The Canadiens, the soccer, the baseball team. It’s got legs.
“Some of the other deals you’re hearing about, merging teams, making alliances, that’s all about what’s going on around the race track.
“But Ray’s deal with George is bigger than that. The Fenway deal is bigger than that.
“When Childress did his deal, it was all about ‘the race track.’ His deal was strictly one-dimensional, specifically about the race car.
“The Roush-Yates deal is specifically about the race car. The Ginn-DEI deal is specifically about the race car.
“Roush, for the Yates, let’s be real – Jack will do all the motors, all the engineering, all the marketing, all the cars, hire all the people, hire all the drivers, and run all the teams…but it’s not really ‘his’ team. He’s already got five teams.
“There are only two deals that I can see that are about things outside the race car, and those are the Roush-Fenway deal and the Evernham-Gillett deal.
“But then there’s the Diamondbacks’ group jumping into NASCAR. That’s a good example of someone looking at the Fenway deal and the Gillett deal and saying ‘Hey, maybe we need to get in here too.’ Because that deal came together very, very quickly.”
Just what the Pettys themselves are doing is curious too. They’re working with Evernham on the technical side of things, particularly with the car-of-tomorrow and with engine leasing. They’re also working with Gillett on separate business deals.
“Now Petty Enterprises is a strange animal,” Kyle Petty says. “We’re two race teams. We’re also an iconic brand in ‘Richard Petty.’ We’re also ‘the Richard Petty Driving Experience,’ with 1200 to 1400 race track days and all that. We’re also the Victory Junction Gang Camp.
“Petty Enterprises is a broader scope than just the track.
“Now if we’re looking at somebody to help from a business standpoint, to help us grow the Petty ‘brand,’ that’s a whole different story from looking at somebody to help us on the sports side…that’s a totally different business partner.
“So ‘Do I want a guy to help me grow the sports’ side?’ Or ‘Do I want a guy to help me grow the business side?’
“And where are we in our deal? Can I grow the business side and the bleed-off help the sports side….or can I grow the sports side and the bleed-off help the business side?
“There are a lot more questions to ask now than when Childress did his deal. When you step back and look at all this globally, it is different today.
“When we talk mergers and acquisitions, this is not a sports story, it’s a business story.
“But then this is only a sport for four hours every Sunday. It’s a business the rest of the week.”