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Hendrick lawsuit will reveal strength or weakness of DEI
By admin | November 25, 2008
By Richard Allen
HMS Holdings, the arm of Rick Hendrick’s enterprise which operates the Hendrick Motorsports engine shop, is bringing suit against Dale Earnhardt, Inc. for $1.5 million.
The lawsuit stems from DEI’s 2007 takeover of Ginn Racing. At that time HMS was supplying Ginn with its racing engines. Since DEI builds its own engines there was no need to continue the agreement. So, the two sides arranged for a termination agreement, or in other words a buyout.
DEI was to pay Hendrick $1.754 million by July 31, 2007 and $1.5 million by November 15, 2008 to satisfy the financial obligations of the Ginn/Hendrick contract. The first payment was made but the second was not, according to court documents.
Perhaps the most intriguing aspect of this suit is the speed with which it has occurred. The payment was due on November 15th and the suit was filed very shortly thereafter. It would seem that a grace period or a time for discussion between the two sides would have been allowed for.
It almost seems as though HMS did not anticipate ever being paid or they believe there is a real danger of not receiving payment should they wait for very long.
Word has it that DEI is about to merge its efforts with Ganassi Racing. With no legal training whatsoever, I can only speculate that HMS might have wanted to get its payment before the complications of a merger were added to the situation.
However, there is another possibility to have crossed my mind. It is no secret that DEI is facing an uphill financial battle. They have lost key sponsorship deals with the U.S. Army and Menard’s in recent weeks with no announcements of deals to replace those lost. Perhaps Hendrick is moving to collect while there is still something to collect.
The fact that payment was not made on time says something about DEI. They obviously agreed with the initial deal because they made the first payment. Had they not agreed with that arrangement it would seem logical that they would not have made any payment, especially one of $1.754 million.
The fact that this case has gone this far reveals that something is going on at DEI. It could be that they are consumed with their possible pending merger and put this payment on the back burner. Or, it could be that there are financial issues of some sort to prevent payment from being made.
If DEI goes ahead and pays the amount it owes it will show that the company is on firm financial footing. However, if this is allowed to drag on for an extended period of time without payment being made or an agreement being reached it may reveal there is significant weakness in the company’s finances.
Richard Allen is a member of the National Motorsports Press Association. His weekly column appears in The Mountain Press every Wednesday.
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November 26th, 2008 at 4:35 pm
I have been a huge Earnhardt fan for as long as I can remember. I am 35 so that has been a while. I remember watching Sr. race in the early 80’s and am not a “bandwagon fan”. I think that Sr. would be very disappointed in the way the company that he built is being run. In my opinion, Teresa is greedy and just in it for the money. It is no secret that she rarely if ever is at the track. You never see her anywhere. The fact that she would let Jr. get away when the main thing he wanted was part ownership in the company (perhaps to have a bit more control over it) shows my point. That single act of greediness is the starting point and will be the reason for “The fall of DEI”.
November 27th, 2008 at 6:16 pm
Look a contract is a contract, but here is a perfect example of greed and excess in the sport!
Look at the cost just to supply engines , no wonder Bobby Ginn got out!
When you see this much money change hands and high profile teams laying off people at Christmas time who I think could have work things out until at least after Christmas! Too much money is one of the factors for the decline of Nascar!
November 29th, 2008 at 4:55 am
Keep in mind that this $1.5 million is part of a contract buyout. No services or equipment was provided in exchange for this money. Once Ginn racing was no longer, HMS didn’t build or provide engines or engine tuners to DEI so they had little to no capital outlay on their end of this contract. Their contract with Ginn Racing also didn’t preclude them from supplying any other team or teams with engines if they so desired.
Their goal in collecting this money is to enrich themselves and as a byproduct, financially weaken one of their chief competitors. Who knows, if HMS can help destroy DEI, maybe they can swipe some sponsors from them in the process.
December 1st, 2008 at 11:17 am
Tommy. HMS bought equipment & parts to manufacture engines. He must amortize the investment though sales. When the sales are less, then his own engines absorb those expenses. So his unit cost is more. That is why contracts are written. THis is common practice. I was a supplier to Lockheed Aviation when they terminated production of the L-1011. I was stuck with an expensive machine dedicated to produce an assembly for them. Lockheed paid me a large amount per the contract.
December 1st, 2008 at 11:31 pm
Bobby,
I understand that HMS made some investment when they obtained that new business. However, I find it hard to believe that the equipment and parts were not used for their other clients or for their own engines. In the end, they made out good on that deal, whether they ever see the 1.5 mil or not.
If anyone suffered, it may have been some additional staff in the HMS engine shop that was possibly laid off when the Ginn team went away.
I’m happy to hear that Lockheed fairly compensated you in that situation. BTW, the L-1011 was a wonderful aircraft. My father was a pilot for Eastern and although he never flew them (he flew DC-9, 727, A-300), he always spoke highly of the aircraft.
December 23rd, 2008 at 11:17 pm
When is Teresa Earnhardt going to wake up, and realize she hired someone as team president, that knows nothing about running a sucessful stockcar racing team.
When she hired that incompetent president of DEI, he only had two responsibilities: re-sign the biggest sponsor draw that NASCAR has ever seen (Dale Jr.), and keep the sponsors dollars flowing in. Put drivers in good equipment, and they take car of winning.
He suceeded in letting Dale Jr get away, and lost all the sponsorship. Why is he still there? Is there some other reason he hasn’t been fired? You or I would have been fired. Why isn’t he fired?