Big Business: Wall Street Intersects Thunder Road

I’ve found myself reading the financial news a lot more lately as I try to shepherd my investments in difficult times with an eye towards retirement. Truthfully, I’m hardly a player and I’m more concerned about prices at the supermarket than the stock market but I don’t want to end up one of those 80-year old guys everyone calls Pops mopping the floors at the local eat it and beat it. In a perfect world I won’t have to cash in my 401k to fill the gas tank any time soon.

In news from the financial section that could eventually have an impact on stock car racing, I was shocked to learn that The Home Depot profits fell 66 percent last year. That’s not an indictment of The Home Depot as much as it is a reflection on the crises in the housing industry and consumers uneasy feelings about their financial futures. There’s still a lot of people that would like to add a nice rear deck to their homes but they’re not going to do that if they’re facing foreclosure or if it means a choice between that deck or a tank of gas and food on the table. Nor is The Home Depot alone facing these challenges. In the fourth quarter of last year, Lowes’ earnings were down 33 percent. Imagine opening your pay envelope and finding 33 percent, or worse yet, 66 percent of what you expected to be missing.

Rumors have swirled that The Home Depot might be looking to opt out of NASCAR racing or at least scale back its investment. There’s an argument to be made that in difficult times the last thing a business entity wants to do is reduce marketing. But sobering statistics like those cited above sometimes get shareholders taking a dim view of high dollar marketing schemes like a race team.

In another related story, it was recently announced that AFLAC Insurance will replace Office Depot as the primary sponsor for Carl Edwards’ No. 99 team at a reported cost of $26 million a year. Let me spell that out; twenty-six million dollars a year. Hell, you could wage a decent sized war for a few weeks with that amount. Office Depot is suffering through tough times itself, having seen an 85 percent drop in earnings in the fourth quarter of 2007 that has some shareholders demanding the ouster of the CEO.

So to sum up, the cost of backing a championship contending Cup team has just ratcheted up another significant notch at the exact same time fewer high-profile sponsors are able to pony up that sort of cash on a high profile, but high risk, racing marketing campaign.

Sponsors leaving the sport are nothing new. It has happened regularly as the price tag on a competitive team has risen. I looked back at the starting lineup for the 1998 Daytona 500 and found just eight sponsors that were also the primary sponsors on cars in the 2008 Daytona 500. Among those seven stalwarts are two beer companies and two entities related to, ahem, gas companies — which can obviously afford to pay the tab as they are awash in profits. Among long term sponsors that have stopped serving as primaries over the last decade are: GM Goodwrench, Ford Credit, Tide, Kodak, John Deere, McDonalds, Interstate Batteries and Exide. Dupont, Jeff Gordon and Rick Hendrick are the sole remaining sponsor/driver/owner combination still together over those 10 years.

NASCAR itself has lost some high-profile backers as well. Nextel took over series sponsorship from Winston prior to the 2004 season, and the series changed names again when Sprint acquired Nextel in 2007. Rumors are rampant the new Sprint management team isn’t as enamored with stock car racing as were their predecessors, especially as they struggle to survive. Anheuser-Busch no longer backs the Saturday series and Sears’ Craftsman Tools division, which has been the title sponsor of the truck series since its inception in 1995, is leaving at the end of this year.

Yes, these are troubled economic times. I’ll leave it to the liars in Washington and the talking heads in the media to decide if we’re in a recession, but the bad news out of Detroit, at the gas pump, in the grocery store and in home foreclosure news certainly is eroding consumer confidence. The glass-is-half-full types would probably point out that it’s a credit to the strength of NASCAR racing that even in these challenging times so many high profile companies choose to spend a large part of their marketing budget backing race teams. The question is, as some of those company’s profits erode and the price of backing a championship contending team continues to rise, how much longer will or can some of those big companies hang on? It behooves NASCAR to find a realistic way to get the costs of Cup racing under control before even the best teams can’t find corporate backers.

Del.icio.us | Digg it | Athlon Sports RSS Feeds