Red Sox On The Track

The Fenway Sports Group, which owns the Boston Red Sox, announced on Wednesday that they purchased a stake 50% in NASCAR's Roush Racing to form Roush Fenway Racing. This was one of the worst kept secrets in all of sports business, but given the fact that executives on both sides hadn't spoken much, we decided to go in-depth with Mike Dee, president of Fenway Sports Group and COO of the Red Sox.

Q: When were you guys first intrigued with NASCAR?

A: About three years ago, back in 2003, John Henry -- the principal owner of our parent company -- approached us and said, "We'd like to diversify and I'd like to look into some different ventures within sports." He had become a big racing fan and in part because he is an online sim racer. So his interest in the sport originated there but he quickly became a fan on Sunday afternoons as well."

Q: What was the directive -- was it financial or was it, "We are an entertainment company and let's get good at that?"

A: There were two primary motivations. One is the competitive juices that we all have being in

this position owning the Red Sox. We certainly like to compete on the field and, in this case, on the track, but from a business standpoint it makes a lot of sense. We face a very challenging environment here. We have the smallest ballpark in Major League Baseball. Despite our efforts to dramatically increase revenues over the last five years, which we've had some success in doing, our business is at a pretty mature state at the present time and we can only add so much advertising and our TV and radio deals are in place, you can't add any more seats so where do you find incremental forms of revenue? So we were looking to diversify our portfolio. Diversification in sports hasn't been as common as it may have been in other businesses, but that idea is one that has arrived certainly in the last four or five years as ownership is venturing off into European soccer investments and with NASCAR, it makes good smart business sense.

Q: How does it work financially?

A: It's the same in that it's a sponsorship driven business. Our network of corporate relationships will certainly come into play and that's a synergy for putting these two together. But it does differ. Baseball is one franchise. We're one planet of a 30 planet universe. In racing, you're in the sport, there's no franchise agreement, you're heavily dependent on your performance on the track, you're heavily dependent on the performance of your drivers and the content of your race team. In baseball, you can see your attendance go up or down from year to year, but you don't necessarily get more money from winning a game. In racing, it's pay and reward for performance. The need to stay competitive and stay in the top 10 is essential. The very main difference is that you don't have a venue. There are no home games. It's 36 weeks and 36 games on the road so traditional revenue streams that you would have in baseball, basketball, football, hockey environment aren't there. Concession revenue. Parking. Those are replaced by sponsorship income and, as a result, you have to watch your cost carefully.

Q: What are you providing Roush Racing and what is Roush providing you?

A: We see tremendous upside in exposing nascar, specifically the Roush Fenway brand, to a new generation of prospective avid fans. We don't think we're going to be able to turn on the faucet one day and make the 12 million Red Sox fans here in New England immediate fans of Roush Fenway, but we think over time the growth of the sport, the popularity of the sport, we think over time many of them will become fans. We also think we can bring relationships. We have experience in the digital media area -- we think that's going to be a major growth area for the new company moving forward. And they'll expose us to a world of new sponsors -- sponsors that they already have an existing relationship with.

Q: How in your face are you willing to be to Red Sox fans?

A: The plan is to be incremental. There are two races here -- at the New Hampshire International Speedway -- both in July and September. It's 90 miles up the road from Boston. So we're going to take it slow. We want to utilize our regional sports network that we have here in New England that reaches over five million homes to expose people to our drivers and our content. We think that organic growth is better than forcing this down people's throats. Certainly we want fans to become fans as quickly as possible. So you'll see highlights on the Jumbotron here at Fenway, you'll see it on NESN, we'll certainly highlight our affiliation with Roush Fenway, but I don't think Nextel Cup cars will be traveling around the warning track here at Fenway Park for a game.

Q: Should Red Sox fans be concerned about this acquisition?

A: The Red Sox fan is going to say, "What's in this for me?" "What does this mean to me?" And we think it has tremendous benefits for the Red Sox. Certainly you can argue not just in sports but in any corporate environment, the strength and financial health of a parent company is often times essential to that of its affiliates and in this case, we think the Red Sox will benefit from the financial strength that this investment will bring to our parent company. Our past offseason demonstrates that we are prepared to step up to the plate and go after a Daisuke Matsuzaka or a J.D. Drew or a Julio Lugo. We knew this NASCAR investment was on the board well before those decisions were made. Our baseball commitment will be unwavering, first and foremost we are a baseball-driven organization and we aspire to win the World Series every year.

Q: Where is the future of this business going?

A: From the cross ownership standpoint, that's not unprecedented. Jerry Reinsdorf owns the Chicago White Sox and the Chicago Bulls. But the NASCAR guys call us the first stick and ball entity to invest in NASCAR. We think it makes good, smart business sense. The sport of NASCAR obviously over the last decade has gone through a tremendous change and the key indicators and all the business fundamentals have been solid. In order to maintain that and sustain that growth, it's going to have to come from new and creative areas. I mentioned digital media as one of those areas where you almost have an endless supply of content -- not just what happens at the racetrack during the weekend, but what happens at during the various race shops during the week, pit practices, strategic meetings between the drivers and the crew chiefs and the team owners. There's a lot of content that hasn't yet been utilized, so we hope to expose a whole new realm of fans to that. I would suspect that you'll see other investments in the sport -- we've already heard some of those rumors -- fall into place over the next two or three years.

Q: What's the risk in doing this deal?

A: The risk would be that the rules would change. The car of tomorrow. Some theorize that this would level the playing field in teams. Time will tell whether or not that will become true. In baseball, you buy a franchise agreement, you are one of 30 teams you pretty much know what that means. In the sport of NASCAR, things have evolved quickly and changed quickly and you just need to be on the cutting edge of these changes.

Q: What does this partnership look like five years from now?

A: I think we would be fully integrated by then. Capitalizing on new opportunities that have arisen out of the digital age that we live in. We would have made the necessary investments in infrastructure in the business to sustain our competitive advantage...If all went according to plan, I think you'd see three or four million avid race fans here in New England who at night turn on their television to see what happened in that day's race as frequently as they see what happened in that day's Red Sox game.

Questions? Comments?