NASCAR may have its roots in the South, but Michael Printup wants to help expand its reach by building an 80,000-seat racetrack in New York City.
As director of corporate development for Daytona Beach, Fla.-based International Speedway Corp., Printup is trying to shepherd the giant project through a prickly maze of public hearings, agency studies and a City Council vote that ultimately will determine if the $600 million stadium is built on Staten Island.
A New York City racetrack means more ticket sales and concessions. But if International Speedway, which owns 11 racetracks around the country as well as 37 percent of Chicagoland Speedway in Joliet, is to re-energize its stock price, it must gain more income from corporate sponsorships and television.
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That’s where the New York City project fits in.
Investors jumped into the company’s stock looking to capitalize on NASCAR’s vast popularity. But now that International Speedway’s growth has slowed, and its stock price turned sluggish, the company is looking for ways to boost its performance.
Driving around land on Staten Island that International Speedway purchased last year for $104 million, Printup envisions entertaining ad executives and corporate bigwigs at the track’s plush suites, complete with views of the Manhattan skyline.
“It’s an old saying, but it’s true: If you’re not in New York, you’re not doing business,” he said. “New York is a place we need to be if the sport is to really grow.”
France family behind wheel
NASCAR, the privately held empire of the France Family Group of Daytona Beach, remains one of the country’s fastest-growing sports, with a fan base of 75 million people. The Frances, led by patriarch William France, 72, hold a 35 percent ownership stake in International Speedway but 62 percent of its voting stock.
William France serves as company chairman, and his brother, James France, is chief executive.
Reflecting NASCAR’s growth, International Speedway’s share price is up about 50 percent since August 2002, though it is flat since the summer of 2004. Over the past five years, the company’s earnings have grown at a compounded annual rate of more than 20 percent.
Rather than trading at 28 times earnings as it did in 2003, International Speedway stock finds itself at a more modest price-to-earnings valuation in the high-teens.
Bob Simonson, an analyst at William Blair & Co. in Chicago, said that’s a reflection of a changing business model and, concurrently, a transition from investors looking for growth to those looking for value.
Starting in the late 1990s, International Speedway grew rapidly through track acquisitions and new race launches. Although the company is hoping to build a facility in New York City and another outside of Seattle, those won’t be ready until 2010 at the earliest.
In the immediate future, the company’s growth is expected to come from corporate sponsorships and advertising deals, profits generated without a lot of overhead.
“These revenues are not only the highest margin, they are free-cash-flow rich, as they essentially require no capital commitment,” Simonson said.
TV contract riches
At the core of those free cash flows is a new TV contract, expected to be unveiled early next year. International Speedway receives 32 percent of the revenue from NASCAR’s current six-year TV deal, a contract shared by NBC and Fox that is worth $2.4 billion.
The new TV deal, effective January 2007, is expected to be as much as 50 percent higher. ABC/ESPN appears hot to displace NBC, while Fox is likely to stay on.
But because payments are skewed to start off low and end high during the life of a TV contract, International Speedway’s 2007 TV revenue, the first year of the deal, might not be much more than what it received in 2006. This could harm the company’s share price. But until the deal is made public, Simonson said projecting earnings growth for 2007 is a guessing game.
Wes Harris, the company’s investor relations director, acknowledges that TV growth in ’07 is likely to be in the single-digits, a noticeable drop-off from the 15 percent to 16 percent increase slated for next year.
If there is a cause for concern in International Speedway’s business model, it is concession and ticket sales. Like any company that relies on discretionary spending, a slowing economy could damage earnings.
“We’re moving from an emphasis on ticket sales to less risky cash flows from sponsorships and TV,” he said.
Another potential downside for the company’s stock is a $400 million antitrust lawsuit filed recently by Kentucky Speedway, which alleges that the France family’s control of NASCAR and International Speedway gives the latter company an unfair advantage in winning rights to hold one of its lucrative races. The Kentucky folks want a Nextel Cup race. NASCAR intends to fight the suit.
Back in Staten Island, ISC’s Printup meets with local community groups, gives tours of the 675-acre site and muses about the sounds of stock cars barreling around a three-quarter-mile track in New York City.
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“We’re not here in the country’s media capital,” Printup said. “We’ve got to be here and we will.”
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