Spending's never been so costly
Competing at the highest level of NASCAR racing can be compared to filling up your car's gas tank these days: the costs keep getting higher, but you begrudgingly have to pay more if you want to keep rolling.
And for roughly 40-plus full-time NASCAR teams, higher costs are the price of doing business if they want to keep rolling toward the Nextel Cup championship.
Costs across the board have risen -- sometimes in spectacular fashion -- in almost all areas of Nextel Cup competition in the last five to seven years. Virtually every cost aspect for competitors and teams in Nextel Cup -- manufacturers support, sponsorship, equipment such as tires and motors, car bodies and chassis, day-to-day team operations, research and development, technology, safety and personnel -- have seen hefty increases in dollars spent and dollars needed.
Costs haven't only hit car owners hard, they've also nailed car manufacturers, as well.
"The costs have probably doubled or more since 1996 or 1997," says Doug Duchardt, director of racing for General Motors and its Chevrolet brand in NASCAR.
To field a competitive Nextel Cup championship-caliber operation today, car owners can expect to spend between $8 and $15 million per team -- and sometimes more if you count in luxury items such as airplanes, fancy motor homes, etc. -- says Gary Nelson, NASCAR managing director of competition.
The upward and widening cost spiral has gotten to the point where the sheer future of the sport is at stake in the minds of some, while others don't see the situation being nearly as desperate. In their minds, it's simply the cost of doing business.
"I'm not looking at anybody else when I judge our program," says John Fernandez, director of racing operations for Dodge Motorsports. "I don't know what they spend on their programs, and to some extent, I don't care. I do with respect if they really up the ante, but basically what we do is look at how much we're getting out of our program, the value for the dollars that we spend in NASCAR."
Yet at the same time, teams and the sport are quickly realizing they cannot continue going back to the financial trough and thinking it won't eventually run dry. In fact, it already has for some this season. Cup veteran Jeff Burton, not only a good driver but also one of the most eloquent and best pitchmen in the business, has struggled without a multi-million dollar primary sponsorship, even though his organization -- Jack Roush Racing -- won the Winston Cup championship last season with teammate Matt Kenseth.
"Of course I'm concerned," said Burton, who was sponsored by Citgo Supergard the past three seasons. "This kind of thing shouldn't be happening in a sport so big and popular as NASCAR Nextel Cup. But we're at the mercy of the struggling economy and the business climate, which makes it that much harder to find sponsors when budgets are being closely watched or cut, employees are being downsized and jobs are going overseas. Sure, not having a sponsor hurts, but people who lose their jobs in this economy are the ones who really have it rough, not a race car driver who can't get someone to put their sticker on the side of his race car for the whole season."
Citgo wasn't the only primary sponsor that hit the exit door after last season. Also departing were Grainger, Pennzoil, Harrah's, Sirius Satellite Radio and Stacker2. The only new primary sponsors to enter the sport have been Schwan's and GMAC Financial Services. But in a way, it's all relative: According to a recent study by the Associated Press, there are currently 36 teams with full sponsorship this season, down from 45 in 1998, but up from 32 in 1994.
How much is lack of a primary sponsor hurting Burton, who has had to subsist with single race-to-race sponsorships on his No. 99 Ford during the season's first eight races? Draw your own conclusions: He's currently a disappointing 33rd in the Nextel Cup standings heading into Sunday's Aaron's 499 at Talladega (Ala.) Superspeedway, with just two top-15 and one other top-20 finishes. And since qualifying 11th for the season-opening Daytona 500, he has failed to start a race higher than 23rd since.
Perhaps an even more heartbreaking economic victim is John Andretti. Having received the biggest break of his racing career late last season when he joined Dale Earnhardt Inc. as driver of a part-time third team, Andretti was set to be elevated to a full-time third-car team with DEI this season. But he had the plug pulled on him just before last Christmas when hoped-for sponsorship dollars went elsewhere.
Even a full-time NASCAR branch office in New York City, dedicated solely to finding sponsorship both for drivers and the sanctioning body, has come up dry in its pursuit to help Burton, Andretti and others.
While associate sponsorships costing between $500,000 and $1 million, or even race-to-race deals, have become more palatable to corporations that still want to play in the NASCAR sandbox, those primary sponsorships in the $5-10 million and higher range could become more of an endangered species.
The moral of the story: If two of the best, biggest and most successful teams in the business are hurting when it comes to sponsor dollars, certainly there's a trickle down effect to other teams that may not be as large or successful.
"I think what we're seeing, in general, is we're coming close to a saturation point to how much appetite corporate America has to spend on the sport," Duchardt said.
Nextel Cup teams not only depend upon sponsorship dollars, they'd be sunk without huge financial and equipment outlays from car manufacturers, namely Ford, Chevrolet/GM and Dodge. While representatives won't reveal how much each spends per season to maintain the teams that sport their brand, the bottom line is, as Duchardt ways, "significant," including wind tunnel testing, supplying of parts, research and development, and technology improvements.
"Costs certainly have increased over the last 10 years," said Greg Specht, Ford's manager of racing operations. "We've had to keep pace as well to make sure that the teams that race our products are competitive. We've had to really consolidate and focus our efforts from the technical side of things to make sure of that."
Estimates of financial involvement per manufacturer run anywhere from $10 million to $50 million or more per year. Because of the wide disparity in guessing who pays how much, a good rule of thumb is probably a midpoint of at least $20 million to $30 million for each manufacturer.
"In terms of the dollars that you put in to support all of your motorsports activities from a technical standpoint -- and it varies from year-to-year, depending on whether you're changing bodies, as we had to do last year, or whether NASCAR comes out with a new motor rule -- you may be anywhere from $10 million to $25 million in a particular year on what you're trying to spend on your technical side of the budget alone," Fernandez said.
And because manufacturers like to use competition in Nextel Cup as a way to sell showroom vehicles, as well as to test technology on the racetrack that may someday wind up in the average person's driveway, the value of staying in the game outweighs the costs.
"We're in racing for two reasons: to help sell cars and trucks, and to benefit from the technology transfer that comes out of racing," Specht said. "Does it reach a point where it gets out of balance? Yeah. That's the reason, for example, why we pulled out of CART as a manufacturer and engine supplier because the cost-benefit equation got out of balance. Could that happen? Yes. Has it happened? Yes. Has it happened in NASCAR? No.
"As NASCAR continues to grow and delivers benefits to us, we continue to participate. We're very careful when we go into a series to make sure it's something we feel is sustainable. When we enter a series and participate in racing, we look at the long-term. We don't want to just go in and make a big splash for a few years and then pull out. We don't think it's good to operate that way and we don't want to operate that way."
But even with billions of dollars generated in new car and truck sales each year, manufacturers will pull out of a racing series if it's not bringing proper return on the investment, such as when GM pulled its Pontiac brand out of Winston/Nextel Cup prior to this season. With Dodge reentering the sport in 2001 after a nearly 20-year absence, it made more economic sense for GM to concentrate and dedicate all its resources solely to its Chevrolet brand -- which, by the way, has won 13 of the last 20 Cup titles.
"For us, that one focused effort with Chevrolet is a positive and it allows us to really put a solid effort behind it," Duchardt said.
Even with teammates Bobby Labonte and Tony Stewart each winning the 2000 and 2002 Winston Cup titles behind the wheel of a Pontiac, it did not stop team owner Joe Gibbs from switching his team to Chevrolet body styles and power for 2003. In fact, Stewart went from winning the title at Homestead in a Pontiac on a Sunday, to testing the very next day at the same racetrack in a new Chevy body. So much for a prolonged championship party.
When Dodge decided in 1998 to return to Cup competition, it faced a multimillion dollar development curve unlike any NASCAR has ever seen before. Naturally, Dodge officials won't reveal how much they spent on the effort -- which included everything from hiring former Jeff Gordon crew chief Ray Evernham to shepherd the program from concept to reality, to all the wind tunnel testing, as well as body, chassis and motor development -- but some estimates peg the total price range from between $50 million and $100 million to as much as $300 million.
"It was nowhere near that amount of money ($300 million)," Fernandez said. "But when you get back into this sport, it's a big outlay. Obviously, we had Ray Evernham's team that we needed to get up and running, and of course we had Bill Davis, Chip Ganassi and then Penske involved, as well. So at that point, we had four teams that we were trying to get up and running and trying to convert them from what they had been in before to Dodges. So, it takes a tremendous amount of money just to make the conversion of those teams.
"Then you start spending development dollars to help those teams get better and better. As we've progressed and matured from those first years of just getting up and getting started racing, I think we've really become more efficient in the ways in how we spend money. I can't say our budget has really changed that much in total dollar value. What's changed is the focus of that money. We're able now to funnel more of that money into the technical side of the business to help the teams go faster and faster and get better and better at what they do.
|“||We're in racing for two reasons: to help sell cars and trucks, and to benefit from the technology transfer that comes out of racing. Does it reach a point where it gets out of balance? Yeah...Has it happened in NASCAR? No. ”|
|— Greg Specht, Ford Racing manager of operations|
"We're trying to grow some elite teams, teams like some of the Chevrolet teams like Hendrick, Childress, DEI, Gibbs, or on the Ford side with the Yates and Roushes."
Yet as much as Dodge did or did not spend, we may see an even costlier situation in the next two or three years if Toyota, which began competing in the Craftsman Truck Series this season, makes its long-rumored jump to Nextel Cup with an as-yet unnamed car model. And, if other rumors are to be believed, foreign manufacturers such as Honda and Nissan may not be far behind if Toyota indeed does start racing in Ford, Chevy and Dodge's backyard.
If Toyota or others do enter Cup racing and "up the ante," as Fernandez said, would the current Big Three potentially reevaluate their continued involvement in NASCAR and Nextel Cup?
"There has to be some sort of point where that happens," Duchardt said. "Certainly, we're not going to have a $1 billion NASCAR program, so there is a limit.
"If someone makes a huge commitment, you're either going to have to step up or not. So, if someone goes and offers John's (Fernandez) teams $10 or $15 million apiece, then he has to decide if he's in or out. One thing I can guarantee you: The teams know what someone else is doing either technologically or financially for another team. So, they might come to their manufacturer and say, 'Hey, they're doing this for them, so you have to do that for us.'"
When Dale Earnhardt was killed in the 2001 season-opening Daytona 500, the same race that Dodge made its return to Cup quite impressively by placing Bill Elliott on the pole, safety became the key watchword for NASCAR.
Given the vast scope and quick response it made to hopefully prevent another Earhardt-like tragedy from happening again, it's a fair guess that NASCAR spent upwards of $20 million or more to upgrade safety requirements, including mandating head-and-neck restraining devices, the development and installation of the SAFER barrier (so-called "soft walls"), as well as its celebrated Research and Development Center in Concord, N.C., just outside of Charlotte.
But with enhanced safety at a point where so many gains have been achieved that future improvements will likely be smaller in scale, NASCAR has turned its attention to the issue of costs -- across all spectrums, from manufacturing to sponsorship to developing and keeping drivers in the sport.
It already has first-hand knowledge of one driver who was forced to bow out because of costs, namely Brett Bodine, who joined NASCAR's R&D Center as a "special assignment engineer" nearly two weeks ago. Bodine had operated his own team since 1996, but costs and limited sponsorship continued to conspire to keep him from being competitive. In fact, his best season finish during nearly eight years as an independent owner/driver was a modest 24th in 1996.
As the 21st century dawned, Bodine came close to calling it quits several times, ultimately doing so last year, when he could afford to compete in just five of the season's 36 Cup races (he also drove in a sixth as a hired gun). By season's end, he had sold pretty much everything -- lock, stock and barrel.
One guy who, in a sense, benefited from Bodine's departure was Kirk Shelmerdine. As crew chief, Shelmerdine wrenched the late Earnhardt to his first four Winston Cup championships before retiring to pursue a driving career of his own. Up to this season, Shelmerdine had raced primarily in the ARCA and Busch series. But when Bodine put his equipment up for sale, Shelmerdine purchased a considerable amount of the stock and is doing almost the same, exact thing as Bodine did -- trying to make every race and be competitive at a fraction of the cost of the high-dollar teams.
Shelmerdine said his average per-race cost ranges between $70,000 and $130,000, which includes travel. He tries to make ends meet by selling race-by-race sponsorship on his No. 72 Ford, as well as the money he earns from starting each race (ranging anywhere between $30,000 and $50,000 per race) -- even though his best finish to date has only been 39th, including being black-flagged in two races for being too slow. It's the only way Shelmerdine, who failed to qualify for last Sunday's race at Martinsville, Va., manages to stay afloat.
"We're hoping we can keep this going all year, but I honestly don't know what's in store for us financially later this season," he said. "We're hoping we can make all the races and at least qualify, but this could change at any time."
And while some top owners in the business such as Rick Hendrick, Joe Gibbs, Jack Roush and Richard Childress may have organizations with 200-300 employees each, Shelmerdine deadpanned when asked how large his "organization" is.
"Three," he said, stating the number of full-time employees he has; they are backed up by roughly a dozen volunteers who oftentimes go unpaid for their work.
On the flip-side, the premier teams in Nextel Cup competition spend upwards of $10 to $15 million per season to be the best and compete with the rest -- with the $20 million neighborhood on the near horizon.
"I think what teams have to be concerned about is getting into some of the same things as in Major League Baseball and more recently in hockey, with escalating costs for crew chiefs, crew members and things like that," Fernandez said. "As you start to get out of the independent teams and get into the multi-car teams, and then everybody's vying for the best talent and getting so competitive, you start to bid up the cost of that talent. I think the teams and owners need to look at that themselves."
Because skyrocketing costs have significantly cut into the number of cars that qualify for each race this season -- some fields have only had 44 cars try to make the 43-car race day field -- NASCAR is taking the problem seriously.
"We realize that containing costs is perhaps our biggest challenge this year," NASCAR president Mike Helton said earlier this year. "It has become a very serious problem. We are going to do everything in our power to attack that problem and try to rein in some of those costs. NASCAR has long prided itself on maintaining an even and level playing field for everyone. We cannot allow racing to get to the point where it prices everyone but the richest of teams from playing the game. That's not good for the teams, it's not good for the fans and it's not good for the sport."
NASCAR took one significant step toward containing costs three years ago when it adopted the so-called "one engine rule," which requires teams to use the same motor throughout the entire weekend, including practice, qualifying, Happy Hour and on race day itself.
And it's back under the hood that NASCAR is focusing even more of its efforts at cutting costs, Nelson said.
"The typical engine program, just to lease motors from another team, you can expect to spend at least $1 million or more a year," Nelson said. "It also depends on how much R & D you want to put into it and also how many parts and new pieces of equipment that you need to buy to try and squeeze a little more power, fuel mileage and more efficiency out of the motor you currently have.
"Now, we're trying to find a way to limit the cost of putting an engine under the hood. We have limits on compression and limits on cubic inches, but with RPM at the moment is whatever you can get. Maybe down the road there's a way we can find a way to put a cap on RPM, that you can't turn any more than X, that development and research, those dollars will be meaningless because you can't exceed the cap. That idea is picking up a lot of steam lately and we'll see where it goes."
Added Specht, "What it's gotten down to now is a much finer point that you have to put on your pencil. For now, you're looking for one or two horsepower, where in the past you were looking at four or eight horsepower as a significant gain."
Other areas where NASCAR is considering cuts are reducing wind tunnel testing time teams are allowed, as well as reducing the number of testing dates for each team (currently a maximum of seven tests -- five two-day tests and four single-day tests for veteran teams, slightly more for rookie drivers).
If things get really bad, NASCAR has even pondered the possibility of cost caps, similar to salary caps we see today in Major League Baseball and the NBA.
"We certainly have discussed it and there's positives and negatives," Nelson said. "We have to say what direction can we go that has the fewest negatives, and one of those is control. How do you know? Do you put an accountant in each building? How do you really do that, and what authority does NASCAR have away from the racetrack and away from the event? What can we really do to watch that?
"The day Alan Kulwicki became a champion (1992), he accomplished that with one of the smaller budgets in the garage area. But he did it with smart business practices. He didn't have his own helicopter, his own plane, a motor coach. He stayed in a hotel and worked on the car himself and called all the shots. A guy like that ought to be given, we think, a forum to perform.
"Many others have tried over the years, and some are trying today, to build that kind of an operation, and we support that very much. We think anything we can do to limit the old equation of dollars equals speed, we're all for it.
"We can't stop a guy from spending all the money he has, and if he's the wealthiest and wants the fanciest motor coach or whatever it is, we can't stop that. But what we can do is to make sure that those dollars don't cause his car to go faster. The key to looking at that is the finishing order, not just in one race, but over time."
But while everyone is concerned with costs and continue to look at ways to contain them, there is a unique kind of camaraderie that has come about at the same time, knowing that everyone has to equally dig deeper to keep things going.
"We all try to be professionals and it's how you treat each other," Duchardt said. "But the other fact is we're all going through this grueling NASCAR season together. So, there's a little bit of bonding there. You see each other at the airport all the time and you're flying home together. Some of it's just business. There are team owners that have left us to go to other manufacturers that I still consider friends and good people and I can still be friendly with.
"But, make no mistake, I still want to whip 'em this weekend."
Jerry Bonkowski covers NASCAR for ESPN.com. He can be reached at Motorsportwriter@MSN.com.
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