SBJ/October 16 - 22, 2006/This Weeks News
Turnover, tough times trigger questions
Published October 16, 2006
As a former employee at R.J. Reynolds, Dean Kessel knows the powerful red and white impression that Winston left on the motorsports world.
|“We’ve got the most powerful sports marketing
property in the world. What are we going to do about it?”
-Dean Kessel, Director of Nextel Cup marketing,
In a little over four months on the job, Kessel has learned that “the future” in the technology world usually means next week or next month, not next year and certainly not 10 years from now. But after a professional lifetime spent mostly in racing, he can’t help but look ahead to how the Nextel Cup title sponsorship will be judged, especially now that he’s in charge of it.
“OK, we’ve got the most powerful sports marketing property in the world,” Kessel said. “What are we going to do about it? I call it, ‘Challenging our incumbency.’ That’s where we are. That’s what we talk about every day.”
As Sprint Nextel nears the end of its third year as title sponsor of NASCAR’s most prestigious series, the company has endured a merger in 2005, resulting personnel upheaval and, most recently, damning criticism from Wall Street analysts.
Many of the executives who put Nextel’s name on the Cup series when the deal was done in 2003 didn’t survive the merger, which led to speculation about the leadership within the motorsports program and the commitment of those Sprint executives who assumed the most expensive sports sponsorship ever negotiated. The merger also has led to internal debate over whether the sponsorship should remain under Nextel’s name or switch to the Sprint Cup in 2008.
“There’s a lot of speculation out there about what they’re doing, as they’re trying to move their business under the Sprint umbrella,” said Bob Cramer, president of Genesco Sports Enterprises, a sports marketing company whose clients include Pepsi, Motorola and Coors. “It’s tough sometimes to be out there promoting how much you’re spending if the business isn’t doing well.”
While Sprint Nextel’s research indicates that the sponsorship is doing its part to sell phones, the company’s recent performance has included falling profit, disappointing revenue and fewer-than-expected new subscribers. Sprint Nextel shares dipped nearly 30 percent from May to late August.
Kessel insists that as the company seeks to emerge from these tough times, it will lean on its NASCAR sponsorship even more. Sprint Nextel isn’t merely hanging in there for the short term, he said, it expects to be around for the full seven years left on the contract and then some.
“There are a lot of debates out there about the personnel changes and the leadership and the commitment,” Kessel acknowledged. “But I look at the end user, the consumer, and see all of the ways that we’re succeeding and evolving.
“This office (in Charlotte) is fully dedicated with 35 staffers working on the NASCAR sponsorship. There’s not a separate office with 35 staffers working on (Sprint’s) NFL program. This is an absolute high, high priority.”
The evolution of Sprint Nextel’s sponsorship has come in phases.
In 2004, following Winston’s 33 years as NASCAR’s signature sponsor, Nextel tried to convince race fans that a technology-based company could fit in with the T-shirt crowd, advertising that “We’re fans, too.” In year two, as the companies were merging, Sprint Nextel asked for fans’ loyalty by enhancing their at-track experience. Year three has been more about the ultimate goal: selling more phones.
|“Cingular’s program is extremely visible. It’s not as visible as Nextel, but sometimes I feel that Cingular is more relevant.”
-Zak Brown, Just Marketing CEO
“We all thought we’d be calling it the Winston Cup out of habit for years to come, and to Nextel’s credit, we haven’t,” said Zak Brown, CEO of Just Marketing, which represents AMD, DirecTV, Hyatt and Hilton. “Thumbs up for their transition.”
But like some other marketers, Brown wonders if Sprint Nextel is reaching the fans away from the track as persuasively as it could.
Wireless competitor Cingular, on the other hand, has parlayed its sponsorship of Jeff Burton’s No. 31 car — a deal that was in place before Nextel acquired the series sponsorship — into a high level of visibility and promotional opportunities at a fraction of the cost. Team sponsorships generally cost about $15 million to $18 million annually, compared with Sprint Nextel’s $75 million-a-year commitment.
It hasn’t hurt that Burton — and by extension Cingular — was atop the Chase for the Nextel Cup standings heading into the fifth race of this year’s 10-race Chase.
“Cingular’s program is extremely visible,” Brown said. “It’s not as visible as Nextel, but sometimes I feel that Cingular is more relevant because they do such a good job in their media broadcasts, texting and their interactivity with the fans.”
Steve Lauletta, president of Radiate Sports Group, which represents Bank of America, Lowe’s and others, has seen Sprint Nextel’s focus at the track with such wireless applications as FanView, a small TV that fans can rent or purchase to see live video, replays and stats.
But away from the track, “there’s not as much of a continuous presence after the circus leaves town,” Lauletta said. “My take would be that Sprint is more active with its NFL sponsorship.”
Lowe’s CEO Robert Niblock admitted concern when Nextel entered the sport, but has come to appreciate their presence.
“I wondered if they’d live up to (Winston’s) participation in the sport, and I think they’ve done a phenomenal job marketing it,” said Niblock, whose company sponsors Jimmie Johnson’s No. 48 Chevrolet on the Cup series as well as owns the naming rights to one of NASCAR’s more popular tracks, Lowe’s Motor Speedway near Charlotte.
|Nextel Vision provides everything from the
race feed to text messages during events.
But the transition hasn’t been without its complications, in part because of management turnover.
Vice president of sports marketing Michael Robichaud, the face of the sponsorship since the deal was signed in 2003, left Sprint Nextel in June (see chart, page 39). Jill Gregory, the Nextel Cup marketing chief, also left last spring. And, just last week, executive chairman Tim Donahue, the former Nextel CEO who originally signed off on the NASCAR deal, resigned effective Dec. 31, leaving Schweitzer as the sponsorship’s only architect still with the company.
Robichaud and Gregory declined comment for this story, and Donahue was not made available for an interview.
Kessel started in June, leaving him little time to put his fingerprints on any plans for the Chase, which started in mid-September. He had hoped to make a big splash by painting the walls at all 10 Chase tracks a distinctive Sprint Nextel yellow, but the idea met resistance from some track operators. Their chief concern was not having enough lead time.
The idea has since been shelved, though it likely will resurface in 2007 when there’s more time to prepare, but it illustrates how the management turnover has affected the company.
With any program, the ultimate test of a sponsorship is whether it’s selling more product. Sprint Nextel now has a subdivision of its marketing team that produces return-on-investment numbers, and according to Kessel, management is seeing the benefits of its NASCAR partnership.
More than 900,000 new customers overall in 2004 and 2005 have been tracked to the NASCAR sponsorship through post-sales polling. Customers who identified themselves as NASCAR fans generate 20 percent more revenue than non-NASCAR fans and churn at rates 10 to 20 percent lower than non-fans.
Those numbers are not completely surprising, said Christopher King, an analyst who follows the telecom industry with Stifel Nicolaus & Co., because the NASCAR-fan figures mirror Nextel’s figures before the merger.
“Nextel subscribers have better metrics, period, than the rest of their base, be they NASCAR fans or not,” King said. “So from that perspective, things like more minutes of use by NASCAR fans or lower churn, you would expect that.”
|“When you try to transfer loyalty from one brand to
another, that’s a real marketing challenge.”
-Bob Cramer, President, Genesco Sports Enterprises
Analysts also have bashed Sprint’s overall marketing effort. While Verizon has pushed the power of its coverage and Cingular has trumpeted “the fewest dropped calls,” Sprint’s message is “weak,” according to Pali Research analyst Walt Piecyk.
“Sprint has 7 p.m. calling?” Piecyk wrote in August, in reference to Sprint’s unlimited calling plan after 7 p.m. Piecyk added that he was skeptical of Sprint’s ability to differentiate itself with wireless data.
Sprint Nextel has responded with a new marketing message, “Power up.”
“There are so many aspects of their overall campaign that are not effective; sports is one area that is effective,” said Michael Nelson, an analyst with Stanford Financial. “I would argue that the NASCAR campaign is one of their few bright spots. It’s a niche segment and it’s not enough to move the overall needle, but it does help.”
What’s difficult to gauge, though, is how Sprint Nextel’s overall struggles are affecting the sponsorship. Kessel said his group has every ounce of support it needs, although he wouldn’t offer specifics financially.
The company’s contract with NASCAR also includes escalators of up to 6 percent that push the total value of that 10-year deal close to $950 million, well above the $750 million that’s routinely reported, sources said.
Cliff Pennell, who oversaw Winston’s sponsorship of the Cup series from 1996 to 1999 as part of his 20 years with R.J. Reynolds, has seen nothing to question Sprint Nextel’s commitment.
Under Pennell’s direction, Winston’s sponsorship remained a priority despite the lawsuits and public attacks levied against the tobacco industry. Of course, the NASCAR sponsorship was enjoying its silver anniversary by that time and Winston was fully ingrained in the sport, so the support from the company never wavered, he said.
“We had the research that was telling us it was a wise investment, so the sponsorship was never terribly affected,” said Pennell, who now runs his own consultancy. “There are two elements you’ve got to have to survive. You’ve got to have results and you’ve got to have people committed to the program. If either of those two break down, then you’ve got problems.”
Now that Sprint Nextel has established an identity with NASCAR, the challenge in years four, five and beyond is to use its technology to further integrate itself into the sport.
|Nextel’s name stands above the rest, but
NASCAR is a crowded sponsorship environment.
The sky might be the limit, but it’s not without turbulence. One of the most important components to Sprint Nextel’s activation plan — mobile content — is a space currently occupied by Turner Interactive, which owns those rights through 2010 as part of a 10-year deal with NASCAR.
So, every time Sprint Nextel wants to offer its subscribers unique downloadable content, it has to head back to the negotiating table with Turner. Sprint Nextel has in the past partnered with Turner to acquire exclusive time-specific mobile content for events such as the Nextel All-Star Challenge and the Chase, and it works continuously for a bigger piece of that pie.
Additionally, Sprint Nextel has attempted to position itself as the pacesetter in terms of making the cell phone the third screen.
Just last month, Sprint launched Power View, a wireless television network featuring a series of short shows that range from news to fashion to sports, including significant exclusive content from the NFL. James Brown will host “NFL Game Center,” a five-minute in-studio show with news and notes, produced exclusively for Sprint Nextel customers. The new network is without Nextel Cup programming.
“We want to continue to deliver to fans the best and most unique NASCAR content,” said Steve Gaffney, Sprint Nextel’s director of sports marketing. “That’s very important to our program.”
Determining how much to spend with Turner on mobile-content rights is tricky. Without knowing how popular TV-oriented programming will be on cell phones, Sprint Nextel doesn’t want to pay Turner for rights to programming that it will never use.
The carrier already owns ad space on Turner’s NASCAR.com, as well as Turner’s TV broadcasts, so the two parties are looking for ways to bundle that with mobile content.
Sprint Nextel has used other wireless applications — PitCommand, FanScan, FanView — as fan enhancements. PitCommand offers content from NASCAR.com, and FanScan allows any subscriber with a cell phone to listen to live, in-race radio communication.
More wireless applications are crucial to Sprint Nextel’s overall future. One of the industry’s most important metrics is average revenue per user, and more unique downloadable content usually generates more revenue. ARPU, an area where Wall Street says Sprint Nextel has underperformed, is becoming more and more vital to marketers who must figure out how to implement mobile content into their strategy.
“In this industry, it’s all about high-revenue customers, text messaging, video access, content,” said Rick Jones, captain of FishBait Marketing, a marketing consultancy. “That’s where you’ve got to be innovative.”
Beyond phone sales and downloadable content, Sprint Nextel has used the racetrack as a stage for its technology. It delivers the equivalent of 15 cell-phone towers to each Cup race so fans can make wireless calls. Nextel Vision, large video screens transported to each venue, provide everything from the race feed to text messages.
“A lot of companies fail to make a natural connection with the sponsorship,” Cramer said. “Anything Sprint Nextel can do to integrate itself into the sport will rub off and produce more sales. That kind of innovation is what makes companies cutting edge.”
Among Sprint Nextel’s initiatives in the works:
- A program called “Admission control” will allow fans to print out tickets at home, just as they might print out a boarding pass before going to the airport. Tickets would be scanned at the track by a BlackBerry-type device that includes a tracking system.
- A radio frequency identification device with Goodyear that involves putting a computer chip inside a tire. Race teams are held accountable for returning tires at the end of each event, and this technology will help track each tire that’s issued. RFID also is being used inside the wings on NASCAR’s Car of Tomorrow to track inventory.
- In an ongoing effort, Sprint Nextel is working with NASCAR to improve driver-to-team communication for the Car of Tomorrow.
|In its third year of featuring the top 10 drivers in a “postseason” championship run, the Chase for the Nextel Cup has been successful in generating interest in the sport.|
“I think we’ve seen Sprint Nextel shift into showing the ways they can give back to the fans a more rewarding and enriching experience, via their technology,” said Roger VanDerSnick, CMO at International Speedway Corp., and a key figure in the 2003 Nextel negotiations when he was NASCAR’s vice president of marketing.
“What you have to understand is that the things they’re trying to do are hard. They’ve done the easy stuff. Now it’s about digging deep to provide a more meaningful fan experience, and that’s indicative of their long-term commitment to the sport.”
Sprint Nextel also uses its business development team to work with 116 other NASCAR sponsors to create business-to-business opportunities. The result has been a net increase of nearly 200,000 units, the company said. A relationship with NewPage, fostered by NASCAR’s B2B Forum, led to the deployment of 200 BlackBerry units for NewPage employees.
By integrating its technology into the sport, Sprint Nextel also can test its innovations at the track and apply them to other businesses, as IBM did with the Olympics in the 1990s, when the computer giant boasted that if it could run the Olympics, it could run your company.
From Kessel’s viewpoint, the sponsorship is selling phones and more. It also provides a rallying point for employees.
More than 13,000 workers and family members attended a recent company function at Kansas Speedway, near Sprint’s Kansas City headquarters, more than three times the number of people expected, he said.
“That speaks volumes about the power of this sponsorship,” Kessel said.
Going forward, the most publicly debated decision facing Sprint Nextel is the name on the Cup. NASCAR will allow one name change within the 10-year contract, and Sprint Nextel is studying whether a switch to the Sprint Cup would be worthwhile. It will remain the Nextel Cup in 2007.
Multiple sources say that NASCAR is insistent on a change because Sprint is the company’s flagship brand. It’s also the brand that targets the broader consumer base, whereas Nextel’s walkie-talkie network targets job sites.
“NASCAR wants it to be right and that’s why we’re working on this together,” Kessel said. “We want to make sure everybody gets what they want. But we’ve never had anybody from NASCAR say, ‘This is what we want.’ We want ‘right,’ that’s what we want.”
Obermeyer wouldn’t confirm that NASCAR prefers the Sprint Cup, saying only that “any decision will be thoroughly researched.”
A move to the Sprint Cup in 2008 would coincide with Sprint’s plan to move the Nextel push-to-talk technology into the Sprint network. And Nelson, the Stanford Financial analyst, even hinted that the timing is calculated.
“Over time, they’re looking to phase out the Nextel segment, and the ’08 time frame works with that,” Nelson said. “That’s probably not a coincidence.”
If the Nextel brand, which saw its only other national platform, an NHL sponsorship, expire after last season, loses NASCAR and eventually turns to dust, the company will count on those Nextel subscribers changing brands.
“That’s part of the examination,” Kessel admitted. “We don’t want to do anything that alienates a loyal consumer base from the sport.”
That’s not an easy task, according to Genesco’s Cramer.
“When you try to transfer loyalty from one brand to another, that’s a real marketing challenge,” he said.
Sprint Nextel is well into its due diligence, testing mock logos and focus groups, among other things, but Kessel wouldn’t put a timetable on the decision.
The internal debate about the name provides something of a window into the company’s troubled $38 billion merger. Wall Street analysts have been critical of the slow blending process, in part because the brands, their technologies and even their cultures are so different.
Meanwhile, Kessel’s group has engaged in a brand reinvigoration push since June to keep the Nextel brand vibrant. Branding, both at the racetrack and in the media, changed from “Sprint together with Nextel” to simply “Nextel.”
“We looked at how we needed to incorporate Sprint after the acquisition, and when that happened, they actually cannibalized each other,” Kessel said. “They ended up being two voices that competed. Nextel has to have its own voice.”
No matter which brand adorns NASCAR’s Cup series in the future, Kessel’s mission won’t change. Just as Winston’s brand became synonymous with the sport during its 33-year run, Kessel wants Sprint Nextel to be similarly embedded in the sport through its technology.
And if Sprint Nextel’s legacy is that it brought fans closer to the sport than ever before?
“Hey,” Kessel said with a grin, “that’d be great.”
Who's In And Who's Out?
Some of the key executives in Sprint Nextel’s chain of command, and those who are no longer with the company since the merger in 2005.
President and CEO Forsee came from the Sprint side and has since absorbed the COO duties following Len Lauer’s departure in August. Merging the Sprint and Nextel technologies and the company’s new marketing message are among his chief objectives.
Chief marketing officer A chief negotiator on Nextel’s 10-year deal with NASCAR, Schweitzer remains one of the sponsorship’s biggest allies. He’s responsible for the national marketing strategy.
VP, experiential marketing Murphy came from the Sprint side, and all of Sprint Nextel’s sponsorships, including deals with the NFL, Olympics, PGA Tour and nonsports, flow up to him.
Director of sports marketing Gaffney came from the Nextel side and is responsible for national sports sponsorships, working under Murphy. A top priority has become helping Sprint Nextel acquire NASCAR-themed mobile content from Turner Interactive.
Director of Nextel Cup marketing The company wants Kessel to be the face of its NASCAR program. Kessel took this post in June after a stint as vice president of operations at BASS. He previously worked in racing for R.J. Reynolds and Lowe’s.
Executive chairman Donahue, 57, announced his retirement last week, effective Dec. 31. As the Nextel CEO, he was credited with engineering the turnaround of Nextel from near bankruptcy to the nation’s No. 5 carrier before the merger, and is hugely popular among Nextel holdovers. After attending a Busch race in Daytona, he became a NASCAR fan and gave the final go-ahead on the sponsorship that’s worth nearly $1 billion.
Chief strategy officer The former Nextel COO never gained much of a profile after the merger.
VP, sports marketing Along with Schweitzer, Robichaud led Nextel’s charge for the NASCAR sponsorship. NASCAR’s initial pitch was made to Robichaud, and he set up the first meeting between Nextel and NASCAR executives. He left in June and has kept a low profile.
Director of Nextel Cup marketing Her departure along with Robichaud’s led to much speculation about Sprint Nextel’s commitment and leadership within the program. Gregory has resurfaced as the NASCAR marketing executive at Bank of America.
Marketing manager and director of corporate communications Mooney was Nextel’s communications chief at the racetrack each week and had been with the company since the start of the sponsorship. He left at the end of June.