Tuesday, July 29, 2014

Heavyweight Law Firm Belies RTA Goals

Law firm shows RTA head Kauffman is playing hardball
News last week that the Race Team Alliance (RTA) has retained the Jones Day law firm should eliminate any doubt that the RTA is more about making money than saving money.

The day before I left on a vacation to parts of the world where Formula One is apparently the only known form of motorsports, the RTA announced its formation.  Three weeks later, it remains the big news in American motorsports.  I didn’t think much of the idea of an alliance of the nine largest NASCAR team owners at the time, and after catching up on my reading, I think even less of it now.

As I noted before departing, the initial reaction from NASCAR towards the RTA was anything but encouraging.  That seemed to be tempered when Mike Helton extended an olive branch, saying, "I want to dispel the perception of any animosity.  They play an important role in the sport and they deserve to be able to put forward their views. I think they've made clear their intentions are to grow the sport, to make the sport stronger and their ownerships stronger. We have respect for what they do and for their business models."

But Brian France quickly grabbed that olive branch, broke it in two, and tossed it back into the fire.

“Probably the worst thing that we could ever do is to listen to one voice, even if it were a consensus,” France said.  Then things really took a turn.  NASCAR told the RTA any future discussions would have to go through the legal department.  Your lawyers can talk to our lawyers.  Ditto for the International Speedway Corp. 

No big deal, RTA Chairman and Michael Waltrip Racing co-owner Rob Kaufman seemed to indicate.  We’re got a law firm too.  Jones Day.

Except that’s a very big deal.  Jones Day is one the most successful, most powerful law firms in the world.  “The heaviest of heavyweights” one legal firm partner told me.  With 41 offices and an army of 2,400 lawyers around the globe, it is ranked No. 1 when it comes to “Mergers and Acquisitions,” a position it has held for 13 straight years.  Not even Jimmie Johnson can match that.  The firm also lists “Antitrust & Competition Law” as an area of expertise, has a feared litigation practice, and represents nearly half the companies listed on Fortune Magazine’s Global 500 companies.

You get the picture.  These guys play hardball.  You don’t call them to help negotiate hotel room rates.  You call them when you want to buy Marriott and Hilton and merge them together. 

Law firms like Jones Day don’t come cheap.  If the RTA thinks hotel rooms are expensive, wait until they get a look at the hourly rates the firm charges.    Partners bill at more than $1,000 an hour.  Even junior members bill at more than $500 an hour.  When the firm was hired to work on the City of Detroit bankruptcy last year, it burned through its $3.35 million six month budget in half that time and tried to bill the broke city for the overage.   They’re not usually retained by someone looking to save money. 

But then Kauffman knows that all too well.  As the former billionaire founder of the Fortress Investment Group, he worked with the firm many times.

So what’s the RTA doing with one of the world's legal powerhouses?  Kauffman was coy when asked if getting a bigger piece of NASCAR’s new $8.2 billion television contracts wasn’t the real goal of the RTA.

"That's a big obvious issue that's out there that the teams really have no influence or control over," Kauffman said.  "We're going to focus on stuff we can do."


"If someone wants to discuss any big-picture issues, we're happy to discuss and engage in a constructive way."

“We’re very careful with how we do things.”

It’s NASCAR that should be very careful.  The RTA is not messing around.

Speaking of hotel rates.  I was amused while reading that Stewart-Haas Racing opened up to the Sports Business Journal about the team’s costs during its trip to Kentucky.  I’ve got news for Gene Haas.  If he thinks Kentucky is expensive, wait until he takes his Formula One team to Monte Carlo.    

Monday, July 7, 2014

Owners Want Their Fair Share -- And a Little More

RTA is a challenge for NASCAR management
At least they didn’t call it Championship Auto Racing Teams.

You remember CART don’t you?  The organization formed by Indy car team owners back in the 1979 that eventually ripped the sport and led to a civil war from which it has yet to recover. 

Is history doomed to repeat itself?

If the announcement Monday by NASCAR’s top nine teams that they were forming a “business alliance” doesn’t concern fans of the sport – it should.  The Race Team Alliance – RTA – is made up of (with their current value as estimated earlier this year by Forbes magazine) Hendrick Motorsports ($348 million), Joe Gibbs Racing ($171 million),  Roush Fenway Racing ($157  million), Stewart-Haas Racing ($148 million), Richard Childress Racing ($128 million), Team Penske ($108 million), Michael Waltrip Racing ($80 million), Chip Ganassi Racing ($69 million) and Richard Petty Motorsports ($48 million).

Forbes estimates the average operating profit of those teams last year at more than $6 million, up 5% from 2012.  Apparently that’s not enough.

The RTA announcement says it is out to "harness the combined purchasing power and scale of the teams' operations to drive efficiencies in costs."  Better rates for hotel rooms has been cited as one area were the organization hopes to save money.  If hotel rate efficiencies is what they want, they should call William Shatner at Priceline.

No, the RTA isn’t about saving money.  It’s about making money for the team owners. The reality is that many of the teams no longer have complete control of their financial destiny.  MWR, RPM, even Roush Fenway, are now controlled by outside investors and venture capitalists. 

The RTA has its eyes on a much bigger prize, the $820 million worth of checks from Fox and NBC that NASCAR will begin cashing next year when the new television contracts go into effect.  Currently the tracks receive 65 percent of the television dollars, the teams 25 percent and NASCAR pockets 10 percent.  Don’t feel sorry for NASCAR, however.  The tracks are owned primarily by International Speedway Corporation, like NASCAR, controlled by the France family, and Speedway Motorsports, controlled by Bruton Smith and family.  But the tracks have been suffering from free-falling drops in ticket and concession sales, and will be loath to give up much of their share. 

And that’s where the RTA comes in.  No one seems to be willing to settle for the same piece of a much bigger pie.  They want a bigger price of that pie too.  The RTA has been formed to make sure the big owners get their share and hopefully a little more.  And presumably for all teams.  The RTA says one of its first orders of business will be to bring other teams into the alliance.  Hope so.  I guess they couldn’t find Tommy Baldwin, Bob Jenkins, Frankie Kerr, Barney Visser and others in Daytona.

The timing of the RTA announcement is interesting, coming two days after Brian France’s annual midyear talk with the media at Daytona.  During the session France was asked if he was “contemplating any changes to the percentage allocation of TV money as far as distribution to tracks and teams or distribution among the three national series.” France said “We are looking at that because we start, of course, a new TV agreement beginning next year so naturally we are rethinking that a little bit, and in particular with the Nationwide teams.  But that'll be something that we will consider and we will look at to make sure that the appropriate values are where they need to be.”  No mention of the owners.

It’s no accident the RTA is being fronted by MWR co-owner Rob Kauffman.  No way they wanted a Roger Penske or Chip Ganassi, CART Founding Fathers and among the first to jump ship when things went bad, out front.

You remember Kauffman.  The former venture capitalist with a personal worth estimated at $1.8 billion according to Forbes.  Same guy who refused to dip into his own pocket to keep Martin Truex Jr. in a MWR car after the team’s fiasco in Richmond cost Truex his NADA sponsorship. 

While comparisons to CART are natural, Kauffman says the RTA will more closely resemble the Formula One Constructors Association or FOCA.  And that’s supposed to put us at ease? 

Unfortunately, the comparison to FOCA may be an apt one.  The group of F1 race team owners was headed by Bernie Ecclestone, who negotiated billion dollar television contracts for the sport and his companies.  But F1, like all of racing, has fallen on tough times of late and FOCA and Ecclestone are at the center of battle between the have and have not teams.  He recently said he hoped one team would fail.  Ecclestone himself is the center of a bribery trail that may cost him his job.  Still, Kauffman says the RTA isn’t interested in the television contract money – at least not yet.

"We're going to focus on things we can do ourselves and doesn't require a lot of outside help," he told the Associated Press.  "Some of those topics are behind our control. If some of those stakeholders want to have conversations, we'd be happy to do that."

The RTA says it was formed “with the encouragement of NASCAR.”  But the sanctioning body was scrambling on Monday to meet with manufacturers and discuss the announcement.  NASCAR’s own statement didn’t sound very encouraging and seems to question the need for a RTA.  To keep a low profile, it was attributed to Brett Jewkes, vice president and chief communications officer.

We are aware of the alliance concept the team owners have announced, but have very few specifics on its structure or purpose. It is apparently still in development and we're still learning about the details so it would be inappropriate to comment right now. NASCAR's mission, as it has always been, is to create a fair playing field where anyone can come and compete. Our job is to support and strengthen all of the teams, large and small, across all of our series and we'll continue to do that. NASCAR is a unique community with hundreds of stakeholders. They all have a voice and always will."

So far only Kauffman is talking, but another theory is that Penske and Ganassi are the driving forces behind the RTA and that the alliance serves as a warning shot across Brian France’s bow to keep his hands off open wheel racing.  The France family already controls stock car and sports car racing in America.  Flush with cash from the television contracts, so the theory goes, France could easily add IndyCar and even the Indianapolis Motor Speedway to his empire.  Penske and Ganassi want to avoid that at all costs.

Not sure I buy into that theory.  Again, the RTA is not about saving or spending money. 

It’s about making money.




Saturday, July 5, 2014

Is Qualifying Now The Show? Maybe in F1

Gilliland on Daytona pole after bizarre qualifying session 
So there I was on Thursday and Friday watching qualifying for the NASCAR races at Daytona and the Formula One race at Silverstone, England.    There for a moment, flipping channels, I thought I was flipping between parallel universes.

At Daytona, packs of driver crept around the track at half speed in an embarrassing game of cat and mouse, worthy of F1.   Meanwhile, at Silverstone, three exciting sessions were playing out, capturing the drama F1 qualifying has been known for since it first tried knockout qualifying several years back, a format that has since been adopted by first IndyCar and this year by NASCAR.  With mixed results.

Rain played a role at both tracks.  In England, where it is seemingly always raining, teams scrambled to mount dry, wet and intermediate tires depending on the rapidly changing track conditions.  At Daytona, rain curtailed and ended qualifying sessions.  At Silverstone, Lewis Hamilton made the mistake of not running hard until the very end of the qualifying session.  After turning the fastest laps all day, he saw himself fall to sixth on the grid after five drivers went faster on the last lap.

No such excitement in Daytona where everyone seemed to rather watch than run.  The restrictor plate tracks are certainly not the place to showcase NASCAR’s version of knockout qualifying.  There were a few moments of excitement, such as when Kyle Busch led the Joe Gibbs Racing Nationwide team on a fast lap only to be balked and nearly wrecked by a non-qualifier.  But mostly it was sitting and watching.  And watching.

As a result, David Gilliland is on the pole for the Coke Zero 400.  Reed Sorenson is second.  Followed by Landon Cassill and Bobby Labonte.  Good for them, but not exactly household names.  Jamie McMurray, who had been fastest in the first practice session, will start 36th.  Kyle Busch will start 39th.  Joey Logano, who has done pretty well under the format in general, summed it up.

“That was pretty dumb,” he said.  “It is very difficult to figure out what is going on there. Before you know it, you are stopped on the racetrack and asking yourself what you are supposed to do.”

NASCAR needs to do something about the qualifying format at the restrictor plate tracks before the next one at Talladega, before it becomes a complete farce.  If it hasn’t already.  Maybe cut the sessions to 10 minutes.   Force everyone onto the track at the same time if that’s what you’re looking for. 

One final note.  You can count on F1 qualifying being more exciting than the race.  And you can count on the Coke 400 is more exciting than the qualifying.  It has to be.