by Will Ashworth | September 9, 2013 11:00 am
Looks like NASCAR needs a tune-up.
The circuit that gave us Dale Earnhardt and Richard Petty has been in retreat since 2005. During the past eight years, TV viewership per race has dropped a staggering 32%.
No two companies influence NASCAR more than International Speedway (ISCA) and Speedway Motorsports (TRK). Combined, they own 21 race tracks across the country, yet TRK is down about 14% in the past five years, while ISCA has lost 24% in the same period.
With NASCAR on the slide, neither of these companies looks particularly attractive, but let’s dig deeper to see if there isn’t a powerful engine hiding under the hood of one of these stocks.
Although it owns 13 tracks in 10 states, International Speedway’s crown jewel is definitely Daytona. The company is spending $400 million to freshen up the track, which is now more than 50 years old. In addition, ISCA is developing 1.1 million square feet of shopping, dining and other entertainment directly across from the speedway itself.
The goal: Make Daytona a year-round destination.
Clearly, the France family, which owns 39% of the company, sees the importance of diversifying its revenue streams beyond motorsports. I’m not sure it can do this at every facility it owns, but Daytona certainly lends itself to this kind of mega-project.
The big knock against both companies is declining revenue from admissions. The recession hurt its core customers, and they’ve yet to come back in significant numbers. For example, International Speedway’s second-quarter admissions revenue declined by 4.2% year-over-year to $36 million. Back in 2007 and 2008, the company was making more than $50 million in admissions revenue.
Fortunately for ISCA, it doesn’t rely on admissions for its survival.
In Q2 2005, its motorsports-related revenue was $89 million, $79 million of which came from television rights. Fast-forward to Q2 2013, where motorsports-related revenue was $126 million, with $92 million from television rights. That’s a compound annual growth of 2%. It might not seem like a lot, but it definitely puts a floor of sorts under its stock price.
Like ISCA, Speedway has a large, controlling shareholder in Bruton Smith, who owns 70% of its stock. I like companies that are either run by the founding family or at least strongly influenced by them. However, at 86, Bruton might want to start thinking about putting his 39-year-old son Marcus — who currently is COO — in charge.
Speedway’s revenue streams are virtually identical to ISCA’s. Its Q2 2013 admissions revenue declined 12.6% year-over-year to $34 million — much steeper than ISCA’s decline. Overall, its Q2 revenues declined 2.3% to $178 million, 164 basis points worse than ISCA’s drop.
But Speedway really fell short of the finish on the Q2 bottom line. It lost $68 million thanks to $89 million in goodwill impairment at two of its tracks — New Hampshire Motor Speedway and Kentucky Speedway.
Comparing apples to apples, TRK’s operating profit (goodwill impairment and loss on early debt redemption added back) was $42 million — a 7.5% decline over Q2 2012. In comparison, ISCA’s operating profit increased 11.7% in the second quarter to $37 million.
One of my favorite financial metrics when comparing companies, especially when they’re in the same industry, is enterprise value as a multiple of EBITDA. It’s a quick way to evaluate how much it would cost (including debt) to acquire the company. Like all metrics, it’s not bulletproof, but it’s helpful in conjunction with other analysis, especially in this case.
Of the two, TRK has the lower multiple with an enterprise value 7.5 times EBITDA, compared to 8.1 times for ISCA. However, when you consider each company’s cash and debt position, it’s clear that ISCA deserves a greater multiple. TRKs net debt is $391 million, which is 2.6 times its trailing 12-month EBITDA. ISCA, on the other hand, has net debt of $114 million, which is 0.6 times TTM EBITDA. It’s not even close.
With the exception of the NFL, most sports are in survival mode these days. You can’t have a race track with all the acreage it encompasses without utilizing the land more efficiently. Tracks have to become multi-use facilities with concerts, trade shows, festivals, you name it.
In that regard, I think ISCA’s Daytona One (1.1 million square foot development) and Daytona Rising ($400 million grandstand renovation) projects are just the tip of the iceberg. There will have to be more of this if motorsports want to remain relevant with consumers.
While TRKs annual dividend of 60 cents (yielding 3.4%) is enticing, I believe there can be only one winner in the future should NASCAR rebound. Therefore, if you’re expecting an eventual NASCAR recovery, International Speedway is the stock to pick.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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