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Jack Gage
forbes.com
There's a widening gulf in NASCAR between stock car racing's biggest, most valuable teams and those hoping to hang on for just one more race. Since our first NASCAR valuation package two years ago, values have rocketed skyward, up 65% on average, to $119 million, thanks to a rash of investment in a sport whose radical growth over the past decade appears to be sputtering.In the past year, billionaire investors like George Gillett, the owner of the NHL's Montreal Canadians and English soccer club Liverpool, and Fortress Investment Group (nyse: FIG - news - people ) President Rob Kaufman purchased stakes in teams (Gillett Evernham Motorsports and Michael Waltrip Racing, respectively) after seeing value in NASCAR.
They aren't alone. Stock car racing is also seeing interest from within--mergers of middling teams are yielding ready-made contenders as teams begin to realize the new efficiencies of operating, say, two cars from one expanded shop rather than separately. Example: Ginn Racing teaming with Dale Earnhardt Inc. prior to this season.
Specifically, though, consolidation has put a spotlight on the growing divide between NASCAR's rich and poor. For 2008, the difference between NASCAR's most valuable team and its 15th grew to $307 million, up from $270 million last year, and just $195 million in 2006. That despite a slight decline in values from 2007.
One headwind facing smaller teams: NASCAR's eight-year, $4.48 billion TV deal, which began in 2007, is a 40% improvement, on average, over its previous deal. Catch: It is backloaded and won't pay teams more than they received in 2006 until 2012. For teams like Hendrick Motorsports and Roush Fenway Racing, which operate nine race cars between them, more entries on Sundays mean better odds of cashing in.
We estimate Hendrick Motorsports became NASCAR's most valuable team this year, up 13% to $335 million. Dropping to second is Roush Fenway Racing, which fell 1% in value to $313 million. The value of the third-place team, Joe Gibbs Racing, increased 7% to $184 million.
Worse odds on the track have made it tougher for one- and two-car teams like 10-time Cup Series champion Petty Enterprises, whose protracted and very public search for capital came to an end recently with the announcement it would sell a controlling interest in the team to private equity firm Boston Ventures. We estimate that Petty's two-car operation, which hasn't won a Cup Series race in nearly a decade, fell 9% in value to $44 million this year.
For the Pettys of the NASCAR world, the proof is in the pudding: Whereas nine of NASCAR's top 10 cars in 1998 were operated by teams with fewer than three cars, that number shrank to just four out of 10 by 2003 . Last season had just one among the best 10.
This year, the highest-ranked car owned by a one or two-car team sits at 12th.
In fact, the six most valuable teams (out of 24 total) have thus far accounted for 22 of 54 cars to qualify for a race this year. That’s 41%--and 80% of the top 20 cars in the standings.
The least valuable quartile controls a mere 11% of qualifying cars this season.
In a sport that prides itself on parity, the prospect of having only a handful of teams looms large.
Indeed, NASCAR has spent the last five years spinning its wheels to mandate competitiveness by way of its Chase for the Cup playoff format, stricter rules for modifying race cars, and denying team owners formal acknowledgment as franchisees of stock car racing. (The latter would effectively guarantee the opportunity to race, as in other major U.S. sports, instead of requiring each car to qualify weekly.)
Advice to NASCAR brass: Quit legislating competition from the boardroom and let NASCAR's free-styling free market work.
