Originally created 03/06/03

RJR's decision to leave NASCAR leaves some mystified



CHARLOTTE, N.C. -- For 33 years, R.J. Reynolds and NASCAR have gone together like fast cars and Victory Lane.

Just a year after signing a five-year deal to keep its Winston brand as the title sponsor of the world's premier stock car racing circuit, the cigarette-maker has given NASCAR permission to find another backer.

RJR says the reason is simple.

"Look at our most recent earnings release," said Ned Leary, president of RJR's Sports Marketing Enterprises.

The cigarette maker reported losses of $59 million in the fourth quarter of 2002.

The reversal seems less obvious to others.

"The rest of us in the industry are scratching our heads over this," said Dean Bonham, who heads The Bonham Group, a Denver-based sports marketing firm. "There is categorically not a better marketing platform for RJR than NASCAR."

The company spends an estimated $15 million to $40 million annually on the NASCAR sponsorship in a business that is inherently volatile.

Bankruptcy turned Houston's Enron Field into Minute Maid Park nearly overnight, and some events seem to have a revolving door when it comes to title sponsorship.

But the 33-year relationship between RJR's Winston brand and NASCAR has long been viewed as a gold standard in sports.

Decades before title sponsors and stadium naming rights deals became ubiquitous, RJR began pouring big money into the then-regional sport of stock car racing. Few of today's race fans even remember when its top circuit was known as the Grand National rather than the Winston Cup.

RJR and NASCAR have enjoyed a particularly close relationship, with the sanctioning body earning a reputation as one that ensures its sponsors derive value from the sport.

But in the five years since the states and major tobacco companies signed a $246 billion master settlement of lawsuits against the industry, many have foreseen NASCAR and RJR going separate ways.

"It is certainly no secret that new regulations mandated on tobacco companies have made it more difficult for tobacco companies to market their products, whether in the regular marketplace or the sports marketplace," NASCAR spokesman Jim Hunter said Wednesday. "There are certainly more restrictions than ever before on what Winston can and can't do at a NASCAR event.

"In light of the fact we have always had such a special relationship with Winston, we have certainly been sensitive to the many issues tobacco has faced over the years."

Under the settlement, each tobacco manufacturer is allowed one brand name sponsorship per year. But the agreement severely restricts use of the sponsorship.

For example, while a company such as Visa is allowed to bill itself in ads as NASCAR's official credit card, R.J. Reynolds may not refer to its Winston Cup sponsorship in advertising its cigarettes.

And while it's no problem for Jeff Gordon to plug a sponsor with a post-win swig of Pepsi, it would be unthinkable for a driver to light up a Winston after taking the checkered flag.

"Certainly the tobacco industry has some extraordinary pressures and regulations on it today," said Max Muhleman, head of Charlotte-based Muhleman IMG Marketing. In that sense, he said, R.J. Reynolds' departure "isn't shocking."

Still, Chicago sports marketer Marc Ganis is among the mystified.

"It's a bit baffling," he said. "Cigarette companies have very limited mass-marketing opportunities. ... They've become synonymous with NASCAR, and NASCAR is the fastest-growing major sport."

Leary insists RJR is not pulling out because the sponsorship is ineffective. In 2001, Winston was the No. 6 cigarette brand nationally, with a 4.8 percent share of the market.

"Our Winston brand enjoys five times the share among adult smokers who are race fans than we do in the general market," Leary said. "But the business changes we went through last year were very dramatic. They have made this business much more competitive at retail."

Winston Cup car owner Felix Sabates understands.

"In California, you can't even smoke in public anymore," he said. "I quit smoking, my friends quit smoking. It's hard to find anyone anymore who smokes. The environment is changing and RJR is betting it is only going to get worse in the next five years."

RJR's departure may not be entirely bad news for NASCAR, which is increasingly aiming its product at young fans - a market segment RJR is barred from targeting under the settlement.

The big question is who will replace RJR.

Ganis, of Chicago's Sportscorp Ltd., leans toward traditional mass marketers, particularly those with a large presence in NASCAR's southeastern stronghold, such as Home Depot or Coca-Cola.

But what would happen if the Home Depot Championship Series stops at Lowe's Motor Speedway? Or when the Coca-Cola Challenge comes to Daytona in July for the Pepsi 400?

Bonham believes a financial services or high-tech company would be well-served by the association with NASCAR, which would offer a chance to interact with potential customers in a sophisticated way.

"It's a complex message that financial institutions are trying to disseminate to their customers," he said. "It's not easily done through traditional advertising; it's done through sponsorships."

The sponsorship's magnitude might also be a problem for some companies. Proctor & Gamble's Tide detergent has sponsored a NASCAR team for years, but it would be hard for a conglomerate such as P&G, General Mills or Kraft to justify lavishing the series sponsorship on a single brand out of a large stable.

Many speculate that NASCAR will want to avoid revolving-door sponsors and will rename the series after a racing figure such as Richard Petty or the late Dale Earnhardt. The series could then be "presented by" a title sponsor.

Such a move, however, would make it easier for media coverage to drop the sponsor's name, and Ganis considers it unlikely.

"They (NASCAR) would be leaving a lot of money on the table - easily half the value or more of the sponsorship - if you don't actually name it after the product," he said.

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Associated Press Jenna Fryer contributed to this story.