Sponsorships lag for NASCAR's new hall

The NASCAR Hall of Fame has struggled to attract corporate sponsors and sell commemorative bricks, its ways of paying off $26.5 million in loans the city of Charlotte assumed to help build and launch the racing shrine.

The Charlotte Regional Visitors Authority, which manages the Hall of Fame, had hoped by summer 2009 to have sold about $10 million in sponsorships and $4 million in bricks. To date the CRVA has sold $4 million in sponsorships and $634,000 in personalized bricks, which are being placed in a plaza outside the hall’s entrance.

No other American sport is as closely tied to its sponsors as stock car racing, in which tracks, cars and driver’s uniforms are covered with corporate logos. It’s unclear whether the hall’s difficulty in selling sponsorships and bricks is due solely to the severe recession, or whether city and tourism officials overestimated the appeal of the $200 million hall, which opens Tuesday.

The city, the CRVA and the Hall of Fame say they aren’t concerned, and that sales will pick up. Taxpayers aren’t at risk, they say.

Paying off the sponsorship and brick loans “may take longer than we thought,” said Ron Kimble, a Charlotte assistant city manager. “But it’s going to work.”

The loans are just one part of the debt the city has taken on to build the racing shrine. Most of the money is to come from a 2 percent hotel/motel room tax levied for the hall. The city said that despite a slump in hotel bookings, the tax revenues are in line with its original projections four years ago. It said it has enough money in reserve to cover a continued hospitality slump.

When Charlotte’s bid beat out several other cities’ for the right to the NASCAR Hall of Fame in 2006, the national economy boasted a historically low unemployment rate, and stock car racing was one of the country’s fastest-growing sports.

Then the recession and banking crisis hit as the hall was being built. Employers shed jobs; tourism dollars disappeared. Attendance at NASCAR races has fallen, and, of perhaps greater concern, TV ratings have declined since 2006.

To pay for the hall, the city took on roughly $100 million in debt backed by the hotel/motel tax. In 2008, it took on $32 million in additional debt for exhibits and construction cost overruns, which was also backed by the tax.

The city also took out two loans totaling nearly $42 million from Bank of America and the former Wachovia. One loan is to be paid from corporate sponsorship and brick sales; the other is backed by the sale of five parcels of state-owned land created by the reconfiguration of the Interstate 277 interchange with South Boulevard and Caldwell Street.

The city has the benefit of favorable loan terms from Bank of America and the former Wachovia. The big Charlotte banks will let the city pay only interest – the rate is 4 percent – or get extensions if it is struggling with payments.

“I feel we are in very good shape,” Cathy Bessant of Bank of America said of the sponsorship and brick sales. “The motivation of the banks to take on what is clearly very favorable financing is based on the importance of the hall economically to the region, and therefore to the vibrancy of our banking businesses. And the entire deal is structured so that taxpayers aren’t at risk.”

Organizers say they have been pleased with the $4 million raised so far from sponsorships and that they expect more advertisers will sign on after the hall opens next week.

But UNC Charlotte associate professor of economics Craig Depken said it’s unclear whether corporate sponsors will return.

“It is entirely possible that firms will discover that not having their name on a sports venue does not mean their doom,” he said, “in which case, the value and number of sponsorships would be expected to fall over time.”

A case of ‘bad timing’

The hall has signed three sponsors and is in talks with six more for a total of $4 million, said the hall’s executive director, Winston Kelley.

Committed sponsors are the candymaker Mars, Mooresville-based home improvement chain Lowe’s and NASCAR Automotive Group.

“I would sum it up in two words: Bad timing. The sponsorship industry has been severely damaged over the past couple of years, and NASCAR is no exception,” said William Chipps, a senior editor at the IEG Sponsorship Report.

For instance, car companies are closely aligned with NASCAR teams, as fans cheer for or against a driver based in part on whether they drive a Chevy, Ford or Toyota.

Since construction began on the Hall of Fame, General Motors has received billions in government bailout money. Toyota’s image has tumbled after massive recalls. Kelley said none of the six companies the hall is negotiating with is an automaker.

Zak Brown, president and CEO of Just Marketing International, the group hired to sell the sponsorships, said $4 million is a good number for now.

“In general, we’re fairly happy where we’re at, given the macro environment,” he said, adding companies typically buy sponsorships in the fall.

Interest from potential sponsors has picked up after disappearing for two years, he said. Brown expects to have sold $6 million more in sponsorships – around $10 million total – by this time next year.

“That’s the trajectory we need to know we’re going to be in good shape, long term,” Brown said.

“Right now we’re chumming the waters. People are now having conversations, where 18 months ago, they didn’t want to talk about it.”

Brian Corcoran, president of Shamrock Sports Group and a former NASCAR marketing executive, said most sponsors aren’t leaving the sport but are cutting advertising budgets.

“It might take time,” he said, “but as sponsors calculate opportunity lost versus opportunity cost, more will... want to be a part of the action.”

Other national attractions opened in better times with heftier bank accounts. The Georgia Aquarium debuted debt-free in 2005, for example, after raising $40 million from local corporate sponsors. This money was raised in addition to $250 million donated by The Home Depot’s founder.

Chipps of the IEG Sponsorship Report said one problem could be that NASCAR has already been so aggressive in lining up corporate partners for the sport, there may not be many corporate dollars left for the Hall of Fame.

“Bringing new blood in – that’s what people try and do,” Chipps said. “But if someone wants to get into NASCAR, they may want to get in with a team. That’s where the loyalty is.”

Telecommunications company Sprint, which sponsors NASCAR’s premier circuit, said that the company receives numerous sponsorship proposals each month. It determined the NASCAR Hall of Fame “did not fit” the company’s needs at this time.

Kimble, the assistant city manager, said the city hasn’t received any written reports from the Hall and CRVA about sponsorship and brick sales.

Charlotte City Council member Michael Barnes, who voted against the city’s additional spending on the hall two years ago, said he can’t remember a recent report detailing the progress of selling sponsorships.

“I would imagine that most folks are most focused on getting the thing opened,” Barnes said. “We’ll begin to address that once it has opened.”

Kelley and Tim Newman, CEO of the Visitors Authority, said they aren’t concerned.

“I have never thought, ‘We have to sell X by X date,’” Newman said. “We didn’t have a sense of what the market would be.”

Kelley said potential sponsors have been impressed by the hall, which includes driving simulators, artifacts, and a display of historical race cars parked on “Glory Road” – a banked road that curves along the hall’s inside wall.

“We did a good job in showing the project on paper,” said Kelley, who makes about $138,000 in salary a year. “But the comment we hear now is, ‘Wow, this is more than we anticipated.’”

2010 projections

The hall hasn’t released its budget for the upcoming fiscal year. The CRVA and NASCAR are responsible for the hall’s operating budget, as well as any financial losses.

They expect to pay for the operating costs primarily through ticket sales, hall rental fees and a share of profits from the on-site cafe, gift shop and Buffalo Wild Wings restaurant.

City officials have said they expect roughly 800,000 people to visit the hall its first year, with about 400,000 people visiting each year after. Those are the same estimates cited in 2006.

“My guess is in the end, we will see a sell-out crowd, pomp and circumstance and the opening will be a great event,” said Depken of UNCC. “But the overall economic effect will be somewhat muted because people aren’t traveling, at least not for long periods of time. And they won’t spend much money.”

Another potential problem lies with the separate, $20 million loan the city took out that is backed with the sale of five parcels of uptown land contributed by the state.

Demand for commercial land has plummeted, along with values. Land in some cases has sold for 10 cents to 40 cents on the dollar from what it was thought to be worth two years ago.

Newman and Kelley said they aren’t worried because of the loans’ low interest rates and the banks’ guarantees that they will work with them.

“The original estimation was (the sponsorship and land loans) would be paid off in the first 10 or 12 years of operation, but that is not mandated by the lender,” Hall of Fame officials told the Observer in an e-mail response to questions.

Kimble, the Charlotte assistant city manager, said the land appraised for $60 million four years ago. It might have declined in value, but he’s confident the city will eventually sell for enough to cover the loan plus interest. He also said the city will be able to reimburse the N.C. Department of Transportation $20 million it spent to rework the I-277 interchange.

Bank of America’s Bessant said it’s in everyone’s best interests to have the financing work and the hall succeed.

“We have a huge interest in the viability of the hall, the sustainability of the hall, and making sure the right amount of funds are dedicated to refurbish and energize the hall,” she said. “Everybody here is working at the same purpose.”