How the economy is Affecting Sports: Corporate Sponsors

Even if you think NASCAR doesn’t qualify as a sport, it is hard to deny it is at least a spectator event, drawing over 100,000 people to the track on average. The difference between NASCAR and other professional sports is its high reliance on corporate sponsors to support their teams, drivers, and cars, making it the perfect launching platform into how the economy is affecting corporate sponsorship.  I mean who doesn’t think Dale Earnhardt is a name synonymous with Budweiser? Recently though, NASCAR has been struggling because of the economy and it’s affect on how much corporations can denote to racing. NASCAR legend Richard Petty said last month, “The economy changed everything,” as he tried to explain the off-season decision to close Petty Enterprises, begun in 1949 by his father, Lee Petty. The team merged with Gillett Evernham Motorsports and will race under the name Richard Petty Motorsports.

Petty, along with the rest of the sport is in serious economic trouble. Workers have been laid off , ticket sale are struggling and lost corporate sponsors are causing even the most financially sound teams to merge with one another. Even the biggest NASCAR race on the planet at Daytona International Speedway struggled selling tickets. Prices had to be reduced for thousands of tickets in order to sell out the race.

In the teams garages, mergers and alliances have been forged as sponsors have disappeared and teams have come together to combine resources. Reports estimate that as many as 1,000 employees have been laid off throughout the industry. Owner of Hendrick Motorsports, Rick Hendrick explains what the economy has done to the financial outlook of the sport.

“I think it brings us all back to earth. There are just so many people that have never been through anything like this. So I think it will teach us all a lesson, not just in Nascar and racing, but just in the way the public goes about the way they spend their money.”

Even foundations of the sport like Petty Enterprises whom competed in the first Nascar race, which was in Charlotte, N.C., in 1949 are feeling the heat. The team lost its primary sponsor, Cheerios, and was not able to replace it, thus was forced to merge with Gillett Evernham Motorsports.

In NASCAR, team owners assume the majority share of the risk by investing heavily in people and equipment. It can cost $10 million to recruit a successful driver and $25 million a year to race one car (Most teams race 2-4 cars). The rich sponsorship deals signed during the fat years (peak in 2005), and new sponsor money is drying up. For example, Domino’s Pizza, a primary sponsor of Michael Waltrip Racing, and Eastman Kodak, a sponsor of Penske Racing, ended their partnership after last season. Also gone from teams are Coors Light and Tide, once foundations of corporate sponsorship in the sport.

Not only is the high reliance on corporate sponsorship affecting NASCAR, but the untouchable NFL as well.

Dallas Cowboys new 1.1 billion dollar stadium was under intense pressure during early 2008 to sell the naming rights to their facility. Florida-based Naming Rights Association Exec Dir Walter McGivney explained that

“Corporate bankruptcies and consolidations reduce what was already a small pool of businesses that could bid. I am aware of at least three or four large deals that are on hold. The bright spot for the Cowboys could be that companies will still look for business opportunities with a premier team at a world-class stadium. Even in a down market, the great ZIP codes maintain their value or perhaps don’t lose as much of their value. I don’t think [the economy] affects the Cowboys stadium. That is such a unique property.”

Earlier in the decade, big corporate sponsors would have been pounding on the door to have the opportunity to grab the naming rights of “America’s Team” stadium. In today financial market, however, sponsors are less inclined to spend the big bucks on outlandish marketing deals.

In Philadelphia, the Wachovia Center, home to my teams, the NBA’s 76ers and the NHL’s Flyers could undergo a name change about Wachovia was recently sold to Citigroup. Officials were meeting with their lawyers reviewing the likely impact of the purchase on naming rights to the Wachovia Center. Naming rights are also in question in the usually financially sound New York area.

In Brooklyn, according to the NY Post, Nets Owner CEO Bruce Ratner said his plan to break ground on the $4 billion dollar Atlantic Yards Project, including the Nets’ $950 million dollar Barclays Center, has to be pushed back six months due to problems with obtaining corporate sponsorship. As a result the team won’t be able to move to Brooklyn until at least 2011. With the delay, the Nets’ $400 million dollar naming-rights deal with Barclays (main sponsor of the English Premier league) is in question because the deal “was contingent on Ratner’s having his entire project financing set by the end of November.” The Nets, who are co-owned by hip-hop mogul and artist, Jay-Z, are hoping to make a serious run at signing NBA mega-ultra-superstar (yea he is that big) LeBron James when he becomes a free agent in the summer of 2010. They were also hoping to open the Barclays Center in the fall of 2010 and unveil their new stud at the same time. If the $400 million dollar naming rights deal from Barclays goes away, the Nets will have to rethink this entire project and their ability to sign someone like James to a lucrative contract.

These are just a few examples of the effects of the lack of corporate finance in today’s sports world, but the trend is highly troubling. Teams do not possess the liquidity alone to build huge stadium and create big contracts to acquire star athletes, thus they rely on big corporations to fill in these holes. Without the sponsorships, team need to adapt to the less favorable environment, which ultimately means wiser spending and organizational structure.

Sources Used:

“Bad Economy Could Lead to Naming Rights Changes.” Berger, Sports Business Radio. September 30, 2008.

“NASCAR’s Trouble at the Track.” Jack Gage, Forbes.com, February 9, 2009.

“Economy Catches Up to NASCAR’s Big Names.” Viv Bernstein, The New York Times. February 14, 2009.

Advertisements

One Response

  1. […] the economy on Corporate Sponsorships 2010 January 28 by mollylinhart I was interested in this blog because I enjoy studying sports since I have been an athlete all of my life. Overall I thought the […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: