When Michael Jordan and his right-hand man Curtis Polk bought the NASCAR team with driver Denny Hamlin in 2020, they were prepared to endure short-term losses. We had to hire drivers, mechanics, and sales staff. The next-generation car, which will be introduced in 2022, will cost the top teams around $18 million a year before paying their drivers, and their team, the 23xi, had two cars. Paying for a new building to house the cars would cost tens of millions of dollars more.
But they believed they could make that money back over time because NASCAR has a lot of room to grow. They correctly predicted that TV viewership and attendance would recover in recent years, although they would not return to the numbers of a decade ago. Sponsorship, the lifeblood of all racing teams, remained in demand, especially for teams owned by basketball legends like Jordan. They also speculate that the value of the sport's broadcast rights will rise, a foreshadowing in November when NASCAR signed a seven-year, $7.7 billion deal with Fox, NBC, Amazon and Warner Bros. Discovery. Corroborated.
However, they are having a hard time recovering their investment. The main reason, they say, is NASCAR's reluctance to further split growing revenue with the NASCAR Cup Series' 23xi and 15 other racing teams.
“In any partnership, if the pie grows, that means the business continues to grow,” Jordan said in an interview. “And to grow the pie, we have to make sure everyone in the partnership is healthy. If our ownership in NASCAR is losing money and NASCAR is the only one making money, that's not a good partnership. I can't say that.
For more than two years, racing teams and NASCAR have been at a virtual impasse over the financial future of the sport. In sporadic negotiations between the teams, NASCAR offered each team a slightly larger percentage of the new broadcast contract. But he balked at the team's request to share in revenue from future revenue sources such as gambling, and also rejected the team's request to make permanent the charter that teams must own to operate the machines.
Most teams, which lose money every year under the current model, said this hurt their ability to prepare for the future, scared investors and destabilized their operations at a time when NASCAR appeared to be in good health.
However, the continuing conflict is not just about income. It's about competing visions of stock car racing. Will it remain popular, albeit regionally, or will it be reinvented like a major sports league?
NASCAR declined to make executives available for comment for this article, but in November NASCAR President Steve Phelps said his organization “wants to change the paradigm of our race teams, and we… We need to make sure our race teams are profitable and competitive.” At the racetrack. ”
At a sports industry conference two weeks ago, NASCAR Chief Operating Officer Steve O'Donnell said, without going into details, that an agreement with the two teams was “very close.”
Unlike the National Basketball Association, the National Football League, and most other sports leagues, NASCAR is a privately held company tightly controlled by the French and Kennedy families. NASCAR is the sport's official organization, but it owns many of the tracks where races are held and also sells its own national sponsorships and broadcast deals.
The team is an independent company that competes fiercely on the track and earns sponsorships that account for more than half of its revenue. Approximately 30% of NASCAR's broadcast revenue is also divided among the teams. Teams also get a share of Track Wallet payments. It was only recently that teams had unified representation rights in discussions with NASCAR.
And unlike the New York Yankees or Los Angeles Lakers, the team is not a permanent franchise. Failure to put a car on track each week or poor performance could result in the loss of the charter. Charters can be sold, allowing team owners to recoup some of their investment when exiting the sport. (NASCAR doesn't release numbers for charter sales, but the team said prices have been steadily rising; the most recent sale reportedly fetched $40 million.)
The charter requires teams to enter all their cars in all 36 Cup races and two exhibitions each season. The costs of shipping cars and flying race teams across the country every week are significant. Teams must also pay a fee to attend each race, purchase qualifications for staff and set up their own hospitality suite at the track.
“I think teams want to play in that playground, and I think teams want to play in that playground,” said Tom Cotter, a former Charlotte Motor Speedway spokesperson and former Charlotte Motor Speedway operator. If you want to play, you have to follow NASCAR rules.” Japan's largest motorsports management company. “But I think it worked out well for both sides. NASCAR makes a lot of money and these teams have made a good living until recently.”
However, current economic models show that most race teams are losing money, and if nothing changes, they project total losses of more than $200 million over the next five years.
NASCAR issued charters to teams that qualified in 2016, giving them stock that they could sell or borrow. However, they were only granted within the term of the current broadcast rights contract, which expires at the end of this year. (Since 2016, 11 teams have closed, merged, or filed for bankruptcy.) Each team offered NASCAR a larger portion of the new broadcast contract, but only for seven years, the future broadcast period. He said he would renew his contract. contract. Polk and other team owners and executives said the uncertainty surrounding the charter makes it difficult to invest in operations and scares away outside investors.
“Unless we're all aligned and rowing in the same direction, NASCAR will never reach its full potential,” Polk, a member of the five-person committee negotiating with NASCAR, said in an interview. I wouldn’t be able to do it.” “There's a ton of money on the sidelines that wants to invest in big-time sports, and NASCAR is a big-time sport. We're not where we were in the early 2000s, but there's no reason we can't get back there again.”
The team doesn't seem so optimistic. Jeffrey Kessler, a top antitrust lawyer who has represented the NFL Players Association and other labor unions and now works for NASCAR racing teams, said they are “hoping to negotiate, but there are no deals that are unacceptable.” They won't respond,” he said. “I was hired to help them think through their options.”
One option was for the team to form its own race series with all the top racers and owners. If NASCAR tries to block access to racetracks, Kessler said, “they're exposing themselves to antitrust violations.”
Jonathan Marshall, executive director of the Race Team Alliance, a team advocacy group, said teams want to get a fair contract with NASCAR to make more bets on the future of the sport. He said the teams aren't looking for a portion of the revenue NASCAR already makes, such as ticket sales at the track. But a portion of future income would encourage investment in cars and facilities.
A permanent charter could also help the team attract outside investors, potentially covering the costs of operating the next-generation car.
“Next-gen cars have created greater parity, but Cup races are still very difficult to win, and the teams that consistently win with next-gen cars are the ones spending more money. There is a tendency,” Marshall said.
NASCAR said it introduced the new cars to level the playing field and reduce costs. Although racetrack parity has improved, cost reductions have not.
The team had to buy most of its auto parts from a single supplier, and had a lot of old inventory that they sold for $1. The new parts are also less durable, lasting only about four races, compared to the parts on his previous car that lasted him 10 races. The bodies of next-generation cars are made of carbon fiber and are more durable, but unlike the metal bodies of older cars, which can be welded and reused, they cannot be repaired if damaged. Teams are currently required to purchase a minimum number of tires, and the cost can exceed $1 million per season.
Team executives said they appreciate everything NASCAR has done to raise the profile of the sport. A new video and broadcast production center is located outside Charlotte, and Netflix is hosting a season-long reality series about drivers, “Full Speed.” And NASCAR has installed even more remote cameras and scanners at the track so fans can see and hear their favorite driver and his crew in the pits.
However, owners and executives said these enhancements do not change the fundamentals of the operating team.
“Having a permanent charter allows us to generate revenue streams through new investors and different types of sponsorships that subsidize ownership and differentiation between leagues,” Jordan said. “That's a big, big mistake. If we don't fix it, the sport will die not just competitively, but because it doesn't make economic sense to businessmen.”
