Earlier this year, it was reported that Sprint (NYSE:S) and NASCAR won't resume sponsorship negotiations until 2015. At that time, Sprint was in talks to buy T-Mobile (NASDAQ:TMUS) for $32 billion and needed to concentrate on that merger, and NASCAR was busy negotiating its less-popular Nationwide Series. Since then, NASCAR found a willing sponsor in Comcast, and Sprint's T-Mobile bid was abandoned, rendering both issues resolved.
The sponsorship, initiated in 2004 with Nextel and renewed by then-CEO Dan Hesse in 2014, expires in 2016. And if new CEO Marcelo Claure wants to depart from the Dan Hesse era, he should not renew Sprint's NASCAR's sponsorship. In the end, there are more effective ways Sprint can deploy capital than a marketing sponsorship with the auto racing association.
"Half the money I spend on advertising is wasted; the trouble is I don't know which half"
Former U.S. Postmaster General John Wanamaker is widely credited for summing up the biggest problem businesses experience with advertising. Advertising is an important and needed skill for any business; that's not up for dispute. However, advertising can be rather inefficient and, in many cases, a waste of money. Sprint has been notoriously tight-lipped about the cost of the sponsorship, but mentions the NASCAR sponsorship as a way to increase "brand awareness" and sales.
The problem with large sponsorship ad spends is it's really hard to quantify their success. In a time when marketing is actually becoming more efficient with real-time bidding, among other breakthroughs, sponsorships are still rather hard to measure. And as the old saying goes, "If you can't measure it, you can't manage it."
Maybe you should spend money on this, Sprint
It isn't as if Sprint doesn't have projects to spend cash on. Once considered a top-notch provider, things have taken a nasty turn for the company. Its recently reported second fiscal quarter could best be described as horrible -- the company reported a loss of $0.19 per share versus analyst estimates of $0.06 per share. Even worse, the company lost 272,000 postpaid (contract) subscribers. For perspective, AT&T, Verizon, and T-Mobile all gained postpaid subscribers.
Not only that, the company has the highest postpaid churn rate -- read: customers who leave for another network -- of 2.18%. And while that sounds low, Verizon and AT&T have rates near 1%. The company continues to anger existing customers with substandard network performance, long customer service waiting times, and more outages than others while it builds out its 4G LTE coverage. These are all things that will take time and, more importantly, money to rectify.
In a time where Sprint needs more hands on deck, the company appears to be cutting jobs. Along with its second-quarter results, the company announced it would be cutting 2,000 jobs in a cost-saving initiative. In the short term, this may have a positive effect on its bottom line -- Sprint reports $400 million per year in cost savings -- but when customers give your customer service and network a substandard rating, cost-cutting will only get you so far.
Hard to justify a sponsorship under these conditions
Right now, Sprint finds itself fighting an uphill battle. On its current path, the company is at danger to lose its third-place carrier spot to former acquisition target T-Mobile. Brash CEO John Legere has attacked all carriers with its Un-carrier initiatives, but finds willing defectors in Sprint. In an attempt to provide more value for shareholders -- mostly Softbank -- Sprint is cutting jobs to save money.
Personally, I'd be willing to bet that those former employees, current customers, and shareholders would prefer Sprint to spend the money fixing its network and customer service issues rather than giving it to NASCAR.
Jamal Carnette has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.