<SPECIAL FEATURE>
February 9, 1999
Stocks Fools Love
International Speedway Corp.
by Dale Wettlaufer (TMF Ralegh)
Trading at $43 15/16 as of February 8, 1999
In addition to a box of See's Chocolates, and maybe a little something from Helzberg's, I'd give my Valentine (if I had one) some shares of International Speedway Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISCA)") else Response.Write("(Nasdaq: ISCA)") end if %>. I know, I'm a romantic. That way, when I suggest a date at the speedway, not only could we expense it as a business trip, we'd own a share of the revenues and profit I'd be handing over as the unabashed big spender that I am.
International Speedway is a motorsports company, if you look at it literally. The company's founder came up with the entire concept of NASCAR (National Association of Stock Car Auto Racing) and implemented it through two avenues: as the president of the NASCAR governing body and as the Chairman and CEO of International Speedway. The crown jewel of International Speedway is the Daytona International Speedway, home of NASCAR's premier event, the Daytona 500. (The big race this year is even being held on Valentine's Day.)
Looking at it conceptually, then, International Speedway is an entertainment company.
As a form of entertainment and as a brand, NASCAR has grown in popularity and has recently started to outgrow its strong Southeastern roots. The longtime hardcore base of racing fanatics that serve as the sport's platform is expanding to include many other groups of fans -- from the families that come out to the racetrack, to the corporate attendees who rent luxury boxes, to the TV viewers at home. Together, they form a growing mass of Americans tuning in to NASCAR racing events and have become true devotees of the sport.
Owners of NASCAR events are tapping that growing fan base in a number of ways -- through ticket sales, licensing, and broadcast rights. It's the broadcast rights that offer the best upside in revenues over the coming five years. There's a distinction, too, between the way broadcast rights work for NASCAR event owners and how they work in professional football, for instance.
The owners of the Dallas Cowboys or New York Giants have to share equally in television rights fees with smaller market teams such as my beloved hometown team, the Buffalo Bills. Even though a team's brand is more powerful and its natural market would seem to entitle it to a larger cut of the TV pie, they have to share. In NASCAR, you don't deal with that. As the owner of a track and an event, you control the television rights to the event. So, if you own the rights to the Daytona 500 or the Winston Cup races at Talladega, you benefit from the increase in the sport's popularity as well as the increase in the popularity of the sport's signature events.
What this gives you is pricing power with the television networks as well as good pricing power with tickets. Because of this, there are a number of revenue components that you can grow each year:
1. Increased capacity at speedways. Even though the company added 20,000 grandstand seats at Daytona, last year was the first time the Pepsi 400 sold out. Impressive.
2. Adding luxury seats to seating capacity, the same as with football and baseball. Give fans increased luxury and unusual seating arrangements, and they will pay for the fun. In 1997, grandstand seating capacity for International Speedway increased 13%, but luxury suite capacity increased 40%. More of the same was seen this year and will continue in 1999.
3. Increased television ratings. Content is what drives the media. This year, for example, ratings for the Pepsi 400 were up 18% and pricing of the rights was up. Owning the unique content is what it's all about.
For the full year, International Speedway showed a 34% increase in revenues. Admissions revenues increased 25% from added capacity and a richer seating mix. Motorsports-related income rose 54%, driven by higher broadcast rights fees. These drove a 33% increase in operating income.
For the year, ISC showed a better than 25% increase in EPS and a 27% increase in its "float-like" element, which is deferred revenues from pre-booking seats. This is cash that hits the balance sheet long before it is booked as revenues. As an element of economic income, it's very important. After-tax, the increase in this "seating float" would have increased net income 20%, so this is not a trivial cash flow. Since the company is growing at such a rapid pace, this serves as an offset to issuing capital to grow the enterprise.
Year-over-year, invested capital grew by nearly two-thirds, as the company expanded into new markets and increased capacity at existing facilities. Two new facilities, Kansas International Speedway in Kansas and Route 66 Raceway in Joliet, Illinois (home of the Blues Brothers), just outside Chicago, are two of the major projects for 1999. The Kansas speedway has cleared all the regulatory hurdles and full construction activities are getting underway.
With all these value drivers in place, the company is fairly priced at the current $40 5/8 per share quote, but growth in intrinsic value this year should be at least in the range of 20%, which is an excellent investment proposition as far as I'm concerned. I like the lineup of assets: Daytona International Speedway; Talladega Superspeedway in Alabama; Phoenix International Raceway in Arizona; the storied Darlington Raceway in South Carolina; Watkins Glen International in New York; operating interest in Tucson Raceway Park; a 45% stake in Miami-Dade Homestead Motorsports Complex; an 11% holding in Penske Motorsports Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:SPWY)") else Response.Write("(Nasdaq:SPWY)") end if %>; MRN Radio, the voice of NASCAR and the country's largest independent sports radio network; as well as operating its own concessions (which is itself branching out into non-motorsports events).
These events make people happy. NASCAR fans are highly loyal to product sponsors, and the brand recall that sponsors get from NASCAR fans is excellent. What is interesting is that fans not only know who sponsors their own favorite team, but who sponsors other drivers as well. The marketing bang-for-the-buck for NASCAR sponsors is excellent, and that's going to flow through to the sport and International Speedway over the long term.
The prospects for this company are excellent. It has good economics, great returns for advertisers and sponsors, a growing fan base, pricing power, expansion characteristics that are undeniably good and, to use a cliche that is far overused in justifying investments but applies in this case, good management. There's nothing not to like here.
International Speedway Company Information:
Trades on the Nasdaq under symbol ISCA
Web Site: www.daytonausa.com/isc.shtml
Company Address:
1801 W. International Speedway Blvd.
Daytona Beach, FL 32114
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The Speed Way, Part 1 -- Fool on the Hill 8/25/98
The Speed Way, Part 2 -- Fool on the Hill 8/27/98
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