Hello, and welcome to the wonderful world of Nascar! If you’re a new fan of stock car racing, this is the place for you! In this ten-part series we’ll take a look at what you should and could know about America’s #1 auto racing organization. Let’s get started!
6. THE BUSINESS OF NASCAR—Money makes the cars go ‘round
The economics of Nascar is almost as fascinating as the cars themselves, with numerous business aspects combining to fuel race teams with cashflow. Here’s how teams make their money—and where that money goes. While there are plenty of other ways to earn and spend money in Nascar, these are by far the biggest:
Making Money
—Winnings. Teams make money by virtue of how well they finish in each race, and the season-ending points standings. While the bulk of this money comes from finishing as high as possible (ideally winning), additional money comes from contingency bonuses. These see teams agree to promote a company in exchange for a small base fee, with the opportunity to earn more money through certain incentives. An example of this is the Busch Pole Award—if a team has an agreement with Busch Beer, they are able to earn a bonus for qualifying on the pole. In exchange, these companies are usually allowed to claim that they are “The Official BLANK of Nascar”.
Teams will often run their own promotions for their sponsors—for instance, social media promotions where fans can share a sponsor’s hashtag in exchange for a chance to win the sponsor’s product. Teams will also do all they can to keep the sponsor happy, from wining and dining sponsors at race tracks to making changes to the car’s paint scheme to even selecting drivers based on the sponsor’s wishes. Drivers will sometimes bring sponsors with them, meaning that a team can get much-needed funding in exchange for hiring a certain driver—although this does not guarantee any level of driving skill. In order to fund their sponsorships, companies will frequently have “vendor partners” share space with them—for example, an insulation company could pay a home improvement chain money for prime space in each store, getting a spot on the hood of the home improvement chain’s sponsored car as well.
Sponsors tend to come from three sources—either the team itself, a third-party broker, or the driver will bring them. The amount of sponsorship a driver brings tends to influence how much the driver is paid (typically reflected in the percentage of race winnings they receive, although this information is closely guarded). In the past, sponsors were neatly divided into three groups—primary sponsors (the biggest sponsors with the most space, typically on the hood, sides, and back of the car), secondary sponsors (smaller sponsors with smaller logos, usually on the lower sides or the “posts” of the car), and contingency sponsors (small decals on the front sides of the car). As the sport has evolved, however—and due to the development of vinyl “car wraps” that make changing a car’s appearance much easier—teams now will typically run a number of different paint schemes, with sponsors who pay more getting more races as the primary sponsor.
—Merchandising. Much like other sports, Nascar has a robust merchandising industry to provide fans with souvenirs of all kinds. The most-popular of these are clothing (t-shirts and hats) and small scale-model reproductions of the cars themselves (colloquially known as “diecast”). The breakdown of how the money is shared varies from team to team but typically the biggest shares are divided between the merchandise manufacturer/marketer and team itself. In the past few decades a once-fractured marketing landscape has become consolidated under Nascar itself.
Spending Money
—Cars and Equipment. Nascar is not a cheap sport to participate in. The biggest and most-successful Nascar teams will use over a dozen different types of cars throughout the year, each fine-tuned in construction for the specific track it runs at—for instance, a car running at a flat short track will handle quite differently than a car running at a steeply-banked super speedway. The largest teams will have staffs numbering in the hundreds, ranging from the at-track personnel to others such as engineers, business managers, marketing executives, and support staff. All of this is quite expensive, and means that the teams with the most money tend to have the most resources, leading to the best finishes. Teams can range from the hundreds of employees at a behemoth like Hendrick Motorsports or Joe Gibbs Racing to under a hundred at mid-level teams like Richard Petty Motorsports or Front Row Motorsports. In the lower series, independent Xfinity or Truck Series teams could have full-time employees numbering in the single-digits, with positions such as pit crew members outsourced to other organizations.
**There’s also the issue of equipment needed to run a race. Besides the cars themselves the most-expensive item is the engine. These purpose-tuned engines are either built by the biggest teams for their own use (Hendrick Motorsports) or bought by teams for upwards of $100,000. Smaller teams may get a discount by leasing an engine, but this limits the amount of customized adjustments that can be done. The next most-expensive item race teams use are tires. Teams will use up to a dozen sets of tires throughout a standard race weekend, costing around $2,000 per set. There’s many other expenses to consider—motor oil, fuel, food to feed the team members come to mind—that all make running a race team far from a profitable enterprise.**
—Charters. In 2016 Nascar introduced a charter system to allow teams guaranteed starting positions for each race and a greater say in the direction of the sport. These charters (comparable to a franchise in other American sports) have been sold for millions and is arguably the highest barrier to entry for any new team. Note that while a team can enter a race to compete in one of the four “open” starting spots, they receive a smaller cut of the race purse, regardless of finishing position.
—Drivers. What drivers are paid by their team owners is as inscrutable of a fact as any in Nascar. Typically it is thought (and found through legal filings) that drivers will usually receive a percentage of race winnings, thus acting as a financial incentive to finish better. If a driver brings sponsorship this percentage might be lower—the driver will instead take a cut of the sponsorship funds, allowing any extra money won through good finishes to be funneled back into the team.
**—most of the numbers in this section are from the Florida Times-Union article “Pit road to money pit: Costs to field a Nascar team are staggering” by Don Coble.
All pictures courtesy www.Jayski.com