Michael Jordan Could Save NASCAR From Itself

(Bloomberg Opinion) --Michael Jordan isn’t accustomed to losing championships. So it surely came as a disappointment to the National Basketball Association Hall of Famer when 23XI, the NASCAR team that he co-owns, lost the Cup Series Championship on Sunday. But Jordan isn’t done competing for NASCAR wins.

Last month, 23XI and another team, Front Row Motorsports, filed an anti-trust lawsuit against NASCAR and its chairman, Jim France, Jr. They accuse the association of monopolistic, bullying behavior that enriches NASCAR at the expense of its teams and the sport of stock car racing.

What they’d like is a sports organization that treats team owners like equal partners and encourages investment and competition. If Jordan and his fellow plaintiffs succeed, they might just save NASCAR from itself.

On the surface, it may not seem so. This year, under the terms of its current media rights agreement, the association will have received $820 million from broadcasters — its largest source of revenue. Of that, the best-performing teams earned around $8 - $10 million per car (and enjoyed additional prize money), and the poor performing teams earned half that, according to Sports Business Journal.

The problem is that it costs around $18 million a year for those top-performing teams to run a single car. Historically, teams made up the difference with sponsorships, but competition for those has become as fierce as what happens on the track. The New York Times reported earlier this year that most NASCAR teams are losing money.

Blame for these losses comes down to NASCAR’s unusual relationship with its teams. Unlike, for example, the NBA, which grants permanent franchise status to its teams, NASCAR teams are independently owned businesses that lack agreements guaranteeing their everlasting right to compete in the association’s races.

Instead, they have had a charter contract since 2016. The first one lasted for nine years and the latest one will be in place for seven years, starting in 2025.

While the system grants teams automatic entry into NASCAR Cup Series competitions and shares in the prize money, the bad outweighs the good. Charters expire and can be revoked if a team finishes in the bottom three of the standings three years in a row.

Predictably, the ranks of investors willing to buy into an impermanent sports team are thin. Since 2016, 11 NASCAR teams have shut down, merged or gone bankrupt. Those disappearing teams undermine the quality of competition and ultimately erode business relationships and fanbases. Between 2015 and 2019, NASCAR’s average viewership dropped from 4.6 million to 2.92 million and hasn’t moved much since. It’s no wonder sponsorships with consumer brands have been hard to come by.

No other sports league would tolerate such extreme team and viewership losses, especially over such a short period of time.

To its credit, NASCAR has acknowledged that its teams are losing money, and that it needs to address the problem. A new seven-year, $7.7 billion media rights package — a nearly 40% annual increase over the previous deal — that begins next year will help. It’s also spent more than two years negotiating a new and revised charter agreement that boosts revenue sharing. Actual details haven’t been released (and are unlikely to be), but it’s undoubtedly a big step.

Still, NASCAR can’t hope to thrive if its teams don’t have long-term stability to offer investors. Few sports are more dependent upon technology and innovation, and both cost millions. During negotiations over the new charters, permanent charters were reportedly the top demand of NASCAR teams, even above better revenue sharing. Yet NASCAR, historically reluctant to relinquish control and power, refused to do it. The new charters will emulate the 2016 ones and last only as long as NASCAR’s media deals (in this case, until 2031).

What could’ve been an agreement to incentivize more investment into NASCAR instead became an agreement that leaves investors wondering if they’ll walk away with much of a profit after the charters expire.

In theory, dissatisfied teams could choose to race elsewhere, at least during the NASCAR off-season. But according to Jordan’s lawsuit, the new charters bind teams to NASCAR and its tracks, thereby preventing them from competing elsewhere, even during the NASCAR off-season. If true, it’s an anti-competitive stance that restrains investment in the sport of stock car racing elsewhere, too. Nonetheless, 13 out of 15 NASCAR teams signed onto the new agreement in September. Reportedly, NASCAR threatened to revoke teams’ charters if they didn’t.

Two of them — Front Row Motorsports and Jordan’s 23XI — thought it was worth the risk. Along with permanent charters, they are seeking monetary damages, documents and other information on NASCAR’s business practices and an injunction allowing them to continue competing as chartered teams while the lawsuit proceeds. NASCAR called the lawsuit “meritless” in a filing, and on Friday, that last item was denied by the judge. So, if 23XI wants to race in 2025, it will probably have to go through the trouble of qualifying for open slots at individual races.

That’s a temporary win for NASCAR, but Jordan isn’t likely to let it be the last word. American sports is rife with battles over monopolistic behavior, and over the decades, the general trend is that teams and players — not leagues — win and accrue power. NASCAR’s unwillingness to grant permanent charters pushes against that trend, the long-term business interests of NASCAR’s owners and stock car racing.

Rather than continuing to fight Jordan (and history), NASCAR should consider whether permanent charters could lead to more investments. A legal settlement along those lines could fast-track teams and their sanctioning body into the victory lane.