Hendrick is NASCAR’s most valuable team
The weak economy has pummeled NASCAR over the past three years, with sponsorships, merchandise sales, race winnings and subsidies from automakers falling. Fans have tuned out, sending TV ratings down 24 percent since 2006 and leaving more than 40,000 empty seats at some races last year. One of its longest-tenured teams, Richard Petty Motorsports, was scrambling for cash on a week-to-week basis so it could race on weekends last fall.
Is NASCAR headed for a full-blown meltdown? Hardly. Yes, the value of the top 10 teams slid five percent in 2010, on average, to $136 million by our count, as prize money dropped and sponsors dialed back their commitment, but a rebound in 2011 for the sport is a strong possibility. “NASCAR has hit bottom and is on its way to recovery,” says Zak Brown, chief executive of Just Marketing International, a motor sports marketing company in Zionsville, Ind.
|In Pictures: NASCAR’s most valuable teams|
NASCAR’s strongest and most valuable team remains Hendrick Motorsports. With a valuation of $350 million on revenues of $177 million in 2010, Hendrick is worth 56 percent more than the next-highest-grossing team, Roush Fenway Racing, which we value at $224 million on revenues of $140 million last year. Hendrick is home to five-time Cup champion Jimmie Johnson; four-time champ Jeff Gordon; NASCAR’s most popular and highest-paid driver, Dale Earnhardt Jr.; and Mark Martin, who has 40 Cup race wins to his name. Hendrick earned a NASCAR-high $18 million in operating income (earnings before interest, taxes, depreciation and amortization) in 2010 as Johnson racked up another Cup title.
Founded by Rick Hendrick in 1984, the team isn’t resting on its laurels. It’s signed last year’s top free-agent driver, Kasey Kahne, to replace the 52-year-old Martin in the No. 5 car in 2012. Hendrick was also forced to find a new primary sponsor for Jeff Gordon’s No. 24 car as longtime sponsor DuPont decided to cut back to 14 races in 2011.
Securing new primary sponsors for $20 million is a difficult proposition in a weak economy. “The work off the racetrack, between the car owners and sponsors right now, it’s probably more competitive than I ever imagined it would be,” said driver and owner Tony Stewart at the NASCAR media tour in January. The deals get expensive because the rule of thumb in NASCAR is that for every dollar you spend sponsoring a car, you need to spend two on advertising and marketing to make the investment worthwhile.
Hendrick took a nontraditional approach to fill the void left by DuPont. The team inked a three-year deal with the AARP Foundation to promote a campaign called Drive to End Hunger. It’s the first cause-related primary sponsorship in Nascar. The total annual sponsorship commitment for AARP and DuPont is estimated to be $25 million, on par with what DuPont alone used to spend on Gordon’s car.
The campaign kicked off at Daytona. At races AARP will hold food campaigns and recruit volunteers for food banks. Jo Ann Jenkins, president of the AARP Foundation, says she expects a big return on AARP’s investment. She hopes to raise $50 million to $100 million to aid the campaign. “This is a way we could reach a large fan base,” says Jenkins.
NASCAR’s ability to mobilize massive numbers of fans is its greatest strength, and why reports of NASCAR’s demise are greatly exaggerated. NASCAR, by some measures, is still the second-most-popular sport in the U.S. (behind football). It counts 30 million people as avid fans. The average broadcast rating of 3.6 in 2010 was topped only by the NFL. Attendance may be down, but 100,000 people still show up to see each race. Those around the sport are cautiously optimistic that attendance and TV ratings will rebound this year. Early indications are good: Ratings for this year’s Daytona 500 were up 13 percent over last year.
There was a shuffling of sponsors this year as ExxonMobil, Budweiser and Shell-Pennzoil switched teams, but few sponsors left the sport in 2010. New sponsors came aboard, including Wheaties, Tornado’s and eBay Motors. There are more than 400 sponsors in NASCAR, attracted by fan loyalty that is unmatched by any other sport. “There were a lot of renewals last year, and sponsors restructured their deals to seek greater flexibility,” says Brown. Sponsors are committing to smaller deals so teams are trying to make up the difference by adding new partners. Our valuations of the most valuable NASCAR teams shows eight of the top 10 are making money (only Red Bull Racing and Petty are in the red).
One team on a roll is Earnhardt Ganassi Racing, worth $76 million, ranking it eighth in NASCAR. Its value is up seven percent as Chip Ganassi became the first owner to capture the Daytona 500, Indianapolis 500 and Brickyard 400 in the same year. Ganassi added McDonald’s as a primary sponsor after Jamie McMurray won Daytona in 2010. Sponsorship revenue for the team is expected to be up 20 percent this year.
While NASCAR has stabilized financially, the business is not about to return to its glory days of massive growth seen in the 1990s and early 2000s. Richard Petty Motorsports sold for the fire-sale price of $11 million at the end of 2010. A bigger issue is NASCAR’s eight-year, $4.5 billion TV deal, signed at NASCAR’s peak, that expires at the end of 2014. “There will be a huge decrease in the next contract,” predicts Tim Frost, head of Frost Motorsports, which acts as a consultant to drivers, teams and track operators.
While problems remain, the gloom and doom in the sport is slowly being lifted. Says Frost, “This is the year NASCAR gets back on its feet.”
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