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NASCAR, ISC merger: What it means – Daytona Beach News-Journal

NASCAR, ISC merger: What it means – Daytona Beach News-Journal
15 Oct
9:33

Combining the owner of Daytona International Speedway and other motorsports tracks with NASCAR is seen as crucial to the future of stock car racing. Here’s a look at why.

DAYTONA BEACH — Sometime on Wednesday, shareholders of International Speedway Corp will gather in the International Motorsports Center across the street from Daytona International Speedway to approve the sale of the company to NASCAR.

Unanimously recommended by the company’s board of directors including a special committee led by Brown & Brown Chairman J. Hyatt Brown, the proposed $2 billion deal will pay all shareholders who are not part of the France family group that owns NASCAR $45 in cash for each share of ISC stock held.

The sale, expected to close on Friday, also means that ISC will cease to be a public company.

Instead, its stock (NASDAQ: ISCA) will become delisted and its actions and financial statements will no longer be subject to public scrutiny via federal government-mandated filings with the Securities and Exchange Commission.

As of Nov. 30, 2018, ISC employed more than 850 full-time employees, according to the company’s most recent annual report. NASCAR is estimated to employ approximately 1,000 workers, according to industry reports.

Locally, ISC in 2017 was ranked as Volusia County’s fifth-largest employer with 760 workers in Daytona Beach, while NASCAR was the 18th-largest, employing 280 workers here, according to Team Volusia Economic Development Corp., a public/private partnership group whose member investors include ISC.

Changes likely to occur as a result of the merger include staff reductions by eliminating redundant departments and positions, such as the need to have separate accounting, human resources and marketing departments, greater flexibility for NASCAR in determining its race schedules after its current five-year contract with tracks expires following the 2020 season, and efforts to tap new sources of revenue, which could include sports betting.

Upon completion of its sale, ISC will become a wholly owned subsidiary of NASCAR, combining the company that owns the Speedway and a dozen other motorsports tracks across the country with the privately owned stock car racing sanctioning organization.

Both were founded by the same man, the late Bill France Sr. who led the formation of NASCAR in 1947 and then created the company that would eventually become known as ISC six years later in an effort to raise the money he needed to build the Speedway.

ISC and NASCAR today already share the same address for their respective headquarters, the International Motorsports Center at One Daytona, and are led by members of the France family.

Jim France, 74, son of the late Bill France Sr., is both the chairman and CEO of NASCAR as well as the chairman and assistant treasurer of the board for ISC.

His niece, Lesa France Kennedy, 58, is the granddaughter of the late NASCAR founder, who serves as CEO and vice chairwoman of ISC as well as vice chairwoman, executive vice president and assistant treasurer of the board for NASCAR.

While the France family owned 42 percent of all shares of ISC stock as well as controlling voting power, as a public company ISC was still subject to the whims of Wall Street, which can be merciless in sending stock prices plummeting if annual or quarterly earnings fail to meet stock analysts’ forecasts.

In a brief written statement issued in November 2018, when the France family announced its initial $42-a-share offer to acquire all outstanding shares of ISC stock it did not already own, Jim France explained the rationale for merging the company with NASCAR: “In a highly competitive sports and entertainment landscape, a more unified strategic approach is important to our future growth.”

NASCAR and ISC officials have declined comment for this story. An official statement is expected to be issued once the sale of ISC has been completed and/or possibly after Wednesday’s shareholders vote.

However, past interviews of NASCAR and ISC executives, transcripts of quarterly earnings conference calls with stock analysts, ISC filings with the Securities and Exchange Commission, motorsports industry news reports, and a look at other corporate mergers, offer clues on what the France family hopes to accomplish by acquiring ISC and taking it private, why they chose to do it now, and what it could mean for Daytona Beach.

Why ISC is being acquired

NASCAR’s acquisition of ISC comes at a time when the sport of stock car racing is facing significant “headwinds,” according to documents ISC filed with the SEC in August.

“The ongoing business pressures faced by the company (include) decreasing attendance at races and lower than expected earnings results for the fourth quarter of fiscal year 2018 and the first quarter of fiscal year 2019 (and) the uncertainty of the impact of the (upcoming) broadcast agreement renegotiation in 2025,” the SEC filing stated.

In addition, ISC acknowledged the possibility that Congress will choose not TO extend a recently expired tax break for motorsports facilities as well as the “potential loss to operating income due to the bankruptcy proceedings of one of the company’s sponsors.”

While the SEC filing did not identify the sponsor that went bankrupt, industry trade publication Autoweek in February reported that the chapter 11 bankruptcy filing by prominent NASCAR sponsor DC Solar showed that the California company’s debts included $1 million owed to ISC as well as $3 million to other NASCAR tracks as well as $4.3 million to Chip Ganassi Racing.

Autoweek in an article published in May reported that acquiring the motorsports tracks ISC owns, including Daytona International Speedway, Talladega Speedway, Darlington Raceway and Homestead-Miami Speedway, would provide NASCAR with “flexibility toward (a) promised schedule upheaval,” an observation shared by Racing News, ESPN and other news organizations.

“The agreement would give NASCAR control over those dozen (ISC-owned) tracks, along with Iowa Speedway, which it already owns,” according to an Associated Press report in May. “That would seemingly make it easier for NASCAR to alter its racing schedule, including the possibility of fewer events for tracks that host multiple races each year.”

“NASCAR President Steve Phelps has made it clear that the 36-race schedule in the top-tier Cup Series, generally considered too taxing for teams and fans, is among the areas the sanctioning body is looking to change,” the AP report continued. “NASCAR’s five-year agreement with tracks ends after the 2020 season.”

The Charlotte Observer in May reported that NASCAR’s acquisition of ISC “could end up putting pressure on the (stock car sport’s) other major track owner, Concord(North Carolina)-based Speedway Motorsports (Inc.).”

“With NASCAR assuming control of those (ISC) tracks, the sanctioning body may favor its tracks over SMI’s when it comes time to renegotiate the 2021 NASCAR schedule,” The Observer reported.

SMI’s tracks include Atlanta Motor Speedway, Bristol Motor Speedway, Charlotte Motor Speedway, Kentucky Speedway, Las Vegas Motor Speedway, New Hampshire Motor Speedway, Sonoma Raceway and Texas Motor Speedway.

“The idea of rotating NASCAR’s All-Star Race away from its longtime home in Concord (Charlotte Motor Speedway) has already been broached, and other venues could also see one or both of their races eliminated,” The Observer reported.

The Los Angeles Times in May reported that changes NASCAR could make, thanks to its acquisition of ISC, “could include shifting locations in the 36-race schedule in NASCAR’s premier Monster Energy Cup Series, altering the length of certain races or shortening the series’ long schedule, which runs from February to November.”

“As a private company, NASCAR also would be able to make changes without worrying about the reaction of public investors and its stock price,” the L.A. Times report stated.

Industry observer Kyle Funderburk, who writes a blog called Beyondtheflag.com, wrote in June that acquiring ISC gives NASCAR “more control over the (race) schedule than ever.”

Looking to add more tracks?

It could also lead to NASCAR’s acquisitions via ISC of more short tracks and road courses, a goal that Phelps has made “abundantly clear numerous times since starting his position last year,” Funderburk wrote.

“For instance, NASCAR might see the need in adding another short track in the South … or they might move into the Pacific Northwest,” he wrote.

Adding midweek races also could be a possibility, according to Funderburk. “They no longer have to wait on a track to step up and agree on a date,” he wrote.

Another likely change will be in how NASCAR structures its corporate sponsorship deals.

ISC President John Saunders, in a conference call with stock analysts in April, said, “The costs for one company, such as Monster or previously Sprint or going back to the Nextel Winston days, is a pretty significant number and we feel and agree with NASCAR that having more of let’s call it the Olympic model of (multiple) presenting sponsors to represent the (Cup) series is a better way forward. … It presents a greater opportunity for 2020 and beyond.”

Morningstar Equity Analyst Jaime Katz in May told Barron’s business magazine that ISC is a profitable but declining business with problems that it prefers to fix out of the Wall Street glare.

“It was a great business pre-recession,” she said. “Post-recession, people come for the Sunday race. They used to come for the whole weekend. It never came all the way back.”

Acquiring ISC gives the France family time to fix both NASCAR and ISC and find ways to reverse its trend of sagging attendance and television viewership before its broadcast rights contracts expire in 2024, Katz told Barron’s.

The News-Journal was unable to reach Katz for comment for this story.

Broadcast fees collected by ISC have been a major factor in the company’s ability to remain profitable despite declining attendance and ticket sales.

An ISC-commissioned study conducted by DBO Partners regarding the company’s outlook found that the sport’s contracts for broadcast rights starting with the 2025 season are its biggest uncertainty.

“(ISC) management has modeled several possible broadcast outcomes” including a 40 percent increase from the value of its 2015 contract, a reset to 2015 rates or a 25 percent decline compared to 2015 rates.

Sports gambling on the horizon?

Keys to improving attendance as well as growing the sport’s fan base include tapping the growing popularity of sports betting, which in the U.S. is currently a $2.57 billion business that is expected to grow to $6 billion by 2023, according to an ISC filing with the SEC in August.

“ISC Management is assessing opportunities for new revenue streams not currently included in projections,” the filing states. “Gambling-related revenue (is) an area of potential growth” both through “revenue-sharing arrangements with betting operators” as well as via “increased fan engagement and potential to attract additional fans.”

“Management is assessing opportunities in these areas, particularly launching mobile and in-venue sports betting,” the DBO Partners report stated.

The sports gambling initiative, if ISC/NASCAR were to pursue it, is separate from the Hollywood Casino at Kansas Speedway, which ISC co-owns as a 50/50 partnership with Penn Hollywood Kansas Inc. That partnership in 2018 resulted in $21.8 million in equity earnings for ISC, according to its 2018 annual report.

ISC in its most recent quarterly earnings report, issued Aug. 31, stressed the importance of the improvements it has made to Daytona International Speedway and the One Daytona and Shoppes at One Daytona retail/entertainment complexes across the street, to its overall strategy.

Those improvements include the $400 million Daytona Rising makeover of the Speedway completed in January 2016 and ISC’s current $107 million investment in the first phase of One Daytona and the modernization of the aging shopping center next door into what is now known as the Shoppes.

“We believe that Daytona International Speedway’s elevated customer experiences will continue to drive further growth for the Daytona 500 brand, our 12 other major motorsports facilities’ brands, and NASCAR’s brand,” the earnings report stated.

The report also noted that “The Daytona 500 is the most prestigious event in NASCAR.”

With more restaurants, shops and the first apartment units at One Daytona expected to be added in the coming months, “At stabilization in 2020, we expect this first phase of One Daytona and the Shoppes to deliver a combined incremental annual revenue … of approximately $13 million and approximately $10 million respectively,” ISC stated in one of its SEC filings.

ISC stated that it expects to continue investing in its motorsports facilities throughout the country to improve the experience of attending races for fans as well as to help generate revenue throughout the year by hosting non-motorsports events such as concerts.

Case in point: the recent announcement that Daytona International Speedway will host a rock music festival called Welcome to Rockville May 8-10, 2020. The three-day event will be headlined by Metallica.

“Cash flows from revenue sources other than ticket sales are poised to increase with completion and stabilization of development projects,” the SEC filing stated.

Aiming for long-term, not short-term, results

“We believe the industry would benefit from structural change in order to position the sport on a going forward basis,” the DBO Partners study stated. “This will require significant time, effort and investment. We believe that this transformation will be best undertaken as a private company.

“Moreover, we believe that the consolidation of the ownership of ISC and NASCAR as private companies guided by the (France) family stockholders is in the best interests of all constituents of the sport and will position motorsports for long-term success and visibility.”

Source: https://www.news-journalonline.com/news/20191015/nascar-isc-merger-what-it-means

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