My Thoughts on International Speedway (ISCA)

by Geoff Gannon


Quan here.

This post is to continue my discussion of 15 stocks I know. Today, I’ll talk about International Speedway (ISCA)

The blog Neat Value has a good post about International Speedway. You should read it.

 

#7 International Speedway (ISCA)

ISCA owns racetracks and promotes motorsports themed entertainment activities. ISCA makes money from ticket sales, television rights fee, concession, and merchandises sales. 90% of total revenues are from NASCAR racing events at ISCA’s facilities.

 

A Racetracks is Like a TV STATION

ISCA is like the owner of TV stations. NASCAR assigns races to specific tracks annually without automatic renewals. A racetrack has a local monopoly. And I don’t think there’s any risk of ISCA losing NASCAR sanctions. There are 3 reasons:

First, it’s expensive to build a track. So, major tracks are usually more than 200 miles away from each other.

Second, actual races are important to maintain and enhance NASCAR’s popularity. NASCAR can’t afford to ignore a major track. Moreover, ISCA is the largest track owners so NASCAR does not want to upset ISCA.

Third, the France family, the owner of NASCAR, owns about 38% economic interests in ISCA.

 

Excitement and Social Impact Create a Sport’s Popularity

I think a sport’s popularity is more sustainable than most businesses. The popularity is maintained by social impact. A person usually gets to know a sport through their friends or parents or simply because that’s the topic people around them are always talking about. If he finds the sport interesting, he’ll get hooked.

For NASCAR, actual racing events play an important role in expanding popularity. It might be difficult for first time watcher to realize NASCAR’s attractions through TV. It is more likely for one to get hooked on NASCAR if he goes to the actual race to see cars flying by at 130mph just inches apart. There’s a high level of danger and excitement, and human psyche is attracted to danger. Also, NASCAR superstars are incredibly accessible. Once fans are attached to superstars, they will be loyal to the sport.

 

Why I Don’t Buy ISCA

As ISCA’s costs are generally fixed, ISCA’s profitability is tied to NASCAR’s popularity. The more popular NASCAR is, the more ticket revenues, television rights and merchandise sales ISCA gets. NASCAR had a long growth period, and so did ISCA. At the top in 2006, ISCA achieved a 45% return on tangible equity. But in 2010, they got only 15% return.

So, the value of ISCA’s assets depends on the long-term popularity of NASCAR. And this is why ISCA is only ranked 7th in the list of stocks I know. I don’t know about the long-term popularity of NASCAR.

Of course, NASCAR’s popularity should continue to grow. NASCAR has more fans today than in the past. The social impact should be higher. However, what matters more is how many people consider NASCAR as their top choice of sports. That can change over time. In 1995, about 13 million households watched the NBA finals. That number declined to 7 million household in 2007. And I don’t even know the trend will continue or will reverse. Same thing for NASCAR. I don’t know how many people will follow the sport.

 

Comparison With DWA, CEC, and CCL

My view may be unfair to ISCA as an investment case. So, I’ll compare ISCA to DWA, CEC, and CCL.

DWA has some franchises and keeps developing new franchises. But people can spend equal amounts of time and money on DreamWorks movies and Pixar movies. They don’t need to choose which to love. Sports are a little different. A sport like NASCAR needs fanatics.

Professional sports are somewhat more mutually exclusive than animated movies. People may follow different sports like kids watch many animated movies, but the chance is higher that more fans for football means less fans for other sports. So, I feel uncertain about ISCA’s future ROE.

CCE has a unique product. CCE provides a valued, convenient and acceptable place for kids to play. They virtually don't have direct competition. Other kinds of entertainment may hurt CCE but as the frequency is low and therefore it is the image of CCE that matters. I'm pretty sure that new family with kids will go to a nearby CCE store. I'm not so sure fans will get into NASCAR because there are other sports competing with NASCAR.

CCL has direct competition but competitors must build new ships to gain market share. That takes time and money. Assuming all companies in the industry are rational, CCL is in better position than anyone else to build new ships that consistently earn more than their cost of capital. Without irrational behaviors of their competitors, I feel much more certain about CCL's ROE than ISCA's. Even if CCL’s competitors are not irrational, I can easily track capacity supply and demand. It’s not so easy for me to follow ISCA and know whether short-term fluctuation in NASCAR’s viewership is an indicator of long-term popularity. I find it more difficult to hold ISCA. And it’s more likely for me to misinterpret information and sell ISCA at the wrong time.

(To be continued…)

Talk to Quan about International Speedway (ISCA)