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Volume 21 No. 22

Leagues and Governing Bodies

Growing tension has emerged between NASCAR and its teams despite efforts to collaborate more in recent years.

 

NASCAR stakeholders have worked to improve the team owner model to make the sport more valuable to current investors and attractive to prospects. That included implementing the charter system in 2016 for team owners in the Monster Energy NASCAR Cup Series to form enterprise value. It’s also included working collaboratively on issues ranging from marketing, to rules changes, to controlling costs.

But several team owners and their top executives are frustrated by the slow pace of change, which has strained their relationship with NASCAR. This comes as this year’s season has seen a continued drop in attendance and ratings, which has ratcheted up the pressure for more dramatic change.

Some team owners would like to see a budget cap on how much teams can spend per car.
Photo: getty images

It also comes as the sport faces critical negotiations in the next couple of years.

NASCAR’s France family has been eyeing a sale of a stake of the company and has hired Goldman Sachs to assist. The first term of the charter agreement between NASCAR and teams ends in 2020, which could spur talks on how the sport distributes media revenue. And the five-year sanction agreements between NASCAR and tracks also end in 2020, opening up the possibility of major changes to the sport’s schedule.

“For a sport based on speed, it’s ironic that we are not nimble and fast enough to quickly make changes,” Andrew Murstein, majority owner of Richard Petty Motorsports, wrote in an email. “I believe we are moving forward and are on the right path … but I would like to see it happen sooner rather than later.”

The environment is so sensitive that most team executives and people close to them either declined comment or offered only to speak on background. NASCAR did not comment for this story.

Circle 2020 on calendar

That’s the year the charter agreement between NASCAR and teams ends, as well as the five-year sanction agreements between NASCAR and tracks. Teams see that as key openings to accomplish a couple of key goals: lobby for a larger share of media revenue and shake up the schedule.

The issues causing frustration include cost controls, the feeling from some that NASCAR needs to run fewer or shorter races and do so at different venues, questions about NASCAR’s long-term management plan, and a perceived lack of cohesiveness over new initiatives.

One example of the frustration was evident after NASCAR made an unexpected announcement last month that it was purchasing the smaller ARCA stock car racing series. Rob Kauffman, co-owner of Chip Ganassi Racing and chairman of the Race Team Alliance, tweeted after the announcement, “Wow. @NASCAR consolidating monopoly power. Need to check @RaceTeamAllianc legal #thesqueezeiscoming.”

Kauffman wouldn’t elaborate on the tweet, but sources familiar with his thinking said the hashtag was a reference to the possibility that teams could fight to reset the sport’s current revenue-distribution model after 2020. The expiring charter agreement and track sanction deals combine to make 2020 clearly one of the most pivotal years in the sport’s history. While there are questions about how much leverage teams would have, more extreme options could be to strike or form a breakaway series.

NASCAR’s purchase of ARCA has led some to question the motive behind the move. NASCAR’s premier series teams are barred under the charter from joining other U.S.-based stock car racing series, sources said. Taking ARCA out of the picture would make it much more challenging for renegade NASCAR teams to break away and start a rival series at the end of the charter, since they would have to start from scratch.

For a sport based on speed, it’s ironic that we are not nimble and fast enough to quickly make changes.
Andrew Murstein
majority owner, Richard Petty Motorsports

One team executive said that while the potential to renegotiate the sport’s revenue split is a sexy topic, it’s just one of three major pillars on which teams are focused.

The second is to slash expenses and do more joint marketing. NASCAR has started to implement some cost-cutting measures, such as moving to universal air wrenches. But even that has led to issues, with some teams accusing the new spec pit guns of malfunctioning. Team owner Joe Gibbs said he told NASCAR he wasn’t a fan of the new rule. Joe Gibbs Racing reportedly spent heavily to develop faster air guns for quicker pit stops.

Sources said multiple team owners have pushed NASCAR’s leadership, led primarily by President Brent Dewar and COO Steve Phelps, for greater change. Teams are working particularly hard to find ways to lower costs, and some even want to introduce a budget cap on how much teams can spend per car annually. A team source involved with meetings between the teams and NASCAR pegged the potential cap at between $15 million and $20 million per car, but questions remain about whether owners truly could agree on a cap and how NASCAR would govern it.

A budget cap is one aspect of the wider topic of the competitive framework of the sport, which has been an important topic of late in Team Owner Council meetings and RTA discussions.

One executive with a long history in motorsports is not surprised at the recent tension, especially as the business metrics around the sport continue to be challenged.

“This is a natural progression of the maturation of the sport, and is something that’s happened in every other league,” said Lauri Eberhart, co-founder of the Apollo Sports & Entertainment Law Group and a former executive vice president and general counsel for racetrack owner Speedway Motorsports Inc. “When you look at it, you get to a point where the players or teams are saying, ‘We are not making enough money; somebody else is, so let’s look at the revenue-stream splits and all work it out.’ It’s something that’s happening as we grow and as the sport’s metrics continue to be under pressure.”

Among the most pressing issues for teams is the continued reliance on corporate sponsorship for about 75 percent of their annual revenue, at a time when teams are having to drop prices and work harder to land or renew ever-smaller deals.

Team owners and NASCAR execs celebrate the charter agreement in 2016.
Photo: getty images

This has hastened teams’ desire to change the sport’s revenue-distribution model. Under the current revenue split from media rights dollars, tracks earn 65 percent of the pie, while teams earn 25 percent and NASCAR takes the remaining 10 percent. Fox Sports and NBC Sports pay a combined $820 million annually for media rights.

Meanwhile, while innovation, experimentation and disruption are buzzwords throughout sports, team executives are frustrated by the sport’s inability to change, such as trying midweek Monster Energy Series races. Some believe the series could have tested these as early as this year, but now, with the 2019 schedule already out, there won’t be any until 2020 at the earliest.

NASCAR driver Kurt Busch recently hit on the topic on SirusXM NASCAR Radio, saying, “We need to shake up our schedule. … We’ve got to do more things for our fans, more things for the media, to keep things more interesting and exciting when we’re moving and shaking.”

In NASCAR’s defense, sources say some senior executives at the sanctioning body are interested in trying midweek races; the opposition appears to mostly be coming from track owners fearful of losing ticket revenue. There also have been instances where NASCAR has appeared frustrated with the slow pace of change of other stakeholders, such as when NASCAR competition executive Steve O’Donnell tweeted two weeks ago that having no Monster Energy Series drivers race in the second-tier Xfinity Series “should be the norm.” Some Xfinity teams have resisted such an idea because they leverage appearances and name recognition by Monster Energy Series drivers to help sell sponsorships, even though that has diluted the series’ developmental mantra.

Team executives are more interested in experimenting with a midweek race to increase TV ratings than concerned about possibly lower attendance, the latter of which being tracks’ main opposition.

“The midweek racing idea has been kicked around for a long time; TV likes it, tracks hate it,” Kauffman told SportsBusiness Journal in April. “For teams, it’s just a matter of scheduling. We’re happy to try it.”

Some team executives are now turning their attention toward getting midweek dates on the 2020 schedule. The thought has been to try them at tracks that are closer to cities and thus less dependent on camping revenue than more rural tracks.

“My to-do list if I were in charge in no particular order would be: No. 1, more night and mid-week races. I don’t care what the excuses are. Let’s just get it done,” Murstein wrote. “No. 2, measures to level the playing field. The same people basically win every week. It gets boring. … There needs to be similar equipment for everyone. What other sport league has teams build their own equipment?”

NASCAR also is working on giving the sport a more cohesive marketing structure, as it recently announced it’s looking at changing its title sponsorship model in 2020 and working more closely with teams, tracks and media partners to jointly sell and promote the sport. But not all team executives are thrilled by that concept, either, as some fear that an expanded NASCAR sponsor roster would limit marketing prospects for teams.

When it comes to having more cohesive collaboration, Kauffman was quick to point out that the new youth-based esports initiative announced last week by NASCAR and iRacing included no involvement from teams. He added that NASCAR has not helped the RTA with its own esports initiative, which is a pro iRacing league featuring players who would be drafted by the actual teams.

“They just weren’t interested in working with us and aggressively smothered our initiative,” Kauffman said.

While years ago the hope of more collaboration through the charter system and the launch of the RTA seemed promising, it’s proved harder to execute based on various stakeholders’ self interests.

“The tension has always been there because business people are self-interested and in the room to make money, but on the other hand, everyone has to work together or it’s not going to work,” Eberhart said. “But the stress on the industry players is increasing because the metrics continue to trend down. That’s going to put anyone in the industry under additional stress.”

In this week’s First Look podcast, SBJ’s Abe Madkour, Bill King and Adam Stern get revved up for our NASCAR cover story; plus a discussion on the growing discontent in the agent world amid changes at the NFLPA.

The PGA Tour is teeing up options for legalized sports betting, from fees it could charge to monitor the process, to safeguards on the type of bets that would be allowed.

 

For example, “It’s in the hole!” may be a favorite cry from the gallery. But the tour doesn’t want fans one day betting on potential “negative outcomes,” such as betting on whether a player will miss a putt or miss a fairway off the tee. Such bets, the tour believes, could be manipulated by players without major implications on a tournament outcome.

Like other sports properties, the tour is waiting for a U.S. Supreme Court decision that could legalize sports betting. While the tour may be a little late to the effort compared to the NBA or Major League Baseball, it is quickly making up for lost time.

“We joined the effort five or six weeks ago and what we are doing in preparation for a court ruling is trying to make sure our voice is heard in that process,” said Andy Levinson, PGA Tour senior vice president of tournament administration. Levinson, David Miller, vice president and assistant general counsel, and Len Brown, chief legal officer, lead the tour’s gambling business strategy.

The tour wants to prevent “negative outcome” wagers such as bets on missed putts.
Photo: getty images

It’s an effort that is accelerating after PGA Tour Commissioner Jay Monahan last month publicly threw his support behind the legalization of sports gambling while aligning with the NBA and MLB.

Levinson and Miller have been on the road over the past few weeks meeting with lawmakers in states considering gambling legislation, the most recent stops coming in Kentucky and West Virginia.

Tour executives also are in talks with companies for a licensing deal that would collect and distribute data to gambling operators as the tour looks to cash in the money generated should sports gambling become legal on a statewide basis.

Notes from Ponte Vedra

Next year’s Players Championship moves to March from May, posing a calendar crunch for tournament officials who began working on the 2019 event well before the start of this year’s event. The shift means that the tour’s marquee event will be held twice in 10 months in two different climates given that the North Florida weather in March can be far different than in May.

“We are losing three months in the planning cycle,” said Jared Rice, executive director of The Players Championship.

But as the event next year moves to the front of the PGA Tour schedule, Rice expects more companies to be willing to spend more dollars compared to a later schedule when corporate budgets already have been committed to other events.

“From a building perspective, it puts more stress on our operations team,” Rice said. “From a sale perspective, we are really focused on multiyear deals. We don’t have a lull. The sales cycle has shortened considerably.”

The tour this year put a new twist on the “Partner Connect” sponsorship summit it held at The Players Championship, adding a Women in Business panel created in collaboration with the tour’s Advancing Women in Leadership Employee Resource Group.

The session, held on May 10, included a panel discussion moderated by Alex Baldwin, vice president of corporate partnerships for the tour, and included Mandell Crawley, managing director and head of private wealth for Morgan Stanley; Leesa Eichberger, head of brand marketing and sponsorships for the Farmers Group; Laura Neal, senior vice president of communications for the tour; Molly Solomon, executive vice president and executive producer at the Golf Channel; and Annika Sorenstam, World Golf Hall of Fame member and former LPGA Tour player. Panel members were asked to share career paths and defining moments.

— John Lombardo

The tour has a deal with London-based Genius Sports to monitor wagering activity in countries where gambling already is legal. “We would engage someone like that in the U.S.,” Miller said.

Like the NBA, the tour proposes a 1 percent “integrity fee” on money wagered on golf, but executives say they are open to negotiation. 

“We are having discussions about that number,” Levinson said. “These are our competitions and we feel that if betting operators are going to be making hundreds of millions of dollars off it, then it is reasonable for us to ask for a small portion of that. What comes along with that is a significant ramping up of our investment in monitoring betting activity and engaging third parties in bet monitoring. That comes with an expense and we would use those funds to offset those expenses.”

The tour also wants legislation to allow for mobile and online wagering as part of any new statewide gambling laws.

“That’s a big one,” Levinson said. “Part of this effort is to eliminate the black market that is estimated to be $150 billion. Without the ability to bet online, the offshore betting operations will continue to exist.”

Along with the oversight, the tour sees the use of mobile and online gambling as a way to increase fan interest while dramatically boosting the amount of money wagered.

“We want mobile platforms to be fully enabled,” Miller said. “Brick and mortar is not realistic to engage fans.”

The tour also is pushing for legislation to include opt-out provisions on “negative outcome” wagers such as bets on missed putts or a player missing a green. Instead, the tour wants to allow real-time shot-tracking bets such as a putt made or green hit in regulation, and the more common wager such as which player will win an event.

While the tour has outlined specific areas it wants included in betting legislation, it does not have a specific figure on how much revenue legalized gambling could generate for the tour.

“There are so many variables throughout a golf tournament and the possibility for betting markets is enormous because of the nature of our sport,” Miller said. “For us, it is an opportunity for fan engagement. If it’s legal, regulated and safe, we see it as a tremendous opportunity.”

The PGA Tour next month will unveil a new digital branding effort aimed directly at Hispanics as part of an effort to boost multicultural fan engagement.

 

The new content is part of a deal that began last year with mitú, a digital network that targets the Hispanic market.

“If we want to have an audience in the future, it is a demographic we have to target and we have to figure out how to do that,” said Nelson Silverio, senior director of multicultural marketing for the tour. “All leagues are figuring out their own strategy, but what the challenge was for us was the sport itself. It’s not how we present our product but it is about talking about the sport honestly.”

The tour will distribute videos over mitú’s social channels.

The new content is not yet completed, but it will include 5- to 6-minute video segments created by mitú that look at the lifestyle of golf, a “docu-series” of videos that follows Latino golf fans and their experience with the sport, and videos addressing the basics of golf to introduce the lifestyle of the game to a young Latino audience. Specific golf instruction or addressing the technical aspects of the game is not part of the content.

“The content is not how to grip a club, it’s why you should be interested or watching golf on television,” Silverio said.

The new branding effort comes after the tour and mitú signed a deal last September and rolled out content on mitú’s social channel around the FedEx Cup playoffs. That content featured a “Watcha Golf” series that included PGA pros Jon Rahm, Jhonattan Vegas and Camilo Villegas.

This year, no players are expected to be included in the new content that will appear across the tour’s and mitú’s social media channels. The content will be produced in English and will be folded under the tour’s new “Live Under Par” advertising campaign.

“It is not just creating a conversation, it is getting fans to engage directly with the tour,” Silverio said.

Tom Ricketts may have raised eyebrows around the sports industry when news broke that the Chicago Cubs owner will pay $3.5 million for a controlling stake in a second-tier soccer expansion team in the Windy City that is aiming to play in a new 20,000-seat stadium. But for the United Soccer League, it’s just another sign of continued growth.

 

“It speaks to the ambition of the USL to really get quality organizations and quality ownership groups like this driving all of our clubs forward,” said President Jake Edwards. “This is sort of an evolution of the USL, and a reflection of the quality of owners and the size of scale of the clubs that we have now.”

Roughly two months into its 2018 season, the USL is already setting high-water marks. The first week of May saw it draw more than 100,000 fans for a week’s worth of games for the first time. It is on track to draw more than 3 million fans this year, up from just over 2 million last year. While much of that has been driven by the league’s expansion — six new teams joined the USL this season, giving it 33 overall — nearly every team has had year-over-year attendance increases thus far.

League revenue is also rising. Edwards said that clubs have seen a 34 percent increase in revenue over last year, on average, with a leaguewide increase of 60 percent in total revenue and a 72 percent rise in sponsorship revenue.

Much of that has been driven by the increased exposure of the USL through its new two-year deal with ESPN, which has all of the league’s games on ESPN+ and also will have six league games appear on that network’s linear networks. Edwards declined to comment on the financial impact of the deal, saying the league is not at “rights fee territory yet,” before adding, “We’re investing in the growth.”

Expansion is also on the horizon for the USL, with the league finalizing plans to add clubs in Albuquerque, N.M., and Hartford, Conn., for next season, as well as launching a third-division league that could swell the teams under the USL umbrella to more than 50 by 2020.

There is also a new brand relaunch, while the USL is speaking with several corporate partners for league-level partnerships, including a potential naming-rights partner for an intraleague cup competition it is considering launching.

While the Ricketts-led Chicago USL team will not debut until 2020 at the earliest and play on the North Side, it represents the first time that the league is entering a market that already has a separately owned MLS club — a moment that Edwards said the league has been building toward.

“Going back a few years, the city and the fandom of soccer was perhaps not well enough to support two teams,” he said. “I think you’ve seen a shift and a change now in the nature and intensity of the support our teams are getting. In certain cities, Chicago being one, I think there is room for another team given the right location and positioning of it — it’s an evolution perhaps of where our sport is, and where the league is.”