NASCAR’s Business Model Hits the Wall | Alex Meshkin http://www.alexmeshkin.com/2009/01/25/nascar%e2%80%99s-business...

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25 Jan, 2009

NASCAR’s Business Model Hits the Wall

Posted by: Alex Meshkin In: NASCAR

The Associated Press (AP) has reported Brian France, CEO of NASCAR, has directed his management to
work with teams in developing new business models that can help them withstand the current economic crisis.
As we are all aware, NASCAR teams rely on corporate sponsorship to fund the majority of their operating
budgets, which is substantially different than any other major sport. Whereas, NFL, NBA, NHL and MLB
teams participate in higher levels of revenue sharing as a result of a franchise business model.

“We’re trying to do more with less. That’s the difficult part of this economy,” France said
following his state-of-the-sport address to media at NASCAR’s Research and Development
Center. Just back in December, NASCAR issued a statement stating that NASCAR heading into
2009 was “strong”.

This outlook is a rather quick reversal, but perhaps the gravity of the current economic climate and mass
sponsor deflections is making an impact.

Doing more with less? Working with teams to develop new business models? I apologize, but in my humble
opinion, it’s a little too late for a half-baked plan. But even worse and what is frustrating is NASCAR’s
continued unwillingness to restructure the distribution of television revenues to rightly supplement teams’
operating budgets.

What NASCAR needs is a business model which more closely replicates Formula 1 or a franchise structure
like every other major sport. As a fervent advocate for team rights, I have repeatedly voiced the need to
develop a franchise model that would enable teams to weather macroeconomic difficulties; and subsequently,
become less cyclical and more stable during recessions and economic turmoil. The time for leadership,
sacrifice and decisive action on behalf of the France Family is NOW. But to the contrary, the Brian France
plan is nothing more than reinforcing their past strategies of working with teams to help locate and secure
sponsors. While his intentions may be honorable; they are nevertheless naïve when considering there is a
global economic recession; and specifically, when the NASCAR industry is in a depression of historic
proportions. At this moment, I don’t believe there is a single corporation that is considering spending $15-$30
million required to fund a primary sponsorship program for a NASCAR Sprint Cup team. So I am rather
befuddled with Brian France’s simplistic strategy to save the sport, which unfortunately in its current form
will contribute to the sport’s certain collapse.

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Is it possible that the past success of NASCAR is blinding Brian France from seeing the light? Reflecting back
to 60 years ago to the earlier days of NASCAR, Bill France Sr. (Brian France’s grandfather) executed a
flawless business plan to convince the then stock car racers and event promoters to become part of his newly
formed organization and sanctioning body (NASCAR), whereby he gained complete control over stock car
racing. The foundation of NASCAR’s “business model” problems ironically stem from the grand success of
Bill Sr. and his unilateral control of a racing empire, including control over the majority of racing venues
(International Speedway Corp) and the stock car sanctioning body. Over the past half-century, teams
competing in NASCAR relied almost exclusively on corporate sponsors to fund their operations – enabling
the France Family to retain a majority of the sports revenues and amass a large network of racing venues, and
establishing NASCAR Holdings, an incredibly profitable wholly owned private company.

Those times have dramatically changed and for too long, NASCAR teams have tolerated the exploitation and
willingly bore the total burden to exclusively fund their operations through advertising and sponsorship. The
rapid increases in costs of racing and teams’ operating expenses of the past 5 years, combined with the
minimal increase in sponsorship value - have brought the teams’ very existence into question.

One must wonder, how long can the France Family continue their racing monopoly? Historically, race teams
have avoided conflict with the France Family; and the only entities to challenge the France Family’s
monopoly have been race track owners, such as Burton Smith and Speedway Motorsports. Even through the
France Family has weathered many possible anti-trust challenges with settling most disputes outside the
judicial system; I believe the current financial crisis and advertising recession is about to test the resolve of
the France Family and their prehistoric business model.

In a stark contrast to the past decade, NASCAR is falsely promoting an image of growth and strength by
stating that 15 new organizations have applied for licensing to compete in the Sprint Cup Series. What they
fail to mention and what many novices are unaware - almost all of those “new” teams are merely
opportunistic racers attempting to profit by a method called: “start and park”, which allows them to collect
sizable race winnings (in comparison to their expenses) with a team and car specifically built to just run one
or two laps, enabling them to collect profits – all without adding ANY value to the sport. What a sad day it is
for the diehard NASCAR fan.

As many of you know, I was the founder of Bang Racing which was NASCAR’s most successful first year
team in history. At the young age of 23, I built and operated this highly successful team and we made history
finishing 2nd in our first race (Daytona) and winning our 13th race (Michigan International Speedway), which
was the first win for Toyota in NASCAR history. While all this is now historical facts found in the archives of
NASCAR history, what is typically not understood is that even as a very competitive team, our business
model was fundamentally flawed because generating a profit was nearly impossible. Simply put; the cost of
running a NASCAR team far exceeds its sponsorship/advertising revenue potential and without significant
“business model” changes by the France Family, teams are doomed for failure.

NASCAR must be the only sport where the most profitable teams are the biggest losers’ and where finishing
dead-last or not even attempting to win makes more money than being a top competitor. Something is
dreadfully wrong when the most competitive teams with great on track performance cannot survive because
the costs of running their teams far exceed their revenue potential. The problem is clear: without teams
receiving a larger share of the sports’ multi-billion dollar television contracts – there will be no strategy that
can make viable a long-term solution for the sport – that is the simple reality.

However, being the “optimist”, I hope Brian France and will realize quickly that his family has the unilateral
ability to deliver the change in business model the teams and sport require to survive.

Bang Racing Alex Meshkin NASCAR Brian France France Family Bill France Jr. Bill France Sr. Franchise
Model business Model Sprint Cup Speedway Motorsports Burton Smith

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Tags: Bang Racing, Bill France Jr., Bill France Sr., Brian France, Burton Smith, business Model, France
Family, Franchise Model, NASCAR, Speedway Motorsports, Sprint Cup

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About

Alex Meshkin is a serial entrepreneurial that is well documented in leading publications including CNBC,
Fortune, Fox News, and many others. Alex Meshkin is widely known for his success as the Founder and CEO
of Bang! Racing, a company formed through a strategic partnership with Toyota Racing Development. In
2004, Bang! Racing broke numerous motorsports records; and Alex Meshkin became the youngest team
owner to win in NASCAR history, bringing Toyota its first two victories.

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