Penny Wise, Pound Foolish
The decision by NASCAR to sign on with NBC Sports after the end of their ESPN relationship last year will be a financial windfall for those who own a piece of NASCAR itself. But for everyone else associated with the sport, this will prove to be a huge step backwards. And unlike their stick and ball counterparts, NASCAR team owners will see none of the dollars that go with this contract while suffering all of its negative aspects.
A quick business lesson. When the NFL signs a national television contract, the vast majority of those dollars are ultimately distributed to the teams. So when the league signs a television deal, it's in their best interests for the league to sign for the highest dollar figure possible, no matter what the network involved is. But in NASCAR, the teams are completely independent of the sanctioning body. They make their money through race winnings and through sponsorship dollars. They will indirectly benefit from the TV dollars as much of the race purse funded through NASCAR and the track owners- which IS NASCAR the majority of the time.
Say Goodbye To The Summer Series
Otherwise, the size of the TV contract is irrelevant. Instead, teams benefit by the size of the television partner- how many races will be broadcast on network television (where ratings and potential audience sizes are higher), how large a distribution deal does the cable partner have, and how much buzz they can create for their driver and sponsor as a result. So their interest is in getting on larger networks with huge distribution deals, not small networks with deep pockets.
The NBC deal is proof positive of these very separate agendas. NBC came to the table not only willing to match ABC/ESPN in terms of actual dollars, they were willing to go well above. Some media reports indicate that NBC's final offer was almost 50% higher than that offered by ESPN. If you're NASCAR, you'd be foolish to turn down those kinds of dollars. After all, we're talking about a contract worth $4.4 billion dollars. That's billion with a B; a 50% increase represents billions in additional revenue into the sanctioning body's coffers for literally zero additional effort.
Those kinds of figures fund the retirement plans for people's grand children.
He's Not Coming
Yet if you're a NASCAR team- particularly a high-budget team that spends a significant sum of money annually- you can't help but be terrified by this deal. The contract is for the last 20 races of the season which means that more than half of the year will be on a new network. The majority of those races will be on the NBC Sports Network, an ESPN alternative that has failed miserably at attracting the American sports audience so far. It's available in nearly 20 million homes less than can get ESPN and the ratings for the two networks aren't even in the same area code. Not to mention the number of bars/restaurants that air ESPN programming during their business hours, reaching another broad base of potential customers.
It's also worth noting that if NASCAR cuts ESPN out of the racing business, ESPN will drastically reduce the amount of NASCAR coverage on its networks. There will be no “NASCAR Now” on for an hour daily. There will be few if any live post-race interviews with the winner. Sportscenter will go back to spending 30 seconds to give fans the base results and that's it. There's no financial incentive for them to push NASCAR to the general public if the ratings will be going to someone else's bottom line.
If I'm Rick Hendrick and I'm selling the side of the #88 back in 2013-4, I've got a lot of things I can sell to a potential sponsor. And one of those things I'm selling is that the sponsor is going to be on Sportscenter every Sunday. I can't guarantee on-track performance. But I can guarantee that fans are going to see the car. Dale Jr's popularity virtually guarantees he will be interviewed after the race if he finishes in the top ten. If the day's going well, the car will be on TV a significant amount of time. During the week, that car will pop up on various shows and in every one of them you'll get major positive sponsor time. But for 2015, I've suddenly got a lot less to sell. “Lead in to Sunday Night Football on four or five weeks” only goes so far if the other 15 weeks are spent drawing 0.5s on a network most people couldn't even locate on their cable box.
The drop off is worse for less-popular drivers. No matter where the race is on the dial there will be a certain amount of interest in drivers such as Earnhardt, Danica Patrick, Tony Stewart, or Jeff Gordon. They have an established level of popularity and have generated interest in their on-track performance as a result. Someone will sponsor their cars even if the performance isn't top of the charts.
What about someone like Kasey Kahne? Kasey is a solid on-track performer. He's won 15 races, finished as high as fourth in the points, and has shown a high level of talent behind the wheel. He had modest success as a pitchman, particularly the Allstate Milfs commercial series a few years back. But he doesn't have the kind of following his teammates have. If I'm ponying up $35-40 million to sponsor Kahne's car, I need to make sure I'm getting a return on my investment. Unless he wins or crashes out, the level of exposure I'm getting at 3pm on NBC Sports Network is never going to come close to paying my investment back. I need those interviews on Sportscenter. I need the profile on NASCAR Now. I need every single second of sponsorship exposure I can get because the check I'm writing is huge. I'm not writing that check if that exposure is being drastically reduced.
Meet Your Neighbor, NASCAR
The France family doesn't have a history of democratic rule. So it's highly unlikely that the concerns of the teams weighed very heavily when measured against the immediate financial windfall NBC was offering. And right now the teams themselves are all saying the right things, pointing to the contract as evidence of NASCAR's renewed success. Will those words continue as sponsorship dollars, already stretched to the limit, dry up even further? Will the teams continue to support a sanctioning body that has put its interests first, last, and always? What really could the teams do?
What indeed? Take a look at another racing series currently airing on NBC Sports as a possible precedent. In 1994, Indianapolis Motor Speedway President Tony George announced the formation of the Indy Racing League. His concerns sound eerily similar; a lack of responsiveness from the sanctioning body, escalating costs for the team owners, and the restriction of new technology due to disparate manufacturers. By 1996, the IRL was off and running. The prestige and history of Indy went with George while the majority of big-name drivers stuck with CART. The market for two separate open-wheel series in America simply wasn't big enough and the dilution ended up sinking both ships. By 2008, CART was bankrupt and its assets merged back into the still-solvent (but interest-starved) IRL. The split essentially doomed open-wheel racing in America for decades.
NASCAR could easily find itself in a similar situation by the end of the decade. Teams involved in the never-ending arms race for speed cannot easily control spending, particularly if the race purse becomes an even larger percentage of their annual budgets. Teams without the independent means to keep up will find themselves relegated to start-and-part operations who run the full race only when the chance to finish high is good (read: restrictor-plate tracks). NASCAR itself will have greater power thanks to the increased TV revenue and team dependence on purse money. Increased power by NASCAR isn't going to make it more responsive or user-friendly. NASCAR teams may decide it better to work with Speedway Motorsports and its tracks to form an all-new series, cutting NASCAR out entirely.
All that, from a $4.4 billion contract. Still sound like a good idea, NASCAR?