The Economics of NASCAR, Possible Investment?
National Association for Stock Car Auto Racing (NASCAR) is the largest racing series that takes place in the United States. It was created in 1948, birthed from small dirt track circuits that were gaining popularity all over the nation. NASCAR however is not just one type of racing but actually covers three different series: Monster Energy NASCAR Cup Series, The Xfinity Series, and Camping World Truck Series. At the same time, the family owned business oversees hundreds of local races.
Like all good ideas, it all started from booze. In the Prohibition era bootleggers would modify their cars to be able to go faster so they could out run police with trunks full of moonshine. When liquor was made legal once again the drivers still chased the thrill of the race. Impromptu races started to pop-up, which now has grown into a multi-billion dollar industry. Today it is the world’s largest governing body of racing. NASCAR oversees 1,500 races yearly and hundreds of drivers.
Similar to other motor sport organizations, most of their revenue comes from broadcasting rights and advertisement. Corporations and sponsorships trying to get a slice of advertising in NASCAR in 2009 alone brought in $3 billion for the organization. That’s twice what the NFL brings in. A corporation to be a main sponsor for a car can cost upwards of $20 million. As for TV, NASCAR is the second most watched sporting event in America, behind the NFL. In 2007 NASCAR signed an eight year deal worth $4.5 billion or $560 million a year, an increase of 40% from the last deal. Investors can get in on the racing action. The owners of the major racetracks are actually publically traded corporations (NASDAQ: ISCA) along with Dover Motorsports (DVD) or Speedway Motorsports (TRK). All of these corporations get a slice of the advertising and broadcasting revenue. But NASCAR remains a private company so it is hard to find exact numbers.
For a team to compete in a NASCAR race is a huge cost to the team owners. One week at the track can cost the team up to $400,000 for one race. One engine alone (something that will be replaced every week, sometimes twice a week) costs around $100,000. For the Daytona 500, one of NASCAR’s biggest races, the major engine builders will supply 40 engines for the teams. This cost alone has led some teams to start to lease the engines. Each team is allowed to use two engines: one for qualifying and one for the race itself. That $200,000 right there, for one race. In addition, some teams will participate in a third race that weekend. The smaller teams will be forced to run the same engine for two or three weeks in a row, most of the time at the cost of performance for the car. Because of this the amount of money that a team has backing it are most of the time correlated to how successful the team will be. That is why we see such dominating teams in these racing series. Rule changes continue to drive up prices too. For Example the change to direct injection engines can costs another $10,000 more to the costs of an engine. Bigger teams have tried to help smaller teams with costs by offering technical and mechanical help to the smaller teams for another $100,000 allowing these teams to cut their own teams of mechanics from their costs. They are able to run at the races for about $200,000 a week by cutting corners, like ending the race early to make the car last longer. On these smaller teams the driver will take home half of the winnings which can be very small while the biggest name drivers will bring home $185,000 a race. Tires, parts, travel, hotel rooms and rental cars all continue to add to the costs. Brakes alone can cost up to $40,000. And there is no sign of these costs going down in the coming years for the teams. This will make it harder for NASCAR to stay alive as more and more teams drop out of the series.
Sponsors don’t always come away with a win from the racers. In this year’s Daytona 500, Kyle Busch made a negative comment about Goodyear tires blowing out easily. He made this comment after a blow out of one of his tires caused him to crash, along with a few other drivers, completely wrecking their cars. Goodyear, who sponsors all the tires for all the teams, had to immediately go on the defensive and release a statement defending their product. Goodyear will likely see a drop in their profits from this race making it less likely for more sponsors to join in with NASCAR.
NASCAR has a rich history of racing, especially in America. But with such high costs to teams, dropping ratings, and more racing series competitors such as F1 gaining popularity in the US. This makes the future of NASCAR uncertain. Remaining only as an American racing series makes it harder for NASCAR to gain more fans. Over the past 10 years, NASCAR has proven that we may see the end to “America’s greatest race.”
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Crandall / Image by LAT, Kelly. “Kyle Busch Blames Goodyear for Daytona Crash.” Racing News. N.p., 27 Feb. 2017. Web. 27 Apr. 2017.
Barnes, Ryan. “NASCAR: From Back Alleys To Big Bucks.” Investopedia. N.p., 04 May 2010. Web. 27 Apr. 2017.