Not everyone was happy with the deal. Although the press initially hailed it, the stock market turned thumbs down, sending the share price of publicly traded racetrack operator SMI from $39 to around $34. One major concern is that the contract is back-loaded, meaning that its annual payout won’t exceed last year’s until 2012. Like the turns at Darlington, “the contract is steeply banked,” says one wag.
Limits to Expansion
William Brooks knows something about steep banks. A former auditor at PricewaterhouseCoopers, Brooks is CFO at Charlotte-based SMI. The company operates six racetracks, including the high-banked Lowe’s Motor Speedway. SMI speedways host 10 of 36 Nextel Cup regular-season races (rival ISC, a company with ties to the France family, which owns Nascar, hosts 21 of the races).
SMI leverages its assets by renting out the tracks to car shows, enthusiasts’ clubs, even filmmakers (Tom Cruise’s Days of Thunder was filmed at the Lowe’s track). But the reality is, SMI depends on Nascar for 80 percent of its revenues. A slowdown in stock-car racing, therefore, means a slowdown for SMI.
The track operator may already be feeling the effects. Last year, revenues at the company rose to $567 million, the seventh straight annual increase. But the gain was a modest 4 percent over the previous year, while revenues from admissions actually fell. Net income for the first quarter of 2007 was down slightly from the same period in 2006.
In the past, the company has been able to boost admissions by expanding the permanent seating capacity at its six facilities. But there may be little room left. Bristol Motor Speedway, in Bristol, Tennessee, is a stark example: since acquiring the famed short-course track for $26 million in 1996, SMI has more than doubled the number of seats, from 71,000 to 160,000. Many racetracks, particularly older ones, already overwhelm local infrastructures on race days.
SMI plans to sell more merchandise and memorabilia at the track. Last year, event-related revenue increased nearly 9 percent, to a record $15 million. If the economy gets worse, though, accessories could be a tough sale. “You can’t sell programs,” says Brooks, “when people are stressed about the price of gas.”
Brooks says SMI will look to grow the business by, among other things, bringing in more sponsorship money. It’s a viable strategy, although in a sputtering Nascar, less money will likely be available to go around. “If Nascar is not as popular going forward,” says Brooks, “promoters could take a beating.”
The Hat Dance
Of course, any sport that can get 100,000 spectators to endure a traffic jam lasting as long as the event itself is probably not a candidate for Chapter 11. Says Nascar president Mike Helton: “All businesses go through cycles. The wheels haven’t come off.”
Certainly, Nascar’s core fans continue to exhibit remarkable loyalty to their favorite drivers — and to the sponsors of their favorite drivers. According to a survey conducted by Performance Research, a marketing analysis firm, nearly half of Nascar’s 30 million self-described “big” fans make an effort to look for sponsors’ products when they’re shopping. “The economic reality is, sponsors are bringing the sport to fans,” says Sponsorship Research’s DeGaris. “Nascar fans understand this.”