Red Sox owner looking to buy stake in Roush Racing
A group of investors led by Boston Red Sox owner John Henry is negotiating to buy a significant stake in Roush Racing, and it wouldn't come as a surprise in the garage area if other outside investors begin taking a serious look at NASCAR teams.
But is a racing team really a good buy?
"Yeah," Kyle Petty said. "That's why Warren Buffett's here."
Wait ... the second-richest man in America is buying a NASCAR team?
"No. That's my point," said Petty, driver and CEO of the Petty Enterprises team. "It's not a good investment."
Henry evidently disagrees.
An avid racing fan, Henry has been talking to Roush for the past three years about forming some sort of partnership. Now, Roush Racing president Geoff Smith says the team is negotiating to sell a stake of up to 50 percent to Henry and the Fenway Sports Group.
"Every week goes by, there's more things looked at, more things discussed, more things resolved," Smith said. "But it's really an elaborate process. This is not imminent."
The Boston Globe recently reported the deal was potentially worth more than $50 million -- a figure Smith said wasn't correct but is "not outlandish."
If true, it would represent a windfall for Jack Roush, who started as a small drag racing team owner in the 1960s. But it would also mean that, despite NASCAR's recent popularity gains, one of its top teams isn't worth anywhere near what a top NFL or Major League Baseball team is worth.
It's partly because of the nature of people who start racing teams. They want to go faster, and speed costs money. Although team owners certainly get caught up in buying private jets and mansions, they also tend to invest a lot of their profits back into research and development.
But the main reason NASCAR teams aren't as profitable as other major professional teams is because being a NASCAR team owner isn't an exclusive club.
Unlike other major pro sports leagues, which selectively award franchises to a limited number of teams, just about anybody with enough money can put together a NASCAR team and go racing. And there is less revenue sharing in NASCAR, where teams get a relatively small chunk of money from network television contracts.
So while teams such as Roush have a track record of championships and profitability and long-term contracts with top drivers and corporate sponsors, they are worth only a fraction of a team such as the Washington Redskins -- whose worth was recently estimated at $1.1 billion by Forbes magazine.
"The reason that the NASCAR teams can't be valued like that is because we don't share in the income," Smith said. "There's no revenue sharing. Prize money is our revenue share, but it's 43 teams into a small percentage of that revenue."
Smith concedes there are better dollar-for-dollar investments than a NASCAR team, but a multi-car team such as Roush still turns a significant profit. And Smith said there are other benefits Henry's group can get from a deal with Roush.
Being affiliated with Roush, for example, could boost Red Sox popularity among NASCAR fans and expose Fenway Sports Group to a trove of corporate sponsors willing to strike deals.
This wouldn't be the first time an outside investor bought into a NASCAR team. After the death of Dale Earnhardt in 2001, team owner Richard Childress sold a stake in his team to a group of investors who helped him restructure Richard Childress Racing.
Today, RCR driver Jeff Burton is leading the championship.
"At the time, after we'd lost Dale, I was just looking for something different," Childress said.
Smith said there have been "several groups" of investors, including other football and basketball franchise owners, exploring the possibility of buying into a NASCAR team.
"There's more going on right now, and probably more to come," Smith said.
Petty figures those who are willing to invest in a NASCAR team are speculating that NASCAR will eventually grant its teams franchise rights that would significantly boost their value -- an idea that comes up from time to time but hasn't happened yet.
Otherwise, Petty says, there's only one other reason someone like Henry would buy Roush.
"If you're not going that angle, then your second prong is it's an ego buy," Petty said.
Henry hasn't commented publicly on the negotiations but is said to be a NASCAR nut -- even to the point of playing sophisticated online racing simulation video games in his free time.
But Smith said Henry isn't just looking for a fancy toy.
"Oh, no," Smith said. "It has to make total business sense. The investments have to be recovered over finite periods of time. There has to be a yield on the return."
So why would Roush sell?
Smith said a deal that affiliates Roush Racing with the Red Sox could help Roush attract more casual sports fans to NASCAR. And it would ally Roush with a group of well-heeled investors with a wealth of financial experience, just in case NASCAR ends up awarding franchise rights -- which would, no doubt, cost each team millions of dollars.
"If this turned into a franchise environment, it would take a lot of capital and people who understood how to get that kind of capital in," Smith said.
And who could blame Jack Roush for cashing in on something he's spent his life building?
"I wouldn't blame him," Smith said. "But he's covered. That wouldn't have been enough. There isn't a circumstance where that would have been enough. Not a way. In fact, I think money was about the last thing discussed internally."
Copyright 2006 by The Associated Press
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