Sonic Submits Bid to Take TRK Private, “First Step” to NASCAR Roll-Up

SpeedwayMotorsports

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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NASCAR Visits “Tricky Triangle”, Monster Energy and Busch Beer Activating

Pocono

JohnWallStreet is headed to Long Pond, PA this weekend for the Pocono 400 at the “Tricky Triangle”. The race is on Sunday, but Pocono Raceway is hosting a series of events throughout the weekend that NASCAR fans in the Northeast will want to be aware of. Monster Energy kicks things off today with “Free Can Friday”, a promotion offering fans who bring an empty of Monster Energy (MNST) drink (to recycle) free access to the day’s activities. These include a BMX trick show and the General Tire #AnywhereIsPossible 200 (ARCA Series race). On Saturday, the track hosts an Alex Bowman selfie session and the Pocono Green 250 Recycled by J.P. Mascaro & Sons (Xfinity Series race), before the Cup Series takes over on Sunday. That race starts at 2pm, but make sure to get there early; Clint Bowyar (10:45a), Jimmie Johnson (11:00a) and Kurt Busch (11:15a) are all doing Q&As at the Tricky Triangle Club (opens at 8a).

Howie Long-Short: Pocono Raceway, which has been family-owned since its inception in 1971, is one of just two NASCAR tracks (out of 25) that is privately-owned; Indianapolis Motor Speedway is the other. International Speedway Corporation (ISCA) and Speedway Motorsports (TRK) own a combined 22 tracks (13 and 9, respectively), while Dover Motorsports (DVD) owns the “Monster Mile”.

In early April, ISCA reported “revenue and earnings increased for comparable events” in Q1 ’18, despite a continued decline at the gate (admissions revenue -2.5% YoY). Shares are down 11.5% (to $41.70) since February 1.

In late April, TRK reported that a YoY decline in admissions revenue for Q1 events led to a -2.5% decline in total revenue (to $74.4 million). Shares have declined 6% since (to $16.70) despite the company touting the prospects of long-term future profitability from Q3 event realignment.

DVD didn’t hold any events in Q1 ’18, so there was little to report during its most recent earnings statement. The stock is currently trading at $2.10 – exactly where it was 12 months ago.

Fan Marino: For those passionate about their brand of domestic beer, Busch and Busch Light (BUD) are set to go head-to-head on the track Sunday. Kevin Harvick will be driving his #4 Busch Beer Ford Fusion for Stewart-Haas Racing, as he seeks his circuit leading sixth win of the season. Harvick’s SHR teammate and friend Clint Bowyar, winner of the ’18 STP 500 at Martinsville, will be behind the wheel of the #14 Busch Light Ford Fusion. They’ll compete with the loser “scheduled” (weather pending) to cut the infield grass at Pocono. Off the track, the two will battle it out throughout the weekend on social media and will appear on stage together on Friday at Pocono’s Infield Block Party.

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WSJ: Just 7 Ways to Publicly Invest in Sports, JWS: Not the Case

wsj-wallstreetjournal

The WSJ published a recent story asserting there are few ways to directly invest in sports, a notion we dispute. The article deemed just 7 publicly traded equities to be sports-related and based their conclusion, that fans are better off watching and playing sports than investing in them, on the performance of 2 exchange traded funds; one of which (FANZ) has beat the S&P since its July ’17 inception, which would seem to counter to their argument. The article cites Matt Hougan, the CEO of Inside ETFs, and his belief that most of the economic value within sports (ownership and player contracts) “comes in private transactions”, to support the author’s thesis; but fails to pay consideration to the revenue streams that support those contracts (and generate ownership profits). It’s worth noting that JohnWallStreet follows over 100 sports-related equities.

Howie Long-Short: Sports teams generate revenue from 4 sources; broadcast rights, ticket sales, sponsorships and merchandising. Several publicly traded equities use a similar business model; Churchill Downs (CHDN), International Speedway (ISCA), Dover Motorsports (DVD) and Speedway Motorsports (TRK), and thus should also be included on the list. Others, like Acushnet Holdings Corp. (GOLF) and Callaway Golf Company (ELY), are undeniably directly tied to sports; and no one would claim your basket was unfocused if companies like Nike (NKE), Lululemon (LULU) and Fitbit (FIT) were to be included. Oh, and don’t forget Activision Blizzard’s (ATVI) new esports league (Overwatch); their inaugural season starts today.

Fan Marino: The story names the New York Knicks, New York Rangers (MSG), Atlanta Braves (BATRK), Manchester United (MANU) and Borussia Dortmund (BORUF) as the teams you can purchase equity in. The Toronto Blue Jays, Toronto Maple Leafs (RCI), Juventus F.C. (JVTSF), A.S. Roma (ASRAF) and SS Lazio (BIT: SSL) are also all publicly traded.

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TRK, DVD & CHDN Q2 EARNINGS RECAP

Speedway Motorsports (TRK), Dover Motorsports (DVD) & Churchill Downs (CHDN) have reported earnings for the quarter ending July 30th.  Below is a recap of each company’s earnings report:

Speedway Motorsports (TRK):

Reported increase in both revenue and net income for Q2 ’17, from same time last year (up to $.68/share from $.62/share). YTD revenue and income figures are also up from 2016.

  • Good News: Track rentals & ancillary broadcast rights generating more revenue. Attendance & fan interest is trending upward.
  • Bad News: Certain admission revenues are down. Management believes underemployment and the absence of a fiscally strong middle class are hurting numbers.

speedway-motorsports-inc-logo

Speedway Motorsports boosts revenue, income

Dover Motorsports (DVD):

Reported slight increase in revenue and net income for Q2 ’17, from same time last year. Reported earnings of $.14/share remained the same.

  • Good News: Increase in broadcasting revenue.
  • Bad News: Lower admissions revenue for Dover NASCAR weekend.

dover_international_speedway_logo

Dover Motorsports, Inc. Reports Results for the Second Quarter of 2017

Churchill Downs Incorporated (CHDN):

Reported a 3% increase in revenue and 12% increase in net income for Q2 ’17, from same time last year. Reported earnings of $4.81/share, a 17% increase YOY, and $.30 higher than analyst predictions.

  • Good News: Increase in racing revenues from a strong Kentucky Derby week. Equity investments and organic growth lead to increase in casino revenues.
  • Bad News: Gaming company Big Fish Games saw net revenues decrease by $12.6 million.

churchill-logo-v2_1Churchill Downs Incorporated Reports 2017 Second Quarter Results

Howie Long-Short: I’m skeptical when companies are still blaming the economy/underemployment in 2017.

Fan Marino: Never been a NASCAR guy. Just can’t get excited by someone driving in circles…even if it is really fast.