NJJammer
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Full article available here:
http://seekingalpha.com/article/404...s-makes-international-speedway-low-beta-short
Interesting analysis from a shareholder/market timing perspective about ISCA (International Speedway Corp.):
Post-2024
The core problem here is that NASCAR is losing popularity. I have some concerns about management and capital allocation, admittedly, but even some of those issues stem from management's response to that problem. NASCAR attendance over the past six years probably is down by 35% or so, given figures at ISCA and TRK (which operate all but three NASCAR tracks). Attendance for baseball - hardly a sport that seems cutting edge, or growing in popularity - is basically flat over the same period. The NBA set an attendance record last year, and while there were concerns about NFL football interest this year, it remains the dominant sport in the U.S.
So you can't blame declining attendance on the economy, or other cyclical factors. There might be an argument that NASCAR's fan base - which tends more towards being white and Southern - as a whole might have lagged the economic recovery coming out of the financial crisis. At this point, however, that argument is moot. There are other factors relating to attendance specifically - high-def TVs, demographic changes, the ability to follow races online, etc. - but underlying that is a clear downward move in fan interest.
That's a huge problem for ISCA. There are some opportunities to utilize the tracks for non-racing events: ISC holds concerts, as does Dover Motorsports (NYSE:DVD) at its sole track in Delaware. Speedway held a college football game in August, which was a success, and plans to host additional games in the future. But in terms of modeling future cash flow for ISCA, the declining interest in NASCAR is a huge problem - because it impacts not only attendance but the next broadcast deal.
And at this point, it's quite simply impossible to argue that NASCAR's deal will be anything like its current one. The sport's timing was absolutely impeccable: Both Fox (NASDAQ:FOXA) and NBC (a unit of Comcast (NASDAQ:CMCSA)) were rolling out challengers to Disney's (NYSE:DIS) ESPN. Sports media rights prices were at a peak, driven by the belief that live programming was the key way to avoid ad pressure from DVRs. NASCAR took advantage: Annual revenue from broadcasters increased 46% in the new deal, disclosed in late 2013 - despite the fact that ratings and attendance already were falling.
Is there any way to model a similar deal in 2025, barring a massive unforeseen reversal in NASCAR interest? Both Fox Sports 1 and NBC Sports Network have disappointed; ESPN itself is hemorrhaging subscribers. NASCAR ratings have tumbled even further this year, with multiple record lows. It's impossible to predict what the media landscape will look like in 2023 - it may well be a Comcast-owned Netflix (NASDAQ:NFLX) negotiating against Amazon (NASDAQ:AMZN) for the broadcast rights.
But from an intuitive standpoint, literally every trend supports the hypothesis that NASCAR's next deal will be smaller than its current one. Ratings already are trending downward. The demand simply won't be the same, given that rights holders cannot monetize the rights to the same extent they projected they could just a few years ago. NASCAR maybe could create its own online network, a la World Wrestling Entertainment (NYSE:WWE), but at the end of the day, it's pretty hard to monetize audiences that aren't watching.
That's why I thought the disclosure in Q4 of a step down in corporate sponsorship revenue was important. NASCAR, and ISCA, are receiving less revenue from Monster than they did from Sprint. That's what happens when the product becomes less desirable. And that deal is a precursor to the negotiations that will happen next decade.
The larger issue is that I don't see much chance of NASCAR's popularity rebounding. The sport has faced a steady exodus of stars of late, with Jeff Gordon and Tony Stewart retiring, along with the surprise departure of Carl Edwards this year. The new racing format announced this year seems like a mess, and appears to have generated quite a bit of criticism, at least from a cursory spin around Twitter (NYSE:TWTR), comment sections, and my local bar.
Under the new scoring system, races will have three stages, and drivers will have two different categories of season-long points (Championship Points and Playoff Points). The Chase For The Cup has been taken out, replaced by a 16-driver playoff. And not a single fan seems to really understand exactly how the system will, or should, work.
Rather, the move seems another example of what core fans see as NASCAR "fixing it until it's broke." NASCAR officials have argued that the breaks between stages provide natural opportunities for commercials - instead of skipping live racing - and fulfill the demand for shorter events. But the races themselves remain three-hours-plus - despite many calls to shorten them - and the confusion of two different point systems, in particular, seems likely to turn off some casual fans.
But the move itself also is a tacit admission that the sport has real problems - there really is no modern precedent in U.S. sports for the complete overhaul of the scoring system. And it's part of a long series of changes - restrictor plates, the removal of anything 'stock' from stock cars, Car of Tomorrow, the Chase, etc., etc., - that haven't brought in casual fans and have alienated hardcore fans.
Again, NASCAR is in decline - there's simply no two ways about it at this point. And that matters for ISCA stock.
Management Concerns
Even with the pressure on the sport, there's a case that there's enough to protect downside in the low $30s. ISCA has a ton of real estate, after all. Its balance sheet is solid - it actually has almost $1 million in net cash coming out of Q4. The TV contract alone probably supports something like $12-14 per share in fair value over the next eight years. In the worst-case scenario where NASCAR plummets, ISCA still has its real estate, totaling over 13,000 acres. A development near the Daytona track, called ONE DAYTONA, should add ~$9 million in EBITDA a year, and ISC may have similar opportunities elsewhere to drive value from those assets.
The problem is that management is not running the business for the benefit of ISCA shareholders. The France family is going to focus on NASCAR first, and shareholders second, as seen by the $400 million spent at Daytona, for an annual $15 million EBITDA return. Morally, that's probably OK; NASCAR is in the France family's blood, and they will protect the sport first and foremost.
But that also means that expecting any real change in corporate behavior in the long term is exceedingly optimistic. ISCA is not going to close unprofitable tracks or run sale-leasebacks or sell itself to private equity. And that blocks some of the theoretical structural changes that could limit long-term downside.
The issue in the near term is that ISC remains a true believer in NASCAR, which might limit its ability to take more aggressive measures relative to attendance declines. To be fair, the company did pull thousands of seats, which was an admission that demand for those seats was never going to return. But the endless optimism from management seemed to reach a ridiculous pitch on the Q4 call, and should take away any idea that ISC has a handle on its admission revenue problems.
CEO Lesa France Kennedy said in her opening remarks that "we are optimistic we will see a resurgence in consumer demand and increasing admissions revenue" in 2017. President John Saunders said in his remarks that "our focused consumer marketing initiatives have proven successful in recent years," while arguing that the 2017 goal was to grow admissions revenue. That's been the goal for eight years - other than FY15 (barely), ISC hasn't come close.
On the Q2 call, Saunders said ISCA needed better racing. After NASCAR had a pretty strong summer, he said on the Q3 call that the sport needed casual fans and "millennial strategies." Now, the company appears simply to need to do what it's done so far - even though that hasn't worked. And after all that, CFO Greg Motto admitted in the Q&A that the midpoint of full-year guidance implied continued decreases in admissions revenue - which essentially contradicted the sunshine from the CEO and President earlier on the call.
Again, I wouldn't lay the blame for attendance declines at the feet of management. But at the same time, there appears a rather stunning disconnect between how management perceives the sport - and thus the business - and how NASCAR actually is faring. Saunders on the Q4 call said the impact of the retirement of Jeff Gordon on admission revenue had been "underestimated." That's at best an excuse - Saunders already had discussed the retirement on the Q1 call - and at worst, a huge miscalculation.
If NASCAR and ISC believed that the departure of Gordon and Stewart, in particular, wouldn't impact fan interest, they simply are disconnected from the business at this point. The evidence for that argument came later, when Saunders said in the Q&A that response to the new points systems from fans was "overwhelmingly positive" - an assessment that seems to diverge with online reality, anyway. (See the comment section here, which is probably 9 to 1 negative, for instance. Admittedly, online discourse tends to skew to the negative, but "overwhelmingly positive" certainly seems to be a stretch.)
In the near term, I don't think ISC management is going to respond with aggressive margin-protecting steps against continued admissions revenue declines - particularly if upper management believes those declines aren't going to happen anyway. But if the loss of Gordon hurt in 2016 (even though he returned for eight races), Edwards and Stewart should hurt more in 2017. I'm skeptical the new scoring system will help - I think there's a reasonable chance it will hurt.
And management outlook aside, there's really not all that much ISC can do, anyway. Lowering ticket prices, for instance, isn't nearly as effective since the ticket cost is only a portion of the overall costs. The overwhelming majority of fans need to travel, many need to get hotels, and there are time and traffic considerations as well. Cutting $10 or $15 off a ticket price simply doesn't have that much impact given ticket price is only a component of the overall cost of attendance. G&A has been held in check relatively well.
The one issue is in terms of capital allocation. I'm not terribly thrilled with capex decisions: A sub-4% return at Daytona made little sense, and investing another $178 million at Phoenix has low ROIC as well, even if some of that spend appears to be catch-up maintenance. ISCA at the moment throws off enough cash that a management team focused on shareholder return could make some aggressive decisions; there's definitely a paper case for an LBO here, for instance.
But that's not going to happen either, given the family ownership. So what investors are left with is a business in decline, and a management team not able and/or willing to make major changes either in terms of operations or capital structure. At some point, that's going to show up in the stock price.
...continued in full article...
http://seekingalpha.com/article/404...s-makes-international-speedway-low-beta-short
Interesting analysis from a shareholder/market timing perspective about ISCA (International Speedway Corp.):
Post-2024
The core problem here is that NASCAR is losing popularity. I have some concerns about management and capital allocation, admittedly, but even some of those issues stem from management's response to that problem. NASCAR attendance over the past six years probably is down by 35% or so, given figures at ISCA and TRK (which operate all but three NASCAR tracks). Attendance for baseball - hardly a sport that seems cutting edge, or growing in popularity - is basically flat over the same period. The NBA set an attendance record last year, and while there were concerns about NFL football interest this year, it remains the dominant sport in the U.S.
So you can't blame declining attendance on the economy, or other cyclical factors. There might be an argument that NASCAR's fan base - which tends more towards being white and Southern - as a whole might have lagged the economic recovery coming out of the financial crisis. At this point, however, that argument is moot. There are other factors relating to attendance specifically - high-def TVs, demographic changes, the ability to follow races online, etc. - but underlying that is a clear downward move in fan interest.
That's a huge problem for ISCA. There are some opportunities to utilize the tracks for non-racing events: ISC holds concerts, as does Dover Motorsports (NYSE:DVD) at its sole track in Delaware. Speedway held a college football game in August, which was a success, and plans to host additional games in the future. But in terms of modeling future cash flow for ISCA, the declining interest in NASCAR is a huge problem - because it impacts not only attendance but the next broadcast deal.
And at this point, it's quite simply impossible to argue that NASCAR's deal will be anything like its current one. The sport's timing was absolutely impeccable: Both Fox (NASDAQ:FOXA) and NBC (a unit of Comcast (NASDAQ:CMCSA)) were rolling out challengers to Disney's (NYSE:DIS) ESPN. Sports media rights prices were at a peak, driven by the belief that live programming was the key way to avoid ad pressure from DVRs. NASCAR took advantage: Annual revenue from broadcasters increased 46% in the new deal, disclosed in late 2013 - despite the fact that ratings and attendance already were falling.
Is there any way to model a similar deal in 2025, barring a massive unforeseen reversal in NASCAR interest? Both Fox Sports 1 and NBC Sports Network have disappointed; ESPN itself is hemorrhaging subscribers. NASCAR ratings have tumbled even further this year, with multiple record lows. It's impossible to predict what the media landscape will look like in 2023 - it may well be a Comcast-owned Netflix (NASDAQ:NFLX) negotiating against Amazon (NASDAQ:AMZN) for the broadcast rights.
But from an intuitive standpoint, literally every trend supports the hypothesis that NASCAR's next deal will be smaller than its current one. Ratings already are trending downward. The demand simply won't be the same, given that rights holders cannot monetize the rights to the same extent they projected they could just a few years ago. NASCAR maybe could create its own online network, a la World Wrestling Entertainment (NYSE:WWE), but at the end of the day, it's pretty hard to monetize audiences that aren't watching.
That's why I thought the disclosure in Q4 of a step down in corporate sponsorship revenue was important. NASCAR, and ISCA, are receiving less revenue from Monster than they did from Sprint. That's what happens when the product becomes less desirable. And that deal is a precursor to the negotiations that will happen next decade.
The larger issue is that I don't see much chance of NASCAR's popularity rebounding. The sport has faced a steady exodus of stars of late, with Jeff Gordon and Tony Stewart retiring, along with the surprise departure of Carl Edwards this year. The new racing format announced this year seems like a mess, and appears to have generated quite a bit of criticism, at least from a cursory spin around Twitter (NYSE:TWTR), comment sections, and my local bar.
Under the new scoring system, races will have three stages, and drivers will have two different categories of season-long points (Championship Points and Playoff Points). The Chase For The Cup has been taken out, replaced by a 16-driver playoff. And not a single fan seems to really understand exactly how the system will, or should, work.
Rather, the move seems another example of what core fans see as NASCAR "fixing it until it's broke." NASCAR officials have argued that the breaks between stages provide natural opportunities for commercials - instead of skipping live racing - and fulfill the demand for shorter events. But the races themselves remain three-hours-plus - despite many calls to shorten them - and the confusion of two different point systems, in particular, seems likely to turn off some casual fans.
But the move itself also is a tacit admission that the sport has real problems - there really is no modern precedent in U.S. sports for the complete overhaul of the scoring system. And it's part of a long series of changes - restrictor plates, the removal of anything 'stock' from stock cars, Car of Tomorrow, the Chase, etc., etc., - that haven't brought in casual fans and have alienated hardcore fans.
Again, NASCAR is in decline - there's simply no two ways about it at this point. And that matters for ISCA stock.
Management Concerns
Even with the pressure on the sport, there's a case that there's enough to protect downside in the low $30s. ISCA has a ton of real estate, after all. Its balance sheet is solid - it actually has almost $1 million in net cash coming out of Q4. The TV contract alone probably supports something like $12-14 per share in fair value over the next eight years. In the worst-case scenario where NASCAR plummets, ISCA still has its real estate, totaling over 13,000 acres. A development near the Daytona track, called ONE DAYTONA, should add ~$9 million in EBITDA a year, and ISC may have similar opportunities elsewhere to drive value from those assets.
The problem is that management is not running the business for the benefit of ISCA shareholders. The France family is going to focus on NASCAR first, and shareholders second, as seen by the $400 million spent at Daytona, for an annual $15 million EBITDA return. Morally, that's probably OK; NASCAR is in the France family's blood, and they will protect the sport first and foremost.
But that also means that expecting any real change in corporate behavior in the long term is exceedingly optimistic. ISCA is not going to close unprofitable tracks or run sale-leasebacks or sell itself to private equity. And that blocks some of the theoretical structural changes that could limit long-term downside.
The issue in the near term is that ISC remains a true believer in NASCAR, which might limit its ability to take more aggressive measures relative to attendance declines. To be fair, the company did pull thousands of seats, which was an admission that demand for those seats was never going to return. But the endless optimism from management seemed to reach a ridiculous pitch on the Q4 call, and should take away any idea that ISC has a handle on its admission revenue problems.
CEO Lesa France Kennedy said in her opening remarks that "we are optimistic we will see a resurgence in consumer demand and increasing admissions revenue" in 2017. President John Saunders said in his remarks that "our focused consumer marketing initiatives have proven successful in recent years," while arguing that the 2017 goal was to grow admissions revenue. That's been the goal for eight years - other than FY15 (barely), ISC hasn't come close.
On the Q2 call, Saunders said ISCA needed better racing. After NASCAR had a pretty strong summer, he said on the Q3 call that the sport needed casual fans and "millennial strategies." Now, the company appears simply to need to do what it's done so far - even though that hasn't worked. And after all that, CFO Greg Motto admitted in the Q&A that the midpoint of full-year guidance implied continued decreases in admissions revenue - which essentially contradicted the sunshine from the CEO and President earlier on the call.
Again, I wouldn't lay the blame for attendance declines at the feet of management. But at the same time, there appears a rather stunning disconnect between how management perceives the sport - and thus the business - and how NASCAR actually is faring. Saunders on the Q4 call said the impact of the retirement of Jeff Gordon on admission revenue had been "underestimated." That's at best an excuse - Saunders already had discussed the retirement on the Q1 call - and at worst, a huge miscalculation.
If NASCAR and ISC believed that the departure of Gordon and Stewart, in particular, wouldn't impact fan interest, they simply are disconnected from the business at this point. The evidence for that argument came later, when Saunders said in the Q&A that response to the new points systems from fans was "overwhelmingly positive" - an assessment that seems to diverge with online reality, anyway. (See the comment section here, which is probably 9 to 1 negative, for instance. Admittedly, online discourse tends to skew to the negative, but "overwhelmingly positive" certainly seems to be a stretch.)
In the near term, I don't think ISC management is going to respond with aggressive margin-protecting steps against continued admissions revenue declines - particularly if upper management believes those declines aren't going to happen anyway. But if the loss of Gordon hurt in 2016 (even though he returned for eight races), Edwards and Stewart should hurt more in 2017. I'm skeptical the new scoring system will help - I think there's a reasonable chance it will hurt.
And management outlook aside, there's really not all that much ISC can do, anyway. Lowering ticket prices, for instance, isn't nearly as effective since the ticket cost is only a portion of the overall costs. The overwhelming majority of fans need to travel, many need to get hotels, and there are time and traffic considerations as well. Cutting $10 or $15 off a ticket price simply doesn't have that much impact given ticket price is only a component of the overall cost of attendance. G&A has been held in check relatively well.
The one issue is in terms of capital allocation. I'm not terribly thrilled with capex decisions: A sub-4% return at Daytona made little sense, and investing another $178 million at Phoenix has low ROIC as well, even if some of that spend appears to be catch-up maintenance. ISCA at the moment throws off enough cash that a management team focused on shareholder return could make some aggressive decisions; there's definitely a paper case for an LBO here, for instance.
But that's not going to happen either, given the family ownership. So what investors are left with is a business in decline, and a management team not able and/or willing to make major changes either in terms of operations or capital structure. At some point, that's going to show up in the stock price.
...continued in full article...
