If you’ve been following any of the NASCAR silly season news, you’ll certainly have heard the word “charter” thrown around. But if you’re new to NASCAR—or if you just don’t follow all the ins and outs of the series with a magnifying glass—then we’ll let you know everything you need to know about charters.

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The NASCAR charter system is fairly new. Team owners agreed on it in February of 2016, and in 2020, the agreement was extended until 2024.

Basically, a charter is an agreement between NASCAR and a set number of teams that says those teams will show up to race in the sport for as long as the agreement stands. Teams with a charter are also guaranteed a certain amount of prize money at the end of the year, and they’re also guaranteed a starting place on the grid.

Back in 2016, 36 teams were awarded a charter. That number was determined based on how many teams could, at that time, develop a comprehensive plan outlining a long-term commitment to NASCAR. It’s a nice round number, so the series has kept it around.

By “teams,” though, NASCAR means each driver’s car and crew. So, Team Penske has three charters: one for the No. 2 car, one for the No. 12 car, and one for the No. 22 car. Charters per organization are capped at four, and they can be revoked if a team finishes in the bottom three of the championship standings for three consecutive years.

Basically, it’s a way for a NASCAR team to treat each car like its own franchise, the way the New England Patriots and the Philadelphia Eagles are their own unique franchises. If you’re familiar with Formula One’s Concorde Agreement, it’s fairly similar. In layman’s terms, it means that NASCAR must make decisions alongside the teams.

And since races are capped at 40 entries, that means that four non-charter entries are allowed to compete.

The system is ultimately designed to keep costs down while keeping each team involved. If you’ve watched racing for a while, you know how quickly stratified competition can get based on economic lines. The teams with the most money have the means to develop cars so much more advanced than those of the competition that they’re almost guaranteed a win. The charter provides a greater value to a team beyond just its material assets, and it guarantees some revenue at the end of the year.

You can follow the evolution of charters .

All that said, it’s not like everyone is getting an equal slice of the pie. Some charters are worth more than others based on performance and historical importance. If you’re familiar with F1, it’s the same kind of formula that guarantees Ferrari millions of dollars just for being old.

Take BK Racing, for example. The team showed up at the track with next to nothing, putting in very little effort—despite the fact that owner Ron Devine made nearly $3 million just because the team showed up to every race.

When its charter, driver Ty Dillon noted that the charter system tends to favor bigger, older teams as opposed to newer, smaller teams. He said, “It needs to change for one-car teams to be more successful that haven’t already been at the top level of the sport or have an incredible amount of money to leapfrog into the top spot. If you don’t have three or four teams to spread the wealth with big name sponsors and a lot of money behind the effort, it’s just not a model that’s going to survive long term.”

Smaller teams, then, often have an alliance with a larger team that provides those smaller teams with cars or equipment. So, when Bob Leavine announced the sale of his team earlier this year, he really just meant he was selling the charter. The equipment used by the team was loaned to them by Joe Gibbs Racing, and it would then be returned to that team.

Being guaranteed a spot on the starting field is a great sell to potential sponsors who want to ensure their brand will actually get out on track. Unfortunately, that hasn’t been enough to offset the difficulties many small teams experience.

Other people argue that the charter system was never actually meant to level the playing field. It was just a way to guarantee teams some money once the dust settled.

Much of the news this silly season has come down to the fact that charters can be bought and sold. It seems a little counterintuitive—a charter is an agreement that a team has a long-term plan to stick around in NASCAR, but a brand-new team can also buy a charter without having made those initial promises to NASCAR.

It’s like anything in the world. The creation of charters also created a demand for charters. And when you have a demand, you can generally turn it into monetary gain.

Teams can also give someone else a charter for a little while, for one year over the first five years of having agreed to the charter terms.

It seems like the ability to sell a charter makes for less of a headache for NASCAR. It doesn’t have to deal with unused charters, and it doesn’t have to find a way to reassign charters based on merit. It’s much easier to let the teams figure things out amongst themselves. That way, NASCAR only has to regulate performance standards.