Agencies shift gears as NASCAR traffic slows
Editor's note: This story is revised from the print edition.
Located just off I-85 in Concord, N.C., Millsport’s NASCAR office was once a bustling operation with more than 15 employees developing marketing plans for five clients. Today, it’s a fraction of its former self.
Just three employees work on business for one client. The rest of the firm’s work in NASCAR now is being done from Dallas, where its parent company, The Marketing Arm, has the retail marketing expertise to support the agency’s largest new NASCAR client, Wal-Mart.
Farmers Insurance is one of the few sponsors to sign a major team deal recently.
That belief and Millsport’s transformation are representative of a wider trend happening across the NASCAR consulting landscape. Sports marketing agencies that set up shop in the Charlotte area in the early and mid-2000s and grew quickly during NASCAR’s boom years have seen new consulting opportunities decrease and revenue plateau across the sport in recent years.
Agencies have reacted by either shrinking the size of their North Carolina operations, as The Marketing Arm did, or diversifying their business into other areas, as Just Marketing International has done with Formula One and GMR has done by adding clients with Olympic or golf sponsorships.
As Octagon’s veteran motorsports marketer Mark Coughlin said of NASCAR, “When the balloon’s not getting bigger, you have to look somewhere else.”
The reasons agencies are looking elsewhere include the fact that fewer new brands are signing on as NASCAR sponsors, many existing sponsors are reducing their spending, the number of full-season, primary sponsorships encompasses fewer races and requires less support, and many agencies have clients looking at opportunities with other sports platforms.
No agency is more familiar with the changing NASCAR landscape than Just Marketing International. Five years ago, the agency, which exclusively works in motorsports, was signing five to six new corporate NASCAR clients a year. But this year it added just one new NASCAR client — Farmers Insurance, which will sponsor Hendrick Motorsports’ No. 5 car — and it saw another longtime client, Diageo, decrease its spending, dropping both its sponsorship of NASCAR and Roush Fenway Racing’s No. 17 Sprint Cup entry.
The agency’s experience reflects the sponsorship stagnation across the entire sport. In 2004, NASCAR brought on 10 new official partners, including Sunoco, Gillette and Best Western. But in the last two years the only new companies to come into the sport as official partners were COPD, a cause-related marketing partner, and Growth Energy, which signed a NASCAR partnership to promote American Ethanol. At the team level, the only new partners to sign significant primary sponsorships were AARP and Farmers Insurance, which both signed team agreements with Hendrick.
In the meantime, many sponsors have cut back on their spending. Budweiser cut its support of its racing team from 37 races to 20 when it moved from Richard Petty Motorsports to Richard Childress Racing, and 3M cut its spending at Roush Fenway Racing.
“If you did a graph of Fortune 500 brands moving into the sport the last two or three years, that’s been less, and the ticket per spend has been less,” said Mike Boykin, GMR executive vice president. “Those two things in concert mean you’re going to see a decline [in agency business].”
Another factor in the decline in agency business from NASCAR is the dilution of primary sponsorships. Just seven brands were displayed on the same NASCAR hood for all 36 races in 2010. That meant more than 30 cars had sponsors paying less for less inventory last year. That total is expected to decline again for the 2012 season.
Because more sponsors are signing smaller deals for fewer races, they don’t need as much sponsorship support as they did when they used to sign year-round, 36-event agreements. Some have tried to manage their sponsorships in-house, turn them over to their media agencies or rely on a NASCAR team for support.
Tornados, a frozen snack food brand that signed on to sponsor Stewart-Haas Racing’s No. 39 car in 2009, opted for the latter. Rather than hire an agency, it is getting activation support from executives at Stewart-Haas for its sponsorship. The team has managed hospitality, sampling programs and at-track promotions for the brand.
David Abrutyn, IMG Consulting global managing director, said moves like that make sense because marketing budgets for many companies remain tight.
“If you only have six races where you’re a primary, you may not necessarily think you need a sports agency, and you may try to have your ad agency extend their support for those six races,” Abrutyn said.
When NASCAR was the “hot” sport in corporate America during the early and mid-2000s, much of corporate America was clamoring to be involved in it. But the recent recession hit the sport’s fans harder than those in many other properties, hurting attendance, and ratings also decreased.
As a result, corporations have begun to look elsewhere for sponsorship opportunities, and they’ve taken their agencies with them. Boykin said, “Next thing you know, we’re in mixed martial arts. We’re doing the [MLB] All-Star Game.”
Agencies with NASCAR expertise have reacted to those trends by trying to diversify into other sports. HB&M Sports, which works with Rubbermaid and Irwin Tools, historically counted on NASCAR for 80 percent of its business, but it has recently begun doing some work in golf in an effort to reduce that dependency.
“NASCAR will continue to be our core business, but we also understand we can’t continue to be just a NASCAR business forever,” said Harper Lee, HB&M vice president. “We’ve got to slowly diversify, and the reason is we don’t want all our eggs in one basket.”
Other agencies have diversified as part of their own strategic plan and in response to macroeconomic trends. IMG, which counts Coca-Cola as its biggest and most long-standing client in NASCAR, has looked to college sports for growth in recent years. GMR executives, who honed the agency’s sports consulting capabilities in NASCAR, have begun using the skills and reputation they developed to land clients in international areas such as the Olympics, where the agency is supporting Procter & Gamble, and the NBA, where it’s working with Spanish bank BBVA.
Similarly, Just Marketing’s business has shifted from being 30 percent international in 2008 to 60 percent international today, largely because it’s supporting companies interested in emerging markets such as Asia and South America, which Formula One offers.
Just Marketing CEO Zak Brown said, “America as a market is really soft. As a result, NASCAR is really soft. But Formula One has been on fire because it’s in more continents, so it’s in so many markets that it doesn’t matter as much when one market gets soft.”
Other agencies, such as Momentum Worldwide, Octagon, Wasserman Media Group and IMG, were less dependent on NASCAR and more diversified. But even they saw their NASCAR business flatten or grow only marginally compared with other sports sectors.
Dave Grant, principal at Team Epic, which won the Growth Energy business last year, was one of the only agency executives to say that NASCAR had become a more significant part of the agency’s business in recent years. He added, “We may be the odd duck.”
Not all agencies have been able to diversify. Some had to cut staff and shrink operations, as Keystone Marketing did when it reduced its consulting staff from 11 employees to four after losing Hershey. The agency still executes programs with GMAC Insurance and AAA, but it does less show car work and requires fewer people, said Keystone CEO Brad Bennett.
Agencies are optimistic their NASCAR business is poised to grow in the future. The sport’s ratings appear to have bottomed out and began increasing this year across Fox, TNT and ESPN broadcasts for the first time in five years. The sanctioning body also is expanding its sales force from a two-person operation to six employees, and it’s spending more on marketing efforts designed to reach young people and Hispanics.
Most important, perhaps, the cost to sponsor a car has decreased, making the value proposition better for companies interested in sponsoring a car in the Sprint Cup Series.
“The 5-Hour Energies and Dollar Generals can trade up now [from the Nationwide Series] for a couple of million dollars,” said Matt Petersen, Momentum Worldwide’s director of motorsports. “It’s a buyer’s market with a lot of great opportunities.”
“One of the great things NASCAR’s done is address this contagious negativity, which was a problem a year ago,” Grant said. “They’ve stemmed that and they’re getting some positive news.”
Agency leaders are optimistic that positive news will begin to attract corporate America to NASCAR. It still has a large and passionate fan base that has a history of overindexing when it comes to sponsor loyalty, and as prices for team sponsorships decrease and the value proposition in the sport improves, NASCAR should appeal to brands increasingly in the future.
“They’ve looked in the mirror and realized their challenges,” Coughlin said. “Now they’re rising to those challenges and trying to execute against a broad strategy. It’s still a fantastic opportunity for the right brands.”