Nationwide departure a harbinger of things to come?
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Nationwide Insurance announced Wednesday that they won't be back as the title sponsor for NASCAR's second tier series after the 2014 season. The move is all the more shocking given the relatively low price paid versus the level of visibility provided. In pure dollars to exposure, the value is enormous. Yet Nationwide, like ESPN and TNT before it, will soon walk away from a long term commitment to stock car racing. The company says the change is designed to allow greater spending at the Sprint Cup level and numerous initiatives are already underway in that effort. Yet the move is more than just a company adjusting its advertising budget. It's a sign that NASCAR's value proposition to sponsors has changed- and not for the better.
Nationwide took over the second tier racing series sponsorship in 2008, re-titling what had to then been known as the Busch Series. Nationwide races might not carry the same weight as their Sprint Cup counterparts but they still provided enormous exposure for the company. Their company logo appeared on the windshield of every single car on the track. Unlike the Camping World truck series (which remains more commonly just called the “Truck” series, omitting the sponsor name entirely), it was impossible to describe a Nationwide race without using the company name. Ratings and attendance figures, while lower than Cup, still out-pace any other form of American motorsports on a weekly basis.
Some of the "best" Nationwide crashes from last year
Advertising is a difficult business and the name of the game is return on investment. Companies want to know that the exposure they're garnering is worth the money being laid out. For a price tag of $8 million, NASCAR's tier two series offered a premium on that expenditure. The same amount of money might enable the sponsorship of a handful of races for a Cup team. As a company, Nationwide essentially has made the decision that they'll gain more from that handful than they're currently earning for an entire year under the current agreement.
What's even more puzzling is that there's nothing to prevent the company from doing both. In addition to their title sponsorship, Nationwide also has the primary sponsorship for seven races in two years for Ricky Stenhouse Jr. They're a company worth well over $100 billion that spends hundreds of millions of dollars on advertising annually. The title sponsorship is chump change in their budget. Economically speaking, failing to renew the contract simply doesn't make sense.
One has to wonder if NASCAR itself may have had something to do with the change. While the insurance carrier will still be involved with NASCAR corp (as the official insurance partner of the series), the bulk of their spending will shift away from NASCAR as a company. Instead, more of their dollars will go to the individual teams, the tracks, and the networks covering the sport. Essentially, Nationwide is just fine with being in the racing business but they're no longer interested in the entity that is NASCAR itself.
NASCAR's new television deal provides a glimpse as to how the sanctioning body's negotiating tactics may have something to do with the change. Before signing with NBC, NASCAR went to its current television partners at ESPN and TNT to explore the possibility of extending those relationships. They placed virtually no economic weight behind the value of being on those major networks (ESPN in particular is the barometer of American sports). Instead, they came to the table looking for major rights fee increases despite declining fan interest in the product. The networks called NASCAR's bluff and walked away from the negotiating table, preferring to leave the sport entirely rather than attempt to negotiate with the France family. It would not be surprising if we learn in the days ahead that NASCAR tried something similar with Nationwide in regards to their contract.
The move may also be an indicator from at least one company that being on FS1 and NBC Sports is an entirely different value proposition than being on ESPN. While an occasional race gets bumped to ESPN2, the vast majority of the Nationwide series appears on the primary network. ESPN has by far the highest ratings and largest distribution of any cable network. Once the new television contract begins, the series will shift to a pair of networks that so far have failed to so much as dent the sports leader. The move put billions of dollars into NASCAR's coffers but it significantly decreased the value to potential sponsors. Why should Nationwide continue to pay the same (or a higher) sponsorship figure when their exposure is going to be significantly lower?
Since the economy began turning south in 2008, NASCAR teams have cited the tough economic environment as the reason why the sponsorship environment is difficult. Companies around the country tightened their economic belts and often one of the first items cut is advertising. It's an easy expense to target, particularly when it involves the kinds of high dollar figures that NASCAR racing does. Sooner or later, successful companies recognize the value of advertising- particularly as markets rebound and consumer spending increases.
The problem is that while the economy continues to improve, NASCAR is offering less to those companies than they did before. Starting in 2015, most of their races will be seen by fewer people thanks to the inherent shortcomings of the networks (FS1 and NBC Sports) involved. In a tight advertising market you cannot sell less for a higher price. This is even more true when considering the aging of NASCAR's fan base. They lack the kinds of demographics that advertisers crave. That's why you see teams struggling to find season-long sponsorship no matter who is behind the wheel. The teams themselves will need to come up with creative ways to make up the difference of what the sanctioning body has taken away in terms of value.
The good news here is that Nationwide isn't disappearing entirely. The company says they plan on signing agreements to sponsor individual races both at the track and team level. Local tracks (particularly those tracks not owned by NASCAR's ISC arm) need every dollar they can get to stay competitive. Any major company looking to sponsor a driver is a boon to the teams, widening the pool of companies involved and providing leverage to get that company's competitors involved. After all, if Nationwide sponsors a car and Farmer's does likewise, why not use that to convince a company such as Progressive or Allstate to get into the game too?
But the fact that Nationwide doesn't see the value in spending $8 million per year is a warning sign for the non-Cup teams. Think the sponsorship cupboard is empty on the Cup level? Imagine what the current Nationwide teams will be facing in the years ahead. They already have a tough sell to skeptical companies not interested in being portrayed as second or third best. They're moving to networks many racing fans have never heard of. Now even the title sponsor is bailing.
Given the dollars coming from NBC and Fox, NASCAR frankly doesn't need the money. But the perception coming from Nationwide's departure is that the other two series just aren't worth wasting your time on. That attitude could be lethal to the two developmental series and NASCAR desperately needs them to stay afloat to provide a pipeline for future drivers to get into the sport. They need to sign a new title sponsor and quickly. Instead of focusing on Nationwide's departure, the story will be the company that wanted to get involved. If they cannot get a deal done, the loss may be just the first of many on NASCAR's lowest levels. That's something we all lose from.