SBJ/July 29-August 4, 2013/Leagues and Governing Bodies

NASCAR won’t revisit TV split after new deal

Every five to 10 years Major League Baseball, the NBA and NHL revisit the way their teams share revenue. In the motorsports world, Formula One does the same thing. But when NASCAR finalizes its future media rights deals in the coming months, the sport doesn’t plan to discuss — much less change — the way it shares its largest revenue stream with tracks and teams.

Instead, it will continue to operate under a split developed more than a decade ago that gives 65 percent of TV money to the racetracks, 25 percent to the competitors, who are paid through the race purse, and 10 percent to NASCAR. And it will do so despite tracks and teams urging NASCAR’s leadership both publicly and privately to review the splits.

“It’s important that the entire ecosystem of NASCAR is healthy, so when you get a big check like that, you need to look at how it’s distributed,” said Zak Brown, founder of JMI, a global motorsports marketing agency. “It’s the next 10 years of NASCAR, so now is the time to ask: Is there anything unbalanced?”

The sport is poised to increase its TV money by more than 30 percent, following last week’s 10-year, $4.4 billion deal with NBC and last fall’s eight-year, $2.4 billion deal with Fox. The new deals will see the sport make more than $740 million in annual media rights fees between 2015 and 2022, and it still has 14 Nationwide Series and three Sprint Cup races to sell. But even though the amount of TV money will change, the way it’s shared won’t.

NASCAR plans to continue to operate under the same 65-25-10 formula it developed when it consolidated TV rights in 1999. In a statement, NASCAR said, “We always talk about purse distribution and entry fees, but there is nothing on the table in terms of a new revenue split.”

To some, that makes sense.

“All the teams are probably saying we need more than 25 percent, but what I will tell you is that the way it has worked over decades now has resulted in one of the most successful sports series in the world and it’s part of the formula that makes the business of NASCAR work well,” said Marcus Smith, president of Charlotte Motor Speedway. “All the parties within the sport have a business model built around the way that split works, and when you look at other forms of motorsports, you don’t see the kind of investment and growth.”

To others, it’s a disappointment — even if most team owners and executives are reluctant to state it publicly.

As the costs of running race teams have risen and sponsorships have become harder to find, owners and team executives have begun to speak privately about their desire for NASCAR to reconsider the amount of TV money that teams receive. Some believe NASCAR should increase the percentage teams receive beyond 25 percent, noting that the figure is smaller than the share any other professional sports teams receive from league TV revenue. Others believe NASCAR should look at how it funnels the money to the teams and consider giving teams an equal portion of it directly at the start of the season, which would help smaller and new teams, and putting the rest into the purse and points funds where teams can earn it through performance.

Teams currently rely on sponsorship for more than 60 percent of total revenue and that number can be higher for teams that don’t make and sell engines, such as Michael Waltrip Racing and Richard Petty Motorsports. Revenue from winnings and NASCAR’s points fund, which comes from TV money, accounts for just 15 to 20 percent of many teams’ budgets.

The push to receive a larger percentage of TV money follows a period of five years in which the sponsorship business market has changed dramatically for teams. The number of full-season sponsors has contracted and premier drivers like Dale Earnhardt Jr. and Tony Stewart still have races available for sponsorship this year.

Teams have reduced costs to deal with those challenges, but they still want to find ways to diversify their revenue beyond sponsorship.

One of Texas Motor Speedway’s events is a tier-three event, even though the track is tier two.
Photo by: GETTY IMAGES
But teams aren’t the only ones that have spoken to NASCAR about the way the sport splits its TV money. Track executives have called for changes, as well.

Under the current system, tracks split their 65 percent share of TV revenue based on a formula that also was designed in 1999. The formula divides the tracks into three tiers based on the size of their market, the historic importance of their races, past ratings and other factors. It puts Daytona International Speedway in the top tier, facilities like Texas Motor Speedway and Talladega Superspeedway in the second tier, and places such as Martinsville, Va., and Rockingham, N.C., in the third tier.

Several races have moved since the formula was developed, but the tracks that now host those races receive money based on where the race originally was held. As a result, Texas Motor Speedway, a Speedway Motorsports Inc. track that picked up a race from Rockingham in 2004, still receives a tier-three payment for that event.

SMI’s Bruton Smith has criticized the revenue formula.
Photo by: ICON SMI
SMI Chairman Bruton Smith criticized that split earlier this year, saying, “They need to come around and alter that and put it where it ought to be. We need a fair shake. Be fair. It’s all I’m asking.”

NASCAR believes that the way it shares TV money is fair, especially between its two primary track owners, SMI and International Speedway Corp., which operate eight and 12 tracks, respectively, where Sprint Cup races are held. And it doesn’t plan to change that formula, either.

Smith’s son, Marcus, said it’s easy for tracks and teams alike to look around and want a bigger cut of TV money. It’s a natural response to rising costs that both face.

“If you look at the last 20 years and see how the financial world of teams, speedways and NASCAR [has changed], everybody’s got a lot more revenue coming in and a heckuva a lot more expense going out,” Marcus Smith said. “Tracks need Wi-Fi and credit card acceptance. That all costs money. Teams have wind tunnels and make parts out of expensive alloys. But we have to make the best with what we have. To change the model that’s been successful for so long is not really a way to solve a problem. It’s just robbing Peter to pay Paul.”

Brown agreed but said that it still wouldn’t hurt for NASCAR to look at its distribution.

“It’s an ecosystem and everyone needs to be healthy,” he said, “Tracks need [capital expenditure]. Teams need help. But it’s a big chunk of money, so everyone’s going to get more. That’s great news.”

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