Will a new charter agreement pave the way for more private equity investment in Nascar?

The uncertainty that has engulfed Nascar over the past two years took a significant step towards being resolved over the weekend when most of the Cup Series teams agreed to the new charter proposal.

That said, there are still negotiations to be had with Michael Jordan’s 23XI Racing and Front Row Motorsports, who broke rank with the rest of the field by refusing to sign the deal. With the playoffs now underway, Nascar executives will want a quick solution to ensure that off-track politics do not overshadow the postseason.

Negotiations over a new revenue agreement have dragged on behind the scenes since the beginning of the 2022 season, and the lack of clarity that preceded last week’s breakthrough has proved to be a major barrier to private equity investment in the series.

Many private – and some public – disagreements now appear to have passed, so a conclusion – when it is eventually reached – will be welcomed by both sides. It will also provide a clearer picture of Nascar’s future to the private equity firms circling the stock car racing series, even if the agreement hasn’t secured unanimous buy-in from the teams just yet.

It is understood that the new charter agreement is for a seven-year term with the option for a further seven years. While it doesn’t quite meet the teams’ demands for permanent charters, the deal at least offers some stability.

But the true hurdle to private equity investment will be the terms that sit within the contract, rather than the agreement of the contract itself. If teams have agreed to a spending cap as part of the agreement, then more firms could feel emboldened to invest in the series.

Knocking on the door

Private equity investment is increasingly common in sport in North America, where the National Football League (NFL) recently became the last of the men’s US major leagues to allow institutional investment in its franchises.

However, the NFL, and indeed other leagues, has put strict parameters in place, including any potential stake sales to private equity firms being capped at ten per cent and sovereign wealth funds being barred from investing. Nascar is likely to have written a similar set of regulations within its new charter agreement to limit the influence of external investors.

Until those are concrete, however, some investors might refrain from making firm commitments to the series. Even so, this hasn’t prevented external investment becoming tangible in recent years.

Just two months ago, Marc Lasry’s Avenue Sports Fund (ASF) secured what was described as a ‘significant minority stake’ in Trackhouse Entertainment Group, the parent company of the Trackhouse Racing team that competes in both Nascar and MotoGP.

Joe Gibbs Racing also received external investment from Harris Blitzer Sports and Entertainment, with Arctos Partners also involved in the deal. RFK Racing also count Fenway Sports Group as one of their co-owners.

But in the case of Trackhouse, for example, it could be argued that ASF’s investment is more focused on the potential growth of MotoGP following its acquisition by Liberty Media. As Nascar continues to operate without a spending cap, private equity interest will likely continue to be inconsistent.

Why a spending cap could drive investment

One only needs to look as far as the interest being shown in Formula One to see the benefits of introducing a spending cap.

Back in June last year, RedBird Capital Partners and Otro Capital joined forces to acquire a 24 per cent stake in the Alpine Formula One team. As is becoming more and more common with private equity investment, the deal was fronted by famous faces – in this case Ryan Reynolds and Rob McElhenney.

Fast forward to November and Aston Martin received a minority investment from Arctos Partners, something that Jefferson Slack, the team’s managing director of commercial and marketing, told BlackBook Motorsport was designed to help the team compete with the best.

Daniel Etna, co-chair of the sports law group at New York-based law firm Herrick Feinstein, believes Nascar teams could achieve a similar run of investment if the process is managed appropriately.

“Right now, you’re starting to see more and more interest from private equity funds, but I think in order for this to make sense going forward, you’re going to need the Nascar governing body to have a little more authority,” he tells BlackBook Motorsport.

“It can’t be that you bring in some foreign wealth management fund and spend without concerns … I think that’s one of the growing pains that Nascar will have to deal with, finding out a way that you’re not in a situation where you have the haves and the have nots.”

Nascar executives are mindful of ensuring the series delivers a level playing field. This was partially achieved with the introduction of the Next Gen car in 2022, although just three drivers from the smaller two-car teams qualified for this year’s postseason.

How will Nascar team ownership structures look in the future?

Nascar’s ability to preserve that level playing field could be challenged by the introduction of private investment, so the series needs to ensure that there is a framework in place to prevent its competitive balance from being compromised.

In terms of how things could evolve, Etna can’t see major changes being introduced.

“You’ll probably have a small existing ownership group and you’ll have a private equity fund, or two or three, that will address the ongoing funding needs,” he considers.

“You’ll probably incentivise certain management team members by having them have some sort of piece of the equity roll. But I don’t see any mass ownership by the population at large.

“I just see this like private equity want to get in [and] make sure they can achieve their agenda, whether it’s through making sure they have management rights or blocking rights.”

Until the details of the charter proposal are revealed, though, much of this remains unknown. But reports suggest that the introduction of a cost cap and allowing private equity firms to invest into a charter were agenda items during negotiations.

The latter would be a considerable change to the way Nascar operates as there have been strict rules around who can own charters.

“Private equity funds [are] only as smart as the people that work for them,” Etna states. “I’m not quite sure how you legislate this, but I would think the governing body would want to have some sort of assurance that you’re not just having somebody come in that has a big pocket of money.

“You’d have somebody that’s part of that team, that knows which wrenches to turn [and] which bolts to replace.”

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