July 7, 2007
By Chuck Wallace

AT&T’s lawsuit against NASCAR has generated big headlines and a lot of talk at Cup races since it was filed in March. NASCAR’s recent $100 million counterclaim against AT&T only adds fuel to the often fiery discussion. But even members of the NASCAR media remain somewhat confused about what is actually going on in this case, and how it might impact Cup series racing. This article, written by an attorney after review of the court filings available, seeks to give race fans a better understanding of this case and what it may mean for the future.

How We Got To Court
In 2000, the wireless communications company Alltel began a relationship with Penske Racing South to sponsor the 12 car. Sometime in 2001, Cingular LLC—a joint venture between (and thus owned by) SBC Communications and BellSouth—began a relationship with Richard Childress Racing and became the primary sponsor of the 31 car for the 2002 season. The sponsorship was to last for five years, with provisions for extending it.

In the latter half of 2003, NASCAR and Nextel began to formalize the agreement by which Nextel would become the Cup series’ title sponsor for 10 years. Nextel wanted to be an aggressive and integrated sponsor for the series, and unveiled its plan to develop a new wireless information and communications device that NASCAR fans could use at Cup series races to follow the action and listen to communication. Nextel offered to pay NASCAR $750 million to become the Cup series title sponsor, but for this demanded that NASCAR sign an exclusivity agreement making Nextel the only wireless communications provider associated with events at the track during Cup races. (The agreement would not affect television advertising).

NASCAR made it clear to Nextel that while it did not have a problem granting exclusivity going forward, it was uncomfortable both legally and personally with the idea that the exclusivity agreement would supplant the sponsorships existing at RCR and Penske. Through discussions, the parties agreed to allow the existing sponsorships to continue—and even be extended—provided that “the sponsor” remains with the same car, and does not increase “its position” on the car (meaning that if the sponsor is a secondary sponsor, it cannot become a primary sponsor).

After these discussions, Nextel’s sponsorship of the Cup series was finalized, including an exclusivity agreement wherein Nextel was named exclusive wireless communications sponsor of the Cup series beginning in 2004 and NASCAR agreed to forbid any sponsorship participation by Nextel’s competitors, which were listed by name in the exclusivity agreement and included Cingular, Alltel, AT&T, Sprint, Verizon, etc. The NASCAR/Nextel agreement noted that it was subject to a grandfather agreement that would be executed between NASCAR and its race teams with existing wireless sponsors, and provided that Nextel recognized that existing agreements between teams and “sponsors” would be allowed to continue.

NASCAR isn’t a party to raceteams’ sponsorship contracts, but NASCAR requires car owners and drivers to sign annual “Driver and Car Owner" agreements.” The grandfather agreement between NASCAR and the teams with existing wireless sponsorships was incorporated into the Driver and Car Owner agreements beginning in 2004. It provided an exception to the Nextel exclusivity agreement that was entirely phrased in terms of “existing product licensing relationships” and allows “the sponsor” to remain as long as the sponsor stayed with the same car and did not improve its position on the car. NASCAR also alleges that it told Cingular and RCR that “third-parties” would not be allowed to join the sponsorship by buying Cingular. There is some debate over what was actually said.

The annual Driver and Car Owner agreements also clearly provide that all sponsorship activity is subject to NASCAR’s rule book, which gives NASCAR broad discretion to regulate the sport, and expressly includes NASCAR’s right to govern what advertising and paint schemes are allowed on the track. NASCAR makes all drivers, owners and sponsors annually agree to be bound by the NASCAR rule book. This included Cingular, which also agreed to be bound by NASCAR’s rules.

In 2005, Cingular-owner, SBC Communications acquired AT&T. However, to capitalize on the worldwide brand recognition of AT&T, SBC changed its name to AT&T. After this development, NASCAR notified RCR in an April 2005 letter that Cingular would not be permitted to change its brand name or logo on the 31 car. In late 2006, SBC Communications (now AT&T) merged with BellSouth. The resulting company kept the name AT&T, but since Cingular LLC was no longer a joint venture (as its two owners were now merged), AT&T wanted its wireless company to also carry the AT&T brand. It then legally changed the name of Cingular LLC to AT&T Mobility LLC and began the transition from the Cingular name and logo to the AT&T name and logo in its worldwide wireless activities.

In preparation for the 2007 Cup season, Cingular (now AT&T Mobility) exercised its right in the sponsorship agreement with RCR to determine the name and logo on the 31 car, and submitted a new paint scheme featuring the AT&T name and logo. RCR submitted the new scheme to NASCAR, which rejected it. NASCAR explained to RCR and AT&T Mobility that NASCAR held the right under the rules to make paint scheme decisions and that it was precluded by the exclusivity agreement with Nextel from allowing the AT&T name and logo. NASCAR told RCR and AT&T Mobility that the grandfather agreement did not allow a company name change and that NASCAR had previously told them that new third parties would not be allowed to join the sponsorship.

What Has Happened In Court
In March 2007, AT&T Mobility filed suit against NASCAR alleging that it was not a third party to the sponsorship agreement or the grandfather agreement, and since it was not a new company, it was allowed under the law to change its name without affecting its contractual rights. AT&T pointed out that the grandfather agreement only referred to “the sponsor” and did not limit the sponsor to a particular name or logo. Thus, AT&T argued, NASCAR was violating AT&T’s contractual rights by requiring that only the Cingular name and logo could appear on the 31 car. AT&T contended that it was being damaged by NASCAR’s refusal because it inhibited the brand transition from Cingular to AT&T and was likely to confuse race fans because Cingular appeared to still be an active brand when it was not.

NASCAR responded that it had broad discretion under its rule book to regulate advertising on Cup cars and it was exercising this discretion by keeping the AT&T logo out of Cup racing. NASCAR also alleged that it advised Cingular and RCR on numerous occasions that it could not change the brand name on the 31 car.

The federal judge in Atlanta, where the suit was filed, issued his ruling on May 18, granting AT&T Mobility an injunction that temporarily ordered NASCAR to allow the AT&T name and logo. Judge Shoob found, preliminarily, that the grandfather agreement did not limit Cingular’s sponsorship rights to a specific name or logo, and that AT&T Mobility was not a third-party, but instead Cingular, with the same ownership but a new name. The judge agreed that AT&T Mobility was being damaged by NASCAR’s refusal to allow the change and that it was likely to cause confusion in the marketplace. With regard to NASCAR’s rule book, the judge found that the general rule that NASCAR has the broad discretion to govern advertising is trumped by NASCAR’s specific agreement to allow Cingular’s sponsorship rights to continue despite the exclusivity agreement with Nextel.

A preliminary injunction does not mean the case is over. And it does not mean that the judge will maintain his position on the issues influencing his decision to award the injunction. It only serves to establish certain rights—based on a specific showing of certain factors—to be in place while the full law suit continues. NASCAR appealed the judge’s ruling to the U.S. Court of Appeals for the Eleventh Circuit, but the appeal was denied.

Thus, the litigation continues, with the preliminary injunction in place. For now, AT&T Mobility can use its logo on the 31 car. AT&T must feel pretty confident about its chances because it recently extended its sponsorship with RCR on the 31 car through 2010. It is unknown whether the extension is contingent on any specific result in court.

On June 17, NASCAR countersued AT&T for $100 million for interfering with its sponsorship with Nextel and for failing to honor its commitment to follow NASCAR’s rule book, which gives NASCAR broad discretion to govern the sport. NASCAR also asked the court to rescind the grandfather agreements and force all non-Nextel wireless sponsors out by 2008. Given that this is now a full blown corporate litigation, it is unlikely that the trial court will come to any complete resolution of the case anytime in the near future. The case must now either be determined by a summary judgment motion, a trial verdict or be settled by the parties.

What Is Really Going On Here?
While lawsuits like this are very rare in the world of NASCAR, where the sanctioning body has enjoyed almost unquestioned discretion to rule its domain, this case isn’t all that unique. It is basically a big corporate fight over the interpretation of contracts and these types of cases are filed everyday in America.

In our society, rights and obligations are determined by law and by contract. And there is a complete body of law and principles that govern how these disputes are to be determined. Speaking generally, here are 5 general principles that matter in this case:

1. Companies are generally allowed to change their names without affecting their contractual rights or obligations, unless the company is specifically limited by a contract that prohibits the company from changing its name.


2. When it comes to interpreting contracts, the “letter of the agreement”—that is, what the words actually say when the parties signed the agreement—is generally given the most weight. Evidence about conversations, or one-sided writings such as letters, are considered “collateral” and generally will not modify the written word of a contract.


3. Once written contracts are finalized, they cannot be modified without the written agreement of both parties.


4. When provisions within a contract are in conflict, or multiple contracts or agreements appear to be in conflict with each other, a specific clause or provision is generally given more weight than a general clause or provision. In other words, a specific provision, such as “Chevrolets must be blue” will trump a general provision, such as “Cars will be painted red.”


5. A party generally cannot be found liable for damages to another as the result of the party’s action that was specifically ordered by a court.

So it appears that the grandfather agreement fails to limit Cingular to a specific name or logo. NASCAR says that it told Cingular and RCR that it could not change the sponsor’s name but there are two problems with that. First, if NASCAR told Cingular and RCR about this before the grandfather agreement was finalized, why isn’t it written in the agreement? Again, the word of a written agreement will prevail over other evidence. And secondly, if NASCAR told them after the agreement was finalized, it is a modification to the agreement that must be agreed upon by both parties and written—and there is no evidence that such an agreement to modify was ever made.

What might be most difficult for NASCAR to accept is that it doesn’t have unlimited discretion to govern the sport by mere operation of its rule book. By operation of these legal principles, NASCAR’s general rule that it maintains all discretion to determine advertising is trumped by the specific wording of the grandfather agreement. In other words, when NASCAR agreed to allow the 31’s “sponsor” to continue despite the Nextel exclusivity arrangement, this specific promise trumped NASCAR’s rule that it has the right to determine what sponsors are allowed at the track. Not only is this the rule of law, this must be the case because otherwise, if NASCAR always had the right whenever it wished, to keep Cingular off the 31 car, then the entire set of agreements in this case would be meaningless. If NASCAR is going to be party to contracts in the world of business, those contracts must be given effect—NASCAR cannot maintain the option to render them meaningless whenever it so chooses. Our system doesn’t work that way.

As far as NASCAR’s counterclaims go, they are also likely to be rejected. NASCAR claims to have been damaged by $100 million by AT&T’s actions related to the 31 car. AT&T’s participation in Cup racing since the All-Star weekend was the direct result of a federal court order. NASCAR is not entitled to damages for AT&T’s actions that were ordered by the court. Secondly, aside from attorneys’ fees and costs, a party is not entitled to claim damages that result from another party’s lawsuit asking the court to determine relevant rights and obligations under the law. Likewise, AT&T’s lawsuit cannot be the basis of contractual interference with the Nextel sponsorship. Part of the purpose of our court system is to determine relevant rights and obligations under the law and under contracts—and that’s all AT&T has pursued in this case.

With regard to NASCAR’s request to kick out all wireless sponsors by 2008, Ryan Newman fans probably don’t need to worry too much. The fact remains that NASCAR gave these wireless companies rights in the grandfather agreement that allow them to remain as sponsors in the sport despite the Nextel exclusivity, and so long as that agreement remains in effect, NASCAR can’t just rescind it, and it is unlikely that the court will simply throw out the grandfather agreements just because NASCAR wants it to. There has to be a legitimate legal reason to undo the grandfather agreements and there doesn’t appear to be one.

There also is the issue of NASCAR’s concern about Nextel—who really is the big dog in all of this—whose $750 million sponsorship is what is driving NASCAR’s actions. Nextel knew about the language of the grandfather agreement because it was noted in the NASCAR/Nextel agreement. In such a situation, it doesn’t seem like Nextel will have much success at arguing that NASCAR failed to protect its exclusivity when Nextel was aware of the grandfather agreement and its language and consented to it. If the court finds that AT&T can participate in Cup racing by operation of the grandfather agreement, Nextel isn’t likely to have much of a case against NASCAR.

And a quick note about the Nextel/Sprint merger and the likely name change to the Sprint Cup for 2008. The series sponsorship agreement between Nextel and NASCAR specifically allows one name change during the course of the sponsorship. So the change is allowable by the contract and should occur without any hurdles. While some may think it is hypocritical for Nextel to change its name while it argues that Cingular cannot, the answer really is that as the $750 million sponsor, Nextel bought the right to at least try to control which wireless companies can be a part of Cup racing. Again, there are no laws or rules that prevent name changes—only contracts. And when big businesses get involved in complicated contracts and contract disputes, they’re often not interested in whether something appears fair.

How Is This Going To Impact Cup Series Racing?
In the end, this lawsuit isn’t going to shake the world of NASCAR, as some members of the media have suggested. The principles of our general legal system have always been an underlying part of NASCAR. Just as NASCAR couldn’t sell drugs at the racetrack to spectators, the law also prevents NASCAR from entering contracts and then not abiding by them. NASCAR has the right to grant exclusivity agreements and grandfather agreements, but when those agreements are subject to dispute, NASCAR is going to be bound by the commercial laws of this country. This is nothing new.

But NASCAR will still have discretion to run the sport and enter into whatever agreements are allowable by law, and NASCAR can still have its rule book. Those rules and NASCAR’s authority, however, do not give NASCAR to right to unilaterally change or refuse to honor the contracts that it joins. NASCAR has become rich and powerful. But it needs to learn, and I think that this lawsuit is going to teach it, that in big business, you’re often only as good as your lawyers. If NASCAR and Nextel wanted to limit Cingular to a specific name and logo, all it had to do was say so in the grandfather agreement. It is just that simple. Had NASCAR done that, none of this would have happened.

The thoughts and ideas expressed by this writer or any other writer on Insider Racing News, are not necessarily the views of the staff and/or management of IRN.