Media & Marketing and Sports Business

Lucas owner says skeptics off base: 'Small company' big enough to handle major deal, he says

March 27, 2006

The Indianapolis Colts had to be convinced that California-based Lucas Oil Products Inc. was the right company to buy its stadium naming-rights package. Football franchise executives were quickly converted, but the deal still has its detractors. A month after the 20-year, $121.5 million agreement was announced, sports sponsorship experts remain skeptical it will pan out.

"This is a heavy investment for such a small company," said William Chipps, senior editor of Chicago-based IEG Sponsorship Report. "I can tell you it took everybody in the sponsorship industry by surprise."

Driving the suspicions of Chipps and other executives is Lucas Oil's annual revenue. At somewhere just north of $100 million, it pales in comparison to the money generated by other stadium sponsors. Yet Lucas has agreed to pay the NFL's fifth-highest naming-rights fee.

Reliant Energy, which signed the league's most lucrative naming-rights deal with the

Houston Texans, has annual revenue of nearly $10 billion. FedEx Corp., which has a deal with the Washington Redskins, grosses $29 billion, and Bank of America, which has a deal with the Carolina Panthers, hauls in $85 billion.

"These are very deep-pocketed companies and you have no doubt they're going to be long-term partners," Chipps said. "Losing a naming-rights partner can be very damaging to the branding of a venue, not to mention costly to the team in terms of lost revenue and expense of signing a new deal and making the changes necessary to the stadium."

The fact that the Colts put a clause in the contract with Lucas Oil requiring the oil maker to pay for all sign changes is not an indication there's any lack of confidence in the long-term deal, said Tom Zupancic, Colts' senior vice president of sales and marketing.

In fact, Zupancic said, Lucas has already made the first $5 million payment-before payment was due. The deal calls for payments to increase over the next 20 years, peaking at $6.6 million in 2027. Zupancic noted the Colts beat by almost a year their own deadline to have a naming-rights sponsor for the $625 million retractable-roof stadium.

Though the Colts were ecstatic to reach agreement with Lucas Oil, Zupancic said no contracts were signed until a thorough examination of the company's financial records was completed.

"You want your stadium to have consistency, and that name to be emblazoned on people's minds," Zupancic said. "You don't want to go through a rebranding. Logistically, it's a very painful process."

Money in the bank

Forrest Lucas, the Indiana native who founded Lucas Oil, laughs off the doubters. Lucas has no media intermediaries, no huge administrative staff, and often fields his own calls.

"There's one thing we don't have that a lot of this country's biggest companies have," Lucas said. "Debt. We don't owe anybody a penny and we have money in the bank."

Some skeptics suggested Lucas is merely looking to raise its profile in the short term to attract a buyer.

"I can guarantee you, with this deal, they're on people's radars," Chipps said. "And that includes corporate suitors."

Colts officials said they have been assured the company's ownership is stable.

"We're not looking to be acquired or go public or anything like that," Lucas said. "This is a company we've grown ourselves, and we plan to continue to do that."

Lucas Oil is growing 40 percent annually, he said, and the company continues to advertise aggressively, spending about onethird of its revenue on marketing. The company has about 80 percent of its sales in the United States, but is growing fast in Asia, Australia, Europe and South America.

Lucas scoffs at suggestions that only one or two other companies showed interest in the naming rights and that the price is too high for a small NFL market such as Indianapolis.

"This type of deal isn't worth the same to everybody," Lucas said. "For us, it's the perfect fit."

Sponsorship off track?

Motorsports interests-eager to see Lucas up his sponsorship ante in their industry-disagree.

Lucas has been involved in motorsports sponsorship almost since he launched his company in 1989 after a lengthy career as a truck driver. The Lucas name has been attached to some of the top teams in the National Hot Rod Association, but his teams in NASCAR have run middle- to back-ofthe-pack because of their low budgets.

"When you look at Lucas Oil next to other companies who have signed naming-rights deals-Ford, Gillette, Heinz-they stick out like a sore thumb," said Zak Brown, president of Just Marketing, a locally based motorsports marketing consultancy. "The disconnect I have is motor oil and football. I think they'd have been better off beating All-State to the namingrights deal for the Brickyard 400. There they have a more natural audience for their products, and NASCAR fans are much more loyal than NFL fans."

Lucas has no plans to slow his company's sponsorships of motorsports teams, venues and events.

Though Lucas' entry into NFL advertising appears curious, Lucas said it's completely logical.

He has been involved with the Colts only a little more than a year as one of the team's secondary sponsors. But he was immediately drawn to the high character of the Colts' players and personnel. He also recognized that Peyton Manning and the Colts' all-star cast could draw national-even global-attention.

The icing on the cake was the NCAA's commitment to use the facility for Final Fours and the city's use of the stadium for conventions and other gatherings.

"They're going to use this building more than 200 times a year," Lucas said. "This deal became an obvious choice for what we were trying to do."

The Colts hired The Bonham Group, a Denver-based sports marketing consultancy, to help set the asking price, and it took only two meetings and one stadium flyover to convince Lucas the price was right.

Everyone needs an oil change

What Lucas is trying to do is broaden his company's offerings from a specialty motor oil aimed at the racing, trucking and motorcycle industry to one going after general consumers.

"We're looking to compete with Valvoline and Pennzoil," Lucas said. "We have about 40,000 dealers right now, but we're really looking to increase that."

Lucas' goals might sound lofty, maybe even downright cuckoo, but that's nothing new for the 64-year-old self-made businessman.

"When we started selling a longer-lasting oil, we were told nobody in the industry was interested in that," Lucas said. "They wanted to sell more product, not less. We showed the industry our model could work."

Lucas Oil is sure to get plenty of exposure to a broad audience. Ford Motor Co. got the equivalent of $13.6 million in exposure because Ford Field hosted the Super Bowl, according to Joyce Julius and Associates, a Michigan-based marketing research firm, and a typical Sunday or Monday night football game broadcast nationally is worth $3 million to $5 million.

But equating exposure to sales is another matter entirely.

"You have to be willing to spend a lot more money to back up the deal to maximize the benefit, and you just wonder if a company this size can do that," IEG's Chipps said.

Lucas plans a heavy dose of local, regional and national print and broadcast advertising to reinforce the stadium deal.

"In the year Lucas has been with us, they've been very aggressive in promoting the relationship," Zupancic said. "We couldn't find another naming-rights partner that would be more aggressive. We are convinced they will run a media campaign and do promotions to take their name and our name out to the public."
Source: XMLAr00303.xml
ADVERTISEMENT

Recent Articles by Anthony Schoettle

Comments powered by Disqus