Everyone has a valid point so far. I think that it really depends what both parties are trying to achieve when it comes down to brass tacks.

eg: (true stories) - I run a small tire shop. There is an 11 second bracket car that I sponsor as well as a outlaw modified car. It is MUCH smaller scale. However, depending on yearly promotions, staff recruitment situations etc, the way that I use those dollars spent are an agreement between BOTH parties. I don't spend alot on either car but my ROI surely does not rest on the racer. If I want use their exposure, I sit down and think of ways to work with my "partners" and get the word out about my tire shop. It may be a public appearance, a certain race, or in some cases, an honourary "crew member". But if I don't put forth the effort to get their co-operation, I expect my ROI to be minimal.

I also run an 11 second bracket car and being from a small town, I get lots of people wanting to advertise on the side of it. In most cases I turn it down. I don't get the opportunity to run as much as I'd like because of time constraints, so knowing that I can't give them good exposure for the money that they are spending (poor ROI) I politely decline. If I had the time to invest in my own racing program, I sure as hell wouldn't whore myself out knowing that I'd be stuck with lowball deals forever once everyone knew how cheap it was to buy space on my car.

I know that these are both very, very small potatoes compared to Powerade/NHRA, but I think that the same basic business principle still applies. You are only going to get out of it what you put into it.

Same principle as writing off business equipment, tax deductions for charitable donations or dependents. If you lower your taxable income then your liability is less. This is a common practice used by corporations, small businesses and individuals to reduce potential debt to the IRS. Dumb?

Great thread and fascinating reading.

There is plenty of money around if you have a value. F1 team yearly budgets can be in the 300-500 million range, with one team rumored to be in the 1 BILLION class. F1 just told Tony George (Indianapolis Motor Speedway) they would not be back next year, basically because he would not pay enough for the race. F1 was not worried about getting a race date, they have a product and they know it and market it as such.

It seems to me that neither side is doing any promotion of the others products, which in turn would promote their own product. I have a small business and I sponsor events, not a title sponsor but one of many equipment sponsors. I donate money and the event advertises my company at their event. I also advertise their event and do things in support of it. The bigger success they are the more people see my advertising and will come to my company. The more of my customers who see I support their enjoyment, hopefully will buy from me instead of my competitor who is not a sponsor. In my view it is a two-way street and I don’t see either the NHRA car or the Powerade car on the street.

A corporation such as Coca Cola Enterprises isn't going to a lower tax bracket because they bought the title rights to the NHRA...It certainly isn't a charitable contribution, and they don't have any dependents....The reason that they invested in the NHRA was simply because it was so cheap, they couldn't afford not to do it....The TV spots that they get during the telecasts, for example, are included in their sponsorship. The value of those alone almost justify what they are spending, by themselves..

The mistake that POWERade is making, is that they are content with that value and that value alone...While the numbers make sense, for some reason, they are not interested in activating the deal at all...When a sponsor decides to sponsor an event or a team, or in this case, a series, they set forth some goals and some money...That can typically get them, if managed properly, a 2-1 or 3-1 return on their investment. Now, once they ACTIVATE the deal with other promotions and such, this is where they can get a 6-1 or8-1, and sometimes even higher, rate of return...What baffles me, is that POWERade seems to be content with the unmanaged return that they are getting...They could do SO much better....

The person that invests in a business without a plan for a positive gain is simply not a good business person...

Now, what defines a positive gain..? THAT is the question...Doing it for a tax break is stupid...All you are doing there is spending a dollar so that the government can give you back the $0.30 back that you paid in taxes on that dollar. What is bright about that...? I'd rather not give them the dollar to begin with...

__________________
Jay
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J. Rathman Sports, LLC.Support Bacteria...Its the only culture some people have!

I have to agree to some point, Georgina... Hollywood does it all the time for exactly the same reason. They don't MAKE a movie for it to fail at the box office, but some people INVEST in them just for that purpose..

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"Run what u brung, and hope u brought enough...."
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I don't know how you do mulitple quotes in here, sooo... Martin, thank you.

Mr. Rathman, have you heard of Berkshire Hathaway, Inc.? Or perhaps Warren E. Buffett? In a direct quote: "We continue, however, to need "elephants" in order for us to use Berkshires flood of incoming cash" page 6 of the 2006 Annual report in his letter to shareholders. This is a company that holds 200,000,000 shares of The Coca-Cola Company and large stakes in other companies such as American Express Company, Anheuser-Busch Cos., Inc., Conoco Phillips, Johnson & Johnson, etc. In other words, many places in the annual report are figured in millions. This is also a company that was expected to pay about $4.4 billion in federal income taxes for it's 2006 earnings. While acquisitions may be expected to eventually become profitable, this may be put off into the future for costs to offset other earnings.

So, yes, while it may have been too cheap to pass up as an investment, it does not necessarily have to be a profitable concern.

Positive gain is, as many things become, a matter of perspective. Oh, and since you think tax breaks are stupid, is it okay if I claim you as a deduction on my taxes this year?

Jon, we agree far more than we disagree. There are a few points that I need to clarify and I will do so below.

I did not mean to say they were the same thing. I was trying to compare the buying decision for TV advertising with the buying decision for TV advertising. If I am buying TV time, I want to buy where I know the audience will be. I do not want to buy time on a show and then work to bring the audience I want to that show.

Our, from my point of view, the sponsor should ignore the teams that do not have a clue and instead work with the teams that do understand their role in a sponsorship. As a sponsor, why would I want to commit dollars to Team A and then have to spend more time and money to work with them to understand their role when I can commit the same dollars to Team B and not have to do the work. If Team A wants sponsorship money, it is up to them to gain the understanding they need to compete for the dollars.



I agree that NHRA can do more but let's make a slight distinction. NHRA works to promote national events. It does little to promote drag racing. My thought has long been that if NHRA wanted to promote drag racing, it would stop trying to do everything out of Glendora and would instead put a marketing person in each division office who would be responsible for promoting drag racing in their division. They would get to know the region and maybe then, NHRA would stop sending press releases to Pennsylvania reporters who have been dead for more than three years.


I agree that after it has committed to the sponsorship, POWERade should do something to maximize what it gets out of that sponsorship. But you've stated that POWERade got the sponsorship at a bargain rate. My thought is that the reason the company got the bargain rate is because NHRA has not does enough to build the value of its brand.


No, that's not what I said. What I said was that NASCAR built the value of its own brand name to the point that it became a very valuable name for NEXTEL to attach itself too. If you remember, when Winston dropped NASCAR, there was a lot of speculation over who would be the next series sponsor and what high dollar amount that sponsor would pay. It turned out to be NEXTEL and NEXTEL paid a lot. In comparison, there was not that anticipation regarding the NHRA series sponsor because the NHRA brand name did not have the value that NASCAR does.


Absolutely correct. But the reason Nextel promotes its involvement with NASCAR is because NASCAR has built great value to its brand. Nextel is not promoting its involvement to help build the NASCAR brand. It is promoting its involvement to take advantage of the NASCAR brand.

I find it a bit hard to believe that 4 million people either began smoking or switched brand solely because of Winston's involvement with drag racing. Four million is what percentage of the total drag racing fan base?



The sponsor has the responsibility of maximizing the sponsorship's value. It do not have the responsibility for maximizing the brand value of the series or team they are sponsoring. Nextel is able to gain maximum value of its NASCAR sponsorship because NASCAR had great brand value before Nextel became the sponsor. There's a reason Nextel is involved with NASCAR and not ARCA and that reason is brand value.


Any idea how many incremental sales were generated for each of those $5 million expenditures? What did Coke do with that program other than spend money on decals? And if the program was successful for Coke, why did it stop the program?


Incorrect Jon. The drivers that were part of that program were already known drivers whose identity had value to Coke. The drivers had already done the work to make themselves valuable to sponsors. Coke did not sign up a bunch of unknowns and them spend money to make them stars.

You are trying to make it appear as if I have said that sponsors have no responsibility for promoting their INVOLVMENT with a series or team. However, that is not what I said. I said that sponsors have no responsibility for promoting the series. The series has to promote itself to make itself valuable to the point where sponsoring companies see a value in becoming involved and in promoting that involvement.

There is a reason why some companies would rather be an associate sponsor in NASCAR than put out the same amount of money to be a primary sponsor in NHRA. The NASCAR brand name has so much more value than the NHRA brand name that sponsors see a better return in being involved with NASCAR on a partial basis than complete involvement with NHRA.


Absolutely correct, Jon. But don't overlook that there are races that NHRA has not even been able to sell sponsorships to, but that the track operator was able to put together good deals by himself for the event.


When I worked for a company that sponsors a Nextel Cup team, I approached one the ownership family members about also sponsoring a drag racing team. The response I got back was that the company was already involved in NASCAR and did not want to get involved with the kind of people who follow drag racing.

At the same time, I was at a trade show with a company executive who was talking to the CEO of a different company. The CEO of the other company said that they were getting involved in Champ cars (what was CART). Our exec went on to boast that we were involved in NASCAR, not a series like Champ cars and put down the other company's involvement with Champ cars.

When they talk on the golf course, one exec may mention that his comapny sponsors an IRL team and ours would respond with "That's nice, but WE sponsor a NASCAR team." There is a cachet associated with NASCAR that is not associated with NHRA.


Try telling that to corporate CEOs. ROI has become the mantra for everything we do now. I am even in the midst of developing an ROI program for everything we put on our company Web sites as we now have to prove that every dollar we spend on Web sites has some justifiable return that contributes to profitability. We track the ROI of all the advertising and marketing we do and if something does not produce adequate return, it is not repeated. The company I work for is about five years behind in tracking ROI.

The days of getting sponsorships because some corporate executive likes racing are gone.

Jim

Billy,

That's exactly the way it should be done. But to tie this back to the start of this thread, how much of the money you spent on leveraging the sponsorship went toward promoting the Cup and Busch series?

Jim

And how do you know that was the goal?

Jim

I thought they might be but have no direct knowledge of those deals.

Jim

The business environment was a lot different when RJR got involved and at that time, there was not the accountability and measurement that most corporations have in place today. RJR could spend money doing what it did then because the executives in charge of the motorsports program were working in an environment in which everyone just assumed that sponsorships had value and decisions were often made on feelings and instinct.

I've worked in advertising for 23 years now and when I got started, a lot of things were done because it was the conventional wisdom, because everyone else was doing it or because someone just felt it was the right thing to do.

About 10 years ago, that began to change and now, we have to do testing and ROI analysis for virtually everything we do. Everything has to be justified on a return basis and compared to other uses for the same money to choose what offers the most return for the least investment.

Expecting a sponsor to come in and help NHRA is a nice thing to think about, but it is the kind of expenditure that will get an executive fired and a sponsorship canceled.

I've asked this before...Why would any company get involved in sponsoring a series, event or team and have to work to promote that series, event or team when there are so many other uses for that same money that would not require any additional support for the sponsored party?

And if the sponsored party needs such support, the time to address it is during the contract negotiations when it can be made part of the deal.

Jim

Yeah...F1 wanted a $30 million guarantee and Tony George only sold 100,000 tickets for the 2007 race. However, part of the problem with the Indy F1 was caused by scheduling the race for after the championship had been clinched for the first couple years, then the 2005 tire fiasco when only six drivers started the race. That event hurt attendance badly and F1 just wanted to ignore that it had every happened.

Have you tracked sales and done any analysis of what you get back?

Jim

For POWERade, there is only one possible gain...Product orders from retailers.

Jim

My head hurts.

Yes my head hurts too.

After all the good discussion we still return to the basics which are there is not enough being done to promote the series and it's inherent value by anyone. Also the primary responsibility falls on NHRA to do that promoting but it also falls on Poweraid to a much lessor degree to increase the value of their investment or as put ROI. Not an outright obligation but something that has been demonstrated in the past to be a good idea.

Sooooooo what is the current thought of any of this changing with the proposed new ownership? Now especially that it will become a PROFIT organization and has to answer to stock holders???
Just asking.....

jim