FROST: Taking The Green Flag Was The Goal

FROST: Taking The Green
Darlington Raceway helped NASCAR resume its season amid the COVID-19 pandemic. (HHP/Chris Owens photo)

Tim Frost.

WILMETTE, Ill. — The sports industry continues to feel the impact of the extended shutdown due to the coronavirus.

Led by motorsports, most leagues have returned to action, but their financial foundations are still being assessed.

The COVID-19 pandemic and related government containment measures created uncertainty for the sports and entertainment sectors.  As the recent financial metrics are being calculated, material changes to the revenue and cost profiles have occurred.

The operating scenarios will continue to evolve as economic activity returns and restrictions continue to be lifted.

The discretionary nature of spending for personal and business entertainment has come under intense pressure. Along with the fact that most events are allowing only a limited number of spectators, many consumers are not ready to attend events until a vaccine is readily available.

Ticket renewals and sponsorship contracts are being paused as a result.

The grassroots component of motorsports has been a quiet surprise.  The number of races run and car counts have been impressive at local short tracks and drag strips across the nation. Parts manufacturers and warehouse distributors are now shipping larger quantities of product after a slow start to the season.

Independent rating agencies such as Fitch, Moody’s and Standard & Poor’s established a set of quantitative and qualitative measures that evaluate an entity’s financial standing. The goal is to assist participants such as banks or investors in understanding the risk of investing in sports.

Professional sports are a unique asset class. They are considered prestigious due to their scarcity, high barrier to entry, exclusivity to operate and the leagues’ vested interest to protect their teams and participants.

Top-tier professional motorsports contains these characteristics. NASCAR’s schedule has primarily three facility operators and its Charter system outlines the team ownership structure and specifies race cars and prize structure.

Typically, debut belonging to sports leagues and sports franchises is secured by national television contracts, ticket sales, luxury suites, sponsorship agreements, concessions and related revenue.

The moves to take NASCAR and Speedway Motorsports private last November recently came under review by rating agencies.

Specifically, NASCAR Holdings LLC has a $1.4 billion term loan and Speedway Motorsports $300 million in senior notes.

The shutdown limited the ability of track operators to host live events with spectators in attendance. Although the season will run in its entirety, profit and cash flow will decline substantially as the result in lost attendance revenue.

The possibility of an outbreak at a track may dampen the already challenged consumer demand and sentiment.

The contractual nature of the NASCAR broadcast agreement will offset the decreased revenue in other areas. The current media contracts expire in 2024 and total almost $850 million per year.

A conservative fiscal policy by the France and Smith families underlies their operating philosophy. Capital expenditures at the track will be reduced and real-estate development opportunities will be explored.

Team owners and manufacturers worked on controlling costs in the shop and at the track.

Motorsports has done an admirable job in responding to the crisis. It laid out a plan to respond, recover and thrive. It emphasized the health and safety of its community, worked with its partners and engaged with its fans.

Taking the green flag and racing toward the checkered flag was always the goal.