NASCAR’s charter system is monumental, but no cure-all

Ten years ago Dale Earnhardt Inc. was a thriving multi-car team with a profusion of a high-dollar sponsorships and a driver lineup featuring NASCAR’s most popular driver (Dale Earnhardt Jr.) and one of its rising stars (Martin Truex Jr.).

But there will be no DEI entries when the green flag waves on the 2016 season Feb. 21 at Daytona International Speedway. Nor will be there any cars fielded by Bill Davis Racing, Evernham Motorsports, Robert Yates Motorsports or a host of other notable organizations that have gone by the wayside in recent years due to the rising costs of operating a Sprint Cup Series team.

A once thriving sport that saw multi-millionaires spend wildly just to gain access has become in essence a closed society with only a select few able to persevere through either the means, luck or tenacity. That group comprises the likes of Hendrick Motorsports, Roush Fenway Racing, Team Penske, Joe Gibbs Racing, Richard Childress Racing and Stewart-Haas Racing, and has developed into NASCAR’s backbone fielding a combined 20 cars weekly.

Economics of the sport are such -- costs continue to rise while sponsorship decreases -- that if one of the stalwart organizations folded NASCAR would find itself with a gap it would be unable to fill, as an impracticable business model prevents new owners from entering the sport and having any modicum of initial success that encourages a resolve to ride out the growing pains.

The charter system enacted Tuesday provides NASCAR’s teams with some degree of financial protection that simply never existed in a sport that’s operated under the premise its competitors were merely independent contractors and not invested partners needed for long-term growth and stability.

“Where we ended up is a very good place because we believe we made the team owner model more reliable, more stable, more open, more open to new investors, more capital to come into the sport,” NASCAR CEO and chairman Brian France said.

Greater stability, in theory, should raise the level of competitiveness across the board. Charter teams know they possess a starting position in all 36 Sprint Cup points race and the revamped structure of how money is distributed creates a floor of what a team will earn yearly. Previously, teams could only roughly estimate potential revenue.

“The new charter program strengthens each of our businesses individually and the team model as a whole, which is good for NASCAR, our fans, drivers, sponsors and the thousands of people who we employ,” said Rob Kauffman, co-owner of Chip Ganassi Racing. “This will give us more stability and predictability, and it will allow us to take a more progressive, long-term approach to issues.”

But as promising as the historic concord is, what it isn’t is a cure-all. The overhead of ownership is substantial and while the Race Team Alliance, a coalition of teams formed in 2014, has made strides in reducing costs, expenses remain high with more thriftiness needed.

Although owners now have the opportunity to cash-out if they so desire, they still require a buyer. And if a potential investor looks at the NASCAR landscape and determines it unwise to purchase a stake in a sport with stagnant television ratings, decreased attendance -- a multitude of tracks have removed large swaths of seats -- and expenditures that cannot be offset due to lack of sponsorship, then what? The value of the charter system would diminish significantly.

As former co-owner of the now defunct Michael Waltrip Racing, which folded over the offseason, Kauffman has two charters to sell. The current market value of those charters he estimates in the “single digits millions,” which in all certainty doesn’t give Kauffman much return on the investment he made to keep MWR afloat in 2007.

Provided the market place doesn’t change for the better, is spending millions only to receive “single digits millions” worth it when it’s time to divest? Is someone adroit at making money all of sudden going to see NASCAR as a worthwhile investment because of some monetary assurances? If this were an episode of Shark Tank, the verdict would be indecisive at best.

“One of the objectives we had as part of this process, from the team side in trying to create some long‑term enterprise value, is to implement transferability rules that more resemble what you see in other sports,” said Steve Newmark, president of Roush Fenway Racing. “The objectives of that would be to both provide more incentive for the owners to invest, but also make it more appealing for outside and new owners come in.

“That’s really how you see this structure when it’s memorialized in the agreement. ... Ultimately this should hopefully facilitate a better market for team charters going forward.”

The potential is certainly there for the charter system to modernize a sport that’s operated as a quasi-dictatorship ever since being incorporated inside a smoky Daytona Beach, Fla., hotel bar just after World War II.

Tuesday represents a terrific start. Owners received the financial security they deserve and both parties involved came away full of optimism, buoyed by the promise of what’s ahead. What’s unknown is if that promise will eventually evolve into reality.