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Naming-rights deal puts Lucas Oil in competitive position

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Emboldened by the deal he signed to put his company's name on the Indianapolis Colts' new home, Forrest Lucas has launched an arsenal of creative--some would say unorthodox--initiatives to fortify his growing company.

Many of them are designed to help Lucas Oil Products go head to head with the oil industry's biggest players. But if Lucas comes up short in his efforts to outsell the Pennzoils and Valvolines of the world, skeptics say, Colts officials could be looking for a new naming-rights partner before the 20-year $121.5 million deal expires.

"One of Lucas' biggest challenges is, it's a new brand entering a mature market," said Larry DeGaris, director of academic sports marketing programs at the University of Indianapolis. "Getting into the motor oil category and competing with companies that have been around for decades and decades is a steep challenge. And it takes a lot of money."

The $6.1 million annually Lucas will pay for the naming-rights deal, DeGaris said, is just the start.

"They'll need to spend at least another $6 million a year more to activate and fully leverage the sponsorship," DeGaris said. "It's a high-risk, high-potential proposition. It's not a move for the faint of heart."

That suits Lucas just fine.

"We know once we get our name out, our products will stand up against anyone's," said Lucas, the Hoosier native who founded the company in 1988. "That's what this naming-rights deal is all about. And now our competitors know we're coming."

Since 2006, Lucas has purchased a railroad company, a video and animation studio, and a cable television channel--and rolled out plans to start a chain of quick-lube oil-change centers and carwashes in Indiana next year.

Finance experts said these moves could put the company at risk of being too highly leveraged. Lucas said he made the deals without driving up the company's debt.

Although Lucas won't divulge revenue, he said it has grown from $30 million in 2001 to "far more than $150 million" this year.

The former Indiana trucker formed his own oil company when he became unhappy with the performance of his trucks using the oil and lubricant products on the market. Lucas Oil has since morphed into a 300-employee operation with facilities in California and Indiana.

"It must sound like we're out in left field," Lucas said. "But we never follow the norm on anything. The last thing I want to hear is, 'That's the way it's always been done.' For all I know, you've always done things the wrong way."

He said the stadium deal is already driving revenue gains in his company's oil-based products, which started with oil additives but has since grown to include a range of products, including oil sold directly to everyday motorists. But Lucas realizes more muscle is needed to leverage the increased brand identity.

"People come up to me and say, 'I use all your products,'" Lucas said. "And they use three or four of them."

Lucas has 10 product lines and more than 50 products, including oils, additives, fuel treatments, grease and cleaning agents. He already spends 25 percent to 30 percent of his budget on marketing.

Although sales aren't as high as projected so far this year, Lucas said his firm will still see big revenue gains, especially from the sale of motorcycle oil, truck diesel oil and hydraulic oil boosters. Growth in consumer motor oil sales is slower than Lucas expected, but he is undeterred.

Most general-use motor oil is sold through quick-lube stations and auto dealerships. To get in on the action, Lucas plans to open Lucas-branded quick-lube and carwash service centers. Two outlets will open early next year, Lucas said--one off State Road 36 in Avon and another in Evansville--and several others will follow in short order.

Unusual expansion

Since signing the naming-rights deal, Lucas has made a bevy of bold business moves. When he needed to secure transportation for his Corydon oil bottling plant in 2006, he bought the struggling Louisville New Albany & Corydon Railroad, a seven-figure investment. He plowed millions more into enhancing the line that serves several southern Indiana manufacturers. Lucas said the railroad and bottling plant are flourishing.

When the California video production and animation firm that helped put together Lucas' advertising faltered financially, Lucas bought it and opened Lucas Oil Production Studios. Now the firm also handles video production for his racing operations. Lucas invested six figures in high-definition equipment, and said the operation is set for expansion.

In May 2006, Lucas opened a 10,000-seat racetrack in Wheatland, Mo., with a state-of-the-art track, pit facilities, suites and a restaurant. Lucas said the track has helped market his oil business and a cattle ranch in the region.

About six years ago, Lucas bought about 60 acres to dabble in raising cattle, a passion he's had since his days in Indiana 4-H fairs. Now, Lucas' ranch is a profitable 15,000-acre operation, he said.

His latest venture was buying part of a fledgling cable television station, Colorado-based MavTV, in March. MavTV carries male-oriented programming, including motorsports.

"The demographics are a perfect match for our company," Lucas said.

Lucas thinks the naming-rights deal gave him the visibility to get an audience with cable companies that are considering carrying MavTV on their systems. "We're close to getting a deal done with Comcast," he said.

Lucas this year also has expanded his firm's research and development lab at company headquarters in Corona, Calif.

Converting skeptics

People looked at Lucas skeptically when he proclaimed shortly after signing the stadium deal that he was out to take on the world's biggest motor oil companies.

"There was such a steep curve to what he was trying to accomplish," said Zak Brown, president of Just Marketing International, an Indianapolis-based motorsports marketing consultancy. "And there seemed to me to be a disconnect from the leap from motorsports sponsorship where Lucas was so big to a naming-rights deal for an NFL stadium."

Since that 2006 announcement, Brown changed his thinking.

"If you want to be a big national brand, you have to start acting like one," Brown said. "Now, you can see the momentum this brand is gaining."

Cary Hammond, who operates the Old English Golf Course in English, about 120 miles southeast of Indianapolis, never doubted Lucas.

"Forrest has spent his whole life climbing mountains people didn't think he could scale," said Hammond, who met Lucas more than 20 years ago while pumping gas in English.

Facing stiff competition

Lucas' motor oil market share has bumped up from about 1 percent before the naming-rights deal to nearly 3 percent since, but the market is dominated by the likes of Pennzoil, which has almost 31 percent of the U.S. market; Valvoline, which has 17 percent; and Castrol, which has 14 percent, according to Washington, D.C.-based American Petroleum Institute.

"It's not like Lucas is going from A to Z," said Jim Walton, president of Brand Acceleration, a locally based brand and marketing consultancy. "They're going from A to B. Lucas is already a big dog in racing circles, and by association is seen as having a premium product. Now they have to reach a broader audience with that."

The stadium deal has already reached football fans as far away as Canada, but Lucas said the deal's value goes far beyond football.

"We're very eager to get in front of all the people that will come to this facility for conventions and trade shows," Lucas said. "Those visitors will take Lucas' message with them when they go back home. That's why our themed plaza in the stadium is so important."

Lucas has leveraged the stadium deal to place his products in numerous U.S. car-service chains, including NAPA, Pep Boys, AutoZone and O'Reilly Auto Parts.

Despite advice from marketers who told him his products need to be sold through mass retailers, Lucas has no interest in dealing with Wal-Mart and other big boxes.

This year, Lucas yanked his products out of Dollar General Stores nationwide after they refused to adhere to his pricing requests.

"We want to make and be known for the top-of-the-line stuff," he said. "There's a lot more profit there than just pushing product out the door."

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