Sonic Financial Corp. – the majority stakeholder in Speedway Motorsports Inc. (TRK) – has submitted a non-binding proposal to acquire all outstanding shares of TRK common stock, not already under the control of the Smith family (+/- 29%). The offer for $18/share – a 31% premium to Tuesday’s closing price ($13.94) – will now be reviewed by a special committee assigned by TRK’s board. Speedway Motorsports owns and operates 8 tracks that host NASCAR series races including Charlotte Motor Speedway, Bristol Motor Speedway and Texas Motor Speedway.
Howie Long-Short: Sonic’s bid for TRK comes just 6 months after NASCAR submitted its own non-binding proposal to take International Speedway Corporation (ISC) private. That deal remains in limbo with a class-action lawsuit (over the purchase price) holding it up. If both deals were to close it would leave Dover International Speedway (DVD) as the last publicly traded track on the NASCAR circuit. That’s noteworthy because the sport needs to cut down on the number of races it holds – “having so many events de-values the experience” – but as publicly traded companies, it’s difficult for TRK or ISC to justify agreeing to host less dates; they’re required to report financials quarterly to shareholders expecting gains.
Mark Coughlin – the founder of motorculture, inc. – suggests there’s “something larger [than a change to the race schedule] at play here. It’s likely the first step to an eventual merger between NASCAR, Speedway Motorsports and International Speedway Corp. If NASCAR can control the venues, the schedule and the media rights – in essence, own the entire sport – and keep the teams as independent contractors,the entity becomes that much more attractive to outside investors and its value goes up substantially.” Remember, there were reports back in Q2 ’18 that the France family was exploring a sale.
It’s important to point out that trimming dates from the schedule doesn’t necessarily equate to declining profits. The circuit would do well by adding some cost certainty. Back “in the late 80s, NASCAR was sanctioning just 28 races and its costs were significantly down. The cost of both travel and the cars has gotten out of control since. The idea that teams essentially need a car for every race track is absurd and if F1 teams can make due with only 4 engines for the entire season – they rev up to 15,000+ RMPs – there’s no reason NASCAR teams can’t get a V8 to make 500 reliable horsepower and have it last multiple weekends.”
Coughlin says it would be “pretty easy” for NASCAR to cut expenses. Sure, the “engines wouldn’t rev as high and it would mean that the millions teams are spending on these lightweight parts and valvetrains would go to waste, but you can buy great motors from any of the manufacturers that can easily produce 500 horse power and last tens of thousands of miles.”
There’s also a case to be made that “the value of the audience not at the track is greater than the one at it. 15 years ago, 70% of track revenues were generated from tickets and sponsorship; media rights comprised just 30%. Now, it’s the opposite.”
While both ISC and TRK are in talks to go private, there’s really no urgency in either negotiation. ’20 marks the end of NASCAR’s agreements with the tracks and teams, but because such a large portion of the sport’s revenues now comes from media rights – and the tracks are entitled to 65% of that money (some of it does go to the teams) – “the real deadline is ’24 when those deals come up for renewal.”
I asked Coughlin who would make sense as a potential acquirer. He suggested “CAA, Endeavor and Silver Lake Partners”, but said to keep an eye on Comcast. “Remember, they had an interest in NASCAR and it could very well be that instead of buying media rights, a media company decides they want to own the property.”
Fan Marino: Coughlin makes the case that NASCAR is intrinsically undervalued as a sport, which makes the investment opportunity that much more attractive if there is a roll-up. “From where attendance and television viewership were to where it is now has been a steep decline, but NASCAR remains the #1 or #2 most viewed sporting event on television – despite often airing on cable – 38 weekends/year. They have an audience that every other motorsport – including F1 – would love to have [in the U.S.]”
Much like the sport’s skyrocketing costs, NASCAR’s other core issue is self-inflicted. They need to do a better job promoting their owners and drivers. Coughlin says that “they’ve de-contented the show by trying to have total control over it. They don’t let the athletes show off who they are. In the glory days of NASCAR, the margins of victory were seconds, if not minutes; so, it’s not the racing. People complain about the technical aspects, but no one cares about that stuff except the hardcore fan. It’s the lack of personalities [preventing the sport from growing again].”
The drivers also need to do a better job of promoting themselves. Back in the 90s, “drivers would come into the big markets 3 or 4 days before the race. They would be on every morning show and do an interview with every newspaper. They had appearances at auto parts stores and would go out with distributors every weekend. The schedule wasn’t any more rigorous then, but that type of activation doesn’t happen anymore. NASCAR needs to get these guys to realize that they have a stake in their own future and a responsibility to the league in which they play.”
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