Formula One
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NASCAR vs. Formula One: The business of racing explained

NASCAR vs. Formula One: The business of racing explained

NASCAR, the most popular racing series in the U.S., has very little in common with the most popular racing series on the planet, Formula 1. NASCAR circuits are typically oval, while F1 circuits are road courses featuring a combination of twisty bits, fast turns, and long straights followed by heavy braking zones. F1 circuits include purpose built race tracks and converted street circuits.

NASCAR’s “stock” cars resemble street cars, even though beneath the skin they are anything but: they are purpose built racing machines. F1 cars are exotics that mimic nothing that has any practical use on the highway.

 Formula 1 has a very corporate business model with a regulatory structure that is complicated to the point that only insiders really understand the arrangements. 

NASCAR is mostly a domestic U.S. series, with occasional forays into Canada and Mexico, but F1 is decidedly international.

I must confess, I like both series. I last attended an F1 race in Montreal, 2010, but I also went to Talladega last October with my British friend, Simon Topham, a first time stateside visitor. I enjoyed both events immensely. In Montreal, I stayed in a four star hotel, ate expensive meals at top restaurants, and sat in the grandstands at the Senna hairpin. At Talladega, I slept in an RV, cooked BBQ on the grill, and drank beer with strangers who became friends by Sunday afternoon. I know there are fans who will argue for hours about the merits of both series, but I have no time for that. I do, however, find comparisons fascinating.

A comparison between the business models employed by the two series has always interested me. After all, racing is much more than a competition, it is a huge busines, and the business models  are as different as the cars themselves.

NASCAR is a family owned business started by Bill France in 1948. The current CEO is Bill’s grandson, Brian France. NASCAR is responsible for all aspects of the business. This includes contracts with television and radio broadcasters, circuit owners, title sponsors, and the teams. It is truly one-stop shopping with regard to the revenue streams available. They also are the rule-making body: NASCAR formulates all sporting and technical regulations concerning the sport. Some people are critical of NASCAR's unlimited control. The rules are not frozen, but instead seem to morph when circumstances require the attention of the sanctioning body. Some argue that the flexibility improves the racing, while others argue that NASCAR changes the rules to further their commercial interests. I have no point of view regarding that issue, but the fact that the commercial agent is also the rules maker and enforcer does suggest a conflict of interest.

Another contentious issue is that 19 of the 36 NASCAR events are contested on tracks owned by corporations controlled by the France family. International Speedway Corporation is controlled by the family via their 33% stake in the publically traded company. Some consider the families’ involvement to be an antitrust issue, although no judge has agreed.

On the other hand, Formula 1 has a very corporate business model with a regulatory structure that is complicated to the point that only insiders really understand the arrangements. Without going into the indecipherable ownership structure, I can describe the governance of the sport.

Formula 1 is controlled by three different bodies:  the FIA (Federation Internationale d' Automobile), FOM (Formula One Management), and FOTA (Formula 1 Teams' Association).

The FIA is the rules-making and enforcement arm of the series. They codify the regulations, provide marshaling and stewardship of the events, and have no direct commercial interest in the sport. They are responsible for compliance of all rules including circuit approval, race drivers' license, on-track enforcement, team and driver sanctions, financial penalties, and anything else that is regulation oriented. The decisions made about the technnical and sporting direction of the sport are often controversial.

FOM is responsible for the commercial interests of F1; they are the “business” of F1. FOM is focused on maximizing income from the event fees, television contracts, merchandising, product endorsements, and track-side advertising. Their business is the business of making money. FOM owns the commercial rights to F1 due to a 100 year contract with the FIA, a contract bought for only $100 million USD. Imagine that, a business that grosses $3 billion dollars a year sold for a fire sale price. Does anyone think of the term “insider trading”? We’ll talk about that another day.

FOTA is the team owner’s association. They are organized to speak with one voice when dealing with the FIA and FOM. The team owners are independent of the FIA and FOM. Many teams are manufacturer supported and others are independent operators who align themselves with manufacturers for essential equipment, especially engines and gearboxes. Their income is derived from individual product sponsorships (essentially advertising), financial investors, and their share of the television earnings.

The groups conduct their business through a secretive contract called the “Concorde Agreement.”

Whether good or bad, Formula 1 is a very complicated international corporate business and employs a very different business model than NASCAR. NASCAR is a finite operation controlled by a well-defined group of people: a family owned organization that has complete control over 100% of the operations.

Formula 1 is a diverse operation composed of a group of corporate entities that use contractual leverage to maximize their participation in the sport. The relationships are complex and obscure to the general public. It is an international business with a defined corporate structure and culture.

I don’t have an opinion regarding which model is preferable. I find merit in both approaches. The comparisons are fascinating to me both on the track and in the boardroom. What kind of racing do you prefer? Please share your point of view.

Austin Photo Set: News_John Flood_nascar vs formula one_August 2011_fia