Motorsports Authentics facing possible bankruptcy
Motorsports Authentics needs extensions to pay off royalties and to renegotiate contracts with various teams or it could end up in bankruptcy, according to a Speedway Motorsports Inc. filing with the U.S. Securities and Exchange Commission on Wednesday morning.
Owned 50-50 by track operating rivals SMI and International Speedway Corp., Motorsports Authentics holds the rights to sell clothing, diecasts and other merchandise for many of the top drivers and teams in the sport, including Dale Earnhardt Jr., Hendrick Motorsports and Stewart-Haas Racing.
Motorsports Authentics stopped paying certain guaranteed royalties under several license agreements during the summer when royalties on the projected sales were less than the guaranteed minimum royalties, according to the SEC filing. The company has received notice from licensors alleging default if Motorsports Authentics doesn’t pay the unearned royalties by certain deadlines.
“MA is attempting to obtain extensions from licensors where cure periods, including any subsequent extensions, have lapsed or are near termination,” SMI wrote in its filing. “MA is attempting to renegotiate its license agreements with essentially all present significant licensors of NASCAR merchandising on terms that allow MA reasonable future opportunities to operate profitably.
“Should such negotiations not be successful, should MA management decide to allow license defaults to remain uncured or should licensors not grant extended cure periods and exercise their rights under the agreements, MA’s business and its ability to continue operating could be severely impacted. MA is exploring other business strategies to turn its business around. If such efforts are not sufficient or timely, MA could ultimately pursue bankruptcy.”
ISC and SMI spent approximately $247.5 million in 2005 to buy Team Caliber and Action Performance to form Motorsports Authentics. They combined to write down $69.499 million in 2007 and recently combined to write down $111.2 million. A write-down is a devaluation of the company.
SMI has indicated its current investment value in Motorsports Authentics as of June 30 was $18.1 million. That means it estimates the company’s worth at $36.2 million. In another filing Wednesday, SMI indicated that the company overall has $23.4 million in guaranteed obligations that must be paid.
Motorsports Authentics lost $7.878 million in 2006 and $42.975 million in 2007, not including the $69.499 million write-down, before turning a profit of $3.199 million in 2008.
