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SPECIAL REPORT: NASCAR’s entitlement sponsor must be more than just a name and a check
- Updated: July 20, 2016
By Jerry Jordan, Editor
All good things must come to an end and such is the case with NASCAR’s relationship with outgoing entitlement sponsor, Sprint. But that does not mean there aren’t bigger and better things on the horizon for the sport’s top racing series.
The list of companies wanting to step forward with an iconic branding opportunity has now been narrowed to roughly a dozen, NASCAR Chief Sales Officer, Jim O’Connell, told Kickin’ the Tires on Thursday.
To say O’Connell knows a thing or two about landing a big name is an understatement. Currently, he’s leading the charge on the largest entitlement sponsorship in auto racing and one of the most unique in all of sports. O’Connell is on the frontlines and his background includes the previous extension of Sprint’s contract with NASCAR in 2011 and signing Xfinity to take over the second tier division in 2014 when Nationwide chose to invest its sponsorship dollars with Dale Earnhardt Jr.’s No. 88 Chevrolet. The Nationwide sponsorship from 2008 to 2014 was also O’Connell’s work and so is the Camping World agreement with the Truck Series that runs through 2021.
“We are in a great place,” O’Connell said. “Timing wise we are exactly where we thought we would be. The numbers go up and down but we are talking to approximately a dozen companies right now. From a timing standpoint we look to narrow that down to a handful sometime (later) this summer and we look to make the announcement sometime in the Fall, similar to what we did with Xfinity. We are talking to a number of great companies.”
This will be only the third time in NASCAR history that a company has had the opportunity to place its name next to that of the sanctioning body – something foreign to every other major sports league in the world. So, it needs to be the right fit, O’Connell said, for both NASCAR and the company coming on-board.
There has been speculation of two potential entitlement sponsors but that does not appear to be the case as several people involved, who asked not to have their names used in this article, said the traditional entitlement sponsorship is what most companies appear interested in. Still, there is a chance for tweaks and adjustments based on the needs of the sponsor and the sport.
For example, it might not make sense for the entitlement sponsor to have its name on the All-Star race or it might be better for a company to have a specifically-branded identity for the Chase for the Championship.
O’Connell declined to address specifics when asked but indicated NASCAR would try to keep close to its existing model, while meeting the best needs of the next entitlement sponsor.
“While it certainly won’t look exactly how Sprint has done the partnership, we are flexible to fit the needs of our new brand,” O’Connell said. “But I don’t want to get into details of how a new partnership might look. I don’t want to say anything is off the table but if it is the right fit we will consider looking at things differently than we have done in the past. We have been asked about different things – some of which you have mentioned.”
The opportunity to have the naming rights of NASCAR’s top racing series is something that has attracted companies across the globe because it’s so high-profile. One of the largest sports marketing companies in the world and the largest in motorsports, Just Marketing Inc. (JMI), is also in on the hunt. The company is representing clients hoping to become the next NASCAR “Your Name Here” Cup Series and it’s a huge undertaking.
“This is a massive sponsorship,” Zak Brown, JMI’s founder and CEO, told Kickin’ the Tires. “Probably the highest profile sponsorship you can do in North America. I don’t know what would be bigger because it’s the only major sport where you can title the sport. I would argue it’s the biggest, certainly the most visible, sponsorship that you can buy in sports. It’s a huge commitment, it’s a long-term commitment and so any commitment of that financial size and term is no doubt going to require board of directors signing off and CEO and CMO support.”
While many people may think only Fortune 500 companies would be interested in NASCAR, there are some companies – even bigger than Fortune 500 companies – that exist on an international level, which may be interested in joining the American market. Those are also in the mix, O’Connell said.
“People have asked me how we characterize the people we are talking to and there are three types of companies we have been talking to,” he said. “There are the big Blue Chip companies, many of the usual suspects that you would expect us to be talking to, and we are. There are some really successful companies but are probably categorized as Challenger Brands, much like Nextel was when they joined us almost 13 years ago – a great company but one that needs to rise above the competition and have a powerful platform vehicle to separate themselves from that competition. And obviously those companies recognize the naming rights entitlement is the most unique, powerful ownership position in all of sports entertainment. It’s not just in motorsports, it’s not just in NASCAR this is the most unique own-able position in all of sports entertainment. We are the only sport with a company logo in our logo.
“Then, there is the third category, which is international companies. Those that are looking to plant their flags in the United States and they recognize there is no better way to do that than to partner with NASCAR and our fan base, which is a great cross-section of America. We really are Americana, the most American sport out there.”
Obviously, O’Connell stopped short of saying exactly which companies NASCAR was negotiating with but he was adamant things were going well despite rumors to the contrary. It’s expected he would paint a rosy picture but sources have confirmed some companies have actually been declined by NASCAR because it wasn’t a good business decision. Of course, there’s been a few PG-13 jokes about which companies might or, might not, be interested and what the series would be named if certain companies sealed a deal. There have also been rumors that, at least, one insurance company was interested in becoming the entitlement sponsor but after reviewing contracts with its teams and partners, it was determined a deal could hurt several teams and the investment wouldn’t offset money lost from other sponsors that might end up being locked out of the sport, like Verizon was when Sprint came on-board. NASCAR doesn’t want to have a sponsor that will hurt the financial strength of its race teams and track partners.
“We have to balance the interest of all of our stakeholders in the sport,” O’Connell said. “We certainly don’t want to interfere with anyone’s partnership. At the same time there are plenty of examples where folks have become involved in the sport at one level and maybe upped their investment to be a bigger partner, so we always want to give someone an opportunity to do that, as well.”
According to Tyson Webber, President of GMR Marketing, when NASCAR and Comcast negotiated a deal for the current Xfinity Series sponsorship it took about a year. He said it could have certainly taken longer but it also might have been able to be done sooner.
Webber likes two market sectors for the entitlement sponsorship of NASCAR’s top racing series – consumer packaged goods (CPG) and technology.
The tech sector is widely rumored to be the favorite because it is attractive to a newer generation of race fan. Even some of NASCAR’s drivers feel like a tech company would be a good fit for the sport.
“If I could pick, and keep in mind that it is not my decision to make, I think Apple or Windows would be awesome,” said Brad Keselowski. “A technology partner, very innovative, our sport kind of prides itself on that. That would be a good fit.
“I’d love to see an entitlement sponsor come into the sport and shake things up a little bit with formats and promotions. Those technology companies seem to be the ones that do those types of things.”
As for the CPG segment Webber used Proctor & Gamble, which GMR Marketing represents, as an example of a company that realize an incredible benefit from an entitlement sponsorship because there are so many brands would work with the sport. He didn’t say P&G was in the mix but it is the second-largest company in that sector behind Nestle and ahead of PepsiCo. and Unilever.
NASCAR is no stranger to big business. Sponsors have adorned cars since the beginning of the sport and through the years those relationship have grown to include most of the major companies in the country. A yet-to-be-released study, obtained by Kickin’ the Tires, shows the total number of FORTUNE 500 companies investing in the sport has either grown or sustained year-over-year since 2012. A Fortune 500 company is based in the U.S. and is traded publicly.
- 1 in 4 Fortune 500 companies have integrated NASCAR into their marketing strategies.
- In total, 130 Fortune 500 companies are invested across NASCAR from teams to tracks to the sanctioning body.
- The number of Fortune 100 companies investing in NASCAR has increased 5 percent year-over-year.
- Since 2008, the number of Fortune 500 companies in NASCAR has increased 20 percent, before massive changes to the economy and media and marketing landscapes.
Two other independent studies, obtained by Kickin’ the Tires, show NASCAR is an industry leader in fan loyalty when it comes to choosing a product sold by companies actively involved in the sport.
- NASCAR surpasses all other sports properties in fan sponsor consideration, according to a Repucom Sponsorlink Survey.
- Seven out of 10 NASCAR fans are loyal to a sponsor’s brand when it supports their sport, and three out of four NASCAR fans would consider a sponsor’s brand, according to a Repucom Sponsorlink Survey.
- NASCAR fans are 30 percent more likely than non-fans to be business leaders and purchase decision makers, allowing for a new brand to leverage consumer and business-to-business opportunities, according to a Simmons National Survey.
The Fortune 500 analysis by NASCAR is completed every year and only focuses on Fortune 500 companies, despite there being other, even bigger companies, not included in the study. For example, Toyota is a global company and NASCAR does not include members of the Global 500 in its annual review. However, that investment growth from the domestic market plays out very favorably when pitching the entitlement sponsorship, regardless where they are at in the business sector, O’Connell confirmed.
Brown said he believes there is a perfect company out there that can make everyone happy – his goal, like Webber’s and other major marketing companies, is to help find it.
“Any of the largest spenders in the country,” Brown said. “The Pepsis, the Cokes, the Verizons, the Sprints, LG, Panasonic, Subway. The big consumer product spenders can afford that. These guys have budgets anywhere from seven hundred million to two billion dollars a year. Subway could afford NASCAR if they wanted it.”
For the record, JMI represents Subway. The company’s client list also includes HSBC, UBS, Dow and Verizon among others; some of which have been reported as being pitched the naming rights opportunity.
“My business has been involved in NASCAR for 20 years,” Brown said. “We’ve done a lot of sponsorships over the years; have a lot sitting here today. I’d love for us to be responsible for bringing in the new partner. I’d personally love to have my name next to for the next 10- to 20-year partner in the sport.
“We definitely have some good interest. We have a lot of clients that have just recently come into NASCAR, some that have been here a decade and they love it, and they can afford it, and it’s a good fit, and it’s just a question of whether it’s something both parties want to do.”
O’Connell agrees that the right entitlement sponsor is one that is the best fit for the company and the sport. It doesn’t necessarily deal with an overall dollar amount and the next big NASCAR sponsor probably won’t engage fans in the same manner that Nextel, and then Sprint did in the beginning. It has been widely reported that Sprint’s financial commitment was between $50 million and $75 million a year for rights fees and brand activation, combined. Some numbers indicate an unadjusted estimate for the company’s return on investment was, as much as, $580 million a year in comparable media exposure.
One issue that keeps coming up is the overall cost of the entitlement sponsorship, which appears to be confusing with regards to how much a company would pay to NASCAR and how much the activation by that company would cost. Early numbers hit the $1 billion mark but that was said to be inaccurate. Whatever company comes on-board will pay a rights fee. That amount is only a portion of the investment must make but the money doesn’t necessarily go to the sanctioning body. In fact, the new entitlement sponsor will want to spend money with tracks for activation during race weekends, on advertising and marketing and then on other promotions that would boost fan interest in the sport and the sponsor’s brand. That is separate from what NASCAR would receive but it would be included in an overall total value.
According to Webber, the industry model is to spend one dollar on activation for every one dollar spent on purchasing rights but that is not carved in stone. Breaking a number down based on reports of what Sprint is widely reported to have spent, the rights to be NASCAR’s entitlement sponsor might be between $25 million and $32.5 million a year. If the company spent an equal amount on activation as it did on buying naming rights then that number could reach the $75 million mark, or more, depending on a number of variables.
“The rights are what you would pay to a property or a team, predominately, for just that – the right to be a partner with them,” Webber said. “A lot of the time those rights include a fair amount of assets that you can use to activate. But again, you are literally paying some monetary value to a property to be a partner that allows you to do certain things. It may allow you the rights for intellectual property or the use of marks. Those are what we consider soft assets. It may allow you the right to certain hard assets, like tickets, or suites or hospitality. And in the case of some of the NASCAR teams, it may get your logo or name on the car. That is how we would define rights. That is the first step.
“Activation is what we would advise the brands to do with those rights to accomplish their objectives. To put it into a contextual example, an objective of Client A may be to host business-to-business partners at a unique experience. So, we would go in and look at which property would make sense that the client and their partners have an affinity for that we can go and negotiate and procure rights that would allow us to then host those people at the property. That is a very remedial example but that is how we delineate rights and activation. One-to-one is fair, it has been an industry model, and some people say two-to-one. It really depends on what the company’s objective is.”
Webber said there have been a lot of numbers thrown around with regards to the entitlement sponsorship but he doesn’t believe there is a hard-and-fast, set-in-stone number of duration of an agreement. He also added that whatever company is chosen, they will need to spend money on activation.
“A lot of those numbers are either being thrown around by people who are thinking what it could be, maybe have had some initial discussion or looking at what the past is and trying to prognosticate but the reality is that we go into a negotiation looking at what the value is on our side from the brand’s perspective and it has to match what the value that the property is either selling or they believe they might can get,” Webber said. “I don’t believe there is a quota out in the marketplace. I have been pretty intimately involved in a lot of these conversations and have heard no minimum, no quota and no floor from anybody at NASCAR. And most properties actually act that way.
“The discussion has really been around what the value, that in this case, the series entitlement can bring to a brand partner and what is the appetite and what is the objective the brand partner is trying to accomplish with that value. When those things match up, it usually makes those financial discussions a whole lot easier.”
Webber said most agencies, including GMR Marketing, have their own proprietary system of assigning value to a particular deal to get to a fair-market value.
Over the term of its sponsorship, Sprint has provided phones, sponsored the All-Star race, funded the Miss Sprint Cup program and other strategies designed to reach fans. Some of those things might not be as important to the next entitlement sponsor.
But fan engagement is very important. The idea behind an entitlement sponsor is to bring a company or product to a new fan base and bring new customers to that company.
“The money, from an activation standpoint, is really important because we want someone in here who is not just stroking a check and saying, ‘here we are,’” said Steve Phelps, NASCAR Executive Vice President and Chief Marketing Officer. “We want someone who is going to go and market to the fans and showcase what their products and services might be and then the fans, in-turn, will support them. So, we don’t really talk about the money because it also depends on what rights they buy.
“We are looking all over the board. There are some tech companies that are clearly interested, we’ve got consumer package goods companies, beverage companies – we cast a wide net and we’ve got folks in all of those areas that are still interested in this sponsorship, which is great.”
O’Connell broke it down by discussing how different NASCAR’s fan base is and how the sanctioning body wants more of a commitment than naming rights or putting a logo on a car haulers going across the country.
“Our fans are different in NASCAR,” O’Connell said. “We talk all the time about the quality of our fans. That they change their purchasing behavior and the products they are going to use or the products they will try based on who our sponsors are. The fact that we are in a good position here is not surprising. If you think about how great our racing has been this season, the competition, the photo finishes that we’ve had; it’s driving consumption of the sport and some would say it’s more popular than ever.
“The most important thing to us is, who are partner is going to be, how are they going to help us grow the sport, how are they going to help us attract new fans, how are they going to service our current fan base and it’s a big decision for us,” O’Connell said. “It is an important decision for us, we need to make sure it is going to be the right fit and we are very confident given the list of companies that we are talking to that we are going to have the right one for us going forward.”
There has been a lot of talk about the next entitlement sponsor being a tech company but that may not be the case. Research into corporate filings of major companies show several are moving around massive amounts of advertising dollars. One of those was Microsoft, which stated in a filing last year that it was changing its marketing strategy, but it’s already a partner with NASCAR and a jump up to the entitlement sponsorship doesn’t appear to interest them.
“It has to be the right fit and there are a number of characteristics that make a company the right fit,” O’Connell said. “It’s not just one category or one type of company, it’s people that are going to help us grow the sport, attract new fans while still servicing our great passionate fan base. It is people that might help us make the fan experience better, make the race experience better or make the experience at the tracks better. Someone that is the right fit for us as a sport. It is going to be a combination of factors. We have a lot of success in the last few years with Microsoft or HP coming into the sport and technology companies are certainly some of the folks we are talking to and they add a lot of benefit but there are other categories too that we think would be a great fit, also.”
Some skeptics have questioned whether the negotiations are going as well as NASCAR claims. There is speculation, even amongst some members of NASCAR’s travelling media corps, of whether NASCAR is scrambling to find a new partner because the talks have been kept extremely secret and leaks have been almost non-existent. In the instant-gratification world, people want to know now and the lack of an announcement or substantial information leak automatically makes some think negatively. In reality, there are only a handful of people who know the true status of negotiations – O’Connell is one of them.
Most of the people involved are like Webber and Brown. They only have information that they have been able to garner through their clients and whatever meetings they may have had with NASCAR, if any.
“In reality, you probably have somewhere between 15 to 20 people out there with all the parts and pieces of the information but may not have the full story,” Webber said. “Candidly, I am one of them. I would fall into that camp. I’ve got a great understanding and a great relationship and dialog with the NASCAR guys but my information is only as good as the conversations that we’ve had together. I don’t have full oversight of what is going on that I am not a part of.”
And no one is giving many clues on who, what or exactly when the banners will fly and the pomp and circumstance of rolling out NASCAR’s newest family member will begin. There has been speculation that an obscure contractual issue may be holding up the deal but without seeing a contract between Sprint and NASCAR, which isn’t going to happen, there is no way to know for sure. Webber said closing a deal this large takes time and there is a lot going on behind the scenes. Likewise, O’Connell’s job is to make sure everything comes together and there is a smooth transition.
“I would never comment on the specifics of someone’s contract,” O’Connell said. “We want to make sure that Sprint gets the value of their entitlement throughout the end of this year, giving them all the values, assets and benefit we can. At the same time, we want to give the new partner time to transition into being the new entitlement partner. So, I think the Fall would be a reasonable time to announce it, which kind of balances those issues of making sure Sprint gets their value and at the same time gives the new partner time to transition. That is very consistent with what we did with Xfinity a couple of years ago.”
One thing everyone seems to agree on is that as time goes on and a deadline approaches it will be harder to keep quiet about which company the new partner will be. At the present time the list of people involved is still relatively small but that will change.