SBJ/Nov. 20-26, 2017/Leagues and Governing Bodies

NASCAR teams trimming, and drivers feel the pinch

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As NASCAR teams adjust to lower sponsorship revenue, they continue to reduce costs and as a result, many drivers are feeling the pinch in their salaries. Multiple teams this season turned to younger drivers to replace veterans, or renegotiated contracts with incumbent veterans, to trim what can make up one third of their annual budget.

The trend, which has affected veterans like Matt Kenseth, Kasey Kahne, Kurt Busch and Danica Patrick, has caught the attention of everyone in the garage.

With the retirements of Tony Stewart, Jeff Gordon and Dale Earnhardt Jr., the signs points to a NASCAR driver’s career ending in their mid 40s as opposed to 50 as teams hire younger drivers or renegotiate with a veteran whose car is less than fully sponsored.

Matt Kenseth could be stepping away with Erik Jones replacing him in the No. 20 Joe Gibbs Racing Toyota.
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Driver Brad Keselowski, the 2012 Monster Energy NASCAR Cup Series champion and Team Penske driver, is among the veterans this year who faced expiring contracts. He calculates that while driver salaries historically comprised about a third of a team’s overall budget, the figure is dropping precipitously across NASCAR. And he said the cars themselves are becoming the more important part of the driver/car tandem, due to advances in engineering and the increasing focus on busines-to-business deals with sponsors.

“The traditional argument used to be that drivers have fans and star power, and more often than not, a driver’s star power can help you secure a top brand, which will raise your revenue,” Keselowski said. “But at this point in time, driver star power is not moving the needle because the specific request from the sponsorship market is for direct ROIs.”

While salaries are not released in NASCAR, sources said that top drivers typically earn between $5 million to $10 million annually. While top drivers who have retained sponsorship can still earn peak salaries, new drivers coming into top rides in the Monster Energy Series will receive smaller base salaries while veterans absent sponsorship face salary cuts. For young drivers, sources said base salaries will come in closer to $500,000, as opposed to headier days when they came in around the low seven figures.

NASCAR driver deals typically include a base salary, a portion of race winnings and a portion of sponsorship revenue. Between those three buckets, younger drivers could still make north of a million dollars annually, sources said, but their ceiling will be lower than their predecessors, coming in around $5 million as opposed to $10 million — a 50 percent reduction.

“Top drivers are still going to get paid the top money and I don’t think that’s ever going to change,” said Warren Vigus, business manager for 27-year-old driver Joey Logano, who this year extended his contract with Team Penske until at least 2022. “(But young drivers are) going to have to prove their value. There’s a lot of younger drivers and a lot of people who want that ride, so unless you’re standing out above the rest as a Chase Elliott and Dale Jr., you’re going to have to either be bringing in the money or winning a lot of races.”

Driver contracts are increasingly moving toward being heavily incentive-based.

“The overall business landscape has changed,” said Jeremy Lange, vice president and general manager of Leavine Family Racing, a one-car team that was able to punch above its weight and pick up 18-time premier series race winner Kahne for 2018. “Teams are thus more likely to compensate drivers through incentives versus the previous industry norm.”

Leavine was able to nab Kahne in part due to the situation surrounding veteran drivers. Kahne’s departure from Hendrick Motorsports involved a lack of performance on the track, but his No. 5 car also ran into sponsorship issues as Farmers Insurance and Great Clips left after this past season.

Kurt Busch as of last week had yet to sign an extension.
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Kurt Busch, this year’s Daytona 500 winner who drives for Stewart-Haas Racing, as of last week had yet to sign an extension with the team. Sources said the situation has dragged on in part because Busch’s primary sponsor, Monster Energy, is looking at scaling back its program. That could force the team to try to pass the cuts onto Busch.

As for Keselowski, he was able to agree on a new deal with Team Penske. He declined to say whether he had to take a pay cut, but he did say he was subject to some of the same market forces and challenges that Busch faces.

“There are always periods where, when you’re making a deal, in order to have a good deal, you can’t be afraid to walk away — that’s kind of the art of negotiating and there were moments where that looked like it was possible,” Keselowski said. “I’m glad that it didn’t come out that way, but I’m not immune to being in that situation that Kurt’s in. I’m a little bit more fortunate with respect to partners that we have re-signing and being committed to the program.”

The unusually high amount of unsold sponsor inventory in the market has created a fiercely competitive sales environment, forcing a market correction that can leave veteran drivers frozen out of the sport due to their age and bigger salaries.

For example, Dollar General went from 30 races as primary sponsor of Joe Gibbs Racing’s No. 20 Toyota driven by Matt Kenseth to exiting the sport after its deal expired last year. Now Kenseth, who has proven to still be effective on the track with one win and 10 top-five finishes entering the Homestead-Miami weekend, could be temporarily stepping away. Gibbs brought in 21-year-old Erik Jones to replace Kenseth starting in 2018, and Kenseth — the 45-year-old 2003 Monster Energy Series champion — has not been able to find a sufficient replacement ride. Perhaps most notably, he was skipped over for Hendrick Motorsports’ two vacancies for 2018 — one for Kahne and one for Earnhardt — as well as one at Stewart-Haas for Patrick.

While the Stewart-Haas deal involved 33-year-old driver Aric Almirola moving over in conjunction with longtime sponsor Smithfield Foods, the two vacancies at Hendrick were filled by 19-year-old William Byron and 24-year-old Alex Bowman. Both have shown signs of success on the track. Byron won four NASCAR Xfinity Series races in 2017 heading into the last weekend of the season after winning seven the prior year in the NASCAR Camping World Truck Series. Bowman filled in impressively last year in Hendrick’s No. 88 Chevrolet while Earnhardt was out injured.

The influential Earnhardt spoke about driver salaries earlier this year, saying young drivers are “being offered — and accepting — contracts that are a fifth to a tenth of what veterans are getting paid,” because “you can’t pay a driver $5 to $8 million a year if you ain’t got but $10 million a year in sponsorship.”

NASCAR, whose 2017 season wrapped up last weekend at Homestead-Miami Speedway, instituted its charter system in 2016 as a way to help stabilize, and add enterprise value to, the sport’s ownership ranks. But the spiraling costs of the sport weren’t drastically improved just from the implementation of the system itself, so team owners are now reviewing their overall business models in order to get costs in line.

In the heyday, NASCAR teams ran cars that could cost $20 million to $25 million per year in sponsorship to make it all pencil out. While a handful of teams are still in that range, many others are learning to work with less — often closer to $15 million.

“When companies exit team sponsorship in NASCAR, it’s definitely challenging to secure replacement sponsorship at a similar level,” said Rod Moskowitz, principal and CEO of Fuel Sports Management Group, which represents rising stars Chase Elliott and Darrell Wallace Jr., plus veterans Denny Hamlin and Jamie McMurray.

The talk of driver salary cuts also comes amid rumblings in the garage that some teams could implement layoffs this season to resize their organizations.

Keselowski said drivers are paying attention to the topic, but that the situation, like so many things in the sport, is coming down to the simple reality of economics.

“You’d be foolish to not pay attention to it,” he said. “(But) quite honestly I was surprised we didn’t see this five or six years ago — it’s a little bit of a surprise in that way.”


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