Motorsports Authentics weighs down ISC's 2009 balance sheet

By Bob Pockrass

Thursday, January 28, 2010

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International Speedway Corp. saw its net income drop 95 percent from $134.6 million in 2008 to $6.8 million in 2009, with its 50 percent stake in merchandise company Motorsports Authentics costing $77.6 million on its 2009 balance sheet, according to its year-end financial report issued Thursday.

The losses for Motorsports Authentics, owned 50-50 by ISC and track-operating rival Speedway Motorsports Inc., include an ISC write-down of its half of the worth of the company by $69.3 million and operating losses for 2009 of $8.3 million. ISC also announced that it believes Motorsports Authentics’ value of goodwill and intangible assets is zero as the company has not been able to pay guarantees under its current license agreements.

ISC President John Sanders said negotiations are ongoing to restructure those agreements, including one contract that has a guarantee of $11.5 million.

“This is not to say that we don’t believe there is a chance for MA to find a resolution to disputes under its licensing agreements and to structure a profitable business model,” ISC President John Sanders said.

Saunders said he did expect a resolution to the Motorsports Authentics issues in the next three to six months. The merchandise company – which licenses the merchandise, has it purchased and also does at-track sales – is looking at streamlining operations. Bankruptcy is still an option, according to ISC’s news release.

“Everyone has a vested interest in seeing a resolution to this matter,” Saunders said during a call with financial analysts. “I was hopeful that this would have been resolved before the start of the season, but it appears we’re still looking for the arrangement that everyone can agree on.

“While we have no assurances that a resolution will be reached, we don’t anticipate any interruption in its business for the Daytona 500.”

The announcement capped a tough year for ISC, whose majority of voting stock is owned by the NASCAR-ruling France family. ISC tracks play host to 19 Sprint Cup points events.

When taking various accounting methods for depreciation, write-downs and income from equity investments, net income from core operations dropped 34.4 percent from $138.1 million to $90.7 million.

“Our primary focus is on ensuring that the millions of fans who attend our events receive great entertainment value coupled with an unforgettable at-track experience,” ISC Chief Executive Officer Lesa France Kennedy said in a statement.

Admissions revenue dropped 17.2 percent from $236.1 million to $195.5 million. Saunders said that ISC sold slightly below 80 percent of its seating capacity for Sprint Cup events, compared with 90-95 percent in previous years. The weighted average ticket price was down 3 percent.

ISC had lowered ticket prices on 15 percent of its tickets in 2009 and those tickets remain discounted. ISC sold 95 percent of those tickets.

Food, beverage and merchandise revenues dropped 27.8 percent from $78.1 million to $56.4 million. Other motorsports-related revenues dropped 6.6 percent from $462.8 million to $432.2 million.

ISC stock was stable – down 1 percent – in the first hour of trading Thursday as its final results beat recent estimates.

In looking ahead to 2010, ISC forecasts that attendance revenue and beverage and merchandise revenues will drop 4-9 percent in the upcoming season. The weighted average ticket price will be down 4-6 percent, Saunders said. ISC also is projecting sponsorship revenue is expected to drop 4-6 percent. Television rights revenue is expected to increase 2.5 percent. ISC is predicting earnings between $1.60-$1.80 per diluted share after tax.

Advance ticket sales and revenue are down 24-27 percent compared with last year, but recent sales for the Daytona 500 are trending ahead of last year, Saunders said.

“We are excited about the upcoming 2010 motorsports season, despite the economic issues we still face which had a definite effect on our revenue last year,” France Kennedy said. “We are optimistic that the economic recovery under way will continue to strengthen, and we will begin to see positive changes in consumer and corporate spending.”

Saunders said unemployment will be key.

“While it is doubtful that we will see lower unemployment levels of a few years ago anytime soon, it would be encouraging and beneficial for our sport if unemployment would drop to the 7-9 percent range,” Saunders said.

ISC has agreements in place for approximately 73 percent of its gross marketing partnership revenue target and has sold naming rights for all but four Cup events (Darlington, Richmond and both Phoenix races) and three Nationwide events this year.

Dover Motorsports – which has two Cup races at Dover and Nationwide and Truck events at Dover, Nashville, Gateway and now-closed Memphis – also announced its year-end results.

It lost $5.9 million in 2009 compared with $5.7 million in 2008, an increase in the losses by 3.8 percent. Operating losses in 2009 were $5.7 million, compared with $3.2 million in 2008.

Admissions revenue dropped 25.4 percent from $31.0 million to $24.7 million, event-related revenue dropped 29.9 percent from $25.7 million to $18.0 million. Broadcasting revenue increased 1.7 percent from $27.5 million to $28.0 million. Dover did have an Indy Racing League event at Nashville in 2008 that was not held in 2009.

Dover did not give guidance for 2010.