By Ben Strubel President of Strubel Investment Management (http://www.strubelim.com) a Registered Investment Advisor in PA that manages investment portfolios for clients using a value investing philosophy. He also publishes a monthly newsletter The Value Investor's Edge.
The best type of business to own is a monopoly. Unfortunately, in the United States monopolies are not legal (and for good reason, monopolies are usually bad for consumers). There is one huge exception, professional sports organizations. The NFL, NBA, NHL, MLB, NASCAR, etc. have all been essentially granted de facto monopolies over their respective sports. Antitrust law is complicated and lawsuits have been brought against various sports organizations with varying success, but the vice grip of the leagues over their respective sports still remains. Wealthy investors can sometimes purchase a sports team, but smaller investors don’t have many options (unless you count buying a WBNA team, but, really, who wants one of those). One exception is NASCAR. While you can’t buy a racing team or invest in NASCAR itself, there are several publicly traded companies that own multiple racing tracks and host NASCAR (and other racing events). International Speedway Corporation (ISCA) is the largest of these. It is 38% owned by the France Family Group, the majority owner of NASCAR itself.
France Family Ownership
The France family is the majority owner of NASCAR itself and essentially runs the sport. The France Family Group also owns 38% of ISCA and holds many management positions within the company. On one hand, this creates many conflicts of interest. For example, how can they negotiate royalty rates for the tracks when the family is on both sides? On the other hand, there are powerful incentives for them to give preferential treatment to ISCA, since they run it and own part of it. The France family does not have a record of shortchanging ISCA investors at the expense of their holdings in NASCAR. In fact, there have been lawsuits alleging the opposite--that France has given preferential treatment to ISCA. In my view, the France ownership is neutral or a net positive.
International Speedway Corporation’s Business
ISCA has two main assets: its racing complexes and its race dates. ISCA has twelve racing complexes (counting both Chicago tracks as one) and twenty-one NASCAR Sprint Cup race dates. The real value for ISCA comes from a combination of the two. A top-of-the-line racing complex isn’t worth much without having popular races run on the track. Similarly, a NASCAR race date’s value is much less when run in a smaller complex.
Throughout this article I refer to racing complexes or racetracks as small or large. By this I mean the amount of seating, luxury boxes, media areas, fan entertainment zones, and so forth at the race track. I do not mean the length of the NASCAR track in miles. To determine the value of a racetrack, we look at the seating capacity, track location, and amenities, not the literal length of the paved track surface. For instance, I refer to the NASCAR track in Bristol, TN as large because it has the capacity to seat more than 150,000 fans and has almost 200 luxury boxes. The length of the track, however, is only half a mile (one of the shortest in NASCAR).
ISCA’s twelve tracks are Daytona International Speedway, Talladega Superspeedway, Michigan International Speedway, Richmond International Raceway, Auto Club Speedway of Southern California, Kansas Speedway, Chicagoland Speedway (including the Route 66 Raceway drag strip facility), Phoenix International Raceway, Homestead-Miami Speedway, Martinsville Speedway, Darlington Raceway, and Watkins Glen International. These tracks have a total seating capacity of more than one million and 530 luxury suites.
There are three main factors weighing on shares of ISCA: declining popularity of NASCAR, the lingering effects of the recent recession, and the Motorsports Authentics (MA) joint venture debacle.
Motorsports Authentics (MA)
Let’s tackle the easiest one first, and that is Motosports Authentics (MA). MA a 50/50 joint venture formed between ISCA and Speedway Motorsports (TRK) that sells licensed motorsports merchandise (mainly NASCAR items). MA was formed as the result of purchasing the Team Caliber and Action Performance companies in 2005. First, here’s the bad news. From the start, the joint venture was a disaster, making money in only one of its years in existence. Right now MA is basically bankrupt. The good news is that only $5.5M of MA’s debt is guaranteed by ISCA and that debt guarantee will be dropped if certain provisions are met. Given the disastrous track record of MA, however, we will err on the conservative side and assume ISCA will have to make that payment. The second piece of good news is that besides the $5.5M mentioned earlier, shareholders buying into ISCA now are penalized by the MA mistake. Anyone who was an owner of ISCA in 2005 watched the company flush their proportional share of the $xxx used to set up MA down the toilet. For current shareholders, the company can’t lose the money it already spent, and the equity investment has been written down to $0 on the balance sheet. While the fate of MA won’t