Super agent Zak Brown doesn’t like losing because he doesn’t do it very often. Already he has bounced back

When Nascar declined to take the Subway

Zak Brown was one of the golden boys of the American sponsorship agency world, until his agency, Just Marketing, hit a bump in the road and dropped a US$150 million sponsorship deal in Nascar for the Subway fast-food chain. That takes some recovering from, but Brown is a very determined agent.

Zak Brown, president of one of the top sports sponsorship agencies, Just Marketing International Inc, hopes 2008 will be kinder to him than 2007 was. Last year was not a banner one after a deal for his long-time client Subway, the American fast-food chain, was pipped at the post to replace Anheuser-Busch and be the new sponsor of Nascar’s second-string stock car series.

But that was not the worst of it. His agency was afterwards bad-mouthed in the American trade press in a seeming campaign by rival agency Octagon to blame him for the collapse. And then the deal was picked up by another rival agency Wasserman Media Group, which proceeded to do a deal for its client Nationwide Insurance.

And Nascar did not come out of it that well either, as it had to cut the price to get the deal away with Nationwide.

The story started last year when it became known that Anheuser-Busch would not renew its sponsorship of the series, which had been called the Busch series for 25 years.

Budweiser’s marketing supremo Tony Ponturo figured that the beer company had become so closely identified with the series that it was now ignored and that he could best spend the US$11 million a year it cost, with activation, elsewhere. Ponturo had a point. The Busch name had become synonymous with the series and when it was mentioned no one thought about beer anymore.

Nascar wasn’t too concerned, as Ponturo was getting a cut-price deal and believed it could sell it for more. Nascar executives, led by Steve Phelps, immediately started looking for a title sponsor to replace the beer company. It is also felt that, although Busch was a coveted sponsor, it wanted to go up market and believed it could get a better brand. 

The deal was also very complex. At stake was a rights fee to name the series, a trackside advertising package with the circuits through the International Speedway Corporation (ISC) and a TV campaign with broadcaster, ESPN. 

Phelps had formed a partnership with ISC and ESPN, selling a package of the rights, advertising and trackside banners in one deal. Phelps wanted US$15 million for the basic deal, almost double the US$8.5 million that Anheuser-Busch was paying for the basic rights. ESPN’s share would be US$10 million and ISC wanted US$7 million for the trackside package. It was US$32 million in all.

The Nascar negotiating team included all its big guns: Phelps, Nascar’s chief marketing officer, Jim O’Connell, vice president of corporate marketing, Brian Corcoran, managing director of corporate marketing, Jim Obermeyer, managing director of brand and consumer marketing; and Chad Roney, director of series marketing, plus ESPN’s Ed Erhardt, president of customer marketing and sales.

It was no surprise the deal immediately attracted Brown’s attention. He thought it perfect for Subway. Subway, a long-term Just Marketing client, had sunk millions into Nascar over the years on Brown’s advice. Last year it sponsored the Nextel Cup races at Phoenix and Martinsville, as well as top driver Tony Stewart in a personal deal.

Brown also saw this as a golden opportunity to strengthen his reputation as the leading sponsorship agent in Nascar. At US$32 million, he thought the sponsorship, worth all the extras, offered very good value. When Phelps suggested US$32 million as the optimum price for the package, Brown didn’t blanch and why should he – it was the going rate. Afterwards he would get severely criticised for overpaying. For its money, Subway was to get a seven-year deal to 2014.

So much so that he outmanoeuvred the other interested parties including Dunkin’ Donuts, AutoZone and Kentucky Fried Chicken to get an exclusive seat at the negotiating table.

Nascar’s Phelps was very happy to deal with Brown. With some justification Nascar executives believed Brown walked on water and were pleased to clear the table for him. Brown was the go-to guy in Nascar, the one with the reputation of getting deals done. His reputation made Subway the leading contender and the only serious deal in play. So for Brown the stakes couldn’t have been higher. It was the biggest deal of his life, worth a total of more than US$200 million over the projected seven years of its term.

But it was everyone’s bad luck that at the same time as the Subway deal was being negotiated, the Nextel/AT&T exclusivity row was also being played out in the courtrooms of America and in the media. Exclusivity was dominating the news, with AT&T’s lawsuit as well as an earlier dispute between series sponsor Sunoco and team sponsor Shell. In fact everyone seemed to be suing everyone over whether Nextel had the rights to sponsorship exclusivity in the main Nascar championship, as it thought it had. Title exclusivity is currently the biggest single controversy in sport sponsorship. A powerful lure, it is increasingly being offered by sports property owners, especially Nascar. But exclusivity has become a dirty word in Nascar circles. Everyone hates it but, ultimately, everyone wants it. It is a minefield that Bernie Ecclestone has managed to navigate very successfully in Formula One, but one in which Nascar executives have stepped on many mines.

After Nascar ended its title sponsorship with Winston cigarettes in 2004, it started a hare running when it granted incomers Nextel exclusivity for the length of its contract. Included in that were so called ‘grandfather rights’ that allowed existing sponsors to carry on for a number of years. This has caused all sorts of unforeseen problems, notably when AT&T bought Cingular and changed the brand to its own. A long court case was fought very publicly and it made the exclusivity issue very controversial.

It made Subway executives focus on exclusivity and it became the biggest issue in the contract. The row set a hare running about how much exclusivity Subway could seek for its series deal. The negotiations for the new contract absorbed hundreds of hours of Zak Brown’s time.

To try and break the deadlock and solve the exclusivity problem Subway decided to hire the Octagon agent Mark Coglan and his team. Octagon was an exclusivity specialist and represented Sprint Nextel, title sponsor of Nascar’s Cup series, and had been deeply involved with the wireless carrier’s attempt to protect its exclusivity as AT&T attempts to re-brand its No. 31 car from Cingular.

Octagon was brought in purely to solve the exclusivity issues that had dogged the deal. Brown didn’t like the fact that Subway called them in, but he didn’t demur.

Coglan gained a reputation negotiating for Nextel-Sprint in its deal for the sponsorship of Nascar’s Cup series. He had won Nextel some significant exclusivity clauses in its agreement and Subway wanted the same.

Octagon was cockahoop at being called in on Brown’s deal and put it about that Just Marketing was desperate for the expertise to break the deadlock. But Brown is adamant that was not true. But there is no question that Brown and his agency were rattled by the invitation for the Octagon agency to join in the negotiation at a very late stage. But Brown was particularly upset at the suggestion that it was his idea to invite Octagon in. The very idea of him doing that seems to offend him. He says: “That was very incorrect. I did not call them in and I would not call them in. They were brought in because they represent Sprint. Subway thought that it would be a good idea through the deal-making stage to have them [it is a big deal] so they wanted more firepower. It had nothing to do with me.”

But even with Octagon’s intervention Nascar’s Steve Phelps was not ultimately able to deliver it, primarily because there were just too many conflicting sponsors. It was all about a category Americans call QSR (Quick Service Restaurants). The Busch series was popular with QSRs because it delivers high visibility at very low cost. So much so that Arby’s, McDonald’s, Jimmy John’s and Domino’s restaurants were all team sponsors.

According to insiders, Octagon played hardball on behalf of Subway and wanted virtually all food service included in an exclusivity deal. Nascar was willing to provide it for the strict QSR sector but no broader and certainly not for restaurant groups such as Arby’s. After detailed negotiations the deal finally fell apart on the exclusivity issue. Subway felt it was made promises it didn’t believe Nascar could deliver. 

Naturally Subway executives believed that if Nextel had got exclusivity, so it could too.

Brown also believes the exclusivity issues will die away: “My opinion is that this whole exclusivity in general in North America is an overreaction. I think that what has happened is that the Nextel AT&T became so visible that everyone started, ‘got to have exclusivity’, and everyone got on this bandwagon.” Brown certainly didn’t believe that exclusivity was as important to Subway as Octagon made it out to be.

“The Sprint AT&T really got it headlines. I am of the opinion that as long as you’re in the sport, that you want competition, and as long as you can carve out your place in the sport that makes you the dominant player, bring on the competition. I want other people playing in the same box especially if I can demonstrate that I am bigger and better than them. So I think in general, it is counterproductive to try and own a sport when it is such a big competitive sport. You do not need exclusivity, what I think you need is protection, to make sure that you are not ambushed and that you can carve out your own space.”

Three months on, as Brown sits in the tearoom of the Dorchester Hotel in London, the wounds partially healed. He is in the middle of a quick trip to Britain and a series of non-stop meetings, as he muses: “Life goes on, it is not the first time that I lost a deal and it will not be the last.”

Interestingly, he says that if he had the time all over again, he would not do anything differently. He is aware of the rumours but says the truth is that it was the intervention of Octagon that “screwed” the deal.

For sure someone screwed it and that was unlikely to have been Brown. He says: “There were three fundamental inaccuracies in the reporting.” He maintains Subway was ultimately outbid by Nationwide Insurance, and it was as simple as that.

Brown won’t say so but he clearly believes that Octagon’s reputation as exclusivity experts was vastly overblown: “Frankly, I am not sure that they were needed,” he says and adds: “They are the exclusivity experts but I asked this question, if that is the case why is AT&T still in the sport, how much of an exclusivity expert are they?”

Octagon was called in because it has a relationship with Subway in other sports. But insiders to the deal say it brought too many parties to the negotiation table and ultimately killed it. Brown is simply keen for it to be known that it wasn’t his doing. When asked the direct question: “Do you think that they added anything?” he has no hesitation in replying “no”. Brown interestingly doesn’t believe that exclusivity issues killed the deal but believes it slowed it down to the point that it died anyway. He reckons nine months gestation would eventually kill any deal and it appears that the participants on all four sides, Nascar, Just Marketing, Octagon and Subway, simply exhausted themselves talking about it.

He says: “It just slowed it down, and what happened by slowing it down, it took too long to get things resolved and you have got Nationwide over here who came swinging in and said, ‘we are not too concerned about this, we are not too concerned about that’ and they put more money on the table.”

He says there was too much talking and not enough deal-making. Indeed, investigations reveal two agencies at war in America. Octagon executives appear to have bad-mouthed Brown’s agency in a fairly big way as it sought to farm out the blame. Brown says: “They were part of the problem and not part of the solution. Ultimately we had too many people with too many differing views.”

Brown admits he was incredibly enthusiastic and spent three months honing his pitch. He says he had a headstart: “I first learned the Busch would not be coming back in October of last year. I think it was as much Nascar’s decision as it was Busch’s. It was a very long-standing sponsorship that I do not think was current with market value. Also it was not a premium brand, not an A-list brand, and I think that Nascar with their shift to Nextel Sprint, they had a strong desire to find the better A-list brand to partner with. So I brought the opportunity to Subway because I thought, and still think, that it was a fantastic opportunity for both parties.”

Subway desperately wanted it as well, as Brown explains: “It gave them ownership in the sport. Here was a US$25-US$35 million dollar proposition. So if you look at the exposure values the Busch series does, if you look at the comparative values, it is actually a good deal.”

Subway sponsors Nascar specifically to sell more sandwiches, as Brown says: “It’s a big national platform all year round. There are a lot of similar values, family values between Subway and Nascar. Subway has got 25 million customers a week. So the value and brand awareness that Nascar and Subway can bring to the table is there.”

This was a consideration, as Nascar wanted any title sponsor to also input a big degree of activation. It knew that Subway would promote the series in its stores. It was very attractive. Brown agrees: “They are a big, well-known brand, but if they owned the series it would give them quite a bit of activation components to work with the consumer.”

Brown laid the groundwork carefully through October to December before he first pitched the idea to his client. The client liked what it heard and, to cut a long story short, Brown on behalf of Subway made an offer to Nascar. Brown claims it is nothing like the high offer that has been reported and says: “We ultimately made an offer, it was not strong, but we made an official offer.” And then he says: “We took too long.”

The collapse came in August after 10 solid months of negotiations. By all accounts, Brown, an eternal optimist, was devastated. But not so much as Nascar’s Steve Phelps who was then left with a huge hole in his plans and maybe even his career at stake if he did not fix the problem.

It left Nascar vulnerable to finding a replacement in a period when most sponsors had already finalised their 2008 marketing sponsorship budgets. An added complication was the long-legedness of the deal. Although it only added up to US$15 million for 2008, over the seven-year term it was a staggering US$130 million in all. It was a signature for US$130 million that was needed. Phelps realised that he would need a decision at main board level for that amount of money.

As a consequence, the price collapsed. Phelps signalled he would accept US$15 million for the whole package and got ESPN and ISC to reduce their expectations. And that decision was potentially embarrassing for Zak Brown who had persuaded his client the deal was worth US$32 million.

After the negotiations with Subway ended, Phelps and his team revisited many of the brands that they had initially turned it down including Kentucky Fried Chicken and Allstate Insurance. Dunkin’ Donuts and AutoZone also joined the process. But the favourite suddenly became an insurance company called Nationwide Insurance.

In many ways it was Brown who had created the renewed interest. With his reputation, other agents figured it was worth looking at, especially as the price had collapsed. This grated Brown as he was forced to watch from the sidelines. It was even more galling when Brown discovered that Nationwide’s agency was Casey Wasserman’s Wasserman Media Group (WMG). Wasserman had started to seriously challenge Just Marketing in motorsport and had recently crossed the Atlantic to open up a London office to poach some Formula One business.

According to American sources, WMG’s Sarah Hirshland rescued the deal for Nascar. Hirshland had managed Nationwide’s sports sponsorship for five years for an agency called OnSport. WMG acquired OnSport earlier this year.

Mindful of Brown’s experience, Hirshland didn’t want to spend a lot of time on the project unless she was certain there was scope for a deal. But she knew her client was serious so she did her groundwork carefully. She recalls: “Everybody knew, or at least thought that Subway had a deal, and when we learned that the property was back on the street, we got interested.”

Hirshland and a colleague, Dana Allen, together with Nationwide’s brand manager, John Aman, met Nascar’s Jim O’Connell at its New York offices in Park Avenue. By all accounts O’Connell got down to business and simply used the deal it had negotiated with Brown and offered it to Nationwide. As a result WMG was able to move fast and made an offer a few days later. There was no haggling. At this stage Nascar had nowhere else to go and just wanted the deal inked quickly.

Once the offer had been made, a week later Steve Phelps and his team visited Nationwide’s headquarters in Ohio and spent two days negotiating. They immediately got down to details and there was a general assumption a deal would happen.

They swiftly cleared off the exclusivity problem. Whilst the broad terms of the deal were the same as Brown’s for Subway, the small print took longer than expected as there was no reference point. It had been 25 years since Nascar had had to negotiate for its second series and they literally started from scratch.

But after 48 hours of negotiating both sides had a deal. Steve Phelps said the WMG agents had done much of the work in advance: “It was obvious all the work they had done. They also had a marketing plan which spelled out the objectives of the sponsorship. You could see what their activation would look like, they had a plan for ESPN, Nascar.com, the endemic books in the sport. They clearly had an enthusiasm and they were straightforward about it.”

The exclusivity question was easily settled. Geico, the Warren Buffett-owned insurer, agreed to exit the series at the beginning of 2010. It was all very amicable. The sponsorship has been very successful for Geico and Nascar promised to smooth its way to the truck series or even to the Nextel Cup.

Nationwide finally signed a seven-year contract in late September and the new series would be called the Nascar Nationwide Series. It was barely weeks after the first meeting and a triumph for Casey Wasserman.

Nationwide is estimated to have paid US$10 million annually plus a six per cent compound escalator every year for seven years. ESPN would also pick up US$5 million annually from Nationwide and ISC US$4 million annually for trackside banners. The whole deal before external activation was around US$20 million. A third of what Subway had agreed to pay for effectively the same deal. It wasn’t a great result for Nascar but at least it was a result and it was 50 per cent better than the deal with Budweiser.

James Lyski, Nationwide’s chief marketing officer, said: “I’ve been involved in a lot of sponsorships, and this is as fast as I’ve seen one take place.” Steve Phelps said: “Nationwide just burst onto the scene. There was a lot of work done in a quick period of time.”

Brown is pleased that Nascar eventually got the deal away and says: “Nationwide came in and when you are buying sponsorship you have got to move quick. There were a lot of issues to work through that we just did not work through quickly enough, and Nationwide came swinging out of nowhere.”

Noting that the final deal was a lot cheaper he maintains he did not advise his client to overpay. He claims Nationwide offered more than the headline deal indicates: “Everyone thought that the Subway deal was done. But I never thought that it was done, I knew it was not done, we were very, very close. But you know at the end of the day, I am not the client, Subway is the client so they have got to make the decision. Nationwide came in and did not share some of the concerns that Subway had the exclusivity thing, and things of that nature. They came swinging in and put more money on the table and I think were more willing to accept some of the issues that affect Subway.”

Brown came  “tantalizingly close” to securing his deal in August. But amazingly it appeared that the longer the negotiations went on the further apart the two sides became. It was reverse empathy and by the end of August, it was apparent the two sides were getting further apart, not closer. A lesson for every sports agent in America.