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The financial saga of Richard Petty Motorsports

by Dave Grayson
Tuesday, November 16, 2010

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Richard Petty in his younger and better days
One of the biggest questions in NASCAR racing these days is the financial solvency and outright future of Richard Petty Motorsports, (RPM). At this juncture it's actually not certain if the team will see the green flag at Daytona when the 2011 season gets underway next February.

The strange saga of RPM majority team owner George Gillett's finances has encompassed three years of twists and turns that has involved a National Hockey League team, a British football team, a company that managed ski resorts and even business dealings with a Saudi Arabian prince. To fully understand the journey that may lead to RPM's complete extinction one has to look at the time line issues that created the problems to begin with.

MARCH 2007. Sports mogul George Gillett Jr, owner of the National Hockey League team the Montreal Canadiens as well as a professional soccer team in Liverpool-England, is reported to be looking at investing in a NASCAR Sprint Cup team. The reports state that he's was holding conversations with a variety of team owners including Evernham Motorsports. Two weeks later team owner Ray Evernham confirms that he has been talking with Gillett.

AUGUST 2007. Following several months of negotiations Gillett purchases a reported eighty percent of the team. The sale was handled by the Booth Creek Management Corporation based on a bank loan supplied by Wachovia Securities. The new team name is now Gillett Evernham Motorsports, (GEM). Ray Evernham remains as CEO and substantial partner.

SEPTEMBER 2007. Rumors are rampant that GEM and Petty Enterprises have been holding meeting regarding a possible merger that would create a four car Dodge team. However, those talks eventually stall and are completely discontinued by the following November.

SEPTEMBER 2008. GEM enters into negotiations for a purchase/merger with Robby Gordon Motorsports, (RGM). Surprisingly the effort stalls when GEM announces that it has filed a lawsuit against Gordon citing an alleged breach of the tentative agreement that would have sold RGM to Gillett for a reported $23.5 million. Two weeks later the two organizations announce they have resolved their issues and Gillett drops the lawsuit as well as any merger plans.

This action is followed by rumors that claim Gillett is also seeking an asset purchase and merger with both Bill Davis Racing and Chip Ganassi Racing, presented by Felix Sabates. These reports are flatly denied by both Davis and Ganassi.

OCTOBER 2008. Ray Evernham announces plans to sell the major portion of his twenty percent ownership of GEM to Gillett but does remain tied to the team as a small minority owner.

DECEMBER 2008. Reports surface that proposed merger talks between Gillett and Petty Enterprises are now back on.

GEM lays off 65 employees from their NASCAR Nationwide Series teams. This is followed by an announcement that says the company will be shutting down their Nationwide operations.

JANUARY 2009. The merger between GEM and Petty Enterprises becomes official. The new collaborations fields four Dodge teams under the new name of Richard Petty Motorsports, (RPM). This name change is reported to be a deal breaker from King Richard Petty.

MARCH 2009. Rampant rumors regarding George Gillett Jr's financial status becomes prevalent. Those rumors state that the problem is associated with cash flow relative to business problems with his professional soccer team in Liverpool-England. An angry Gillett vehemently denies that the situation may force him to sell his National Hockey League team: the Montreal Canadiens.

JUNE 2009. The state of the national economy, and its huge impact on American automakers, takes its toll on Chrysler who is forced to officially file bankruptcy. That action, in turn, impacts the cash flow of RPM because Chrysler cannot meet financial obligations to the race team. RPM lays off nine employees from its Sprint Cup operation and reduces the salary of many others.

Despite strong denials from earlier in the year, Gillett does indeed sell the Montreal Canadiens considered to be one of the major cornerstones of his business empire.

Rumors surface saying RPM is talking to Toyota about a manufacturer change for their race teams.

JULY 2009. RPM officials issues a denial regarding rumors of downsizing their Sprint Cup operation to three teams. However, they do inform driver Reed Sorenson that he is now free to talk to other team owners.

AUGUST 2009. Lee White, Director of Toyota Racing Development, confirms that he's been negotiating with RPM regarding a manufacturer change for the team but says he doesn't expect it's going to happen.

SEPTEMBER 2009. A letter of intent is announced regarding the proposed merger between RPM and Robert Yates Racing. The structure of deal calls for RPM to switch to Fords with drivers Kasey Kahne, Elliot Sadler, A J Allmendinger and Paul Menard in the seats. Reed Sorenson is officially informed that he will not be returning to the #43 ride. RPM relocates their operation to the Yates facility in Concord-North Carolina and signs on with previous Yates vendors. Roush Fenway Racing will provide the Ford Fusion race cars while Roush Yates Engines will provide the power plants and gear assemblies. That move prompts RPM to lay off 40 employees from their engine department which is officially shut down.

During this same time a report surfaces stating that drivers Reed Sorenson and A J Allmendinger waived their RPM paychecks for a period of time in order to keep their teams on the race tracks.

In one of his most interesting business moves to date, George Gillett Jr announces an exclusive collaboration with Prince Faisal bin Abdullah al-Saud, a member of the Saudi Royal Family. The deal calls for the creation of a NASCAR style racing circuit along with Richard Petty Racing Schools in the Saudi Kingdom as well as other possible locations in the middle east. The Liverpool soccer club is reported to also be involved with the establishment of Liverpool branded football academies in the middle east. This deal is reported to be worth approximately $560 million. This business arrangement actually had nothing to do with RPM despite the volume of rumors that said the Prince would become the new team owner. Rumors that said RPM had been sold were quickly denied by Foster Gillett, the son of the team's majority owner.

NOVEMBER 2009. Heading into the final season of his RPM contract, Kasey Kahne announces that he's now a free agent and will be looking at other race teams for the 2011 season.

JANUARY 2010. Following months of intense negotiations, the merger between RPM and Yates Racing is now complete and officially announced.

APRIL 2010. The state of Gillett's financial status hits a high public profile with the revelation that the loan from the Wachovia Bank, reported to be between $70 to $90 million, used to purchase the race team to begin with has been in a state of default since February. The financial damage is reported to be caused by the country's economic collapse and in particular its impact on the nation's automakers and their inability to maintain financial obligations to race teams. In a rare public comment on his personal financial matters, Gillett explains that the default is technical in nature and should not be misconstrued to mean that he missed any payments. He goes on to say that he failed to meet one of the covenants attached to the loan further stating that sometimes these covenants require a money borrower to maintain a certain level of cash flow. However, an anonymous source, reported to be close to the deal, states that the problem was indeed related to a lack of payment. In all fairness, it needs to be pointed out that this anonymous source was never revealed and this information was never confirmed by any executive from a financial institution. However, in the days that followed this revelation there was an announcement saying a deal was put in motion to restructure the company debt.

In the middle of these financial rumors comes a confirmed report from driver Kasey Kahne who says he will be leaving RPM at the end of the 2010 season and has signed a multiyear contract with Hendrick Motorsports. This is followed by vast confusion because Kahne's new ride with Hendrick will not be available until the start of the 2012 season. Following months of speculation the matter gets resolved by Hendrick sending Kahne to Red Bull Motorsports for 2011.

AUGUST 2010. RPM suffers another financial setback when primary sponsor Budweiser announces they will not be renewing their contract when it expires at the end of the 2010 season. The beer company later announces plans to sign with driver Kevin Harvick and Richard Childress Racing.

RPM announces its plans for the 2011 season and says they will trim their operation down to a pair of Ford Fusions. Marcus Ambrose will replace Kahne in the #9 Ford with sponsorship from Stanley Tools. A J Allmendinger will remain in the #43 Ford. RPM announces that they are very close to signing a deal with Best Buy Stores, and their Insignia Electronics brand, to sponsor the Allmendinger ride. Driver Paul Menard announces that he'll be leaving RPM to join Richard Childress Racing. After saying earlier that he doesn't expect to return to RPM next year, driver Elliot Sadler signs a deal to drive a Nationwide Series car for Kevin Harvick Inc.

OCTOBER 2010. In another round of financial maneuvers, Gillett fires the Board Of Directors of his British soccer team. The move is an effort to stop a corporate takeover of the soccer team by New England Sports Ventures, (NESV). an organization owned by John Henry. This is the same John Henry who owns Major League Baseball's Boston Red Sox franchise as well as fifty percent of the Roush Fenway Racing NASCAR teams.

During the Charlotte race, Kasey Kahne crashes due to a reported brake failure. It's the third such brake failure within a short amount of time and a furious Kahne says he can't wait to get away from RPM. In the aftermath RPM announces the early release of Kahne and places driver Aric Almirola in the seat to finish out the season. This moves allows Kahne to get a head start on plans to join Red Bull Racing next year.

The early release of Kahne sparks rumors that states RPM owes him a substantial amount of back salary reported to be somewhere in the area of $1.25 million. Kahne later confirms that he's been paid in full and says the earlier than expected parting of the ways made sense for both sides. Later RPM informs employees, who were planning to join Kahne next year at Red Bull Racing, that their services are no longer needed and they are let go immediately.

RPM's next financial headache arrives when Roush Fenway Racing repossesses the cars that were scheduled to race at Talladega alleging nonpayment of an outstanding bill. An anonymous source claims that the outstanding bill, owed to Roush Fenway and Roush Yates Engines, is somewhere between $9 and $12 million. However RPM arranges a partial payment, to the vendor's satisfaction, and the race cars are returned to the shop the following day.

Richard Petty declines to comment on rumors that states he's attempting to put together an investment team in order to buy majority interest of RPM from Gillett. This is followed by a report that states the Wachovia Bank, holder of Gillett's defaulted loan note, is alleged to be in favor of a Petty takeover and is willing to give him some extra time to see if he can find investors. This is despite another rumor that states a second, unidentified, party is reported to be interested in purchasing the RPM assets.

Much to his dismay, Gillett learns that his Liverpool soccer team has been sold for $475 million a figure reported to be far less than expected and nowhere near the actual value of the team. This action was reported to be launched by a bank in Scotland who held the defaulted note originally initiated by Gillett and his partner. The devalued soccer team reportedly places a huge strain on Gillett's liquid assets and creates more doubt regarding the solvency and future of RPM. There are also reports that says both Gillett and Petty have aggressively stepped up efforts to find investors for the beleaguered team.

Gillett, through his company Booth Creek Resort Properties LLC, sells stock in companies that operates the Northstar At Tahoe Ski Resort in an effort to raise additional capital. The sale of this stock is reported to be $63 million. But one day later radio talk show host Dave Moody, from Sirius Radio's NASCAR Channel, releases a story that says public records indicates that Gillett's Booth Creek company only managed the ski resort. The records also indicated that Gillett, along with his wife, only owns four percent of Booth Creek. The report also said that the net proceeds from the sale of these stocks were nowhere near the figure originally reported.

NOVEMBER 2010. Despite initial reports to the contrary, Budweiser agrees to stay with RPM, and honor their contract, until the end of the current racing season. Following Kasey Kahne's early release from the team, Budweiser alleged breach of contract saying they signed on with Kahne and not a substitute driver. At first it was believed that Budweiser was not going to honor the contract, and the funding that came with it, for the final five weeks of the season which was the last thing RPM needed at this point in time. However, secure in the knowledge that Kahne was more than willing to honor his remaining sponsor commitments, Budweiser relented and announced they would honor their contract to its fullest.

Once again RPM endures another embarrassing episode regarding money owed to Roush Fenway Racing and Roush Yates Engines. This latest episode occurred after the November 8th Sprint Cup race at the Texas Motor Speedway. The plan was to have the haulers from the four RPM teams to meet a Roush Fenway hauler in the speedway parking lot to accept delivery of the cars needed for the Phoenix race the following Sunday. However Roush Fenway instructed their driver not unload the race cars until he received  telephone instructions. The problem was once again overdue invoices. The funding for the Phoenix cars was supposed to be delivered on the Monday morning following the Texas race so the new cars could be loaded into the RPM haulers and sent on their way to Arizona. The five haulers sat in the Texas Motor Speedway parking lot until the following Wednesday afternoon before the transaction was completed. The result was a mad dash to complete the 18 hour drive to the Phoenix International Raceway where the cars had to be unloaded in the garage area by early Friday morning.

It appears that RPM will be ready for next Sunday's season ending race at the Homestead Miami Speedway in Florida. During the Phoenix race last weekend Mike Shiplett, crew chief for RPM's #43 Ford, told Fox Sports that the Homestead Cars are ready and the engines were scheduled to be delivered to the RPM shop last Saturday. It was anticipated that the final prep work would be completed by Tuesday with a Wednesday departure of the team trucks to Florida.

The large and looming questions that remains are: will RPM be present at Daytona next February when the green flag falls on the 2011 season? Can Richard Petty line up the investors needed to buy out team majority owner George Gillett Jr? Can Gillette acquire enough funding, and financial solvency to save the race team he purchased back in 2007?

Last October Richard Petty said "I've been here, (NASCAR), since 1949 and I'm going to be here 'till they run me off." There is a large contingent of people who hope that's true. The world of NASCAR without the name Petty, and the #43, attached to it simply would not seem right.

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