Thursday, June 4, 2009

nascar and the Ratings Myth...

Invariably when callers to sports talk radio shows talk about the IRL gaining momentum, the next phrase out of their mouth winds up being “maybe we can catch back up to nascar”. This is a funny statement, because on one had it seems very improbable that will happen anytime soon, but on the other it may be more realistic than we might otherwise suspect.

There are three main ways we can measure the IRL relative to nascar. The first is tv viewership, the second is event spectators and the third are sponsor dollars. Generally, the first two lead to the third and the third makes things like more cars on the track, more races and better pay for drivers all possible.

Right now, nascar has the IRL covered on overall viewership, or TV ratings. IRL ratings over the past 15 years have dropped tremendously, but that trend is not unique. That has been the story for most sports. We are an NFL country and that has remained bullet proof. The only sport to gain over the last 15 years? Nascar – Which is why it became the advertisers darling over the past 10 years.

Recently however, those ratings have flattened out and have started to decline. Dig a little deeper and you start seeing some cracks and flaws that make nascar seem downright vulnerable.

Ratings points correspond to the percentage of households with a TV that viewed a broadcast at any moment in time. But it is important to note, that not all broadcasts scoring the same 5.0 rating are identical, particularly in the eyes of sponsors. That is because some shows skew differently than others. When people watch tv, the audience is not a random sample of the overall audience. Ie if the US population splits 50/50 male/female, there’s no guarantee that the audience of a particular broadcast splits 50/50. Typically ratings for sports skew to having more males and soap operas skew to having more females for example.

Ratings can skew across other dimensions as well, age, education and most importantly income. I am reminded of a WKRP in Cincinatti episode where DJ DR Johnny Fever is reviewing the most recent book of Arbitron ratings for the local radio market and screams exuberantly “Look what I am doing with 12 to 18 year old males!!!” getting funny stares from the other characters in scenes and laughs from the studio audience.

For tv ratings, income in particular is a key measure for advertisers because people with higher income typically spend more money and thus are more sought out to advertise to. Broadcasts that skew to higher income groups are gold relative to those that skew to a lower income bracket because the spend potential of the audience is larger.

Perhaps the most extreme sports example here is comparing golf to professional wrestling. Wrestling gets a larger ratings share than does golf. But when it comes to advertising dollars, the story is reversed, by a landslide, in the other direction. Why? Golf skews to an audience with a much higher average income than does wrestling. This translates into the golf audience having a much larger spend potential than does the wrestling audience.

With this lesson learned, lets return to racing. As big as nascar’s rating is, a good chunk is worthless to advertisers. Not to sound elitist here, but simply stating a fact. Many of nascar’s hardcore viewers are lower income males that live in rural areas. These viewers don’t have much money and they have even fewer places to spend it. Compounding the issue for nascar recently is that as ratings have started to drop, the lost viewers are not from the bottom end of the income spectrum, but rather from demographics more desirable to advertisers and sponsors.

That’s not to say that all nascar viewers are poor, across the south nascar viewership across all income brackets is strong. Just not so much in other parts of the country.

The ratings for the IRL are still small and at this point it is not clear how they are going to skew in the long term, but one thing is clear. If the IRL can position their sport and their broadcasts to appeal to a relatively higher income group, half the battle is won. By doing that, even a lower overall TV rating can obtain a relatively larger spend potential from its audience, potentially closing the gap in sponsorship spend with nascar. Making the $7m to sponsor a car in the IRL a much more effective marketing spend than $22m in nascar.

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