The King is BackChris Aug 09 2011
Late in last year’s Nascar season Richard Petty was facing the final checkered flag of his legendary career. His racing team, Richard Petty Motorsports, was out of money, thanks to George Gillett Jr., who gained majority interest of RPM two years earlier, then lost hundreds of millions of dollars in the forced sale of his debt-laden English soccer team, Liverpool.
Petty had been sidelined as the day-to-day head of the team. RPM went from four cars to two. It lost its top driver, Kasey Kahne, who fled for more financially fertile ground. The team was forced to lay off more than 75 employees. “At the end of the season we were scrambling to come up with money the day before the race just so we could get the cars out there and pay the help and even pay for the tires on the cars,” says Petty.
It would have been a pitiful ending for Petty, his sport’s greatest driver and its most beloved owner. “The King”–at 73 still swaggering in his cowboy hat, sunglasses, skinny jeans and mustache–is a living legend, the Babe Ruth of the oval. He has won 200 career races (a record), 7 Daytona 500s (a record), 7 Nascar season titles (a tie for the record) and ran one of the sport’s longest-tenured teams (61 years). And suddenly he faced an unsightly end akin to the Babe’s final, punchless and abbreviated year with the Boston Braves.
But Petty, as he did so many times during his racing career, found a way to avert disaster. Late in 2010 he reached out to Andrew Murstein, president of Medallion Financial, a provider of taxicab financing, and Douglas Bergeron, the chief executive of Verifone Systems, which handles electronic payments for banks and retailers. Together the duo bought out Gillett for $11 million (according to Bergeron) and reinstalled Petty as the team leader. With $50 million in new sponsorship money, RPM was guaranteed to race two cars for the entire 2011 season. “If it doesn’t work now, it’s my fault,” Petty says.
His reemergence and the fact that his team is viewed as a great value play bode well for the future of Nascar. Petty’s troubles over the last few years have mirrored those of the sport itself. Since turning his full attention to ownership after he retired from racing in 1992, Petty had witnessed Nascar’s transformation from a mom-and-pop pastime into an advertising behemoth fueled by outside investors. He was there for its rapid, television-fueled rise and equally precipitous fall, the latter roughly corresponding with that of the U.S. economy. If Petty can make it work now, it may foretell a resurgence of the sport.
Petty’s trouble started in 2008. Trying to keep up with corporate-funded rivals, he brought in private equity shop Boston Ventures as an owner, giving up his majority stake in a team his family had run since 1949. Months later Gillett took over, purchasing RPM for what Murstein and Bergeron say was $110 million, $90 million of which was debt. (Gillett declined to comment for this story.) Petty was left with a reported 4% of the outfit and no role in its management. “It was weird not running my own team,” he says. “All of a sudden I didn’t make any decisions.”
Just a year and a half into Gillett’s reign RPM nearly sank amid the global financial crisis, the troubles of U.S. car manufacturers who pay for much of the sport and Gillett’s debt problems. Last October Kahne, their top driver, with 11 career wins, left for Red Bull Racing. “It was probably the best thing for both of us in the long run,” Petty says of Kahne. “He got to go make some money, and it got me out of a big contract.”
While Petty scrambled to put together enough money to enter races, he was also looking for potential investors. “I was doing all I could to keep the team and the sponsors together,” says Petty. “I didn’t want to have to start from scratch.” One of his first calls was to Murstein, who had been interested in RPM before but had been outbid by Gillett in 2008. He jumped at his second chance. “The timing was perfect,” says Murstein. Indeed it was.
When Wachovia Bank was subsumed by Wells Fargo in the aftermath of the financial crisis, the latter became the holders of Gillett’s debt. Murstein worked out a deal to buy what he says was a $90 million note for a scant $11 million. Then he contacted Bergeron, a business friend.
The duo shared a love of sports–and value plays. Murstein started Medallion with just a few hundred taxicabs (the public company has a market cap of $142 million today). Bergeron bought Verifone for $50 million in 2001 and has grown it to its current $4 billion market cap. Murstein says he and Bergeron worked out an agreement to buy RPM last November in “just seven minutes over e-mail.” (Bergeron did the deal through his investment company.) They’re optimistic about their prospects as the economy grows stronger and the advertising market regains speed. “This was just a terrific deal,” says Bergeron.
As part of it Medallion and Bergeron asked Petty to invest “several million dollars” of his own money to increase his minority stake in the team, which Petty says is “significantly higher” than his previous 4% (Medallion owns 60% of the remaining shares, Bergeron 40%). Medallion and Bergeron also purchased the rights to Petty’s name in perpetuity for Nascar-related deals. “I think his name has real value, like Elvis or Michael Jackson,” says Murstein, who envisions using it for credit cards, cowboy hats and boots, and for an expansion of Petty’s already successful race-car driving school, which charges between $100 (ride-alongs) to $3,500 (solo) per lesson on 20 racing tracks in the U.S. “Gillett was foolish for not having Richard out there, front and center,” says Bergeron. “Richard is a huge asset.”
Most important for Petty, he is in charge again–of the team and his legacy. Though Murstein and Bergeron hired Lisa Brown, a former AOL executive, to be the team’s chief executive, Petty, as the chairman of RPM, is still running most of the show, which includes the wooing of the sponsors.
This year the No. 9 car, driven by Marcos Ambrose, is sponsored by Stanley Tools. Best Buy funds the iconic No. 43 car (Petty’s old number), helmed by A.J. Allmendinger. Neither of Petty’s racers has ever won a Sprint Cup race nor are they expected to threaten Jimmie Johnson’s five-year reign at the top of Nascar. Still, Allmendinger finished 19th in the Sprint Cup standings in 2010. And Ambrose, a promising Australian, has 13 career top-ten finishes. (Both racers are under contract for the next two years, with an owners’ option for a third.)
Ultimately, better results from the Petty duo–and even some trips to victory lane–would go a long way toward Petty’s comeback. “I’m confident they can do it,” says Petty. According to the team, Petty’s sponsorship deals for his two cars are $50 million for the year. The team expects to net between $5 million and $6 million. That still pales in comparison with Nascar’s giants, Hendrick Motorsports and Roush Fenway, which have more than twice Petty’s revenues. But it’s a big improvement over being nearly bankrupt.
Bergeron is so optimistic that he’s already begun to talk about adding two more cars next season. Petty’s brand is a major reason. “He’s The King’ and he always will be,” says Zak Brown, the chief executive of Just Marketing International, a Carmel, Ind. motor-sports sponsorship agency. Brown adds that Nascar fans–generally males between the ages of 35 and 55–have a deep appreciation for Petty’s status in the history of the sport. Judging from the Stanley Tools and Best Buy deals, companies still have faith in him, too.
Petty’s resilience has landed him in the perfect spot to succeed–he now has the money and the control. “This shows me that he still has some fire in his belly,” says Brown. “It won’t be an easy road, but do I think he can make the comeback? Absolutely.” Says Petty: “There were times over the last few years when I wondered if it could get any worse. And now I’ve got this great opportunity. That’s all I wanted.”
Read the Full Article Here... http://www.forbes.com/forbes/2011/0314/sportsmoney-nascar-richard-petty-kahne-return-of-king.html
Forbes.com / Monte Burke, Contributor