February 20, 2014 - 12:17pm EST by
2014 2015
Price: 19.31 EPS $0.00 $0.00
Shares Out. (in M): 41 P/E 0.0x 0.0x
Market Cap (in $M): 800 P/FCF 0.0x 0.0x
Net Debt (in $M): 373 EBIT 0 0
TEV (in $M): 1,173 TEV/EBIT 0.0x 0.0x

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  • Sports
  • Duopoly
  • Stable Management
  • Insider Ownership
  • Deleveraging
  • Highly Cash Generative


Summary and Thesis

Speedway Motorsports (TRK) is a NASCAR-sanctioned duopoly with guaranteed TV revenue stream growing annually over the next ten years.  At $19/share, TRK is trading at 8x trailing ebitda and 10x trailing FCFF.  This mispricing exists because there is virtually no Wall Street following.  With minimal capex going forward, we expect significant free cash flow to accrue to shareholders via cash dividends, share repurchases and debt deleverage.  Our base case valuation of $30/share (+50%) assumes no recovery in live event admissions.  Any recovery would be upside and shares could be revalued north of $40/share (+100%).  Our downside valuation of $17/share (-10%) assumes continued decline in admissions.

Business Description

Speedway Motorsports is a promoter of motorsports entertainment in the U.S.  It owns and operates the following racetracks: Atlanta, Bristol, Charlotte, Kentucky, Las Vegas, New Hampshire, Sonoma and Texas.  These facilities host race events including those from NASCAR, IndyCar and NHRA.  

TRK makes money through admissions (ticket sales for events); event-related (corporate sponsorships, luxury suites, advertising, souvenir sales, food and beverage); and TV broadcasting rights.  The company derives more than 80% of its revenue from NASCAR-sanctioned race events.

NASCAR-Sanctioned Duopoly

Of the 36 NASCAR Sprint Cup races scheduled for 2014, TRK and International Speedway Corporations (ISCA) combined control the venues of all but four races.  The four outlier races are run at two independently-owned tracks because they have not been bought out by TRK or ISCA: Pocono (owned by privately-held Mattco) and Dover (owned by publicly-traded Dover Mototorsports).  Outside of these two tracks, we believe it’s extremely difficult for another track owner to enter and take away a NASCAR Cup race from TRK or ISCA, which is also controlled by NASCAR.

TRK’s moat is its longstanding relationship with NASCAR that effectively keeps new races to tracks owned by either TRK or ISCA.  For example, Kentucky Speedway was privately constructed in 1998 and its owners filed an antitrust lawsuit in 2005 against NASCAR and ISCA in order to obtain a NASCAR Cup race.  In 2008 the suit was dismissed in favor of NASCAR and ISCA.  TRK later bought Kentucky Speedway, and the first NASCAR Cup race was held there in 2011.


TRK derives 40% of its revenue from TV license agreements to broadcast NASCAR race events at its venues.  The current TV deal expires in 2014, but NASCAR recently reached a 10-year $8.2 billion agreement through 2024 with NBC and Fox.  On an average annual basis, the new deal is 45% bigger than the current one.  With NASCAR’s TV ratings remaining relatively stable, the price tag on the new agreement underscores the importance of live sporting events to TV broadcasters. 

We estimate that starting 2015, TRK’s NASCAR broadcast revenue should see a 4.5% CAGR through 2024, as compared to a 3% CAGR under the current 8-year deal that runs through 2014.  This TV revenue stream is guaranteed to TRK unless the race event is moved by NACAR or is cancelled (e.g., due to severe weather or national security concerns).

Neither TRK nor ISCA could confirm details of the new TV deal, but they generally agree with the numbers reported by the press.  NASCAR has not yet disclosed the details of the contract, such as how much will be paid out each year by the TV partners.  We believe some investors may be sitting on the sideline awaiting these details.

Free Cash Flow Machine

TRK has a highly profitable business model with EBITDA margins in the 30-40% range.  Historically, TRK has plowed this cash flow back into track expansion or acquisitions of additional tracks.  Since the 2008 financial crisis, TRK has curtailed its spending.  As a result, free cash flow expanded to around $100m per year (up from $15m in 2005). 

The company has stated that maintenance capex will be no more than $15-20m per year in the foreseeable future (down from $120m in 2005).  They also have no appetite to build new tracks given NASCAR’s desire to not expand its current Cup schedule. Pocono and Dover could be interesting acquisition targets, but those tracks are not up for sale.  Additionally, TRK told us they are not interested in owning more racetracks; they would only be interested in taking away NASCAR Cup races from the Pocono or Dover to its existing tracks. The company has said that they will return free cash flow to shareholders via cash dividends (3% yield today) or stock buybacks, and debt repayment.

Management and Shareholder Interests Aligned

Founder and CEO Burton Smith owns 70% of TRK.  He has not sold a single share going as far back as the first EDGAR proxy statement available in 1997.  Further, Smith has not been given TRK stock options or restricted shares.  His annual incentive compensation is paid in cash and is based on target EPS.  As such, we believe Smith’s interests are well aligned with other shareholders.


TTM, TRK generated EBITDA of $147m, FCF to equity (FCFE) of $91m, and FCF to firm (FCFF) of $115m.  The difference between FCFE and FCFF is net interest expense adjusted for tax benefit at 35% tax rate.

Base Case

We assume that the increase in TV revenue will offset low single-digit decline in admissions and event-related revenues, thus maintaining EBITDA at $147m, FCFE at $91m and FCFF at $115m. TRK will obviously continue to pay cash dividends.  But for the sake of simplicity, we assume TRK will use the entire $180m generated in two years to pay down its debt.  Applying slightly higher EBITDA and FCFF multiples of 9x and 12x, we get to $30/share equity value.  We assume investors give TRK some credit for cash flow generation and debt repayment.

Upside Case

We assume increase in TV revenue and mid single-digit increase in admissions and event-related revenues, thus raising EBITDA to $162m, FCFE to $100m and FCFF to $124m.  For the sake of simplicity, we assume TRK will use the entire $200m generated in two years to pay down its debt.  Applying higher EBITDA and FCFF multiples of 11x and 15x, we get to $40/share equity value.  We assume TRK is revalued higher given modest revenue growth and margin expansion.


We assume continued high single-digit decline in admissions and event-related revenues more than offsetting increase in TV revenue, thus lowering EBITDA to $130m, FCFE to $75m and FCFF to $100m.  For the sake of simplicity, we assume TRK will use the entire $150m generated in two years to pay down its debt.  Applying lower EBITDA and FCFF multiples of 7x and 9x, we get to $17/share equity value.  We assume investors give TRK no credit for cash flow generation and debt repayment.


Admissions continue to decline: NASCAR’s core audience has been sensitive to economic downturn.  However, NASCAR’s popularity is still strong as evidenced by stable TV ratings.  We believe admissions at TRK events should bottom out soon.  At ISCA, admissions have started to show signs of stability.

NASCAR takes away Sprint Cup race: we believe this is unlikely given TRK and NASCAR’s longstanding relationship and the Kentucky Speedway case. 

Buying racetracks: Pocono and Dover are the only viable acquisition candidates, and neither has indicated a willingness to sell.  TRK management also said they are not interested in owning additional tracks.

I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.


Increased cash dividends

Stock repurchases

Debt repayment

Admissions showing signs of stability

Confirmed details on new NASCAR TV deal

Gaining additional NASCAR Cup race events

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