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Classic Value Investors on International Speedway Corporation and Dover Motorsports

August 06, 2010 | About:
Greenbackd

Greenbackd

30 followers



I’m a huge fan of Mariusz Skonieczny’s work at Classic Value Investors, LLC. He’s recently written up the value proposition for International Speedway Corporation (ISCA), Speedway Motorsports (TRK), and Dover Motorsports (DVD). I think NASCAR is a great business. I’ve previously covered an activist filing for DVD, and I think ISCA is one of the cheapest genuine business franchises available in the market right now. I had been mulling my own post on ISCA, but Mariusz beat me to the punch, and I don’t think I can add anything else to his excellent post on NASCAR:

Famous drivers race against each other all over the United States and they only race at events sanctioned by NASCAR. Huge crowds attend these races and pay for admission tickets, food, and drinks. Advertisers pay big bucks to reach these crowds and television stations fight over the rights to broadcast NASCAR races.

Unfortunately, you cannot directly own NASCAR (National Association for Stock Car Auto Racing) because it is a private company controlled by the France family. However, you can own it indirectly through International Speedway Corporation (ISCA), Speedway Motorsports (TRK), or Dover Motorsports (DVD). I have written reports about International Speedway Corporation and Dover Motorsports.

NASCAR is a sanctioning body that controls who gets what race dates and when. For example, there are 38 Sprint Cup races, and NASCAR decides which facility gets which race. Companies like International Speedway Corporation, Speedway Motorsports, and Dover Motorsports own speedway facilities and are assigned Sprint Cup dates on an annual basis. While NASCAR can change these dates, it rarely does so. International Speedway Corporation has 21 out of 38 Sprint Cup races. One of them, LifeLock 400, is in the Chicago market, and I recently attended it.

While the experience was incredible, I went to the race to see why people go to these events and why sponsors and advertisers want to be part of the sport. While we were pulling in to our parking spot, it became clear that NASCAR is not just about racing. People attend races for the entire experience. Yes, they want to cheer on their favorite drivers, but also they want to tailgate and grill hamburgers and hot dogs, eat pizza, drink beer, throw a football, and get together with their friends. It’s not just a race; it’s family entertainment. Race fans are very loyal to the sport and they show it by the clothes they wear, the flags on their trucks, and even the tattoos on their bodies. When someone is willing to tattoo the symbol of the sport on his or her body, as this woman was (see left photo), you know you have something special. As of now, I have never met anyone with a tattoo of my name or my company’s logo. The day that I see it, I will know that I have made it big.

The enthusiasm of the fans is not the only thing that draws advertisers – race fans are extremely brand-oriented. They know exactly who sponsors the race series and the teams of their favorite drivers. They buy products from the companies that sponsor the sport because they know that operating a race team is expensive and racing teams rely on sponsors to keep them afloat. Race fans don’t mind being exposed to advertising. NASCAR is advertiser’s paradise, and as a result, cars, drivers’ uniforms, and speedway facilities are covered with advertising. Television stations want to broadcast events because they know that they can sell advertising spots to businesses wanting to reach home viewers.

What is interesting about companies such as International Speedway Corporation is that even though they own many speedway facilities, each of these facilities act almost as a separate business because they are located in different markets. For example, LifeLock 400 takes place in the Chicago market and doesn’t really compete against Daytona 500. As the owner of LifeLock 400, International Speedway Corporation has the exclusive rights to host a NASCAR race in the Chicago market. There is no one else who has this right. There is no competitor. You and I could build a race track in this area but it would be a big waste of money because we could not host a NASCAR race without having a race date, and getting one is not like applying for a drivers’ license. If we wanted to host a Sprint Cup race, which is the most popular NASCAR series, we are out of luck because as I mentioned before, there are only 38 of them and they all are already assigned to other tracks. We could buy one from someone but there are only five left that do not belong to International Speedway Corporation or Speedway Motorsports. The price tag for one Sprint Cup date is about $150 million, based some historical transactions.
Read the post at Classic Value Investors.

No position at the time of writing, but I am considering a long position in ISCA or DVD.

Greenbackd

http://greenbackd.com

About the author:

Greenbackd
Greenbackd is a former corporate advisory and securities lawyer working in value-oriented activist funds management.

Rating: 4.7/5 (3 votes)

Comments

Kanjoos Guru
Kanjoos Guru - 4 years ago
I would recommend some more research.

I am a bit of a gearhead and everywhere I go online related to motor sports all I see is that they are losing fans, money and sponsors. Of course the businesses might still be sound. I am just commenting as gearhead. In my humble opinion and from my limited perspective NASCAR has at best plateaued and at worst peaked.

Keep up the good work.

Greg Speicher
Greg Speicher premium member - 4 years ago
Greenbackd, thanks for the post. The article does a nice job of qualitatively making the case that ISCA is a good business with some unique assets and that it has a moat. Quantitatively, it has not been able to translate that moat into a superior return: per Value Line, peak ROE was 17.3% in 2005, the low as low as 5.3%. 2009 ROE was 8%. The average looks around 10%. It would be interesting to know your thoughts on why they haven't been able to deliver higher profits on these unique assets.

Currently the stock trades 16x 2011 consensus earnings and just over 1x book. What is your thesis that the stock is undervalued?

Thanks.
Mariusz Skonieczny
Mariusz Skonieczny - 4 years ago
The majority of fans make less than $50,000 per year. Of course, the high unemployment rate is causing less fans to attend races.

Mariusz Skonieczny

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