The business of being Tony Stewart
Tony Stewart has grown into quite the entrepreneur. Among his assets are a three-team Sprint Cup Series organization that represents nearly 30 corporate sponsors on the racetrack and in the marketplace, a four-team sprint car conglomerate that competes in the World of Outlaws and USAC, and a destination dirt track in Rossburg, Ohio.
Each of these entities is profitable, and each is an extension of a successful Sprint Cup Series résumé that includes nearly 50 victories, three championships and more than $109 million in career winnings -- and a no-nonsense approach that has evolved with time from one that concerned corporate partners to one that endears him to them.
"No doubt Tony is a competitor and sometimes wears the emotions on his sleeve, but we have found that our partners support his passion and authenticity," said Brett Frood, Stewart-Haas Racing executive vice president. "He is a holdover from a generation past -- like [A.J.] Foyt, he reflects that old-fashioned work ethic and blue-collar persona that the masses can identify with.
"I believe that most of our partners see him as a racer's racer, everyman's friend, the down-to-earth guy that can resonate with fans/customers."[+] EnlargeHHP Images Tony Stewart's blue-collar persona has been a hit with consumers and business partners alike.
That matters today. Companies want authenticity and professionalism from their chosen spokespeople. Stewart's focus on the grassroots segment, Frood said, enables him to maintain a connection with both the boardroom suits and the workingman -- a core demographic for partners.
"He works tirelessly to cultivate and grow this loyal and passionate group," Frood said. "Obviously, he also has exemplified entrepreneurial spirit and business acumen, which, married with that blue-collar passion, creates distinct and authentic connections with our partners."
Among Stewart's other business interests are dirt racetracks in Macon, Ill., and Paducah, Ky.; Tony Stewart's Original, a line of food products that includes barbecue sauce, salsas and beef jerky; Custom Works remote-control cars; and True Speed Communication, a public relations and marketing firm.
Balancing fiduciary responsibility to the 185 employees at Stewart-Haas Racing while maintaining a successful core business -- winning on the track -- is challenging for Stewart and his executive staff. It is a concern that permeates the racing industry at every level: Racing is, and has always been, a spend-to-win business.
To be sustainable, finding balance is imperative.
"It could cost as much money as you have," laughed Frood. "There's never a day when someone within the organization isn't looking for something that they think will make the car go faster. So every day I've got the competition director or the head of engineering or someone in the fab shop coming into the office saying, 'We need this.'
"We're fortunate -- we have a group of people that understand they want to be at SHR for the next decade, and from employees we've had very little turnover in our existence. We haven't laid anyone off. We don't want to lay anyone off. People understand business versus competition.
"But ultimately we still make decisions on whether it is going to give us speed versus our competitors."
Those decisions are a collaborative effort that includes Frood, Stewart, co-owner Gene Haas, competition director Greg Zipadelli and a handful of other executives in competition and marketing. It is not uncommon for the SHR boardroom to broach 10 new competition-related possibilities, only to choose the two or three that are most fiscally responsible in the moment.
There are varying levels of debate. One day the focus may center on a new lathe for the fabrication department. The next it may be on a full-blown R&D team that works on a specific aerodynamic project to improve on-track performance.
All said, industry executives estimate $15 million to $20 million is required, per team, to run competitively at the Sprint Cup level. The balance between money and speed makes it challenging for teams to turn a profit. SHR tracks its budgets on a monthly and quarterly basis, and when they trend with any surplus, SHR goes to the competition group and surveys wants and needs to achieve greater on-track success.
"It's that game of risk versus reward and rationalization," Frood said. "The sport, in general, is a dichotomy of business principles."
First, there's the racing side:
"We're a race team. Our ownership, Tony Stewart, he's the ultimate racer. It's about winning trophies. Tony has turned into an entrepreneur and a businessperson, but ultimately, every weekend he's a racer," Frood said.
"And where it's become increasingly challenging for all of us is, you have this sport where you have to spend money to win races, with evolving technologies and new cars and spending time in wind tunnels and in [research and development], and going out and getting top drivers."
Then, there's the business side:
"Then there's this other side, which is bringing in good partners who can gain ROI [return on investment] from the sport," Frood continued. "The valuations have decreased over the years -- whether artificially or not, they're down. We as a business are not getting the values we got three, four, five years ago.
"It's not necessarily ROI has disappeared, it's just a change in climate holistically has caused that. But the costs of running these businesses haven't [decreased]. So every single day is this convergence of, how do you win races, but how do you do it in a sustainable way where we're here and to perpetuity as a race team. It's a challenge."
Entering the 2013 season, none of the three Sprint Cup Series teams under the SHR banner was fully sponsored for the entire 38-event slate.
Stewart's No. 14 Chevrolet has nine races to fill, while Ryan Newman's No. 39 has eight open events and Danica Patrick's No. 10 has three. And these are some of the most marketable drivers in the sport.
"I still think it's the fallout of the economy," Stewart reasoned. "There's a lot of [companies] that have expressed interest. The interest is still there, it's just that a lot of people are financially not able to do what they want to do. If the interest wasn't there I'd be concerned. But it's there."
Frood said SHR is in active conversations with a couple of companies, but nothing is concrete. Conversations that 10 years ago led to an agreement in weeks now require months. One of SHR's current sponsors on Newman's car, Quicken Loans, took nearly a year to sign on.
"It's an exhaustive process to get where you need to be, but you have to vest yourself in it because we know our peers in the sport are doing it, too," Frood said.
Frood reiterated that ROI has not disappeared. Recessionary periods have halted spending in the past, he said, and noted that large brands like General Electric, Proctor & Gamble and General Motors have "seen through the clutter" and continued to spend advertising dollars. The challenge now, he said, is breaking through that fear barrier.
I still think it's the fallout of the economy. There's a lot of [companies] that have expressed interest. The interest is still there, it's just that a lot of people are financially not able to do what they want to do. If the interest wasn't there I'd be concerned. But it's there.” -- Tony Stewart
"Going back to 2008, 2009, when things were a little tough, everyone pulled back. It's still that way," he said. "There's still that overwhelming sense of what could happen, and there's reserves of cash flow with companies all over the U.S. The challenge is not showing ROI. The challenge is changing the mindset to get them there."
He cited Quicken Loans as a prime example. Again, it took nearly a year to convince the company to sponsor SHR. Once it bought in, it enjoyed a productive year. So in 2013, Quicken Loans increased financial support of SHR. It will increase activation.
More than ever in NASCAR's 60-plus-year history, the business model has evolved into two distinct sectors for teams: on track and off track. If both sides aren't balanced and maximized for the partner, there is no partner, Frood said.
So while Frood focuses on hiring a Ph.D. to bolster the engineering staff, he must likewise focus on business executives who understand the strategies of myriad diverse partners, and working with them on a daily basis to marry the assets of the race team and create return for the sponsor.
"I don't use the word 'return' lightly," Frood said. "Every one of our partners, the scope and emphasis they put on this, is immense. And we as a team need to make sure we do everything we can on that side to make sure we maintain our partnerships and continue to build that equity, and to be able to lure new companies into the sport."
A big part of that is Stewart's time. His name is on the building, so he must leverage his own brand with every partner who signs on to sponsor the organization. It is time-consuming and taxing, but necessary.
"It's very important," Frood said. "Tony is extremely engaged with all our partners, which makes being an owner pretty arduous on him. Tony, we feel, is an iconic American personality. He transcends motorsports into culture.
"There's no doubt all of our partners here believe in Tony and are here in many ways because of Tony. He does appearances for every one of them. It creates a challenging lifestyle for him."
Stewart has learned the importance of this role. He has come to the realization that no one races forever. A day will come when he races a sprint car on Saturday night and flies to the Sprint Cup race the next day as owner. He is focused on building a viable business that lasts.
"You read Sports Illustrated articles every week talking about retired NFL players or NBA players who are bankrupt, who have put money into bad business deals. Tony is a realist," Frood said.
"He wants to be able to realize that his career in racing and winning titles put him in a position where he can retire and run sprint cars, be a Cup owner and not have any type of significant financial worries. That's helped him as an entrepreneur, understanding how important it is to be a prominent owner in this business and be vested in it."
Since Stewart bought Eldora Speedway in 2004, the track has appreciated "significantly," Frood said, as the most recent appraisal proved significantly higher than Stewart's purchase price. The track will host its first NASCAR-sanctioned event this summer, when the Camping World Truck Series rolls into town on July 24. As of mid-January there were less than 1,000 seats remaining. It is expected to sell out.
Stewart is not expected to compete in the race, Frood said. He'd prefer to let it stand alone.
"We have invested a lot in the facility since the purchase -- infrastructure, safety, IT, luxury suites, offices, video board, etc.," Frood said. "We have sunk all retained earnings back into growing the facility. It is an iconic venue and we are excited to know Tony will be the owner for years to come."
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