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Leagues and Governing Bodies

The charter system: NASCAR’s map

Agreement is packed with potential changes for sport

NASCAR’s new charter system allows for two companies to split the Cup Series title sponsorship, an increase in the number of franchise charters from 36 to as many as 40, and provides financially struggling teams the ability to be propped up for as long as a year.

Those are just some of the notable findings that could — or in some cases will — affect the sport’s future based on a SportsBusiness Journal review of the agreement that was implemented in February, as well as through multiple interviews across the sport.

The system, which is designed to give Cup Series team owners a form of enterprise value, grants teams a spate of new rights under the deal, including the ability in the future to possibly exploit the space on cars where NASCAR’s contingency sponsors currently have their logos featured. That would mark a significant departure from the past.

“What we tried to do collectively is to recognize everybody’s individual position to come to a mutual, better place,” said Brent Dewar, NASCAR’s chief operating officer and one of the chief architects of the deal, which grants guaranteed starting spots and consistent revenue streams to 36 chartered cars among 40-car fields. “This agreement will evolve over time because the world will change. But we think … it gives us a lot of stability [and] opportunities to grow the sport collectively.”

Teams gained a series of new rights under the deal, which was implemented in February.
Photo by: GETTY IMAGES

One thing that didn’t change: NASCAR maintains its ability to self-govern. Dewar said that was an “absolute mandate” during negotiations, which the teams supported.

“It’s early days — you’re in the first couple of months of a long-term contract, but so far so good and everyone’s getting used to the new processes,” said Rob Kauffman, chairman of the Race Team Alliance and co-owner of Chip Ganassi Racing. “Communication is good, and there’s bugs to work out like always — but it’s steady progress.”

Among the things that have changed — or could change — under the new agreement, which has an initial five-year term through 2020 and a four-year option through 2024, include annual audits of NASCAR’s ancillary income; the formation of a team council that will have a voice in changes to the sport (see related story); clearer definitions of non-television media rights and what teams can expect from them; and the potential overhaul to NASCAR’s longtime contingency program.

Under the current contingency system, some of the inherent value of each deal is prize money for drivers and teams to compete for in more than a dozen categories, such as the Ingersoll Rand Power Move Award and the Sherwin-Williams Fastest-Lap Award. Typically, in exchange, the teams that are participating in a contingency category put a small decal for that sponsor on their cars’ front-side panel slightly in front of the car number.

While the new provision comes with key caveats — such as waiting until current contingency deals expire (the last of which goes through 2021), and NASCAR still being able to put decals on cars for its fuel, tire and series entitlement sponsors — the potential for change is seen as a major gain for teams, who want more sponsorship space on their cars to increase revenue.

Dewar, however, cautioned that the agreement merely allows for NASCAR and the teams’ new marketing subcommittee, which was formed as part of the system, to re-evaluate the contingency program and that no decision on how the contingency program of the future will look has been made.

CHARTERED WATERS
10 highlights from NASCAR’s new charter system

■ NASCAR maintains its autonomy
■ The sanctioning body’s ancillary income is now audited for transparency purposes
■ Team owners have a voice in changes to the sport through an official council
■ The Cup Series title can be split among two sponsors
■ Financially struggling teams can be propped up by NASCAR for up to a year
■ Possible overhaul of the contingency sponsor program
■ A clearer breakdown for teams regarding non-television media revenue
■ Teams have access to five minutes of free highlight footage per race
■ The number of charters can increase from 36 to 40
■ The size of race fields can increase from 40 to 43

“We’re looking, like with anything, to contemporize some of the programs that will serve the sponsors of the contingency well, the teams, tracks and NASCAR well,” Dewar said. “We see this as an opportunity for the marketing subcommittee to work with NASCAR to think through, ‘What’s the future of contingency?’ But we see great benefit (from the program), as the teams do. We also see [that] space on the car is important as well, so we’ve given ourselves some flexibility to look at what the future program could be.”

The sanctioning body gained flexibility in other areas as well if it wants to tweak or overhaul part of the sport. That includes the Cup Series title sponsorship, which is on the market as Sprint will exit at the end of this season. In the charter system agreement, provisions are included that indicate NASCAR can split the title sponsorship in two, with each sponsor having rights to a different continuous part of the season.

Dewar, though, once again cautioned against drawing any conclusions from that. He added that since the new system takes what formerly were annual documents to what now is potentially a nine-year pact, such flexibility had to be included.

“If we had just gone from one-year (agreements) to two-year (agreements), it would have been relatively easy,” said Dewar, who has been regarded as a change agent since taking on the COO role in 2014. “We’ve gone from one-year agreements to effectively a five-plus-four(-year) agreement, so a lot of the thinking and transparency and flexibility is to think through not only what we know but what we have to anticipate potentially.”

When asked specifically about splitting the Cup Series title sponsorship, Dewar said: “Bifurcation is not a lead strategy at all. My personal preference is shorter-term agreements or medium-term agreements that you want to do for the title sponsor, so you stay fresh to the market continually.”

NASCAR also has the right to increase the number of charter members to 40, as well as increase the field size back to 43, where it stood for years. The pact, however, notes that NASCAR’s current intent is to maintain the number of charters at 36 and the field size at 40 cars.

If NASCAR decides to expand to additional charter members, there are extensive measures in the agreement to protect the owners of the original 36 charters. For example, a 37th, 38th, 39th or 40th charter will not be eligible to receive any ancillary rights revenue during the term of the current deal, which provides added incentive for a new owner to buy one of the original 36 charters.

There also are provisions in the deal that allow NASCAR to acquire or support the operations of a team for up to a year if it determines that doing so is in the best interest of the sport.

Other highlights include teams’ new ability to exploit digital media, where they’ll earn 60 percent of the revenue derived from digital media rights, while tracks receive 30 percent and NASCAR takes the remaining 10 percent. There are also provisions about teams’ new rights with conflict resolution, spelling out when arbitration can come into play. And the agreement is peppered with the new rights that teams get from a transparency perspective, including annual audits of NASCAR’s ancillary income.

“If someone is making an investment … we wanted to provide a road map to provide that,” Dewar said. “I think part of the transparency (aspect) is laying the foundation to make sure people can understand the direction the sport is going.”

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