Takeovers, Mergers Take Their Toll, Too : Dependence on Corporate Sponsors Can Often Leave Sports Vulnerable

What’s a little old $100 million or so when you’re talking $25 billion ?

Not much, perhaps, unless you are one--or all--of the sports sponsorships that are part of the massive RJR Nabisco, Inc. special events marketing program, and you know that the largest leveraged buyout in financial history by Kohlberg Kravis Roberts & Co. will eventually lead to drastic cuts in the budget.

It has been business as usual for Sports Marketing Enterprises, Inc.--the company created last year within RJR to handle all major sports sponsorships--since Henry R. Kravis and George R. Roberts completed the takeover last December. Still, it has been an uneasy time.

What put sports executives’ and competitors’ on edge was a comment in Business Week attributed to J. Paul Sticht, who was acting as interim chief executive officer until a permanent one was named by the new owners, in which he referred to the sports-marketing program as “all fluff.”

If it is fluff, it’s widespread. And expensive.

Sports Marketing Enterprises has tentacles in NASCAR stock car racing, where it all began with a $100,000 point-fund investment in 1971; sports car racing, drag racing, dirt track motorcycle racing, motocross, professional golf, men’s tennis, sailing, air races, unlimited hydroplane racing and soccer.

“We won’t really know what is going to happen until the new CEO (chief executive officer) comes on board April 3 and we know how much, and what, is going to be sold off,” said Nat Walker, director of public relations for Sports Marketing Enterprises. “We know that we are one area, along with others, that will be looked at, but it’s hard to believe, with the success we’ve had, that there could be significant changes in motor sports.”

Louis Gerstner, president and operations officer of American Express, was named last Tuesday as the new CEO.

The first significant cutback occured Tuesday March 1, when the multimillion dollar smokeless cigarette Premier product program was scuttled. Premier had been the sponsor brand for the men’s senior golf tour, but all 1989 involvements of about $4 million in bonus point funds, tournament purses and electronic scoreboards will be met through the RJR banner. Thus, the Premier Cup series will become the RJR Cup series and the Premier Championship tournament will become the RJR Championship.

Rumors are also persistent that some food products will be sold off to meet Kohlberg Kravis Roberts & Co.’s enormous debt within the next year. Most heavily involved if that occurs could be golf, in which Nabisco is the major sponsor of the men’s tour and of the Dinah Shore tournament, richest on the women’s tour.

The Dinah Shore tournament and women’s golf have felt the impact of changing CEOs before. When David Foster was in charge of Colgate, he developed an interest in women’s golf and pumped millions into the LPGA with a worldwide program that included the Colgate European Open and the Colgate Far East Open, as well as the rich Dinah Shore.

When Foster was ousted as CEO, however, the new management at Colgate dropped golf. Only the Dinah Shore tournament survived, with a new sponsor in Nabisco Brands, which later merged with R.J. Reynolds Tobacco Co.

A leveraged buyout by Kohlberg Kravis Roberts of Beatrice Industries in 1986 was tough for motor racing. As CEO at Beatrice, James Dutt put together one of the most lucrative sponsorship deals in motor racing history with Lola distributor and car owner Carl Haas for not only an Indy car program involving Mario Andretti, but also a start-from-scratch venture into Formula One.

When Dutt was ousted in the takeover shuffle, so was the racing program.

The R.J. Reynolds excursion into sports began in late 1970, when company officials sought to find marketing exposure they had lost when tobacco advertising was banned from radio and television.

Ralph Seagraves, a second generation RJR employee who was raised in Winston-Salem, N.C., moved from district manager of the firm’s Washington office to oversee the pilot program.

“I was as happy as if I had just won the Southern 500,” Seagraves, now retired, said. “I’d grown up watching fellows like Junior Johnson and Richard Petty and David Pearson race, and when I got the chance to work with them, it was like being in heaven.”

What started as a $100,000 point fund for NASCAR drivers, which was won in 1971 by Petty, has grown to a $2.5-million fund this year. Petty won $30,000. This year’s champion will receive $1 million.

The next year, sports cars, rodeo and two more stock car programs were added. Rodeo has since been dropped, but the number of projects became so large that in May, 1988, Sports Marketing Enterprises, Inc., was formed to administer the program.

Besides putting up huge sums in point-fund and prize money, the company is actively involved in the marketing, promotion and public relations of each sport.

“We feel we can increase the visibility of the various sports programs through our efforts,” said Gerald H. Long, former RJR Tobacco chief. “The more we are able to do this, the more exposure the various series will receive.

“And the more exposure each series receives, the more people will want to come out and see what Winston Cup or Winston drag racing or Camel GT racing is all about.”

RJR has gone through six CEOs since 1971 and the sports-marketing program has survived each one, which may be as much a tribute to Seagraves’ internal salesmanship as to his work on the outside.

“If the man on top isn’t certain that what you’re doing is the right thing, you’re battling a losing cause all around,” Seagraves once said. “The bottom line, always, is, ‘Is it helping to sell cigarettes, our brand of cigarettes?’ We never claimed to want to influence anyone to smoke, but we do want to influence the ones who smoke to smoke our brand.”

How does a company measure it’s success in sports promotions?

“While we do not reveal specific sales figures for competitive reasons, we know that during the last 18 years, our special events sponsorships have paid off in additional sales dollars for our products,” said Jeff Byrd, vice president of special events.

“When we got involved in racing, our market research showed us that racing fans fit the demographic profile that Winston and Camel cigarettes are trying to reach, and we were convinced that these people would purchase a product that is instrumental in supporting their favorite sport.

“And we believed that high visibility for our sports sponsorships would translate into additional sales dollars. And that has been the case.”

Visibility has been high. Last year, for instance, there were 64 telecasts of 29 Winston Cup stock car events by CBS, WTBS, ESPN and ABC, as well as national syndicators Spectra Communications and SETN. According to the Sponsors Report, compiled by Joyce Julius and Associates, the televised events filled 174 viewing hours and furnished 13,523 mentions of sponsors or company, which was estimated to have a value equivalency of $147 million.

In addition, more than 3 million people attended Winston Cup races last year, with an estimated 15 million watching Winston Racing Series events on 80-odd small tracks throughout the country.

“R.J. Reynolds took stock car racing from its infancy and helped make it into an internationally prominent sport,” H. A. (Humpy) Wheeler, president of Charlotte Motor Speedway, said last year. “Without their help, stock car racing would never have grown into the most popular form of auto racing in the world.”

Brands to be involved with sponsorships are selected according to the demographics of the sport with which they are associated. Most are tobacco products, but some are from Nabisco Brands.

Winston cigarettes is the busiest and the most expansive. The Winston Cup stock car champion will receive a $1-million bonus from a $2.5-million point fund.

If the same driver wins three of NASCAR’s big four races--the Daytona 500, Winston 500, Coca-Cola 600 and Southern 500--he will get a $1-million bonus.

The Winston, an invitational race in May, for past winners only, will pay $200,000 for first and $50,000 to the fastest qualifier from a purse of $800,000.

The company also sponsors the Winston 500 at Talladega, Ala., with a $700,000 purse.

In all, $4.5 million in sponsorship money will be available to Winston Cup drivers this season.

In other stock car racing divisions, the Winston West series has a $50,000 sponsorship with the champion getting $10,000, and the grass roots Winston Racing Series that touches nearly every short track in the country pays $1,000 to the champion at tracks such as Ascot Park, Saugus Speedway, Orange Show Speedway in San Bernardino and Cajon Speedway in El Cajon and also determines a national short-track champion.

Eighty-two tracks are divided into eight regions in which champions are determined by points based on the drivers’ best 20 finishes during a 22-week season that will run from April through September. At the end of the season, the records of the eight regional champions will be compared to determine the national champion in a program that was started in 1972.

The national champion will receive a minimum of $50,000 from the $500,000 national point fund.

If any sponsorship survives, most at Sports Marketing Enterprises believes it will be the stock car program.

“We’re comfortable that they will stay involved with the Winston Cup series,” said Bill France Jr., NASCAR president. “We have received no indication from Reynolds that they’re planning to pull out. We may see more budget restraints, but I don’t see the sale as having an adverse effect on NASCAR racing.”

Winston also sponsors the National Hot Rod Assn. drag racing season for $1 million. Winners of the top-fuel and funny car championship series will each collect $150,000 and the pro stock champion $100,000. It also sponsors the season-ending Winston Finals at the Los Angeles County Fairgrounds in Pomona.

Even though the NHRA recently signed a new two-year sponsorship contract with RJR Tobacco extending through 1991, the drag racing association has a contingency plan--just in case.

“We would probably be better off than most,” said Brian Tracy, NHRA vice president for marketing and sales. “We could make up the $1 million by assessing each race $50,000. Our sport is very healthy and all but two races are fully sponsored.

“We would probably have to separate the professional and sportsman classes and find two different sponsors. Right now, Winston sponsors them both, but from the way we’re growing, it shouldn’t be difficult to find two sponsors to share the load.”

For the first time in the RJR sports sponsorship program, Winston will be an individual team sponsor with the brand backing the Steve Woomer-owned Competition Specialties Racing, Inc., team, in the unlimited hydroplane series. Larry Lauterbach, who finished second in the final race last year at Las Vegas, will be the driver.

“Series sponsorship will remain the heart of our program, but because the name of the boat is so much a part of unlimited hydroplane racing, we felt our best marketing tool in this case was a team sponsorship,” said Wayne Robertson, senior vice president of Sports Marketing Enterprises.

Camel is the sponsor of GT sports car racing in the International Motor Sports Assn. and dirt track motorcycle racing and stadium motocross in the American Motorcyclist Assn.

A package of $800,000, including $150,000 for the GTP champion and $50,000 to the Camel Lights champion, will be paid drivers after the year’s final race, the Camel Grand Prix of Southern California at Del Mar on Oct. 22. The brand will also sponsor individual races at Lime Rock, Conn., and Watkins Glen, N.Y., on the 15-race schedule.

Reynolds expanded its motorcycle program this year to include a three-year contract for the Supercross series as well as its 16th year with the Camel Pro Series for dirt track races. A $125,000 point fund has been posted for stadium motocross, with $50,000 going to the champion. This is the first year that RJR Nabisco has been involved in motocross.

The 17-race AMA Grand National dirt track series has $400,000 in posted awards, of which $100,000 will go to the champion.

For the past three years, the series was a combination of dirt track and road racing events, but this year the entire series will be dirt races, including two on the half-mile oval at Ascot Park on May 13 and Sept. 30.

‘The backbone of motorcycle racing is the dirt track series,” Robertson said. “This series is what attracted us to motorcycle racing back in 1974, and when the fans talk about the Camel Pro champion they think of dirt track racing, so we decided it was best to return to it exclusively.”

Air races were introduced into the Sports Marketing Enterprises program last year with a package paying $75,000 in prize and point-fund money for the Camel Unlimited Warbirds class and the Air Camel Warbirds series at the Reno national championships. The Warbirds class is made up of World War II vintage fighter planes.

The Salem brand is the sponsor of professional sailing, which consists of six national championship races for two classes. Nabisco Brands’ involvement is heaviest in professional golf.

On the men’s PGA Tour, Nabisco has a four-pronged sponsorship program:

--It bankrolls a year-long competition that will pay $1 million in bonus money to the season’s leading money winners. Curtis Strange collected a $175,000 bonus last year to help pad his year’s earnings to more than $1 million.

--It holds a team charity competition throughout the season in which $2 million is donated to charities in the name of tournament sponsors. Each tournament draws a team of four players and their year-long performance determines the winning team. First prize is $500,000, which last year went to charities in the Houston area.

--Payouts of $25,000 each will go to players who lead in 10 statistical categories at the conclusion of the season. The categories are scoring, driving distance, driving accuracy, greens in regulation, par-breakers, putting, eagles, birdies, sand saves and all-around.

--The season-ending Nabisco Championships, with a purse of $2.5 million, is the richest tournament in professional golf. Only the leading 30 money winners of the year are eligible. The purse was increased $500,000 after Strange won $360,000 in last year’s tournament at Pebble Beach.

In women’s golf, Nabisco sponsors the $500,000 Dinah Shore tournament. Amy Alcott will be defending champion when the tournament is held for the 18th time at the Mission Hills Country Club in Rancho Mirage, starting Thursday.

RJR Nabisco is also involved in the Planters Pat Bradley International Open, a $400,000 tournament June 8-11 at High Point, N.C. Planters LifeSavers Co. is a subsidiary of Nabisco.

Planters also sponsors actor-driver Paul Newman’s race car in Trans-Am competition and Kenny Bernstein’s cars in drag racing and the Indianapolis 500. Bernstein is a four-time funny car champion on the drag strip. His Indy car will be driven this year by Jim Crawford of Scotland, who finished sixth last year.

On the men’s senior tour, where the Premier brand was replaced by RJR when the smokeless cigarette was pulled off the market, the RJR Cup will pay the leading money winners an additional $1.5 million, an increase of $500,000 over last year, with the winner receiving $112,500. The RJR Championship tournament in Winston-Salem will be the richest in senior golf with a $1.5-million payoff.

Tennis has been a part of the RJR Nabisco package for 10 years, but this will be the last. This has nothing to do with the takeover, however, since Sports Marketing Enterprises made the decision to end its tennis program a year ago.

Dropped will be the Nabisco Grand Prix, a $4-million bonus pool for the men’s tour that is climaxed by season-ending Nabisco Masters tournaments--singles at Madison Square Garden in New York City and doubles at the Royal Albert Hall in London.

Then, too, there is a motor racing program in Europe, a marketing tool of R.J. Reynolds Tobacco International Inc., but not part of Sports Marketing Enterprises.

Headed by Duncan Lee, a former IMSA project director, and headquartered in London, the foreign involvement centers around individual teams sponsored by Camel.

The latest is Paul Stewart Racing, a new Formula Three team directed by former Formula One champion Jackie Stewart, whose son, Paul, is one of the team’s drivers. Otto Rensing of West Germany is the other.

Young Stewart, 23, won the GTO portion of the Daytona 24-hour race last month in a Mercury Cougar. This will be his first venture into Formula Three after driving Formula Fords with Camel sponsorship last year. It will also be his father’s first serious association with racing since he retired as a driver in 1973.

“This sponsorship signifies much more than a continuing association with a famous name in motor racing,” Lee said from London. “The Camel Paul Stewart F3 team will form the cornerstone of the Camel UK motorsports sponsorship program with a two-year commitment to develop a solid, professionally run operation.”

The blue and yellow Camel colors will also be on the AGS cars of Joachim Winkelhock of West Germany and Philippe Streiff of France in Formula One, a sponsorship that began in 1987.

Last year, Camel backed the Range Rover effort in the 8,000-mile Paris-to-Dakar Rally that included off-road racing veteran Malcolm Smith of Riverside and Formula One driver Patrick Tambay of France. Another project is the Camel Trophy Rally, which brings together cars from different countries to compete in an exotic setting. The last one was in Borneo.