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NASCAR moving closer to team budget cap

Facing downturns in audience and sponsorship, NASCAR might soon do something that once seemed unimaginable: Institute a budget for teams.

Monster Energy NASCAR Cup Series Brickyard 400 - Practice Photo by Brian Lawdermilk/Getty Images

Across the professional sports landscape financial mechanisms are used to prevent stick-and-ball teams from spending themselves into oblivion while at the same time leveling the playing field to improve competition.

Not too long ago the notion that a salary cap or luxury tax similar to what Major League Baseball, the NBA, NFL, and NHL utilize could ever be applied to NASCAR would’ve induced laughter and eye rolls. Teams, after all, are regarded as “independent contractors,” essentially separate business entities who even though they share certain revenue streams are still autonomous of one another and keep their respective financial records private.

But what if NASCAR, at a time when costs to compete remain astronomically high while television ratings and attendance are flat, implemented a cap or tax akin to what other sports leagues have in place? Perhaps this would serve as the conduit to overcome the financial gulf brought about by Corporate America not as enamored with NASCAR as previously.

Once an idea that would’ve been soundly dismissed, it’s now being seriously considered. NASCAR and its teams have had multiple discussions about such an idea, and the consensus among the multitude of NASCAR executives, team owners and executives, drivers, and manufacturer representatives that SB Nation spoke with is that while a budget cap won’t be instituted in the immediate future, it is likely to come within the next three to four years.

The exact framework of the budget cap is still being crafted, but a rough outline has emerged that will serve NASCAR and its teams on two primary fronts: 1) It will help teams reduce and better manage operating costs that are no longer practical in an economic climate where teams face a sponsorship deficiency, and 2) A way to induce better competitive balance and bridge the gap between the powerhouse organizations and the minnows.

“For any professional sport to be viable long term, it needs to be a reasonable business to the team owner,” Chip Ganassi Racing co-owner and Race Team Alliance chairman Rob Kauffman told SB Nation. “You look at football, baseball, English football, Formula One, and there are a variety of models and ways — some more successful than others — to make that happen. NASCAR is no different.

“Part of trying to have a reasonable business, revenues and costs have to balance. In general, revenues within [NASCAR] are not going up and like in any business, you have to address your costs.”

What is covered under the budget cap remains undecided, though it is unlikely to encompass salaries for drivers or even key high-level team personnel. Under the most-often-discussed proposal, teams would have a yet to be determined dollar amount that could be allocated toward engineering, research and development, equipment, and crew members who travel to races.

Due to competitive reasons and teams not wanting to reveal trade secrets that may be the difference between winning and finishing 30th, independent auditors would be assigned to monitor and examine each team’s expenses. A hard budget cap wouldn’t go into effect immediately, instead gradually to allow time to make appropriate tweaks as necessary and for teams to adjust to the new rules without incurring a penalty. Formula One is mulling a similar proposal that would limit teams to a budget between $116-174 million and go into effect beginning in 2019, according to Auto Motor und Sport.

“A cap of some sort is something this sport badly needs if it’s to remain financially sustainable,” a team executive told SB Nation on the condition of anonymity. “We’re making gains to get to that point and hopefully we can get there soon, because we absolutely need to find a way to get this done. If it were up to me we’d have this done already.”

That NASCAR is open to a budget cap would’ve been unheard of 15 years ago when North America’s top racing series was rivaling the NFL in terms of popularity. Money flowed freely into the sport with teams flush in capital to the point little thought was given that eventually the well may dry up.

Times, however, have changed within NASCAR. Stemming from its declining popularity, a seismic economic shift has taken hold where teams are slashing budgets and scrambling to fill the void created by the significant lack of funding inflicting nearly every organization. The transformation has spurred not only new business models but changed the relationship between the sanctioning body and its teams, and the teams with one another.

Although each organization is still regarded as an individual company, over the last few years they have formed a coalition, the RTA, featuring a majority of the top teams that now meets with NASCAR to discuss cost reduction, proposed rule changes, and assorted industry initiatives. In conjunction with the RTA, NASCAR instituted a charter system prior to the 2016 season that is essentially the equivalent of a franchise in other sports and provides teams some level of financial stability with the ability to know to some degree what revenue it will generate on a year-to-year basis.

As evident by its acceptance of the RTA, the heavy-handed way of ruling that was NASCAR’s guiding axiom for 60-plus years has been replaced by an era of cooperation in which NASCAR executives and officials regularly meet with and work hand-in-hand with team owners, drivers, and other partners to find common ground. That collaboration is directly attributed to the conception and introduction of the stage-racing format introduced last year, which received widespread praise throughout the industry and is credited with improving the on-track product.

And yet despite several cost-saving measures, many teams are still feeling the financial squeeze. A problem accentuated by the recent retirements of several star drivers — Dale Earnhardt Jr., Carl Edwards, Jeff Gordon, Matt Kenseth, Danica Patrick, and Tony Stewart — and a Cup Series entitlement sponsor, Monster Energy, signing on last year for notably less than its predecessor, Sprint, was paying yearly.

“If you want to run up front you have to spend some money,” Furniture Row Racing owner Barney Visser told SB Nation. “It’s just a tough business right now.”

While many spoke optimistically about the positives a budget cap would bring, there are some who have reservations. And there is a contingent who are not at all enamored with the idea.

Among the hurdles is the feeling that ingenuity — a pillar of motor sport — will be stymied with teams unable to direct resources to these areas unabated. Fostering a belief that NASCAR could evolve into a glorified modern-day version of the International Race of Champions where drivers competed in identically prepared cars, albeit a series where mechanical know how and creativity were stifled.

There is also a concern that team owners could find and exploit loopholes via their outside business interests. For example, it is conceivable a team owner could classify a race team employee as a worker at, say, an automotive dealership when in fact that person is involved in dealings specific to NASCAR. While the independent auditor would have privilege to scrutinize expenses related to a team ownership, an owner’s other business activities would be off limits.

“I have heard a lot of talk about it, but I’m not a big believer in it,” Brad Keselowski told SB Nation. “All it does is make a bunch of accountants rich and probably not make much of a difference with the racing. You can’t manage it, you can’t police it without spending a fortune on accounting. I don’t think that’s the right answer.”

How NASCAR would navigate the delicate dance of protecting proprietary information specific to manufacturers and adhering to the budget cap is another question frequently brought up by those SB Nation spoke with. Chevrolet, Ford, and Toyota would each need to be comfortable divulging company data that otherwise is kept closely guarded for the betterment of a sport they’re trying to dominate. In some instances that would be acceptable, other times there would trepidation, a manufacturer executive told SB Nation on the condition of anonymity.

Then there is the issue of parity and whether a budget cap will really improve competition. Regardless of the sport and the measures taken to ensure competitive balance, there are always some teams who find ways to excel and some that continually stumble.

All questions without definitive answers, all of which must be answered before a budget cap becomes an actuality. But make no mistake, the process is in motion with a realistic chance that within a few years NASCAR team executives will find themselves having to manage the cap like their contemporaries in other sports.

“It’s much more complex in racing,” Kauffman said. “In stick-and-ball sports, most of your costs are players. Here, players are important but there is also a lot of stuff — cars, haulers, manufacturers involved in various levels of support. There are a lot of moving pieces; a lot of unique things in motor racing that make it a little harder.

“But, it’s certainly worth talking about and trying to get a handle on.”