Nascar Zooms Down Wall Street as Racing Attracts Billionaires
Nascar Zooms Down Wall Street as Racing Attracts Billionaires
By Gene Laverty
Jan. 24 (Bloomberg) — Billionaires like hedge-fund
operator Robert Kauffman are giving Nascar a high-octane boost,
supplanting the backyard mechanics, moonshine runners and car
dealers who gave the motor sport its start.
Winning in the stock-car racing league depends as much on
cash investment and management talent as on pit stops and race
strategy. A record $3.5 billion in sponsorships will flow into
U.S. motor sports in 2008, according to a survey by trade
magazine IEG Sponsorship Report.
That;s attracting Kauffman, the co-founder of New York-
based hedge fund Fortress Investment Group LLC; fund owner John
Henry, who owns the Boston Red Sox; and George Gillett, who co-
owns the Liverpool Football Club soccer team in England with
leveraged buyout pioneer Thomas Hicks. They see an opportunity
for more profit from applying financial expertise to mom-and-pop
businesses.
“Nascar has grown tremendously over the last decade or
two; it really is a very capital-intensive business,;; Kauffman
said in an interview. “There;s a reasonable investment to be
had.;;
Nascar is the biggest U.S. racing league by sales and
claims to be the No. 2 most-watched sport on U.S. television
behind the National Football League.
In 2007, Kauffman purchased half of Michael Waltrip Racing;
Henry;s Fenway Sports Group bought a 50 percent stake in Roush
Racing; and Gillett, who also owns ski resorts and the Montreal
Canadiens hockey team, acquired a majority stake in Ray Evernham
Motorsports.
Hobby to Investment
What the three investors paid wasn;t made public because
Nascar teams are private businesses. Forbes magazine reported
that Henry;s Fenway stake in Roush cost between $50 million and
$60 million, and estimated Roush;s 2006 sales at $189 million.
“Guys who were essentially enthusiasts or really doing it
more as a hobby, now all of a sudden have $100 million, $200
million or $300 million companies,;; said Matthew Doherty,
president of McLaren Capital Partners, a consulting firm that
specializes in motor sports. “If you bring in someone like
George, or Tom Hicks, they;re bringing in years and years of
experience looking outside of the box.;;
Gillett and Kauffman hired financial and marketing
executives to run the business side of their teams, freeing
former owners to focus on building faster cars. Gillett opened
an office in New York to boost sales for Statesville, North
Carolina-based Gillett Evernham Motorsports.
Racing for Logos
“There are some Nascar teams out there where the entire
marketing department is essentially the owner and a secretary,;;
said Doherty, who brokered Gillett;s purchase in August. “Those
teams aren;t going to be around for very much longer.;;
Abingdon, Virginia-based Morgan McClure Motorsports, whose
cars won the Daytona 500 three times in its 25 years in Nascar;s
top series, shut down this month after failing to secure
sponsors. Yates Racing, which had both its cars on the front row
of the 2007 Daytona 500, arrived this year for the opening test
session at Daytona International Speedway without sponsors.
The more sponsorships an operation has, the more cash it
can spend on testing and research. That leads to better
performance and more time on television during races, making the
team more attractive for other businesses to plaster their logos
atop eye-popping paint schemes on cars.
Thirty-two of the 36 races in Nascar;s top level last year
were won by teams whose 2006 values were in the top five of
Forbes magazine;s most valuable Nascar team rankings.
Waltrip, a driver-owner who started Toyota Motor Corp.;s
flagship team in 2007 with three cars and sponsors including
Genuine Parts Co.;s NAPA Auto Parts, said he sold to Kauffman
when he realized his team couldn;t spend as much on engineers as
other top organizations.
Aflac Sponsorship
The decision by Jack Roush to sell a stake in his five-car
race team to Fenway Sports Group helped land a sponsorship with
Aflac Inc., the world;s largest seller of supplemental health
insurance.
“We have dealt with sports marketing in other areas such
as baseball, so I believe it gave us a company that understands
well what sports marketing is all about,;; Aflac President Paul
Amos said in an interview.
Nascar founder William France Sr., whose heirs still
control the racing league, embraced a free-enterprise model,
with teams competing for the best drivers, mechanics and
sponsors. There;s no salary cap, revenue sharing or union.
Spots in a race are earned through previous performance or
during qualifying laps. Failing to make the starting grid might
result in a team paying back sponsorship money.
Large cash infusions alone won;t lead to wins, said Felix
Sabates, who has fielded cars in Nascar since 1987 and co-owns a
four-car team with Chip Ganassi. Sabates also has a minority
stake in the Charlotte Bobcats National Basketball Association
franchise.
“If spending money would have won races, I would have won
every race in the history of Nascar in the first 10 years I was
here,;; Sabates said. “You can;t buy your way in here. You got
to have people, people and people. That;s what makes you win.;;
To contact the reporter on this story:
Gene Laverty in Charlotte, North Carolina, at
