Clint's PHOTOS:
Top-35 Rule and Coase Theorem
In law school you learn a bunch of theory that is never applicable or helpful in legal practice. However, I’ve found that at least one theory I learned in my first year property class is applicable to…of all things…NASCAR and particularly the Top-35 Rule. What theory am I talking about? The best, most fun, and craziest theory of them all…Coase Theorem!!!. Okay…so hear me out on this one:
Coase Theorem is a “law and economics” theory and was developed by…you guessed it…a guy named Coase (Ronald Coase). Without getting into a full bore explanation that would make you and me want to cry (and which would probably not be entirely accurate), the gist of his theory is that as long as property rights are well defined, it matters not how property is doled out because the party that is most able to reap the highest economic return on the property will end up with it in the long run.
Okay…so here’s my application of this theory to NASCAR and the Top-35 Rule. The Property we’re talking about is a guaranteed starting spot in a NASCAR Cup race. The Property rights have been well-defined by NASCAR and they are: (1) Any car in the Top-35 of Owner’s Points has a guaranteed starting spot in the race; (2) Cars not in the Top-35 must qualify for the race on speed alone, with exactly 8 spots dedicated to these cars; and (3) The most recent Cup champion not to make the field on speed and not in the Top-35 will start the race.
We see this theory proved out through many examples in NASCAR’s recent history.
-Bobby Ginn trades two Top-35 starting spots last year to DEI. It didn’t matter that Ginn had Top-35 positions and DEI (via Paul Menard) didn’t. All that mattered was the fact that DEI could make better use of the positions than Bobby Ginn…so DEI and Ginn bargained and both got what they wanted (DEI got two top-35 spots and Ginn got $)
-Roger Penske manipulates both the Top-35 rule and the Past Champion’s provisional rule to obtain a Top-35 spot for Sam Hornish Jr. (God bless him). It didn’t matter that Penske was not granted a Top-35 spot for the 77 at the beginning of this season…he bargained around the rule and secured a Top-35 spot for the 77. He was able to do this because he had the $$$$$/resources to hire a past-champion (Kurt Busch) and the $$$$$$$/resources to help the 77 maintain its position in the Top-35 (barely).
-Kyle Petty uses Texas Terry to get the 45 into races even though he doesn’t have a Top-35 spot in the points. Why? Again…$$$$$$$ and resources.
Of course, some of these examples are a bit watered down from the original thrust of the theorem because even at last year’s peak there were only like 48 regulars. You would see this theory at work much more profoundly if there were something like 65 teams trying to get into the race each week.
So basically Mr. Coase’s theory boils down to this (in relation to NASCAR): it doesn’t matter what rule NASCAR uses to determine who starts the races; in the end, the teams with the most money and that are best able to make use of a starting spot in the race will end up with a starting spot. So if NASCAR decided that the 43 cars whose drivers wore blue socks and ate the most chicken wings on Wednesday got to start the race, then Rick Hendrick, Jack Roush, Richard Childress and Joe Gibbs would be the world's largest consumers of blue socks and chicken wings, and by virtue of that, would be in the race each and every weekend.
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Sam Hornish Jr.
In light of the upcoming Brickyard I thougth I'd get a little teary-eyed about my guy, Sam Hornish. Enjoy.
Tony Stewart's Taxes
So Tony Stewart has confirmed that he was "given" a 50% ownership stake in what will be Haas/Stewart Racing. Ostensibly, this means that Tony didn't actually transfer any money or property to Haas for his shares. Usually, gifts are not taxable to the recipient (your Grandma's $5 birthday gift is safe from Uncle Sam).
But...this is obviously not a "gift" from Haas to Tony Stewart, Tony is earning this stock through his agreement to provide services (driving and other) to Haas. As a result, the receipt of stock is ordinary income to Tony just like the money he will get paid to drive, just like the money any of us get paid to go to work.
Tony is getting 50% of the stock of the company…so to value the stock, you have to value the company. It’s been said that Haas has spent a lot of money on the race team over the last several years. It’s hard to say what the company is worth…but if the Forbes list that came out is any indication, I think it’s safe to say that the Haas team is worth at least $80M. If that’s true, then Tony just got a $40M bonus.
Now…this $40M could be subject to a few discounts…?lack of marketability? since it would be hard to find someone to buy the stock of a privately held race team; “lack of control? since Tony’s 50% is not a majority and thus he cannot control the company outright. These discounts could be worth as much as say, 25%...so for tax purposes we could reduce the value by another $10M, thus making Tony’s income on this transaction “only? $30M.
$30M puts Tony in the uppermost tax bracket…35%...that’s $10.5M in tax…not to mention the other money Tony earns for driving. Really, the best way to decrease this tax is to try to get the valuation of the company as low as possible…I’m sure that Haas is setting that up so that whenever the actual transfer of the stock occurs (my guess, 1/1/09)…the company is worth as little as possible.
Another way to accomplish this is to make Tony’s stock “restricted.? This means that while Tony has all the rights and benefits of ownership, he can’t sell the stock or do much else with it. In this case, these restrictions often can help to delay the imposition of tax so that maybe Tony doesn’t recognize the income from the receipt of the stock until he is done driving and his income is lower…or over time in chunks.
Finally, I’m sure that Tony’s other business interests will help to reduce his tax burden. I very much doubt that his interest in Eldora or in his other race teams earn him a profit on paper. Granted, he may get cash flow from them, but one of their biggest benefits might be the fact that he gets a paper loss and thus is able to offset other income. Plus, someone as wealthy as Tony I’m sure has many people like me hovering around him showing him all sorts of cool ways to decrease his taxes, invest for the long term and protect his assets.
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American Automakers in Trouble
It's 2nd Quarter reporting time which means that all of the automakers get to talk about how badly they are doing. As of this writing, Ford is the only carmaker to have announced and it was a WHAM-O...27% drop in sales! 27% drop! That is utterly amazing. My guess is that GM will do a bit better than that and Chrysler will do worse. Bottomline...the American automakers are not in good financial shape.
Of course, I'm sure that Toyota is also going to see a hit in its sales, but I would bet its decline will be a fraction of the decline of the Big Three.
With steadily rising gas prices and increasingly choosy US consumers, I think we have to wonder how much longer the automakers can go through their lull period. The Big Three have been treading water for years in hopes of changing their operations to build and sell cars that Americans are more-often desiring nowadays (closing truck and SUV manufacturing plants and developing alternative energy vehicles).
Just over the past year, GM has burned about a BILLION dollars in cash. This means that GM has spent a BILLION dollars more than it has taken in, in terms of real cash flow. The question is this: can the Big Three transition to a winning business model (the one currently employed by manufacturers like Toyota and Honda) before they are forced to go belly-up?
And, as race fans are concerned, how long will the Big Three pump a couple hundred million dollars per year into motorsports activities? Will we see a total withdrawal of manufacturer support? Just a decline? No change at all? The next year or two should be interesting as gas prices will inevitably continue to rise (many analysts are predicting $8 gas by 2010) and the Big Three continue to try to gain back the hearts and minds of the American automotive consumer.
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SMI Facts
I was looking at the 2007 Annual Report for Speedway Motorsports, Inc. (SMI), available here: http://library.corporate-ir.net/library/99/997/99758/items/293373/SMI-2008_AR.pdf.
It’s pretty interesting…and cool that this is a publicly traded company so they have to provide a lot of information to the public. Among other things, here are some highlights:
1. SMI tracks promote 30 NASCAR events (Cup, Nationwide and Truck), are 50% owners of Motorsports Authentics along with ISC; and own PRN radio.
2. SMI has an oil and gas extraction business and a landfill business that it operates on the land it owns around its tracks
3. Personally and through a holding company Bruton Smith owns about 75% of SMI stock
4. In 2007 Bruton Smith earned about $2,000,000 in compensation; in 2007 Humpy Wheeler earned about $1,200,000 in compensation
5. In 2007, SMI derived nearly 82% of its total revenues from NASCAR sanctioned events
6. In 2007 SMI received $143,000,000 from NASCAR as a split of broadcasting revenues. SMI receives nearly similar amounts of revenue from ticket sales and souvenir/food sales, making their various revenue streams essentially co-equal.
7. SMI developed and owns the Legends racing circuit, featuring Legends cars, Bandeleros and Thunder Roadsters. SMI contracts for the manufacture of legends cars and is the sole supplier of Legends cars and parts. You can buy a race ready Legends car for $13,000.
8. In 2007, SMI recognized almost $50,000,000 in losses due to its ownership stake in Motorsports Authentics. The primary reason listed for this impairment was Dale Jr.’s switch from DEI to Hendrick. Other reasons: switch to COT; change in name of Busch and Cup series.
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Television Considerations
Recently, there has been a lot of talk among open-wheel fans about the merits of leaving the ABC/ESPN family of networks and seeking greener pastures. ABC/ESPN has turned open-wheel into its neglected stepchild in favor of its NASCAR coverage. I wrote a question for consideration by Curt Cavin of the Indianapolis Star and Kevin Lee of the IMS radio network for their radio show that airs out of 1070 the Fan in Indy on Thursday nights:
Curt and Kevin,
A few thoughts for your digestion on the IRL’s TV broadcasting situation:
The talk on the radio show and in Curt’s blog has been that the overriding concern with the IRL leaving ABC/ESPN is the loss of the casual sports fan. I think this is an overblown concern.
Popular culture grows more segmented everyday. With the advent of the internet, the fan of a particular sport can literally be inundated with so much media and resource relating to that sport, such that the fan becomes less likely to follow other sports. Up to the late ‘90s, fans of a particular sport were reliant upon TV, newspaper and magazine coverage to follow their sport. These resources were not 24/7 and not in real-time, requiring sports fans to branch out into other sports to fulfill their sports craving. That paradigm just doesn’t work anymore. Outside of the major championships in the stick and ball sports, people follow one or two sports religiously, and that’s it. Thus, we’re developing into a sports culture in this country where all sports are niche sports, whose fans follow that niche (albeit, some niches are larger than others).
The development of this “sports niche? paradigm extinguishes the need for cross-promoting networks like ESPN which cater to general “sports fans? with its wide range of sporting news and content. No longer is it that advantageous to put a sports product out for general consumption and hope that some observers become fans and some fans fanatics. The game now is to build up the niche of fans in a particular sport through a good sporting product and promotion.
For example, look at the NASCAR truck series. It’s broadcast exclusively on Speed and usually on Friday nights (well-known as TV ratings cemetery). But, Truck races consistently pull a greater than 1 Nielsen rating (better or consistent with the average rating of an IRL race on ABC). Why? Because Speed caters to the niche of race fans, and builds that niche through Truck series focused programming and other promotion.
I submit to you that the IRL would be better off, on balance, if it had a broadcasting partner that would provide the league with all of the “bells and whistles? in terms of supplemental programming, rather than just a two hour slot to get in the race each week. The casual sports fan isn’t helping the IRL with TV ratings or popularity. Realistically, the casual sports fan is so stick-and-ball oriented, he probably couldn’t name more than 5 NASCAR drivers or tracks. The casual sports fan isn’t cutting the mustard.
Sexual, Racial Harassment at NASCAR?
So I thought I'd throw in the Rowdy Consigliore's two-cents on the recently filed discrimination suit against NASCAR by a former official, Mauricia Grant. I've been in on some harassment defense work before, and can tell the Rowdy nation the following:
1. Why did Ms. Grant wait so long to file suit? Well, in people time, 8 months seems like a long time. But, in lawyer time, 8 months is the blink of an eye. My guess would be that the following happened immediately after Ms. Grant was fired: (1) Grant consulted an attorney or the Equal Employment Opportunity Commission ("EEOC") about her claims; (2) under either case, the attorney or the EEOC investigated Ms. Grant's claims, making NASCAR aware of the essential allegations; (3)(a) if Ms. Grant went to the EEOC, the EEOC said that they didn't have enough information to determine whether Ms. Grant had a case and issued what is called a "right to sue" letter to Ms. Grant, or; (3)(b) NASCAR refused to settle with Ms. Grant's attorney on the terms provided by the attorney, then Ms. Grant and her attorney went to the EEOC and obtained a right to sue letter; and (4) Ms. Grant filed suit against NASCAR. For this process to only take 8 months is actually pretty fast in lawyer time.
2. Should NASCAR investigate? They already have. I can guarantee you that an organization that is as large and with the resources of NASCAR investigated this thing to death as soon as Ms. Grant's attorney or the EEOC made NASCAR aware of Ms. Grant's claims. That NASCAR is allowing this suit to be filed (and didn’t settle quietly) shows that NASCAR is at least fairly confident that Ms. Grant's claims are overblown.
3. What about Ms. Grant's claims...aren't they really bad? Yes, they are. No doubt about it. But I can tell you that when you really parse out the goings on of everyday life (or pay an attorney to do so for you) you can make a lot of things sound really bad. Just imagine if someone with an agenda described the way you talk to your friends or family in a long, drawn out way similar to a lawsuit complaint. It would really be startling. I'm not saying that the allegations made by Ms. Grant in her complaint are to be down-played at all...I'm just saying that sometimes what comes out as a joke or messing around can later be spun to serve an agenda.
4. Are Ms. Grant's allegations harassment? It depends (that's a lawyer's answer for you). The bottomline of harassment is unwelcomeness...if a gesture or touching or something said is unwelcome by the person on the receiving end, then it's harassment. If it's not unwelcome, then it's not harassment. The court can only look back and try to determine if things were unwelcome or not. For instance, NASCAR will say that Ms. Grant didn't make it known that calling her names or saying things detailed in her complaint were unwelcome in her eyes (she didn't complain to her boss while she worked for NASCAR, etc.). Ms. Grant will say that it was unwelcome but she didn't say anything because she feared for her job. Whoever is more credible will win.
5. Will NACAR be held liable for the alleged harassment of Ms. Grant? It depends (another lawyer’s answer). Basically, NASCAR is liable for the conduct of its employees in the harassment context if it knew or should have known about the harassment and failed to take reasonable steps to address it. As I said, the minute NASCAR found out about Ms. Grant’s allegations (probably right after she was fired) they would have investigated. They probably found out that Ms. Grant never complained while she was working for NASCAR, and so NASCAR probably thinks it has a good argument for why it should not be held liable for the harassment perpetrated by its employees.
6. Will Ms. Grant really get $250 MILLION bucks? No. I can say that unequivocally without really knowing anything about the case. First, under Title VII of the 1964 Civil Rights Act (the federal law that prohibits sexual and racial discrimination) there are damages caps depending on the size of the defendant. NASCAR probably is in the largest category…and so the damage cap is $300,000. This cap does not include related state-law claims which Ms. Grant has no doubt alleged as well…so the total can be higher than $300,000. But, even the most egregious fact patterns that go to jury produce a few million dollar awards at most. Any higher and they usually get reduced on appeal.
7. What happened? From reading the complaint and seeing these cases go down…my guess of what happened is the following: While Ms. Grant worked for NASCAR she was on the receiving end of some stupid and objectively inappropriate remarks made by her fellow officials. She probably didn’t say much about it, took it in good fun, and generally was okay with it. It’s probably likely that every once in a while a remark would cross the line and Ms. Grant would be offended, but probably didn’t say much if anything to anyone for it to be redressed. In the eyes of NASCAR, Ms. Grant probably did something worth being fired over. And who knows, maybe if we knew the facts or were at the ground level we would think the same thing. In any event, Ms. Grant was fired and didn’t like it…so she remembered everything that was ever said to or about her and lawyered up. Her lawyer took one look at the allegations, one look at the deep-pocket defendant, and made tried to go for the gold. NASCAR’s lawyers probably wanted to quietly settle for a reasonable sum before all of this became public…but Ms. Grant’s attorney probably was asking for a lot more than NASCAR was willing to give. So there you have it…NASCAR wanting to settle for X and Ms. Grant wanting X + Y…a classic impasse. Now that litigation has been initiated, the sides will jockey for position and then settle when one side realizes that the other side has the weight of the law and facts behind it. I can guarantee you that NASCAR won’t want its officials deposed (and that deposition becoming public record) about the junior high-esque antics that likely reign supreme in the NASCAR garage on race weekends.
Well…that’s all I can think of. Hopefully this is enlightening if not a giant waste of your time.
Another Dale Jr. Blog?
I thought of something strange while watching the anthem being performed at the 600...you know, when all you see on the screen is various shots of the drivers with their wives or girlfriends (who all happen to look the same).
So anyway...I was thinking, how come we never see Dale Jr. with a girl? I think the most plausible, and thus most likely explanation, is that Dale Jr. keeps his forays with the opposite sex under tight wraps. You can imagine with his fan base the kind of scrutiny such a relationship would engender. It also doesn't hurt him to maintain an air of bachelor-hood for PR reasons.
But seriously, what's the deal? Does Dale Jr. date? Does he have an arranged marriage setup in several years? I mean...I'm not much of a Jr. fan but through the NASCAR media I feel like I know everything about the guy...except this.
Anybody know?
Got Married
Hey Rowdy Nation. I got married on April 26th to my now wife (still sound weird to say that), Julie. Wedding was in Chicago and honeymoon was in Mexico. The experience was totally insane and my head just stopped spinning (five gallons of margaritas in Mexico helped).
Anyway...I'm not real tech savy with adding pictures and I actually don't have good electronic copies of pictures yet, but if interested you can go to this link and admire the work of our awesome photographer right on the front page. He made a picture of Julie and I the backdrop of the site.
http://www.studioonedesplaines.com
Alright...just wanted to make that announcement as I get back into the racing world from about a two week hiatus.
Thanks.
An Ode to Sam Hornish
With Penske's hiring of David Stremme comes various theories regarding the future of one Mr. Sam Hornish, Jr., Defiance, Ohio's first citizen. Here are my two cents:
1. Penske has been talking about starting a testing team for months. It makes good sense for a well-heeled race team to have a testing team...takes pressure off of your race teams to test and allows your crews to focus on race prep. They do testing teams in F1 and MotoGP, and you can't argue with the results derived from the focus on testing that Carl Edwards and Roush took last season. Given the propriety of starting a testing team, a driver was needed. Why not David Stremme? He already has experience in Dodge Cup cars; he's a clean cut well groomed "Penske Type" and he doesn't have much else going on.
2. Sam is doing the best of the open-wheel converts (save JP) to NASCAR. He fell out of the Top-35 for one race so far, and qualified pretty easily for that one race. He's back in the Top 35 and had a solid run last week at Phoenix (20th). He hasn't missed a race this season, and in fact, would not have even needed his Kurt Busch owners points for the first five races of the season. He's certainly not lighting the world on fire, but he's holding his own as a rookie in Sprint Cup. Don't forget: INCLUDING THIS YEAR, SAM HAS RUN A TOTAL OF NO MORE THAN 20 STOCK CAR RACES IN HIS ENTIRE CAREER. 20! 20? Yes, 20. I'd say he's doing pretty well for a guy who has run 20 races in his entire career when you think that the guys he's racing with have run probably 20 times that number in their careers.
3. Sam ain't going back to the IndyCar series anytime soon. He might run the 500 this year, he might run it in future years, but he won't be back full-time in Indycar. First, Roger Penske has no interest in running more than two-car full season complement of cars in Indycar. His sponsor, Marlboro, actually won't allow it. Second, Sam came over to Cup because he lost interest in Indycar and had some serious beef with the way in which the series was being marketed. Given, blendification has changed the paradigm, but; until Indycar becomes a serious contender to NASCAR, I don't see Sam wanting to go back except to run the 500.
4. Roger Penske is notoriously loyal to the drivers he likes. It has been reported that Roger loves Sam more than any driver he's previously had. Now you're talking about a Roger Penske who has built excellent relationships with guys like Mark Donohue, Rick Mears, etc...Sam is Roger's boy. Business decisions aside, Roger would be hard-pressed to get rid of Sam for at least three years or so, unless Sam starts missing races regularly.
So, given all this I think we can draw a few conclusions.
1. Hiring David Stremme was a planned move and would have happened whether Sam was in the top-12 or failed to make races.
2. The David Stremme move may allow Sam to run the Indy 500.
3. Neither Roger Penske nor Sam have any intent to return to Indycar racing (save the 500) in the next three to five years.
4. Sam has not lit the world on fire, but all in all has been doing decently in his rookie campaign.
5. Perhaps the real reason for the Stremme hire is an anticipated separation with Ryan Newman...don't forget, Roger Penske doesn't just do things...everything happens for a reason at Penske Racing. Just look at the way Penske brought Ryan Briscoe up in to his ALMS program to groom him for Sam's ride in Indycar this year.
CLINT'S SHOUT BOX
07/17/2008 Hi Clint, thanks for the reply, I agree with you on the Fairfat, however, I think something has to c...
06/24/2008 Hey Clint, Don't know if you remember me, but we spent some time talking about all the legal stuff w...
04/17/2008 Cheese = Love and I always get the double cheese.
Game Challenges
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