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NASCAR talks on team equity rolling forward

Announcement of a plan in offseason called likely

Momentum continues to build toward creating a long-term equity system in NASCAR by next season, and while key sticking points remain, some form of a plan is likely to be announced during the offseason, according to sources.

The Race Team Alliance, a group of 18 Sprint Cup teams led by Chairman Rob Kauffman, outlined its proposal to NASCAR recently, and the sanctioning body was slated to send its counterproposal back to the RTA last week, sources said. Talks between the two sides, plus non-RTA teams like Furniture Row Racing, have gathered steam during the latter half of the year after starting about a year ago.

An equity system would be a major step for the sport, allowing its longtime owners to demonstrate value in their operations. Such a system, which has been talked about conceptually for decades, would see owners receive a minimum amount of revenue from NASCAR, tracks and media rights that would be guaranteed for five years, up from the current disbursement of only one year. The five-year revenue outlay is contingent on cars fulfilling certain competitive requirements, such as running a full slate of races, sources said.

Such a consistent flow of revenue would give team owners something akin to enterprise value for the first time in the sport’s nearly 70-year history because it would provide a form of long-term financial stability that makes investment more desirable.

Team owners may also get greater input on competition-related matters as part of any new system, which would mark a dramatic shift for a sport where the rules and on-track matters have traditionally been handled by the sanctioning body.

Competitors can now run in the Sprint Cup Series as long as they have funding and an operation, but a new system would create scarcity. This is designed to drive up the cost of entry and help generate the type of gaudy valuations that have made other sports franchises so desirable.

“We’re cautiously optimistic that we can get something in place [by next season], but there remains a couple of substantial issues that we’re working on ironing out,” Kauffman said. “Both sides are working very hard to come up with an agreement, because not coming up with an agreement is not a great scenario for anybody.”

Brett Jewkes, NASCAR senior vice president and chief communications officer, said in a statement that company executives “are having productive discussions with the team owners and that dialogue continues on a regular basis. The complexities of our sport are very unique and something like this is going to take time as the work continues toward a common goal of a stronger, more competitive NASCAR.”

But he noted the fluidity of the discussions, and added, “We caution against coming to any conclusions until the process is complete.”

Under a proposed plan, there would be 36 charters, each of which would get a guaranteed starting spot in the 36 Sprint Cup Series races as long as the competitive requirements are met. Each charter would be for an individual car, not an entire team. It would grant the car owner a minimum amount of guaranteed money from the sanctioning body, tracks and media rights over the length of the agreement. Among the issues still being sorted out is how much track operators like Speedway Motorsports Inc. and International Speedway Corp., as well as NASCAR itself, might contribute, and whether there will be any increased revenue distributed to teams. Such payment could come through an increase in race purse and the year-end prize fund, according to a source.

But regardless of revenue figures, the status quo seems likely to change.

“The open issues relate less to money and more to structural concepts at this stage,” Kauffman said.

Under the proposed plan, which is still so guarded that many executives in the sport refuse to discuss it, there would be 40 starting spots for Cup races, down from the current 43, meaning a handful of cars would be able to qualify for the events regardless of whether they had a charter.

Under the proposal, a car would qualify for a charter if it has run a full race schedule since 2013. Most sources believe that NASCAR’s four-car limit on teams will remain intact, though a three-car limit, which would cost most of the major teams a car, has been discussed during negotiations.

The value of one of the charters would depend on factors ranging from the economic value of the individual car to the number of bidders interested.

Andrew Kline, founder and managing director of investment bank Park Lane, which works with NASCAR and ISC on other projects, said the ultimate valuation of the charters won’t be known until actual bidding is underway, referring to valuations as “part art, part science.”

“The science part — it just makes it easier to do a technical valuation of these teams when you’ve got that much more guaranteed revenue; it helps you to both understand where revenue is coming from, and be comfortable around the business itself,” Kline said. “But the reality is that most sports teams we’ve seen, it’s more about the art — the fair-market value — than the science. What is somebody willing to pay for this asset?

“We’ve seen some interesting examples of that. I think the most glaring example is Steve Ballmer with the Clippers. If there’s a team out there that somebody who is really wealthy wants and there’s no limits to what they’ll pay, then that’s what that team is worth. You can throw the technical valuation out the window.”

But team owners would certainly welcome such a system.

“The world I came out of was Burger King,” said Ron Devine, majority owner of BK Racing and chairman of the RTA’s economic committee, who is also a franchisee owner of the quick-service restaurant. “A Burger King franchise is worth ‘x’ amount of dollars, and if the volume of the unit is higher, then it carries a bigger kick, and if it’s lower, it’s a lower kick. But they all have a value because they have a franchise associated with it.”

The plan is seen as the first major step toward improving the NASCAR team business model — which Kauffman earlier this year called “very difficult” — and could help the sport attract a new generation of investors. A significant number of NASCAR’s principal owners are in their 60s or 70s — for example, Roger Penske is 78, Joe Gibbs is 74, Richard Childress is 70 and Rick Hendrick is 66 — which means the sport needs to address having a viable ownership structure in place to attract fresh faces.

While NASCAR has become resigned to changes in the sport’s economic structure in light of the formation of the RTA last year, it is nonetheless intent on maintaining the independent-contractor status of the sport, according to sources. That’s why the sanctioning body has avoided labeling the new system as a “franchising” system.

“They would prefer to not use that term because the FTC and a number of states have enacted legislation that regulates relationships between franchisors and franchisees,” said Dwayne Watts, an attorney with Nelson Mullins, which specializes in the sports and entertainment field and has clients in the NASCAR space. “The FTC and state laws typically require franchisors to disclose certain information … and it adds an additional layer of regulations and requirements, and some of this information may not want to be shared by NASCAR.”

While revenue distribution is being actively discussed, sources said it would not affect the sport’s 65-25-10 split of television money, allowing the series to maintain its desire that its TV-money distribution — 65 percent to tracks, 25 percent to teams and 10 percent to NASCAR — would not change after the sport’s massive rights deals it signed with NBC Sports and Fox Sports.

The discussions with the RTA come as NASCAR and the track operators signed multiyear sanctioning agreements for the first time. The new agreements covered a period of five years.

Whether the charter system, which many have alternatively referred to as a “medallion” system, will be more beneficial for smaller or bigger teams is up for debate.

“Rather than smaller and bigger, what I think is it helps all the teams,” Devine said. “Whether it helps some teams more or less, time will tell and we’ll see, but I think it’s a necessary step to help every team.”

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