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Why Charters Matter in the Business of NASCAR

doverWhen long-time NASCAR Sprint Cup Series team Michael Waltrip Racing elected to shut their doors at the close of the 2015 season, long-time team investor and partial owner Rob Kauffman was one of the most vocal in the lack of “re-sale” value for any team looking to sell off assets.

It’s pretty simple math. Teams invest millions in to their race teams every year, but between the bulk of that money going in to labor, and with the team’s hard assets (cars, equipment, R&D tools) having a fast depreciation due to the non-stop evolution of technology, it’s easy for a team to have very little value even after multiple successful seasons.

Enter the recently announced “Charter” system.

A principal long established in Formula One, the idea is very simple, give a team a re-sellable, limited-access license to both participate in races and participate in key discussions with the series.

NASCARChartersAutoRacing6In Formula One this has been a well established practice. Essentially, the FIA only allows for 12 teams to be allowed in to the series with a franchise. You can build your own car, develop your own program, but without the series-granted franchise, you won’t be allowed in.

The effect of this is providing an intangible value to teams long after the value of their equipment. In a sport like Formula One, where mid and backfield teams are constantly shutting down and selling their assets off, the ability to sell off their franchise into the series is often the most valuable part of a team’s acquisition.

Recognizing the need to drive up value for NASCAR team owners in an era where ratings and attendance begin to stagnate, the essential logic is the same. A team like Michael Waltrip Racing, who have no intention on competing in 2016, were miraculously granted a “Charter” for the 2016 season, giving them something to sell that exceeds the basic sale of team assets.

The biggest value in a team charter is the guarantee of a starting spot in the race. Currently, NASCAR has issued 36 charters, all of whom guarantee that Charter’s vehicle a start among 40 cars in any given race. In other words, only four cars qill qualify for a race WITHOUT a charter. If you’re a season-long entrant trying to guarantee exposure and value for your sponsor, that charter is all of a sudden valuable.

banner robkauffmanNot every team was granted a Charter for 2016, with NASCAR basing their “grandfather” system on past performance and more importantly prior commitments and follow-through to run the season, so all of a sudden Michael Waltrip Racing has suitors, exactly what Rob Kauffman had hoped for.

Traditionalists will argue the merits against it, or the lack of precedent, but in an era where more and more value needs to be found beyond convention for the series’ stakeholders, it’s both a logical and sensible move.

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