Forum: HoseHeads Sprint Car General Forum (go)
Moderators: dirtonly  /  dmantx  /  hosehead

I ripped this off of another message board and wanted to post it here to see what you all thought. I DID NOT WRITE THIS, but what do you think?

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Did you ever wonder why it's so hard to get people & businesses to "sponsor" your race program?

Thank about it from the sponsor's point of view. If you sponsor somebody for $1000, you get to reduce your net income by $1000 for tax purposes... you don't get to take $1000 off of your tax bill.

The actual end-cost would depend on what your tax rate is. If you own an S-Corp or LLC you get taxed at your personal tax rate, so if you're total tax rate is 30%... the sponsorship still costs you $700!

Somehow, in order for you to break even on the deal, that racer needs to provide you with $400 in advertising value, $400 in useful product feedback, $400 in something!

Otherwise, why would you give up $700 in profit to save $300 in taxes... just to spite the government?

Let's say I have $1000 in profits for the year. I can:

1) pay $300 in taxes and keep $700 for myself... costs me $300.
2) pay $1000 out in sponsorships and get $300 off on my taxes... costs me $700.
I need to get $700 - $300 = $400 in "value" to break even on the sponsorship.

For large corporations that pay a flat 35% federal income tax plus say 9% in state income tax, the picture is a little different.

If they have $1000 in profits for the year. They can:

1) pay $440 in taxes and keep $560 for themselves... costs them $440.
2) Pay $1000 out in sponsorships and get $440 off on their taxes... costs them $560.
The large corporation only needs to get $560 - $440 = $120 in "value" from their sponsorship in order to break even.

Think about how much radio or newspaper advertising you could by for $400... does a sticker on the side of this guys car or bike get you at least that much exposure?

A lot of racers I know don't give back nearly enough "value" to their sponsors, because they think the sponsorship is a no-cost deal for the sponsor... but that's just not the case.

If you want someone to sponsor your race program, you need to find a way to show them that you can provide enough "value" for them to at least break even on the deal. Whether that means you get their name on TV or in the newspaper, you bring your family & friends into their restaurant or bar to spend money, you provide testing & feedback on their products... whatever you have to do to provide some "value" for the sponsor!

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I honestly did not know that. Very interesting. I thought they received a lot more back in taxes if not all.

one thing to "thank" about here , (JK) is some sponsors/buisnesses are given a allowance from retailing thier product, Fact is, alot of larger corperations dont use all allowed funds for these purposes, knowing who and when to approach potential a sponsor is the real task. Hopefully you bump into the personel in charge of appointing advertising funds, and he/she likes you, and is excited about your program , giving your sponsor proof that thier dollars are working for them is crucial, bumping into the fattest wallet or deepest pockets , is lucky, majority of the time, sponsorship is provided from a family member, friend , or the all mighty,( oh god) Marriage !!

Another thing to think about is most sponsors set there next years sponsorship money up in the last quarter of the year before

I had a long talk with a promoter about this vary subject

Brian 

"TURN AROUND; MATE !"

Having been a sponsor of damn near anything with wheels or wings or propellers on them, I can tell you straight up. Racing sponsorships most of the time is damn near a charitable donation.

SELDOM does a sponsorship lead to money.

A good person to sponsor will see to it that you get real money back from a sponsorship.

One of the drivers I sort of sponsor has seen to it that I get to sell my product to the car shows in their town as well as selling other drivers on the idea to buy my products.

Nothing beats a good old grab someone by the wallet and bringing them to me so I can shake some of their moldy old money out of them also.

Some people believe that having someones name on a race car will automatically get them customers, that my friends is more of an halluciation than a dream, it don't happen.

A sponsor who simply pays money to see his name on the car gets very little to nothing in return.

NOW that being said, I imagine that with great sponsorship like some people get, more money is being spent by the sponsor letting people know he sponsors the car than he spends on the sponsorship itself.

It does not hurt a darn thing either when a driver gives a little something back to the sponsor in the form of an extra.

If you have some high quality shirts made,(at TAGS) get the sponsor one also.

Sponsorship plaques are another good way of thanking your sponsor. The sponsor of anything, at any level wants to get a warm fuzzy feeling about being a sponsor.

One sponsor helping promote another sponsor on the same car doesn't hurt anything either.

A friend here in town made some autograph cards for me to give to the driver of the car I sponsor.

In return, I have pushed the sales of his Tee/s to everybody I run into, including the car show people in the town where the driver lives.

I got the car show awards business, in turn, I asked for, and without a doubt will get a chance to get a bid on the shirts for the car show for the car show also.

When approching a sponsor, you MUST make that person feel that you WILL make money for him.

Nothing worse than a promoter I know, that was wearing a Chevy dealers cap on the night when he had the Ford dealer as the event title sponsor. This promoter never gave it a thought until I mentioned it to him that he might just change caps for the evening at least.

This promoter is now out of business, just as the driver of the Joes Pizza sponsored car was when he went to Ajax Pizza after the races on the night he won the feature.

A driver. his crew and car owner (and fans), as well as their families represnt the sponsor 24/7, The long term sponsorships last when everybody concentrates on making the sponsors money.

Enough about this, drivers, get your Sponsor appreciation items from Laser and get your autograph cards from Minuteman, and let Tags print the shirts you sell. What goes around, comes around.

Save your butt, get a colon screening TODAY

For complete line of Sponsor Awards check out 
MarshallTownLaser.com

Duane Davis

Laser Engraving 
641-751-7777
101 N Center
Marshalltown, Iowa 

Being sponsored by pizza joint a, and being seen at pizza joint b????? Priceless!!

It is an interesting deal, and I think its true that someone said it might be a buddy buddy deal or a friend of the family or marriage that might put their name on the car. I had always been told "that name there on that wing is a 100% tax write off", but I guess that might not always be the case.

I believe that you are correct as to a 100% tax "write off."

The write off is the same write off you would get as any other write off.

The whole thing is however, a write off is not the same as a tax credit.

I would say, a 50% tax credit might just be better than a 100% tax write off.

LOTS of difference between a "write off" deduction and an actual savings of the same amount.

Depending on the tax bracket, a 100% "write-off" could be as little as ZERO in savings to the business owner.

Save your butt, get a colon screening TODAY

For complete line of Sponsor Awards check out 
MarshallTownLaser.com

Duane Davis

Laser Engraving 
641-751-7777
101 N Center
Marshalltown, Iowa 

Let's say I have $1000 in profits for the year. I can:

1) pay $300 in taxes and keep $700 for myself... costs me $300.
2) pay $1000 out in sponsorships and get $300 off on my taxes... costs me $700.
I need to get $700 - $300 = $400 in "value" to break even on the sponsorship.

For large corporations that pay a flat 35% federal income tax plus say 9% in state income tax, the picture is a little different.

If they have $1000 in profits for the year. They can:

1) pay $440 in taxes and keep $560 for themselves... costs them $440.
2) Pay $1000 out in sponsorships and get $440 off on their taxes... costs them $560.
The large corporation only needs to get $560 - $440 = $120 in "value" from their sponsorship in order to break even.

 

I'm not sure what accountant you've spoken with but ......

If you have $1,000 in profits but spend $1,000 in a business expense you no longer have a profit (net profit is ZERO), thus you no longer have a tax liability.

Advertising is a business expense. Sponsorship is advertising. The tax bracket issue would only have bearing if you didn't advertise through the business, took the profits PERSONALLY and then gave some sponsorship money.

If a Team runs as a Business, payx taxes what is the Official Deduction rate in Califronia, Specifically Campbell Local, State & Federal Deduction Rate May Vary?

I'm not sure what accountant you've spoken with but ......

If you have $1,000 in profits but spend $1,000 in a business expense you no longer have a profit (net profit is ZERO), thus you no longer have a tax liability.

Advertising is a business expense. Sponsorship is advertising. The tax bracket issue would only have bearing if you didn't advertise through the business, took the profits PERSONALLY and then gave some sponsorship money.

Are you saying the $1,000 costs the businessman nothing, or are you saying that his tax bill will be reduced by $1,000, or are you saying that the amount that you pay taxes on will be $1,000 less?

A whole bunch of difference here between a tax deduction and a tax reduction of $1,000

We need Jon, Mark or one of a number of sharks, err I mean lawyers on here to respond to this before some racer makes a fool of themselves in front of some Corporations Board of Directors.

Save your butt, get a colon screening TODAY

For complete line of Sponsor Awards check out 
MarshallTownLaser.com

Duane Davis

Laser Engraving 
641-751-7777
101 N Center
Marshalltown, Iowa 

If a company has no profits it pays no taxes.

In the case of an "S" corp the company doesn't pay taxes anyway, those profits are passed along to the shareholders. If there are no profits there would be no tax liability.

In the case of a "C" corp the company pays taxes. If there are no profits there would be no tax liability.

If your business expenses equal your sales then you have no profits. If you have no profits you pay no taxes.

Okay, here I am with my accountant's hat on as per Duane's request. Please don't fall asleep at your computer as enter the world of accounting and taxes....you have been warned!

Generally speaking, advertising is an ordinary and necessary business expense just like, rent, utilities, supplies, bank charges, freight, licenses, etc. You get my drift, right?

I think there are two questions being asked here, and I am going to address the latter first. What are the tax savings to business taking a deduction for advertising expense? There is really not one answer that specifically answers that question. As you have already seen there are many different types of entities...sole proprietorships, partnerships, LLC's, S-Corporations, C-Corporations and they all have different tax situations. It is my opinion that a well written sponsorship proposal would probably make note of the fact that the business may be entitled to a deduction, but they should check with their accountant first to determine the tax impact of the transaction.

I really feel that a well written, long lasting and valuable sponsorship/advertising program has to show results for the business to want to become involved and hopefully develop a long term relationship. Companies of every size only have so much in resources that they can allocate to advertising. Smart businesses know what their industry/competitors spend on advertising and they should be happy to become involved with successful programs but THEY HAVE TO DELIVER.

The point here is that if you are capable of bringing customers to the cash register, this is going to be a win - win deal for both the sponsor and the sponsoree. Getting a business to throw good money after bad (advertising dollars after tax savings) is not best approach to a long and meaningful relationship. Plus, once you develop a habit of doing this with three or four different sponsors, you haven't established much credibility for your own enterprise, now have you?

One area of concern is something I touched on before....ordinary and necessary business expenses. Here is some industry data for an automotive repair business.

Let's say that this business does $500,000 in sales per year. That means that the industry average for advertising expense for this type of company is anywhere from $4,750 to $12,950 per year. How happy do you think this company is going to be to see a sponsorship proposal for $50,000.00? Not very. Even if you could convince this type of business to give up $4,400 (half of the average advertising budget) you are going to have to deliver more customers than if the business spent almost $400 per month in newspaper, or radio, or local TV or Yellow Page ads. That is what you are up against.

So to answer the question: Why would a business want to spend money on sponsorship/advertising? The answer is simple: Because your enterprise can deliver more customers than any of the other options out there. If you can continue to provide results for your advertisers, that is how long lasting business relationships are made.

A great example of this is Dale Earnhardt Jr. and Kyle Busch. I am going to go out on a limb here and say that Dale Jr. has a larger fan base than Kyle Busch. Hendrick motorsports gave up wins for publicity at this point in time. Granted I don't have the numbers at my fingertips to back this up, but I am going to say that increases in Amp energy drink sales have exceeded the increases in M&M sales as of late.

Petty Motorsports is another great example. Kyle is a great ambassador to the sport but probably not the best shoe in the garage area. However, they continue to bring customers to the sponsor and this day in age those are the results that really matter.

Last but not least. On the issue of ordinary and necessary, if we as industry consultants have numbers at our disposal such as the above .95% to 2.59% advertising to sales ratio, you can darn sure someone else does too. That entity goes by the initials I.R.S. And if you think there computer doesn't notice $50,000 in advertising on $500,000 of sales you are living in the dark ages or in times back when Duane had a full head of hair. Those kind of irregularities are what trigger audits so I hope that you will take that into consideration and wish you all a safe and prosperous racing season.

In accordance with Circular 230 section 10.37, IRS regulations require us to advise you that, unless otherwise specifically noted, any federal tax advice in this communication (including any attachments, enclosures, or other accompanying materials) was not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding penalties; furthermore, this communication was not intended or written to support the promotion or marketing of any of the transactions or matters it addresses.

Mark Burch, EA
Burch & Associates, Inc.
8101 S 15th Street Suite B
Lincoln NE 68512
402-483-4791 phone
402-483-4275 fax
[email protected]
www.markburch.com

Rome wasn't built in a day......but they sure didn't
waste any time burning it down!

Thanks Mark, sort of makes my point that MOST small time racers are being sponsored because the sponsor likes the sport way more than the sponsor is making a wise business decision.

Low blow on the hair.

My barber charged me double last time because it took his so long to find it! lol

Save your butt, get a colon screening TODAY

For complete line of Sponsor Awards check out 
MarshallTownLaser.com

Duane Davis

Laser Engraving 
641-751-7777
101 N Center
Marshalltown, Iowa 

Too funny about the hair remark.

what hair? oh that is the funny part, the lack of hair.

Save your butt, get a colon screening TODAY

For complete line of Sponsor Awards check out 
MarshallTownLaser.com

Duane Davis

Laser Engraving 
641-751-7777
101 N Center
Marshalltown, Iowa 

how would you ever know if pizza joint "A's" pizza is better? without trying a slice of pizza joint "B"? maybe B's is better? unless of course both are too spicey? which intern, would introduce sponsorship possibilities of pizza joint "C" & "D"? Now, I do know how a pizza after a nights racing goes , and this could be a deep subject, unless of course you preferr pan? next topic, Lauger or Ale? tastes great less filling?

Great topic, but I see more sugar daddy's than actual sponsors in sprint car racing. Does the local whatever business actually get a return on investment at a local dirt track? If a business gives a team $10,000. cash and there business makes 10% on there product that means they need to sell $100,000. in product from your racing exposure to break even. I just don't see where that many local businesse's can make it pencil out. So thats when you find a sugar daddy's who has money to blow and likes seeing his name on your wing.

 .

Black , well said!