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Financials Show NASCAR's Profit Model is Changing

ISC CEO Lesa France Kennedy, announcing major changes to the Daytona track designed to draw more fans to the race
ISC CEO Lesa France Kennedy, announcing major changes to the Daytona track designed to draw more fans to the race | Source

Prior to the 2013 season, NASCAR announced that they would no longer disclose individual race attendance figures. While not explicitly stating why, the general consensus was that the sanctioning body made the change to avoid having to report steadily declining numbers (or the scorn of reporting ridiculously inflated ones). Yet since all but one of NASCAR's Sprint Cup tracks are owned by publicly traded companies, the information is available in the form of quarterly filings submitted to the SEC. In the past month, all three ownership groups reported third quarter earnings. A deeper dive into those financial reports shows that NASCAR's profit model is changing from an attendance-based sport to a television-based sport.

International Speedway Corp's Daytona Beach headquarters
International Speedway Corp's Daytona Beach headquarters | Source

Before getting started, a brief overview of the companies on what is and is not covered. This article does not include either Pocono or Indianapolis as those tracks are privately owned and their information is unable to be accurately compared. International Speedway Corporation (ISC) owns 12 Sprint Cup tracks including crown jewel Daytona International Speedway. The company is largely owned and controlled by the France family. Speedway Motorsports Incorporated, controlled by Bruton Smith, owns eight Sprint Cup tracks including the Bristol Motor Speedway. Dover Motorsports Incorporated owns the Dover track (along with a handful of smaller tracks no longer on the schedule) but is essentially owned and controlled by the same shareholders that own ISC. As all three are publicly traded companies whose stock is available for public purchase, they are required to report certain pieces of financial information every three months. Those filings can be found at the following links:

SMI Chairman Bruton Smith (left) along with Mark Garrow
SMI Chairman Bruton Smith (left) along with Mark Garrow | Source

Based on a combined income and balance sheet, NASCAR's tracks are showing a small but real decline in overall income but remain profitable. Income from ticket sales is down an estimated 5.68% while event-related revenue (merchandise, parking, concessions, advertising, etc.) is down 5.96%. The tracks also receive 65% of the national television contract and those payments are up 2.59% this year. Other operating revenue, a small portion of the overall total, is down 5.96%. This category includes income earned by the tracks coming from non-race sources (e.g. track rentals for television commercials, Petty Driving Experience, etc.). All told, the tracks are estimated to gross $1.136 billion in revenue for 2013, a 1.17% increase on 2012. Aside from goodwill impairment charges (an accounting maneuver done by companies to lower their tax obligation that involves no actual dollar losses), all three ownership groups look to be profitable for 2013 and have relatively stable stock prices.

While the immediate prognosis shows profitability, the five-year picture is far more troubling. Their combined revenue from ticket sales is down over $200 million from 2008, a drop in over 45%. Event-related revenue is down another 38% at over $120 million. Television revenue is down slightly (0.96% or $6.3 million), due in large part to a difficult advertising market and stable but stale television ratings. All told, the three businesses will be down over $346 million in revenue (23.38%) when compared to the same numbers in 2008. The only thing that has enabled the companies to remain profitable has been NASCAR's TV contract and reduced expenses.

Average Attendance 2007-2012

Year
Average Attendance
Compared to Prior
2012
99051
-0.55%
2011
99602
-2.49%
2010
102149
-9.50%
2009
112877
-8.25%
2008
123029
-5.58%
2007
130305
N/A
Figures are as announced by NASCAR. The sanctioning body no longer provides this information

The first (and most obvious) reason why those revenue figures are down is because fewer people are showing up to the track. Based on 2012 attendance figures (the last year figures were available), the average NASCAR race has 22% fewer people viewing from the stands. Fewer fans means fewer people paying for parking, concessions and the like. Nate Ryan made an excellent point on twitter earlier this week when he noted that sponsors used to account for 20% or more of an average track's ticket sales. Since the Great Recession hit, those sponsors are no longer buying tickets in bulk for giveaways or employee distribution. The people that used to get those tickets now have to pay out of pocket if they want to attend the race. As a result, the amount of discretionary income they have when at the track is far lower.

Fewer fans are attending races, leading to space in the grandstands and less revenue for the tracks
Fewer fans are attending races, leading to space in the grandstands and less revenue for the tracks | Source

That leads into the second major economic issue; the fans that are coming to the races are not paying as much for admission. In 2012, the average NASCAR fan was worth $83.17 in ticket revenue for the track- down almost 28% from the $115.24 they were worth in 2007. Tracks are engaging in a variety of discount plans to stimulate demand. As an example, Dover had a package for the fall Chase race that included two tickets and admission to a Jimmie Johnson Q&A session before the race for $60. The face value of that ticket was $84. So a fan who purchased that package essentially bought one ticket below face value then got another ticket free. That speaks volume as to the fair market value of those tickets.

Moreover, once fans are at the track they're spending less money. The average attendee for a NASCAR race in 2012 was worth $65.71 to the track in event-related income. That includes everything from the amount fans paid for parking to the merchandise they purchased to the money advertisers paid to sponsor the race and place signs at the track. That figure is down over $18 (or 21.7%) from 2007. Whether's it's the more challenging economy, the ancillary costs of attending a race (gas, lodging, etc.), or actually having to buy the tickets, fans aren't spending what they once were. And there's fewer of them showing up to the race.

Television Revenue Percentages

Year
MS Income (includes TV)
Percentage of Overall
2013
$652.2
57.42%
2012
$635.8
55.32%
2011
$638.8
53.8%
2010
$628.3
51.9%
2009
$634.0
48.23%
2008
$658.5
44.42%
All revenue figures in millions, USD
Could television coverage become the tail that wags the dog in NASCAR?
Could television coverage become the tail that wags the dog in NASCAR? | Source

With declining revenue from attendees and stable revenue from television rights, the end result is that television revenue has become a far greater portion of each track's livelihood. In 2008, TV rights income accounted for approximately 44% of a track's revenue for the entire year. That figure has jumped over a 1300 basis points to over 57% this year. The disparity will only grow in 2015 when NASCAR's new television contracts go into effect. Instead of the $550 million today's television partners pay, NASCAR will be receiving around $820 million annually. At the current percentages, that will mean a jump of over $170 million per year in television income- or close to 75% of the revenue generated by the tracks.


While any revenue (without additional cost) is generally good revenue, there's some danger in that percentage. Television could easily become an overriding force that changes the way races take place. Compare a televised NFL game with a high school game that has no such concerns. Making the game more appealing on television overrides the game itself at times. Yet TV timeouts, cable cameras and extended halftimes aren't going away because of the massive dollars paid by network partners. Those partners count on regular breaks in the action to recoup their rights fee payments. And since they account for such a large share of the revenue pie, the NFL has little choice but to accede to what the networks want. Could NASCAR's television partners make similar demands in the future? Particularly with races taking place on low-subscription networks such as Fox Sports 1 and NBC Sports, there will be pressure for the product to perform. If it doesn't, those networks will be looking for something to make up the difference.

The simplest solution to this dilemma is to grow the overall revenue pie. If fans begin filling the stands once again, everything changes. A compelling product on the track will draw both hardcore and casual fans alike as it did a decade ago. Sponsors will spend more money both for tickets and to put their logos around the track. ISC, SMI and DM will be less dependent on television revenue to survive and NASCAR will be more inclined to do what's best for racing instead of what's best for television. The networks themselves will be pleased because greater fan interest generally leads to more viewers and higher rates for advertising sales.

The question remains how. NASCAR and its tracks have “encouraged” businesses nearby to offer more reasonable prices to visitors. As noted earlier, tracks have put together discount ticket packages to encourage fans to come to the races. NASCAR also remains committed to making the Gen 6 car a better product—hoping to match better racing with the improved look. 2013's results are a mixed bag; some tracks have provided a better product while others have taken a step back (looking at you, Kansas). But the clock on the 2015's television contracts is ticking every day.

Chip Ganassi hopes that Kyle Larson (left) is the next big thing NASCAR needs to kickoff another growth spurt
Chip Ganassi hopes that Kyle Larson (left) is the next big thing NASCAR needs to kickoff another growth spurt | Source

Now It's Your Turn!

Is NASCAR's increasing dependence on TV revenue a problem?

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Comments 4 comments

Russ 3 years ago

Very nice article, well done. Again we go back to the "racing to oblivion" discussion of the last week.

While it appears on one hand that to turn the ship around actual physical attendance has to increase, on the other Nascar/ISC itself isn't expecting it. If they were they wouldn't be removing seats from places like Daytona and Richmond. That said I think tax credits may have something to do with that.

It is my opinion that the downward spiral continues but not because of the racing per se. But simply because of the aging of the hardcore fan base and the lack of a connection to the younger generation. Even those interested in motorsport can't relate to midsize sedans.

So kudos on laying it out there and presenting the facts.


Tony Geinzer 3 years ago

I would like to encourage more Knoxvilles or Nashville Fairs in Cup, with the present absence of New Venues on the Horizon, I'd like to see Minorities owning tracks and Car Awareness get better and I think, merging technology and work is still a time away.


Bob 3 years ago

Your tax comment about goodwill is not necessarily accurate. The write off is done for book accounting purposes and while it can have a tax effect in certain cases, the driving force is not an attempt to reduce taxes. If anything, it recognizes that the value of acquired assets has declined. That part helps your theory.


anotherleftturn profile image

anotherleftturn 3 years ago from Newark, DE Author

Bob- In general, yes the impairment charges have a host of uses. In this particular case however, the write-down was done for one of two reasons. The first (as I believe is true here), is to take a quarter where the company showed a profit that would be taxed and turn it into a loss instead.

The other possibility is, as you say, darker because it's a recognition that the company's asset has lost value. In the accompanying SEC filing, SMI noted the impairment charge was associated with the Kentucky and New Hampshire speedways. Their inherent value hasn't likely declined THAT much... unless SMI knows that one of the three Sprint Cup dates held by the tracks will be leaving the SMI family in 2015. Kentucky only has one and just got it 3 years ago. So the more likely loss would be one of NH's two dates.

Pundits have been saying that NASCAR plans on making "major changes" to the schedule when the new television contract goes into effect in 2015. The most recent rumor is that the series is looking to add a road course date. If true, it won't be going to SMI's lone road course venue (Sonoma). Perhaps the charge may be an early sign that this is true and New Hampshire will be coming off the schedule in favor of Road America, CTMP, or another track.

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