As I write this, I’m watching the Ally 400, the first race in the 2^nd half of the NASCAR season. Once again, combining a couple interests, this week it was announced that Joe Gibbs Racing, one of NASCAR’s premier teams owned by the famed former coach of the Washington NFL team, sold a minority stake to Harris Blitzer Sports and Entertainment and Arctos Partners.

Harris Blitzer is led by Josh Harris, formerly of Apollo and David Blitzer, formerly of Blackstone, and is best known for its ownership of the Philadelphia 76ers and the New Jersey Devils. Arctos is a relatively new private equity firm that has made minority investments in six MLB teams, including the Boston Red Sox via Fenway Sports Group, as well as other sports teams.

There are a number of elements here I thought were particularly interesting:

First, NASCAR is entering a renegotiation of its media rights, with new agreements to possibly include a streaming option and rumored to be announced imminently. The split of revenues between tracks (many owned by NASCAR’s parent company), race teams, and NASCAR has been a contested topic, with team owners publicly refusing to meet with NASCAR earlier this year. In a world where traditional sponsorships have been tough to come by, as more ad dollars shift to more easily measured digital media, teams are looking for a bigger percentage of the pie to balance their budgets. It’s unlikely that an investor would made a big investment with significant uncertainty about the media contract, so I expect a new media deal is imminent and somewhat favorable for teams.

Second, NASCAR is not seen as a growth sport, as it’s struggled to sustain significant attention outside of the Southeast and with younger, more diverse audiences. More recently, a couple of newer teams have thought slightly differently about fan activation (i.e. rapper Pitbull’s involvement in Trackhouse Racing) but arguably Trackhouse’s approach has been less novel than expected. Specifically there was an expectation that Trackhouse might base its race operations in Nashville and be more of a tourist destination, but with basically all other NASCAR teams, suppliers, and talent in the Charlotte metro area, Trackhouse has largely fallen in line. Harris Blitzer has made investments in e-sports, operate a sports-oriented VC fund in addition to the PE investments in teams, and boast an innovation lab led by the founder of basketball brand AND1 (middle school throwback to the AND1 mixtapes, anyone?). Could this partnership inject some new thinking around e-sports, betting, merchandise, or other areas into Gibbs and NASCAR? Given the popularity and accessibility of iRacing, I think NASCAR sets up particularly well to be a participatory spectator sport, and in a world where young drivers often need to come from wealthy families or have a benefactor to afford to compete in development series, it could serve as a way to continue broadening the team’s (and sport’s) talent pool.               

Third, with the popularity of Formula 1 peaking in the US due to Netflix’ Drive to Survive docuseries, this could be an interesting time for NASCAR to capture increased motorsports popularity in the US. NASCAR arguably has a better on-track product, measured by the number of cars that could win on any given weekend (Formula 1 has had exactly two winners in its eight races this season; NASCAR has had ten winners in its first 16 races this season) and the amount of passing and on-track action. NASCAR is also more accessible to average US fan, measured by ticket price (roughly $125 average for a NASCAR ticket versus multiples of that for Formula 1) and by the number of races on U.S. soil (36 versus three).  

Fourth, just like many other M&A transactions involving family businesses, succession and estate planning may have been a part of the logic. Joe Gibbs is 82 years old, and both of his sons had been deeply involved in the business. However, his son J.D. tragically passed away from a brain tumor in 2019, and his son Coy passed away late last year. Coy’s passing was especially unexpected and sad; Coy’s son Ty Gibbs, driving for his family team, won the XFINITY Championship (NASCAR’s top minor league) earlier in the day that Coy passed, and a day of celebration quickly became a somber morning. While Ty is expected to be a key part of Gibbs Racing as a driver for many years to come, his role in the organization is on the track and not in the office, and the long-term executive leadership and family stewardship of the organization came into question at the end of last season.

Fifth, Gibbs is early in what could be a major turnover in its driver base. Kyle Busch, a three-time NASCAR champion, was a mainstay in the #18 car with primary sponsorship from Mars; as Mars decided to exit the sport, Gibbs felt it could no longer afford Busch’s contract, and he left for Richard Childress Racing at the end of last year. Gibbs’ other two most tenured drivers could also be headed elsewhere over the next couple years; Martin Truex Jr. (one of the favorites in our household due to his New Jersey heritage, and the winner of the Sonoma race we attended a couple weeks ago) has been rumored to be considering retirement for the last couple seasons, and Denny Hamlin co-owns the other Toyota race team with Michael Jordan, and it would be logical to see him become a driver/owner for the same team should they expand from two to three cars. Truex Jr. was a NASCAR champion with another organization earlier in his career, and Hamlin is one of NASCAR’s best drivers to never win a championship. There are few drivers that could fill their seats with no reduction in performance, and Arctos no doubt had to consider a decline in both race performance and resulting sponsor interest with these drivers potentially leaving in the near-term.

Last, Arctos is already an investor in NASCAR, through its Fenway Sports ownership. Fenway is a part-owner in RFK Racing (the F = Fenway), alongside longtime NASCAR owner and engine builder Jack Roush and driver Brad Keselowski. As noted above, Arctos’ business model includes taking minority stakes in many teams in the same sport; this is relatively uncommon in the world of private equity, where having investments in competing businesses creates very obvious conflicts. If I were Joe Gibbs, one of my first questions would have been what internal protections exist to prevent the accidental or intentional sharing of engineering, strategy, marketing, or other team intellectual property between Gibbs, RFK, and any other race teams that Arctos would potentially invest in. That said, as part of the tie-up with Harris Blitzer, Gibbs is going to get an opportunity to invest in the Washington Commanders, the team Gibbs coached to a Super Bowl win that is about to be acquired by Harris Blitzer. Perhaps the opportunity to be part-owner of the franchise that meant so much to his pre-NASCAR career got him over any potential concerns, creating a partnership on multiple fronts.

I’d love to learn more about the economics of investing in NASCAR teams – if anyone from Ardea (the bank that represented Joe Gibbs Racing), Harris Blitzer, Arctos, or anyone else who knows the space would be willing to chat, I’m all ears!