Merchandise in NASCAR, explained

An attempt to dive into the very complex issue of NASCAR merchandise following a week of chatter on the topic.

So, what’s this all about?

On Tuesday, Kyle Larson tweeted something unusual. Someone noted Larson sold $13,000 worth of merchandise during an appearance at a dirt track, and the NASCAR points leader jumped on the comment.

Was that remark an exaggeration? Actually, probably not. According to NASCAR, Larson has sold more than $300,000 in merchandise this season, which is up 125 percent from 2016.

But drivers in today’s NASCAR keep only a small percentage of their sales — often 1-3 percent. A big-name driver I spoke to this week (who asked not to be identified) said he once sold $2 million of merchandise in a season and received just $20,000 as his share.

Driver contracts vary, but if Larson has a similar deal, then he’s perhaps made just $3,000-$6,000 this year off his NASCAR merchandise sales.

At the dirt track, though, Larson probably kept at least half the money. He has no overhead costs there (like paying a percentage to the track or employees) aside from the expense of producing the shirts.

I’ve talked to several people this week who say a T-shirt typically costs around $10 to produce — and Larson’s sprint car shirts sell for $25. So if Larson sold $13,000 worth in a night and kept approximately $6,500-$7,500 in profit, then that could certainly be more than what he’s made all season in NASCAR merchandise sales so far.

Are the drivers getting ripped off?

If you were a driver and saw hundreds of fans every weekend wearing your shirt at the racetrack, but only saw a couple hundred dollars in your paycheck for merchandise sales, you might be confused. A bit angry, even.

That was the tone of a meeting between drivers and exclusive trackside rights-holder Fanatics during the April race weekend at Richmond International Raceway, according to several people with knowledge of the gathering.

What was supposed to be a 30-minute briefing turned into a meeting of more than two hours, in which some drivers in attendance sought a detailed explanation as to why they receive such a relatively small amount of a sale.

As it turns out, the debate over whether the allocation is equitable has been going on since the mid-90s.

Here is the breakdown of a typical at-track sale:

— Fanatics gets 75 percent. There are numerous reasons cited for this: The overhead costs of bringing the superstore tent or haulers, the expenses of hiring people to sell the merchandise, the cost of producing the merchandise and the risk undertaken for an inventory that might not ultimately sell. According to people familiar with the business model, a hauler needs to sell $1 million of merchandise per year just to break even — and the tent costs were even more expensive. From a Fanatics standpoint, the company emphasizes it inherited the same percentage that has been used for more than 20 years.

— The tracks get 15 percent. The reason for this is the tracks are essentially assembling the customer base for the sale. A track executive noted without holding an event and bringing a crowd, there is no one to sell to. While 15 percent may sound like a high number, JR Motorsports vice president of marketing and licensing Joe Mattes told me that’s been the standard number since the late 90s — and some tracks used to take as much as 25 percent until his then-boss, Dale Earnhardt Sr., pushed back.

— The team gets 9 percent. But here’s where this gets tricky, because that “team” number is divided into many different slices. A typical arrangement over the years has been one third to the actual race team, one third to the driver and one third to the sponsor who appears on the shirt. Mark Martin told me that was the arrangement dating back to the prime of his career, and an agent told me that is generally reflective of today’s agreements. Of course, that one third can fluctuate depending on the driver’s bargaining power (Dale Earnhardt Jr. likely gets more than a young driver who is happy to sign whatever contract he can get).

— NASCAR gets 1 percent. The merchandise features the NASCAR logo bar and is sold at a NASCAR race, so most do not consider this to be an unreasonable amount.

Blake Davidson, NASCAR vice president of licensing and consumer products, told me the overall model hasn’t changed much in 25 years. But there has been one notable change, and it might be part of why drivers believe they should be getting more.

How we got here

Bear with me for a moment as we go through an abbreviated history of the NASCAR merchandise industry.

In the 90s, when everything in NASCAR was taking off, companies like Action Performance and Team Caliber had to compete for team rights (and even driver rights, after Dale Earnhardt Sr. secured the rights to his name, image and likeness in 1995).

During NASCAR’s boom years, souvenir companies ended up giving teams up-front, guaranteed money — in the millions of dollars — even though they didn’t necessarily sell that much in merchandise. In a scramble to secure the rights, they overpaid with the guarantees.

The companies merged into one (Motorsports Authentics) in 2005, but when NASCAR hit its slump last decade, the business proved to be unsustainable.

“If you want to sum it all up in one word, it’s ‘Greed,'” Martin said. “But if you want to point fingers at someone, you can’t. The fingers would point everywhere. Everybody got greedy.”

Motorsports Authentics nearly went bankrupt in 2009 and had to renegotiate deals with teams and get them to forgive some of the debt owed from guaranteed money. Nevertheless, today’s drivers have heard tales from veteran drivers about the millions that used to roll in — and wonder what happened.

In the wake of the near-collapse of the merchandise industry, teams formed the NASCAR Trust in 2010 — which for the first time combined industry rights to create one party for licensees to negotiate with.

That ultimately led to a joint agreement with NASCAR to use Fanatics as the primary retailer in 2015, because Fanatics was the only candidate out of 14 companies that could really manage what NASCAR’s Davidson called “the most complex retail space in all of sports.” Fanatics knows what it’s doing; it’s also the official partner of the NFL, Major League Baseball, the NBA and the NHL.

Here’s the thing, though: While exact financials are unavailable, even Fanatics isn’t exactly making huge money off NASCAR.

That’s because no one is.

“It’s not that drivers are getting screwed over, it’s just there are so many players involved in a watered-down market that at the end of the day, nobody is really making any money unless there’s a huge volume sold,” Landon Cassill told me.

Splitting a smaller pie

That lack of sales volume is another major factor in why drivers are making less. You know the well-documented attendance decline? Well, that leads to fewer sales at the track, because there are fewer people to buy gear. In addition, the people coming to the track have less disposable income.

It’s made a significant impact. Martin told me he made more money off trading cards alone in the late 90s than he did off all merchandise combined in the late 2000s.

In turn, that has created a lack of motivation for drivers to promote their merchandise in the first place — because they’re making small potatoes compared to their actual salary.

Larson hinted at that this week through another tweet, but many found it to be tone-deaf.

Here’s a translation: According to one agent, some drivers can make between $5,000 and $25,000 for an hour of time by doing appearances at the track.

So if a driver goes to his NASCAR merchandise hauler or the Fanatics superstore and signs autographs for an hour while people buy his gear, even $5,000 of merchandise sold might only equal $100.

To a driver making millions per year, a couple hundred bucks is like seeing a penny on the sidewalk. It’s not even worth stopping.

So in the dwindling spare time a driver has at the track — between being in the car, team meetings, contractual sponsor obligations, media commitments and family time — the idea of using an hour to do something that creates so little tangible gain is hard to justify.

One driver I spoke to (who also asked his name not be used) acknowledged drivers could perhaps sell more merchandise if they put an effort behind it — but there’s simply not enough incentive to do so. Another driver said spending that time would just be lining the pockets of executives, not those putting in the work.

Drivers look at the bottom line and don’t feel they are getting their fair share.

“I’m pretty sure they’re not buying the shirt because it’s NASCAR; otherwise they’d just buy a shirt that says ‘NASCAR’ on it,” Danica Patrick told me last year. “I feel pretty screwed in that department.”

NASCAR, however, believes a driver making an appearance at the point of sale can have a tremendous impact on the future. If fans can have a conversation or interaction with a driver while purchasing the merchandise, NASCAR believes it can pay off with loyalty in the long run.

“If you can have even 60 seconds worth of interaction with a driver at a NASCAR event and you’re buying their gear, I don’t know there’s a stronger bond than that,” Davidson said. “That’s unbelievable you could have that kind of interaction with your favorite athlete — buying their gear right there, putting it on and having them sign it or get a picture? That’s an amazing experience you’re going to remember for a lifetime. We want a lot more of that.”

Drivers, though, feel they are already connecting with fans in different ways — whether through social media, trips into the infield or signing autographs on the fly. There’s also a disconnect, because fans might expect a driver to feel a sense of gratitude for putting money into their pockets with a merchandise purchase — but the driver knows the majority of the dollars went to other people.

Other sports, by the way, are not that different in terms of the athlete personally benefiting. For example: In the NBA, all jersey sales are pooled together and evenly distributed to all members of the players union. And in the NFL, players get a portion of their individual jersey sales — but it isn’t much, as Adrian Peterson tweeted in 2012.

What’s next?

There are two reasons for you as a fan to buy a T-shirt: First, you might actually like the shirt and want to wear it to show your allegiance. Second, you might be buying a shirt because you want to be supportive in a way where the driver personally benefits.

If the primary goal is the first reason, then you likely don’t care how much money the driver gets. But if you’re making the purchase based on wanting to help the driver make a living, then you should know your at-track dollars are likely not helping that cause very much.

A better solution in that respect is to buy from a driver or team’s online store. If you see a shirt that has no NASCAR logo or no sponsor image, the driver is likely getting much more of the proceeds.

For example, Joey Logano’s store has his “JL” logo without any NASCAR, Team Penske or Shell marks.

Some drivers don’t have a team of people helping them, though, and have to sell merchandise by hand. Landon Cassill launched a social media campaign last year to sell a package for $38 (his then-car number) which included a vintage T-shirt, sticker, signed hero card and sunglasses.

He then packed and shipped all the shirts himself.

“Of course I want people to buy my Fanatics stuff — it’s not that I don’t endorse those items,” Cassill said. “But if people want to know they’re supporting me because I don’t have millions of dollars in backing, then when you see stuff on my site, I’m going to make a bigger royalty on it.”

That may be the direction the industry is headed, according to someone who handles driver contracts. Drivers will look to personal merchandise online, because even if they wanted to invest in bringing a hauler, Fanatics has exclusive on-site rights.

In the meantime, Fanatics indicated it is doing everything it can to make the at-track experience better for fans — including starting to sell more merchandise inside the tracks themselves.

The best course of action

So what should drivers do? The issue blew up on social media this week, with drivers like Brad Keselowski and Denny Hamlin chiming in. But in general, is it worth caring about if they could spend energy elsewhere — particularly in an ever-changing industry?

Mattes, who has been in the industry for more than 20 years, has always followed Earnhardt Sr.’s mantra: “Take care of our sponsors, take care of the race fan.”

That attitude, he said, results in an intensely loyal fan base that is built over the course of many years. And a loyal fan base translates into sponsorship, which he described as “the heartbeat of what we do.”

So if drivers have to undertake additional obligations with the big picture in mind, Mattes said, “that’s just smart business.”

“You have to give back to the fans,” he said. “The money is the gravy. The loyal fan base is the whole entree.

“T-shirts will never be the focal point. I think you’d piss off a lot of drivers, but the truth is, I know how hard it is to run the damn thing, and I’m not running it on T-shirt revenue — I’m running it on sponsor support.”

NASCAR Marketing Strategy: Comcast Xfinity

This is the first in an occasional series about how NASCAR sponsors are using their marketing opportunities in the sport. Up first: Xfinity, which relaunched its Xfinity Stream app this week and is making a big push to get the word out. Matt Lederer, Comcast’s executive director of sports marketing, spoke on behalf of the company.

What do you see as the identity of the Xfinity Series, particularly in light of fewer Cup drivers being able to participate in the races this season?

We love this idea of “Names Are Made Here.” We love not only the format changes, but some of the driver restriction changes. We want more Xfinity drivers hoisting the trophy in victory lane, because we think that’s good for the sport.

We’re excited Stewart-Haas is bringing in a full-time Xfinity car, Junior (Motorsports) is expanding to four full-time Xfinity cars. We knew making those changes were all going to be steps in growing more drivers into the series. I’d expect we’re going to see more Xfinity drivers in victory lane this season.

How does the Dash 4 Cash idea fit into what you guys do, and why is it so important to you?

What Dash 4 Cash provides is the ability to focus on four Xfinity drivers in those weeks — so it supports the “Names Are Made Here.” Even if the guy doesn’t get into victory lane, that allows you guys (in the media) and the networks to focus in on someone whose name is being made.

Also, we get a lot more brand mention and visibility on those weekends. The idea of the Xfinity Dash 4 Cash is good exposure for us.

Lastly, the drivers like it. They really do. And they’re so good to us, we want to make sure we do something for them.

What’s your strategy in how you talk to NASCAR fans?

We like to have a brand voice of being the host. The Xfinity brand, if you’re a customer, you’re going to use it hundreds of times a day — whether it’s the Wi-Fi, whether it’s TV, whether it’s your phone (with the streaming app). What we want to convey is we’re NASCAR fans, too. We want to host you on a great adventure, and that adventure is going to include all of our products.

We’ve had a three-year strategy, and if anything, we’re ahead of where we wanted to be. Everyone said, “The fans are going to know you, they’ll love you, they’ll be loyal to you.” They have, and now we’re going to take that love and hopefully turn them into customers. But we’re not changing anything about the way we talk to NASCAR fans.

What’s something you guys have done that worked better than you thought and something that didn’t work as well as you thought?

The Comcast Community Champion Award that we give out at the end of the year has been amazing. We were given — as part of our sponsorship — the right to brand an award. Some sponsors do a great job. So how do we stand out? How do we break through?

The way it’s morphed into something amazing has probably been my favorite thing to work on as part of this partnership. We try very hard with our company brand to be a human brand and a compassionate brand. The attention and overwhelming outpouring of emotion we get for that award, I never anticipated it.

As far as the other part of the question, we love to do retail store appearances, but we’re still getting better at those. What we’ve learned is in order to really maximize those is we’ve got to get the outreach out there earlier that, “Hey, Brennan Poole is going to be in the Richmond store on Wednesday.” So how do we leverage our radio assets? How do we leverage our TV assets, our print assets to make people aware? So getting ahead of that is going to help us do those things and make them better.