I'm a newb in league racing. A forstner bit sounded like the best way to do it, and 1-3/16" is very close to the diameter of a stock wheel. (~1.18 is to small for the 1-1/4" and to big for the 1-1/8" Lowes sells. I bought mine off Amazon. A 1" forstner looks to be very close to the raised Street Stock 4th wheel, but I'm not ready for that build). Bulldog has a fenders video and spacewalker has videos on working with balsa (and CA glue) on YouTube.
For pictures npwdrl forum and facebook has the monthly rundown of cars. From what I saw at Nationals the gaps are extremely small.