International Speedway (ISCA)

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Sar Medoff

International Speedway Corporation (NASDAQ: ISCA) is the nation's largest owner/operator of car racetracks. ISCA owns thirteen racetracks with more than one million combined grandstand seats. These tracks hosted more than 100 racing events in 2007, including 21 NASCAR Sprint (formerly NEXTEL) Cup Series, 16 NASCAR Nationwide (formerly Busch) Series, and 9 NASCAR Craftsman Truck Series Races. International Speedway is also the owner of Motor Racing Network, producer and syndicator of live radio coverage of all NASCAR racing events.

In addition to revenues from admissions and merchandise and food sales, approximately half of the company's total revenues come from television rights fees and corporate sponsorships. In 2007, NASCAR signed a new eight year broadcast agreement with Fox, ABC/ESPN, TNT, and Speed worth $4.5 billion. In 2007, this agreement generated $253.3 million for International Speedway and is expected to increase by 3% per year through 2014^[1]; NASCAR-sanctioned racing events accounted for 85.8% of International Speedway's 2007 total revenues. Because these contracts cover long periods of time, they provide the company with a degree of stability.^[2]

Since such a large percentage of the company's revenue comes from its relationship with NASCAR, ongoing litigation aimed at restricting this relationship poses a significant risk to the company's future growth. The France Family Group owns and controls both NASCAR and more than 65% of International Speedway's stock. James France, Chairman and CEO of ISCA, Lesa France Kennedy, President and director of ISCA, and Brian France all hold senior executive positions at NASCAR as well.^[3] In July 2005, Kentucky Speedway filed a civil action lawsuit against NASCAR and International Speedway accusing them of acting "in combination and collusion with each other and other companies....to illegally restrict the award of...NASCAR NEXTEL Cup Series [races]". This case was dismissed in early January 2008, but the Kentucky Speedway has filed an appeal.^[4] In 2007, ISCA hosted 47% of all NASCAR races. ^[5]

Business Financials

In FY 2007, International Speedway had revenues of $816.6 million, an increase of 2.3% from the previous year. Net Income in 2007 decreased 26.2% from 2006, primarily as a result of the poor performance of Motorsports Authentics - a joint-venture with Speedway Motorsports that designs, promotes, markets, and distributes motorsports licensed merchandise. International Speedway lost $57 million in Motorsports Authentics when most of its inventory's value was stripped when the sponsorships for NASCAR's two major series changed and many high-profile drivers joined new teams/sponsors.

• Admissions - Includes ticket sales for all racing events and activities at the Daytona 500 EXperience; over the last three years, admissions has generated 30.8% of total revenue on average.
• Motorsports Related - Primarily includes television and radio fees, marketing partnership fees, advertising, luxury suite rentals, and track rentals; since 2005, this income has accounted for 57% of total revenue on average.
• Food, Beverage and Merchandise - revenues from concession stands, souvenir sales, and fees paid by third party vendors to sell merchandise at the tracks; these revenues have accounted for an average of 11% of total revenues since 2005.^[8]

Trends and Forces

France Family, NASCAR, and Antitrust Concerns

The France Family Group owns and controls both NASCAR and almost 63% of International Speedway's stock. James France, Chairman and CEO of International Speedway, is also the Vice Chairman/Executive Vice President of NASCAR; Lesa France Kennedy, President and a director of International Speedway, is an Executive Vice President at NASCAR;^[9] and Brian France, Chairman and CEO of NASCAR, has shares in the France Family Group that ownsmore than 65% of ISCA's stock even though he personally sold most of his ISCA stock in 2006.^[10] The France Family Group owns enough stock to elect the company's entire Board of Directors and make certain decisions without the approval of other shareholders. Because of the dual positions held by many in the France Family, potential conflicts of interest between ISCA and NASCAR exist regarding the awarding of any races to ISCA's tracks, the amount of time employees with dual roles spend on affairs at either company, and the amounts charged/paid during transactions between ISCA and NASCAR.

In July 2005, Kentucky Speedway filed a civil action lawsuit against NASCAR and International Speedway accusing them of acting "in combination and collusion with each other and other companies....to illegally restrict the award of...NASCAR NEXTEL Cup Series [races]". This case was dismissed in early January 2008, but the Kentucky Speedway has filed an appeal.^[11] Because of the mutual leadership and multiple shared interests between NASCAR and ISCA, it is possible that future litigation can be brought against NASCAR and ISCA, accusing them of acting as a monopoly in a way that inhibits fair competition.

Event Delays/Postponements

All of ISCA's venues are outdoor racetracks and thus susceptible to adverse weather conditions that can delay or cause the cancellation of events. Many races sell out beforehand but for the races that don't sell out, the threat of bad weather can have a negative impact on walk-up ticket sales. Delaying events also has a negative impact on revenue because it hurts walk-up ticket sales, many people leave before the race, depriving the company of concessions revenues, and television revenue is decreased because a smaller audience will tune in to the race if its not run at its expected time. If any NASCAR Series events are canceled at any racetracks, even those not owned by ISCA, the company would lose a portion of live broadcast revenues.^[12]

Consumer and Corporate Spending Habits

Supported by advertising on a scale unlike that of any other professional sport, NASCAR and International Speedway are vulnerable to any cutbacks in corporate spending/advertising, and to a lesser degree, cutbacks in consumer spending. In 2007, ISCA began to see the effects of more conservative consumer spending when a NASCAR Sprint Cup race at Michigan International Speedway had 35,000 empty seats; many attributed this lower-than-expected attendance to a strained Michigan economy and higher fuel prices.^[13] The amount of money advertisers are willing to spend on NASCAR is related to NASCAR's popularity and vast reach; fortunately for ISCA, the majority of their revenue is set in long-term TV contracts and in association with the NASCAR brand. ^[14]

Competition

The cost of building and owning a racetrack, the limited number of motorsports races, and limited media contracts are all significant barriers to entry in the motorsports entertainment industry, inherently limiting International Speedway's competition. The company's main competitors in motorsports entertainment are Speedway Motorsports (TRK) and Dover Motorsports (DVD), however all of these companies see their competition as other professional sporting leagues and events such as the NFL, NBA, and MLB.

Speedway Motorsports (TRK) - The second largest operator of motorsports racetracks in the US, this company operates 7 racetracks versus International Speedway's 13 and hosted 30 NASCAR Series events compared to International Speedway's 46 events. In FY 2007, Speedway Motorsports' revenue was $561.6 million. Speedway Motorsports and International Speedway are co-owners of Motorsports Authentics, the leading producer of motorsports licensed merchandise.^[15]

Dover Motorsports (DVD) - Dover Motorsports is the third largest operator of motorsports racetracks in the US. They operate 4 racetracks and hosted 12 NASCAR Series races in 2007. In FY 2007, Dover Motorsports had revenues of $86.1 milion.^[16]

Market Share

The number of motorsports events in the US is limited and although there are many permutations of the sport - Indy Racing League, National Hot Rod Association, motorcycle, etc. - NASCAR is the largest revenue generator by far. The NASCAR Sprint Cup Series has 38 races, the Nationwide Series has 34 events, and the Craftsman Truck Series consists of 25 races. In total, there are 97 NASCAR Series races ^[20] and in 2007, International Speedway racetracks hosted 46 of these events (47%).^[21]

References

1. ↑ ISCA 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 26
2. ↑ ISCA 2007 10-K, Item 1: Business, page 4
3. ↑ ISCA 2007 10-K, Item 1A: Risk Factors, page 8
4. ↑ ISCA 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 28
5. ↑ ISCA 2007 10-K, Item 1: Description of Business, pages 2-3
6. ↑ ISCA 2007 10-K, Item 6: Selected Financial Data, page 18
7. ↑ ISCA 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 29
8. ↑ ISCA 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 29
9. ↑ NASCAR Executives, NASCAR, 4/28/08
10. ↑ Brian France Sells Most of his ISC Stock, NASCAR, 3/15/06
11. ↑ ISCA 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 28
12. ↑ ISCA 2007 10-K, Item 1A: Risk Factors, page 7
13. ↑ Michigan International Speedway Has Empty Seats, mlive.com, 6/15/08
14. ↑ ISCA 2007 10-K, Item 1A: Risk Factors, page 7
15. ↑ TRK 2007 10-K, Item 1: Business, pages 3-4
16. ↑ DVD 2007 10-K, Item 1: Business, pages 3-4
17. ↑ ISCA 2007 10-K, Item 1: Description of Business, pages 2-5
18. ↑ TRK 2007 10-K, Item 1: Business, pages 3-4
19. ↑ DVD 2007 10-K, Item 1: Business, pages 3-4
20. ↑ List of 2007 NASCAR races, Wikipedia
21. ↑ ISCA 2007 10-K, Item 1: Description of Business, pages 2-3
22. ↑ ISCA 2007 10-K, Item 1: Description of Business, pages 2-5
23. ↑ TRK 2007 10-K, Item 1: Business, pages 3-4
24. ↑ DVD 2007 10-K, Item 1: Business, pages 3-4