NASCAR's case against AT&T weak in the knees

sued AT&T over the whole logo change hoopla. For a complete rundown of what has transpired between the two (as well as the involvement of Sprint Nextel and Alltel), check out our post detailing the proceedings. The way each contract is set up (that is, the sponsor-racing team contracts and the NASCAR-sponsor contract) has left a ton of ambiguity in the matter, making a tough case for each side. However, there is no middle ground here. There really is no compromise. Either the No. 31 car rolls out with the AT&T globe logo, or it doesn’t. It’s not like AT&T painted the car blue and put the globe on the hood; the logo in question is small and only on the rear side panel, so there’s no room for compromise*. NASCAR wants it gone immediately, because they say it violates the exclusive telecommunications sponsorship of Sprint Nextel. AT&T posits that it has the right to use the logo because it is the team’s sponsor. We can talk about this one until we’re blue in the face. Simply put, NASCAR needs to back down here. They made a few mistakes that led to this, and now they’re throwing lawsuits around to try and make everything better. They see Sprint Nextel’s $700 million investment in jeopardy, and they know that if they don’t take some kind of action, they could see that blow into the wind. They know that inaction would be the worst step. With that, we agree. NASCAR needs to take proactive steps to protect the exclusivity of their deal with Sprint Nextel. Problem is, they should have taken care of this issue long ago, specifically when they entered into the agreement with Nextel. How NASCAR failed Nextel There was an issue right from the beginning. Nextel agreed to pay NASCAR ~$700 million to sponsor their top racing series — formerly the Winston Cup — for 10 years. With this contract came an exclusivity clause for Nextel: they could be the only telecommunications company to have a hand in NASCAR sponsorship. This covered racing teams, individual races, and tracks. In 2004, when the deal was consummated, there were two telecommunications companies already sponsoring teams: Cingular and Alltel. As part of Nextel’s agreement, both of these companies were permitted to continue their sponsorship indefinitely. There has been much speculation as to the actual terms of the agreement — i.e., if it specifically spelled out that there could be no logo changes — but without having access to those documents, it’s tough to render a decision. If an assumption must be made, it’s that there was no specific language to that effect; we would think that a responsible judge would make his ruling based on that, hence AT&T would not have been permitted to roll out the No. 31 car with anything but the Cingular logo attached. What became apparent during these proceedings is that NASCAR has a laissez-faire approach to racing team/sponsor contracts. They let the sponsors and the teams work things out, and take their cut when applicable. This approach is fiscally favorable for NASCAR; more restrictions and involvement from the governing body means lesser contracts. This kind of relationship is problematic when you’re dealing with exclusive deals like the one with Sprint Nextel. How was — and is — NASCAR supposed to uphold it’s exclusivity agreement if it doesn’t have a firm hand in race team/sponsor relations? How is it supposed to say, “no changing your logo, Cingular” when there is no such provision in Cingular’s contract with the Richard Childress Racing team? This is something that was either overlooked or ignored when NASCAR and Nextel entered their agreement. And now NASCAR is trying to make up for it with an enormous lawsuit. We don’t think this is right. No one should be filing legal papers on a matter they at one point had control over. If they didn’t foresee this as a problem, fine; make sure it doesn’t happen again and move on. But that wouldn’t make Nextel happy, now would it? The compelling case of AT&T On the other hand, AT&T offers a solid case on why it should be allowed to display its logo. In fact, we feel that not only will AT&T win this case, but they will end up rolling out a blue car with the globe logo displayed prominently on the hood* sometime in the not so distant future. CIngular was a joint venture of SBC Communications and BellSouth. Therefore, the Cingular car sponsorship was owned in part by both companies. Once SBC (then AT&T) bought BellSouth, Cingular became completely theirs. And with the acquisition of the company came the acquisition of the company’s assets. The No. 31 car sponsorship…that’s an asset. That’s a message that reaches hundreds of thousands of viewers weekly. And by owning Cingular, AT&T owned the sponsorship. As such, they decided that it would be bad business to continue advertising an obsolete brand. The exclusive telecommunications sponsorship provision with Nextel was very well known, and AT&T knew that they’d have difficulty rebranding the car. So, in an effort to be as compromising as possible, they proposed to just add the globe logo to the side of the car. Not the door, but a rear side panel. Of course, NASCAR flat out said no. After all, they had their relationship with Nextel to protect. AT&T then filed for an injunction, citing that there is nothing in their contract with the racing team that prevents them from changing the logo. Since Judge Marvin Shoob agreed, we feel it is safe to assume that is true: AT&T has no contractual limits to it’s name and logo change on the No. 31 car. So if there is nothing in the AT&T/Richard Childress contract restricting a logo change, and there is no NASCAR intervention in the contract, how does NASCAR have a leg to stand on? All they have is an agreement with Nextel, which once again doesn’t govern the AT&T/Childress contract. In essence, NASCAR made a promise to Nextel that, in the end, they couldn’t uphold. They just don’t have the legal recourse to. And for that, NASCAR should be penalized. So what’s going to come of the lawsuit? Of course, anything at this point is mere speculation. But, since we’re on the topic, we’ll give it a whirl. We must disclaim, though, that we are in no way lawyers and have very limited legal training. We’re just following a logical path of arguments. We don’t see AT&T losing this case. While there are many nuances, we think it will boil down to AT&T owning Cingular, and thereby owning the sponsorship. The sponsorship didn’t transfer, technically, which will play hugely in AT&T’s favor. On the first charge of fraud and misrepresentation. NASCAR will argue that it is being defrauded by AT&T’s use of its logo, but that won’t hold up well against AT&T’s argument. It’s the same company that sponsors the team, it just operates under a different guise. Or at least that’s how AT&T will probably argue it. On the second charge of breach of contract. As far as we know, and as far as we’ve seen reported, AT&T doesn’t have a contract with NASCAR. They have a contract with Childress. And, according to many reports, NASCAR doesn’t have any direct relation to that contract. NASCAR’s claim is that the Childress contract contains a provision that disallows a logo change. However, 1) how could NASCAR sue for breach, then, and 2) wouldn’t have Judge Shoob made his ruling based on this, or at least acknowledged it in his ruling? We don’t think this charge holds water. On the third charge of conspiracy to aid and abet wrongful interference with Nextel. This is the only one we see that has merit. AT&T knows that Nextel has exclusive telecommunications sponsorship rights, but wants to change its logo anyway. However, once again, the company was granted grandfather status, so they can just argue away that they’re acting within their rights. It will be interesting to see how NASCAR argues this charge. In the end, though, we can’t see this playing out in NASCAR’s favor. They entered into an agreement over which they had limited control. You can’t just tell someone they’re the exclusive sponsor of something and lack the means to enforce it. We feel that NASCAR is in the wrong here, and may find themselves as defendants should Nextel wish to collect damages (which they should). The only possible coup for NASCAR is that they’ll probably be able to get AT&T (and Alltel, for that matter) off the circuit in 2008. Those lost sponsorship dollars will easily be replaced — NASCAR, after all, is the nation’s second most popular sport, so sponsors should be clamoring for a spot. And if they change the way they deal with sponsor/team relations going forward, they can avoid this ever happening in the future. For now, however, NASCAR needs to deal with the fact that they made a mistake, and likely won’t recover much from AT&T. They might lose out a bit to Nextel, too. But there are measures that will put NASCAR back on track (we can’t decide if that pun was intended or not). We hope that NASCAR is smart enough to realize this and take proper actions following the conclusion of their suit. *Late edit: Apparently, the logo is on the hood. And we had to find out from from this image. This is in contrast to the original picture we saw of the car at the Consumerist. We apologize for the confusion.]]>