how are teams coping with a shrinking budget?

NASCAR


Ask folks in the industry about teams trying to save money in racing, and the responses range from eyebrows raised with rolled eyes to nervous laughter. The honest truth: Teams will spend all the money they can get their hands on through winnings and sponsorship.

For teams to save money, the owners have to show self-control. Or they cut spending one other way — when they just have less money to spend.

It appears in the past few years that teams have saved money, but not because they wanted to save money. At least 13 top-30 cars have had races sponsored by their team owner or through their manufacturer this year, a likely sign in the decrease of sponsorship revenues.

The pulse in the garage is that teams have had — or will have — to learn to live on less. The bigger question: How will they do it?

“When you make 20 grand a year, you learn to live on 20 grand a year,” said Kyle Petty, a former driver and team owner who now is an analyst for NBC. “When you make 40, you learn to live on 40.

“When you make 100, you learn to live on 100. When you’ve got to go back to 20, it’s as tough as hell. What do I want to give up? Do I want to give up my 975 cable channels? Do I want to give up my subscription to Bon Appetit, because I like cooking?”

But doesn’t money buy speed?

“You can be frugal and still have speed,” said Roush Fenway Racing president Steve Newmark, “although money sure as hell helps.”

NASCAR teams don’t like to discuss their financial details, so when asking them about how they live on less, many of them first react that they remain optimistic they will have as much sponsorship next year. They don’t want to imply current partners have cut back (some have, some haven’t). Teams say NASCAR still works, with the number of Fortune 500 teams involved in the sport providing evidence that the teams can deliver a return on investment.

But several teams faced sponsorship issues for this year or will next year. Events such as last weekend at Martinsville Speedway, where the Cup teams competed on track for only two days instead of three for a Sunday race, can cut costs and possibly not hurt the product. It could possibly even help if fans embrace the driver appearances and events tracks experiment with on these two-day weekends.

“I have never viewed those — and I hope the industry doesn’t — as a cost-saving model,” Joe Gibbs Racing president Dave Alpern said. “That’s just being smarter with our time. That’s providing a better product.”

Team executives will have to make smarter decisions than ever as they try to remain competitive on slimmer budgets.

“There’s lots of different ways to do it,” said Chip Ganassi, who seeks a sponsor to replace Target for Kyle Larson next year. “You either increase your sales or decrease your costs, one of the two. Right now, it’s a combination of both.

“The important thing to understand is we’re constantly doing that. This is not something new to our business. These businesses are constantly evolving, where you have to change the way you spend money in certain areas.”

The evolving nature creates a challenge because as much as teams would like to set a budget early in the season, they don’t know in January necessarily where they will have to spend their money. Once they know how they stack up against the competition, budgets change.

“You look at wind-tunnel time, simulation, how you do other R&D testing, and you will move it around to put in a place where you think you have the biggest need — recognizing that you probably won’t always get as much out of some of those other areas because you’re going to have to make smart business decisions,” Newmark said.

As a team, they have to budget for the unexpected.

“Motor racing is one of the sports, come June, July or August and you need something, you’ve got to go get it — and you don’t always have the money to go get it,” Ganassi said. “So you have to cut some budget and add to this. We [may] have to cut the media lunch budget and spend the money on go-fast parts.

“You’re always taking from this bucket and putting it in that bucket. It’s a constantly evolving thing. It’s not something that is set for the year by any stretch.”

While Ganassi’s media lunch budget probably doesn’t rank among its biggest expenditures, others in the industry reiterated his point: The things that don’t win races tend to get whacked from the budget before a performance-related expense.

“As a team, our tendency would always be to cut things first that don’t make you go fast,” said Alpern, who qualified the statement as saying his four-car organization could be fully funded next year. “If you have a capital project where you want to fix up something or buy new office furniture, you may not do that first [and instead] cut something in your racing budget.”

A team budget, though, has to have a component of helping attract and maintain sponsorship. Hendrick Motorsports recently partnered with go90 and Markay Media on a 24-episode docuseries on the team that they released digitally. The team can track how many people watch the episodes online, giving sponsors an idea of how much exposure they received.

“Where are the areas we need to put the investment, put the money and the resources and get the return from it?” Hendrick Motorsports president Marshall Carlson said. “In some respects, years ago that was seven-post machines and CFD [computational fluid dynamics] and other tools. We need to make those decisions.

“And then on the marketing side, as we evolve and try to do things, we introduced a television show in partnership with another company. And the enhanced [two-day] weekends, [we’re] really trying to find what are the areas where we can invest to create that value for fan experience, and by default, sponsor value.”

The biggest cost for a team often comes with the payroll. In NASCAR, the term “Black Monday” means something different than other sports, where coaches get canned the day after the season ends. The Monday after Homestead, financially strapped teams or teams that have plans to cut a car for the next season hand out pink slips. Fabricators and those who help build cars can get laid off a few weeks prior as the teams have no need for them to rebuild cars.

“Does everybody just take a 20 percent pay cut?” Petty said. “Because the industry took one. Does everybody have to participate to keep a job? Instead of making 150 [grand], now I’m making 120; instead of making 120, I’m making 85.

“You’ve still got a job, still got insurance, still making a house payment. I would like to believe more so than people losing jobs, I would like to believe that there would be a total contraction in the sport. There will be some lost jobs because of that.”

Petty said the decline in sponsorship could end the days of specialists for each part of the car — the end of the “tie my shoes guy” that teams employ, as he said.

The teams say layoffs remain a last resort because no matter the technology, the people need to interpret and implement what the technology tells them.

“I ask the people around our shop: If we have a competitive advantage, how long does that last?” Carlson said. “On the outside, that’s lasting eight weeks.

“As soon as that thing has lost its edge, what you’ve got to fall back on is the people.”

NASCAR can help teams at least try to spend less. It likely will eliminate teams spending seven-figures in technology to develop faster pit guns by going to a common pit gun next year. Michael Waltrip Racing admitted in a recent court case that its pit-gun program was worth “millions of dollars” before the team folded two years ago.

“The pit crew is supposed to be a human competition and not based on what widget the tire changer has,” Carlson said. “So to try to keep the purity of the human form of competition is really what that’s about.”

Teams won’t necessarily lay off the engineers who work in pit-gun technology. They will just find another area for them to work on to find speed.

“There are lots of areas that don’t directly impact speed and are not clearly visible to the fans, but we still spend money on them because we compete in every single area of the car with each and every other team,” Newmark said. “Through the rules process, you can limit some of that competition and almost act as a deterrent to spending in certain areas by how the rules are crafted.”

NASCAR toyed with the idea of getting rid of jackmen by adding a hydraulic lift to the cars. Petty said teams should make those decisions.

“It will be up to those owners to say what’s necessary and what’s not,” he said. “It can’t be an industry swipe. The industry shouldn’t say no more wind tunnel [or] no more jackmen. That is asinine.

“That could be one of the dumbest floats [by NASCAR] I’ve ever heard. Taking one guy off pit road and trying to put a hydraulic system on a car to lift this much weight is asinine. You’ve got to spend all that money buying it and putting it on each car. [But] I don’t know how you get back to that place [of limited funding].”

With any rules change designed to cut costs, it also can become somewhat chicken-or-the-egg. The teams will start spending in other areas, looking for that next advantage until NASCAR makes another rules change.

So where do teams cut? It goes back to what Petty said about salaries.

“There’s probably a lot to be said on the payroll side — you’re going to see some deductions there,” Team Penske driver Brad Keselowski said. “You’re already seeing that. Not that I want to see that.

“What’s really going to happen in the sport is you’re going to see the loss of people who are here just to make a paycheck and you’re going to see an influx of the people who are really, really passionate for the sport.”

Alpern believes everyone in the sport has the passion. When the team wins, the vibe in the shop changes.

Performing well also can impact a team that seeks to make up for lost sponsorship money. Cutting something that helps with speed is totally a last resort because that means less money through winnings, which then impacts sponsorship.

“There’s winnings available based on finishing position every week and that’s money we can go out and compete for and earn,” Carlson said. “The approach we have is let’s make sure we are still the most competitive team we possibly can be to try to get those winnings, too.”

Winning also can make a team more attractive for outside funding.

“Winning has an inherent intangible value that is way beyond the immediate reward,” Alpern said. “Being a championship team attracts more sponsors, it attracts employees. … Winning cures a lot and winning helps a lot.

“Nobody starts the year and says we’re going to win eight races and we’re going to win the championship. You don’t know that. You go on history and you try to be conservative: We hope we’re going to win this much. You may win less, so you can’t hedge your payroll on you will win a certain amount.”

Which means that a team might have to live on less money. A team trying to live on less money has the challenge of trying to compete against a team that still brings in the green.

When the Race Team Alliance first formed a few years ago, former MWR owner Rob Kauffman talked about the teams maximizing their purchasing power. Maybe they could combine in rental-car programs or something else where it wouldn’t impact competition.

Those talks continue but they haven’t done much to reduce costs.

The RTA has helped convince NASCAR to do some things that can help. NASCAR already has released its technical rules for 2018 — so the teams already know which parts and pieces could turn obsolete for next season. They can stop making those pieces now instead of being left with a bunch of unusable parts if the rules came out in December.

Of the 14 team owners in the top-30 in points, nine built their fortunes in other businesses. They know how to deal with budgets and can handle it when the surprises are minimal.

“While the economic climate surrounding all of motorsports has changed, our diligence to be as efficient as possible without compromising our ability to compete at the highest level is unchanged,” said Stewart-Haas Racing president Brett Frood, whose team owner, Gene Haas, has a successful machine-building business.

The teams, though, will have to cut out luxuries, Keselowski said. While the consensus in the garage is that the amount of waste is less than when the sport thrived in the mid-2000s, teams can still find fat to cut. They will have to decide if they can combine jobs as duties change or if they cut travel costs by trying to find cheaper rates, teams will have to cut somewhere.

“There’s just some cycles, and we’re maybe not on the biggest upticks,” Keselowski said. “But we’ll cycle down and then we’ll cycle back up. The sport is not going anywhere.

“It’s just going to lose a few of the luxuries — kind of like sitting in first class and not getting a meal on the airplane, but you’re still going to get to the destination.”



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