By The Commish

There’s been a lot of discussion lately about sponsorship–who gets it, what it costs, why more companies don’t do it, and so on. And from what I’ve seen, many fans don’t understand how sponsorship works or why the sponsors have come to play such a big role in what goes on with their favorite race team. So I thought it was time to go have lunch with two old friends, both of whom work in Charlotte-area sports marketing groups, and talk about what’s happening these days with NASCAR sponsorships. As always, the lunch was great, but the conversation was better.

The (B) basics of sponsorship are still the same: these days, the price for a major sponsorship on a Nextel Cup car for the year start at around $8 million and go to around $21 million. At least, that’s for what the sponsor pays the team. That price guarantees that the sponsor’s name will be on the car’s hood, the transporter, the team uniforms, its publicity materials, its at-track merchandise and diecasts, and so forth. It means the driver, the owner, and the crew chief will do hospitality appearances, show up at stores and corporate events, do meet-and-greets for valued or potential customers, wear sponsor hats and shirts and drink the right product when in public, and spend almost as much time working for the sponsor off the track as they do driving for the team on the track. It means hours and days spent in making print, television, radio, and POS (point-of-sale) ads for their sponsors; Dale Earnhardt, Jr. estimated that he spent 27 days in January 2005 making such ads, for instance. In return, the sponsor writes a big check to the race team three or four times a year (depending on contract) to pay for its expenses. That’s the easy part. But what goes beyond the basics?

The answer is more and more costs to the sponsor. NASCAR now expects a principal sponsor to spend more money for at-track advertising and services–renting hospitality tents and leasing suites, providing merchandising displays, taking out ads in track programs, etc. And they put pressure on sponsors to become sponsors of Busch or Cup races as well, to add to the expense. This cost–while it’s also tax deductible–can add as much as ten percent above the direct price of the sponsorship. Mind you, this revenue doesn’t go directly to NASCAR–but a great deal of it goes to ISC, NASCAR’s sister organization. And if a sponsor chooses not to spend freely at the track? Funny, but its car tends to have trouble in inspection, its hot passes tend to get mislaid, and so on.

Beyond the direct sponsorship costs and the at-track costs, there are the (P) publicity costs for the sponsors at well. Those in-car cameras? The sponsor pays for them separately, not directly to the network but through NASCAR Images, the broadcasting arm of our friends in Daytona. The cost for an in-car cam ran $30,000 to $50,000 per race (depending on anticipated ratings) in 2004, and prices are in the same range this year. Not all cars that want cameras in them get them–- only those that NASCAR approves of (again, another way of showing approval or disapproval for at-track support). Assume that NAPA, for instance, pays $30,000 for an in-car cam for 38 races–and you can see where another million dollars gets added to the cost of its sponsorship. Some companies, like DuPont, choose not to pay for in-car coverage, assuming that the 24 car’s performance will get it ample time on camera anyway, but other sponsors feel that this is the best way to ensure that their car is seen and their driver is discussed by the network announcers.

Wonder why the broadcasters on Sunday talk about some drivers but not others? Sponsorship is also involved. If the company does not also take out race broadcast TV ads, sometimes the broadcaster will not mention its driver or name–or just talk about “the 18 car,” not “the Interstate Batteries Chevrolet.” In several instances in the last two years, the FOX broadcasters did not even use the race sponsor’s name during the broadcast because the sponsor’s at-track contribution was not deemed big enough. It’s blackmail, but they get away with it.

So why do companies put up all this money? The answer lies in the D in my title–demographics. The biggest companies in the world don’t sponsor cars and drivers because they like racing; they do so because that sponsorship gets their name and their product out in front of their specific target markets. The Armed Forces, for instance, know that sponsoring two Cup cars and two Busch cars, along with their various at-track programs, gets a positive image of the services out in front of a large number of enlistment-age young Americans–and with the difficulties the services are having making their recruiting quotas in current political circumstances, anything that makes them look good is a worthy expenditure. Other companies like Lowe’s and Home Depot choose sponsorships that they think will draw more customers.

Lowes chose Jimmie Johnson because they thought he would appeal to the young homeowner/HGTV viewer crowd, while Home Depot went for Tony Stewart because they thought he would appeal to the do-it-yourselfer/build-it-from-scratch market. Neither company expects its driver actually to sell home improvement products; what they expect is that when Jimmie or Tony’s fans need to go buy paint or kitchen cabinets, they’ll choose the home improvement warehouse of their favorite driver over the one associated with the other driver–an indirect sale. Pepsi originally chose Jeff Gordon for his association with the clean-cut youth market, while Coke decided to go for a “Family of Drivers” to appeal to a variety of ages and backgrounds. When Gordon won a Pepsi-sponsored race in 2004, he reinforced his value to his sponsor–especially in the July race, where he defeated a major Coke effort to launch a new product on Pepsi’s dime. That won’t be forgotten when Pepsi renegotiates its deal with Hendrick Motorsports this year, although Gordon at age 34 is actually fairly old to appeal to Pepsi’s target consumer, who is 14-19.

Demographic influences are becoming more and more pronounced as sponsors exert more and more pressure on choosing and retaining a driver. This isn’t just “Old School” vs. “Young Guns” at the track; it’s much more heavily influenced by the sponsor’s desires. If the company spends the money, it gets a final say on who represents it. A good case in point is the beer car situation. How long has it been since you saw a national TV ad featuring either Rusty Wallace or Sterling Marlin advertising their product? While these two racing icons are still great with sponsor representatives like distributors and can get it done on the track, neither appeals to the 16-25 year-old market–which is the age where beer preferences are established. Thus, to compete with Bud’s popular sponsorship of Dale Earnhardt Jr, both beer competitors run ads with youth-oriented humor, big-bosomed women, and other “appeals” that deflect attention from the age of their current drivers. Both Coors and Miller Lite are actively searching for “new” drivers and their current teams are working on driver development plans to keep their sponsorships–not just to determine racing talent but also to see whether a potential new driver will “draw” in this coveted demographic market.

With Rusty Wallace’s encouragement, Miller is flirting with the popular and telegenic Jamie McMurray (though it is a longshot that Chip Ganassi will ever sell his contract to arch-rival Roger Penske) because he appeals to both male and female fans in that age bracket. Wallace’s current teammate Ryan Newman has the established success needed for a high-profile ride, but his frequently expressed aversion to beer and drinking has alienated the Miller folks. And while Ganassi has been grooming David Stremme for the Coors ride in 2006, that beer company now favors 19 year-old Reid Sorenson, feeling that he tests better with viewers than the sometimes-arrogant Stremme does, especially among men. The upshot? Nobody’s sure who will be in Rusty’s Miller Lite Dodge yet, but the feeling is strong that Marlin will get a one-year extension at Coors until Sorenson is old enough to advertise liquor.

Which brings us to the fourth letter in my title, R, “Return on Investment.” This isn’t something most of us think about, but it’s one of the chief ways sponsors evaluate whether a sponsorship is worth it. ROI measures how much money comes in (return) for what the sponsor shells out (investment), and the average number my Charlotte friends toss around is a 3-to-1 ROI. That is, if a sponsor spends $10 million on a team, it expects to get $30 million of exposure in return. DuPont CEO Chad Halliday revealed several years ago that Jeff Gordon’s ROI was closer to 5-to-1; the only other driver in NASCAR with a similar return is Dale Earnhardt, Jr. Part of this is measured through Joyce Julius numbers–the equivalent of Neilsen ratings for NASCAR. Julius counts up the number of appearances a car makes on national television through a race weekend, measures the seconds it is on the air or discussed by the announcers, and assigns a cash value to that exposure.

The Joyce Julius numbers show that Gordon’s Daytona 500 win was worth over $9 million to DuPont in primary race coverage; but his appearances on so many television and media outlets in the following week probably doubled that exposure to non-racing audiences. Thus, if the DuPont sponsorship costs $20 million a year (a common guess for DuPont’s spending on primary and at-track cost), the company hopes to get $100 million a year back in exposure. In one week out of thirty-eight, Gordon generated almost a fifth of what DuPont expects for the year, not to mention the positive intangibles he generates. When people wonder about whether DuPont will renew its sponsorship of Gordon’s car in the face of its financial challenges, it’s numbers like this to think about: for a week, no one asked questions about the EPA or lawsuits or anything uncomfortable. Instead, they saw DuPont as a winner, a positive contributor–whether it was on ESPN or Live with Regis and Kelly. That’s part of the reason companies want to sponsor a winner–his success makes them look good.

These factors show why, first of all, sponsorship is so expensive and sponsors so concerned about whom they sponsor–this is Big Money we’re talking about. NASCAR fans are phenomenally loyal to NASCAR sponsors; a recent survey by Rhode Island firm Performance Research showed that 57% had a higher level of trust in products from NASCAR sponsors, while a whopping 71% said that they frequently or always chose a product from a NASCAR sponsor over a similar product from a non-NASCAR sponsor because of that sponsorship. But very few companies have balance sheets healthy enough to spend $10 to $20 million on new advertising–a NASCAR sponsorship either has to replace another advertising venture or be guaranteed to return enough income to be worth it. Most companies with those kinds of advertising budgets are already in NASCAR or, in the case of the telecommunications industry, closed out because of the NEXTEL sponsorship. the markets least tapped with that kind of money are consumer electronics, family foods, and hard liquor–and as you know, NASCAR opened the door to hard liquor sponsors this year, though so far to mixed approval. For what it’s worth, the experts expect consumer electronics to come in with Toyota in 2007–and if you don’t believe Toyota is on its way into the Busch and Cup series, watch its new “Made in America–Moving Forward” TV ads.

Racing never gets cheaper, no matter what “cost-savings” strategies the folks in Daytona Beach implement. Teams simply find other places to spend the money they used to put into qualifying engines or practice equipment or so forth. The number of deep-pockets sponsors who can keep at least 35 healthy teams on the track is very limited. Though NASCAR hates to admit it and tries its best to counteract their presence, sponsors have the whip hand in racing right now. Race teams need to worry not only about success on the track but successful marketing off it to keep their sponsors happy. That’s why NASCAR is moving races to bigger media markets, trying to build tracks in areas important to its sponsors, and even flirting with international events. The sponsors are where the money is–and in NASCAR, “Show me the money” has always been as powerful as “Gentlemen, start your engines.”

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