No. 07 Jack Daniels Chevrolet
Matthew Stockman  /  Getty Images file
Thus when Brown-Forman recently went shopping for a car on which to stick a Jack Daniels label, it picked Richard Childress Racing, which had 3 cars finish in the top 35 last season.
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updated 5/18/2006 8:31:22 PM ET 2006-05-19T00:31:22

Spending $20 million a year to slap your name on a 200-mile-per-hour billboard can pay off handsomely — unless your billboard's not even in the race.

That happened this March at the Daytona 500, when Valvoline Evernham Racing's number 10 Dodge sputtered to a halt after a gear malfunctioned during the qualifying run. Then a pit crew member botched jacking up the car, eating up even more time. Number 10, sporting big Valvoline and Stanley Tools logos, didn't make the cut, and driver Scott Riggs watched the race from the stands. "We had faith that our car and driver could qualify on merit alone, but these things happen," says Ray D. Evernham, one of the team's owners.

So 37 million NBC viewers missed seeing Evernham's logos. NASCAR has lapped every sport for regular season ratings, except the National Football League. According to marketing analyst Joyce Julius & Associates, a top 25 finisher in the Daytona 500 got airtime equivalent to $7 million worth of 30-second commercials on average, given how often the car's logos had "in-focus exposure time" in front of viewers. Not a great time to have a breakdown.

The apparent return on investment can be considerable with the best drivers and cars. Last year Dale Earnhardt Jr.'s Chevrolet won only one race during the 36-race season, barely missing the checkered flag several times. But Joyce Julius estimates Earnhardt reaped $149 million in televised exposure time for lead sponsor Budweiser. By that calculation, Anheuser-Busch got a bargain. It is believed to have spent only $15 million on the sponsorship.

Fast-growing NASCAR racing has already eclipsed pro football in sponsorship dollars. High-profile team owners include Forbes 400 member Roger Penske, former Dallas Cowboys quarterbacks Troy Aikman and Roger Staubach, and current Washington Redskins coach Joe Gibbs.

Sponsors like Anheuser, Home Depot and General Mills have shelled out a total of $650 million this year to have their logos splashed on NASCAR's top 35 cars in the Nextel Cup series. That's up from $500 million five years ago and comfortably exceeds the $485 million companies spend sponsoring NFL teams. (In both cases these numbers include only sponsorship money going to individual teams, and they exclude television advertising revenue.)

Attendance averages 127,000 per race, compared with 115,000 ten years ago and an average 67,000 per NFL game last season. The average ticket for a NASCAR Nextel Cup series race has gone from $70 to $90 during the past ten years, and ticket revenue at NASCAR's biggest track owner, International Speedway, is up 23 percent over the past five years.

The money's going to get even bigger. New qualifying rules implemented this season will create more certainty for sponsors that their ads will be seen, effectively driving up sponsorship revenue and the value of the top racing teams.

Under the old system any car that showed up had a chance at qualifying for one of the 43 positions. Now a point system that rewards consistent top performance will guarantee that each of the top 35 cars with the best cumulative record will race, even if there's a time-consuming mishap during the qualifying run. The top 35 still must do the qualifying race to determine starting position. (The Valvoline Evernham team is a new one this year, so there was no cumulative record allowing them an automatic slot.)

That's good news for NASCAR team owners. Says Ardy Arani, who heads Atlanta's Championship Group, a marketing firm that brokers deals between cars and corporate sponsors: "Sponsors can now mitigate the risk associated with not qualifying for a particular race."

Thus when Brown-Forman recently went shopping for a car on which to stick a Jack Daniels label, it picked Richard Childress Racing, which had 3 cars finish in the top 35 last season. "We knew the Jack Daniels car would start the season in contention — no matter what," says John Hayes, brands vice president at Brown-Forman. "No question we were willing to pay a premium for a Richard Childress team with those terms." (Hayes won't say how much of a premium he paid.)

Teams without top-35 status the previous year are connecting the dots for sponsors. When racer Michael Waltrip left Dale Earnhardt to start his own team with Bill Davis Racing, Earnhardt wouldn't sell the car Waltrip had driven to a top-35 finish the previous season. So Waltrip merged (in Wall Street parlance) with a team owned by Douglas Bawel (Jasper Racing) that already had a top-rated car. Waltrip's sponsor, Napa Auto Parts, followed the defecting driver to the new outfit.

What are the top Nextel Cup teams worth? FORBES calculates value by determining each team's total sponsorship and race-related income from all of its cars. We then assigned a multiple to revenue based on the number of cars (the more scale, the higher the multiple), the record of its drivers and level of commitment from its car manufacturers (Ford gives more R&D help to a proven winner like the Roush team than less prominent teams get from their manufacturers). Our multiples range from 1.3 to 2.

The most valuable NASCAR team is Roush Racing, by our calculations worth an estimated $218 million. Roush has an estimated $100 million in sponsorship revenue in the bank and thus far in 2006 has $8 million in race winnings. We afford the Roush team a high multiple of two times revenue because of its success on the track, as well as the research and manufacturing support from Ford that it leverages across its stable of cars.

The downside to NASCAR's new point system is that it may make it tougher for untested newcomers to get sponsors. BMI Motorsports provides a good example. The team's managing partner, Robert Balachowski, had been meeting with private equity firms and working the phones for three years hoping to fund an entry in next year's Nextel Cup Series.

BMI claims to have a technology edge with its R&D boss (formerly a head of research at Boeing) that Balachowski says "makes a top-ten finish well within the realm of possibility. But I've been hung up on — and laughed at — by potential sponsors."

That's a problem. While BMI has scraped together the money to go Cup racing next season, funding shops, cars, crew and drivers without sponsorship money makes it almost impossible to compete.

Stakes in teams are bought and sold sporadically in NASCAR. In 2003 Chartwell Investments, a small private equity firm in New York, purchased a stake in Richard Childress Racing that valued its seven cars at $85 million, or roughly two times revenue. With $56 million in revenue now, we value the current Richard Childress Racing team at $100 million, fourth highest in NASCAR. We calculate that the average team value has increased by 20 percent over the last three years.

© 2012 Forbes.com

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