Business of Speed
The Money Behind the Motorsports Industry
By: Tim Frost
Date: August 2017
This month we will look at the motorsports from track investment in infrastructure and tax perspective on owning a race team.
The racing season is in top gear, with all the series competing coast to coast from the local short tracks to straight line drag strips to twisting road courses. Economic challenges continue for track operators, sanctions, teams and drivers on the spectator and sponsorship front.
Successful businesses continue to invest in their products and motorsports is no exception. Race tracks spend for three primary reasons: safety, repairs and maintenance, and spectators. Providing a safe environment for the drivers and fans is mandatory. This may include safer barrier installation, stronger fencing and enhanced tire barriers and runoff areas. Outside sporting venues are subject to extreme conditions from weather and race cars. There is ongoing maintenance for track paving and seepage. Track crews must prepare for emergency patching repairs during a race. Fan amenities have evolved over the years. Fifteen years ago, larger tracks expanded seating capacity rapidly. As attendance has declined, grandstands have been removed. These areas are being repurposed into hospitality areas and RV camping spaces.
Tracks have been seeking clarification on the depreciation classification of selected assets at race tracks. Known as the Motorsports Fairness and Permanency Act, the bill has been temporary. The National Motorsports Coalition which is comprised of affiliated groups of race tracks, motorsports associations and sanction bodies are working on making this legislation permanent.
The larger track operators continue to make significant investments in their facility. They include Daytona Rising’s $400.0 million redevelopment, Phoenix International Raceway $178.0 million reconfiguration, Indianapolis Motor Speedway’s Project 100 for $100.0 million, and Richmond Raceway’s $30.0 million infield redesign. Over the last five years, the three publically traded companies have invested over $750.0 million.
Racing is an expensive sport. It takes money to go fast – many drivers spend every dollar they have. A common question – is it hobby or business. Perfect scenario would be to win races and deduct the expenses incurred to compete. Typical expenses for race team may include: chassis, engines, tires, parts, fuel, travel, insurance, and crash rebuilds.
The Internal Revenue Service monitors those who claim losses racing. For racing to qualify as a business, it must operate with a profit-making purpose continuously. Detailed records are a must. Documentation such as a business plan, sponsorship proposals, financial statements, car expenditures, travel plans, race schedules, and on-track performance.
The IRS considers factors of a driver or race team such as: manner of activity (professional or amateur), expertise of advisors, time and effort expended, expectation assets would appreciate, success in participating, history of profit or loss, financial status, and element personal pleasure or recreation were involved.
The key to taking the checkered flag successfully as a racing business is to operate professional and competent financial advisors.