This New Alliance Is Threatening NASCAR’s Business Dictatorship

When it comes to professional stock car racing, the old saying suggesting that 'the more things change, the more things stay the same,' may or may not apply.

Jul 26, 2014 at 10:42AM

Consider this: Your firm plays a critical role in the success of one of the country's most well-accepted domestic sports corporations, but you feel that your business needs are being ignored by managers who perch higher up the food chain. What do you do?

Nhms General American Eagle Nascar Photo
New Hampshire Motor Speedway. Source: NASCAR Media

Well, in the case of professional motorsports, and NASCAR specifically, you form a commercial association, then actively attempt to influence events ranging from technical issues to overall business direction. Talk about pulling the Tiger's tail.

That's exactly what happened in the case of the Race Team Alliance (RTA), its now antagonistic sanctioning partner NASCAR, and upstream corporate parent International Speedway Corporation (NASDAQ:ISCA). The genesis of RTA was triggered by a disagreement over a small item within NASCAR's technical rules, but the implications are far greater. And senior management at Daytona isn't pleased.

"We didn't think it was necessary," said NASCAR Chairman and CEO Brian France. "We think the benefits they will arrive at with this association will be much smaller than they do.

"The one thing that is essential to NASCAR is," he continued, "...when you hear one voice that would probably be the worst thing that we could ever do, is listen to one voice, even if it was a consensus voice. Every decision we've ever made that's important, the more input, the more people we heard from, the better the results. That will never change in the business model of NASCAR because good ideas come from all over the place."

The RTA has a different take on that.

"To the extent the teams are more secure in their long-term future and have better business models," said RTA's new head Rob Kauffman, "I think it just makes the sport stronger, where you can really afford to invest for the long term, and not just survive year-to-year."

To understand how these two powerful protagonists came to be at odds, one has to first understand how business dependencies work in the professional motorsports segment. Because, to be frank, there ain't another circus more interesting to puzzle through.

Richard Petty. Source: NASCAR Media

Why 'they' fight...
To understand NASCAR's operating model first you have to accept that motorsports business works somewhat like a helicopter -- it's a frequently unharmonious group of loose commercial parts flying in close formation.

As the overall sanctioning body ISC/NASCAR effectively owns and runs "the show," including on the cost side. They create rule sets, ensure technical parity among teams, maintain schedules, secure and manage broadcast rights and sponsorships, market and advertise, and generally serve as judge and jury.

Nhms General

New Hampshire Motor Speedway. Source: NASCAR Media

The company also makes money from its lucrative broadcast deals, sponsorships, licensing fees, and all the dollars fans spend on race day.

Meanwhile, individual racing teams operate as "cottage businesses," typically structured as privately held corporations such as Hendrick Motorsports, Richard Childress Racing, and Joe Gibbs Racing. These folks do the actual competing. But each team is also a complicated business, from building cars to finding and developing the right drivers, from selling T-shirts to getting to the next race on time.

The teams make money through NASCAR's broadcast revenue, direct sponsorships, branded product sales, and affiliate commercial endorsements.

Not part of the Union Label ... ever
In the early days of professional stock car racing, teams and drivers were primarily left with the dirty end of the stick in terms of the cost versus revenue equation. Entrepreneur Bill France Sr. put on the events, took the money, and parsed revenue out to competitors in the form of "position money." Teams and drivers took on substantive financial (not to mention physical) risk by finding a car, traveling to events, and racing, all on the hope their earnings would outweigh the cost of participating. More times than not they went home with less than bus fare, or worse.

Bill France Senior Speedhunters

Bill France Sr. Source: Speedhunters

The business model worked for France -- he made a fair amount of money from his regular events. Not surprisingly, drivers and teams weren't nearly as happy, leading to the first attempt to unionize. As the story goes, France had a pistol and knew how to use it. So, when Jimmy Hoffa and his Teamsters tried to make a move on his interests by attempting to collectivize and attract NASCAR's drivers through the proffer of pension and insurance programs, France pointed out that what came out of his .38 Special would trump any "community organizing" effort ... and that was the end of that.

Jimmy Hoffa Gannett

Jimmy Hoffa. Source: Gannett

During the next eight years, the growth of professional stock car racing continued apace. France continued to receive the largest share of revenue, while drivers and teams generally broke even at best. Then, in 1969 Richard Petty, Bobby Allison, and LeeRoy Yarbrough took another run at collective bargaining when they launched the Professional Drivers Association (PDA) at that year's Talladega round.

The drivers then -- as with today -- were concerned primarily about their safety and wanted some control over the sport's level of risk. Again, however, the effort came to nothing.

What might be different this time around
Today NASCAR's business model is quite different. The sanctioning body no longer rules the roost, so much as it's trying to hang on to what used to be. In the current economy, money is tight, and operational costs across the sport pose ever mounting challenges.

Jeff Gordon. Source: NASCAR Media

On top of that, most drivers and teams are no longer financially dependent on business decisions made by the folks at Daytona. These brand-based enterprises have expanded their own businesses, supported by nearly two decades of motorsports broadcast revenues. From Richard Childress' winery business to Jack Roush's engine and aviation engineering operation, and with drivers becoming businessmen in their own right, teams are no longer at the mercy of ISC.

Today's NASCAR series drivers and teams operate as highly substantive stand-alone enterprises. They foster and maintain their own customer bases, while offering their own branded consumer products that typically lead to further revenue streams.

So, when the RTA decides to attempt to influence what will or will not happen in NASCAR going forward, the people at Daytona might want to consider these folks to be equal business partners, rather than seeing the association as a threat. To take an old-school "management against hired-help" worldview is not only narrow-minded, it flies in the face of practical economy.

With dwindling attendance and revenue, things are hard enough now. The parties need to work together, or else run the risk of killing the sport's future by clinging to its obsolete past.

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Rick Carlton has no position in any stocks mentioned. The Motley Fool recommends International Speedway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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