Business of Speed
The Money Behind the Motorsports Industry
By: Tim Frost
Date: August 1, 2018
This month, we will look at the status and outlook of the sponsorship market and NASCAR’s plans for the future.
The sponsorship marketplace is rebounding with a strong economy. Caution existed last year as companies hedged on their spending plans with concerns over national and geopolitical developments. As the year progressed, that hesitation was overshadowed with confidence with strong performance in most business sectors.
This year, companies will allocate funds to those areas that offer relevant benefits. The successful formula will involve presence in digital and social media that meets their partners business goals and objectives – resulting in a “win-win” scenario.
Estimates by Sponsorship.com project that global sponsorship spending will be $65.8 billion. The largest region, North America will reach $24.2 billion in 2018, an increase of 4.5%. This is largest annual growth in five years.
The biggest sector of sponsorship spending is sports (70%), entertainment (10%), cause marketing (9%), followed by arts (4%), festivals (4%) and associations (3%). Growth rates are highest for sports at 4.9%.
Companies continue to spend on advertising, marketing, promotion, and sponsorship. They are allocating these dollars differently with larger amounts towards digital and fan engagement and brand activation.
Sponsorship is the fuel that drives the engine of motorsports. Without it, racing would not exist at the highest levels. Speed costs money and competition budgets usually do not decrease.
Key industry stakeholders (tracks, series, teams, events, etc.) all want a piece of the sponsorship pie. When money is flowing, there was lots to go around. As the momentum shifted, entities were competing off the track in the boardrooms for marketing dollars.
Reports indicate that Nascar is examining its sponsorship models. Historically, they have focused on title sponsors for their national touring series. Winston and Busch each had long term relationships of almost thirty years. Recently, there have been multiple sponsors with name changes at all levels.
A tiered approach to sponsorship is not unique in sports. The most well established is The Olympic Partner (TOP) program. Basically, each level of sponsorship entitles companies to different marketing rights, category exclusivity, and the use of designated images and marks. They use a “joint marketing” structure to ensure the success for both the International Olympic Committee and local Organizing Committee of the Host City.
The transition to a “tiered” structure for Nascar would face logistical, financial, and legal constraints. The challenging economic environment for motorsports might make a second look worthwhile.
The formation of the Race Team Alliance allowed team owners the opportunity to reflect on their own business operations. Their dialogue with Nascar has resulted in key structural changes. Differences remain with financial issues at the top of the list.
Track owners, led by International Speedway Corporation and Speedway Motorsports continue to make significant investments to their facilities to meet the changing needs of race fans.
Fox Sports and NBC Sports media contracts are the economic drivers of Nascar. The shared allocation model provides the majority of the revenue to tracks and contribute significantly to team budgets thru prize and point funds.
Motorsports functions as a partnership. Teams host sponsorship summit and hospitality events and sponsorship summits. The Nascar “Fuel for Business” council gathers sponsors to work together and create opportunities.
Nascar has an extensive list of over 50 sponsors. They may be divided into separate categories for: title sponsorship, official sponsors, green partners and performance partners.
The goal is to reallocate sponsors into various tiers with a diversified economic model that derives a stable revenue stream.