Business of Speed

The Money Behind the Motorsports Industry

By: Tim Frost

Date: June 1, 2018

This month, we will look at the financial aspects of the largest sport leagues including sanctioning bodies.

There have been recent discussions over the future of NASCAR from an ownership and financial perspective. To gain insight, let’s review the business of sports leagues and their unique characteristics.

Leagues provide the infrastructure within which individual teams can participate. They differ on multiple fronts, but one common theme is that centralized decision making is imperative for the viability of the league.

Specific examples may include: what teams can compete; what is the criteria for the admission of new teams; what is structure of the competition; how many races; how many teams advance to the playoffs; what revenue is shared; what is the allocation of revenue to the teams; what is the relationship structure to the drivers; what is financial formula to drivers; what is the media structure; how are broadcast contracts negotiated; and applicable rights for the league, teams, drivers and partners.

There have been attempts to form new leagues on a regular basis. They typically start with a clean slate from an ownership structure. The two ends of the spectrum include the single-entity and distributed club ownership models. The single-entity ownership model owns the league and all the teams. The distributed club ownership model has each team its own individual group.

Competitive balance is the central concern for most leagues. Balance is important on many levels – league and field. The start of each season should provide a realistic chance for each team to win the championship or make the playoffs. Individual races should have also a high probability that winner is not guaranteed at the green flag.

Proponents of competitive balance stress that the uncertainty factor associated with multiple strong teams promotes higher attendance, higher television ratings and broad set of sponsors. Fans of teams and drivers genuinely believe that can take the checkered flag or win the championship trophy. It also reduces viewer turn-off from predictable finishes.

Revenue is key to any business and racing is no different. Two central issues for revenue sharing are the sources and its allocation. A key distinction exists between the central pool (paid to league) and local pool (paid to teams).

The largest professional sports leagues (NFL, NBA, MLB, and NHL) are non-profit organizations. In motorsports, NHRA and SCCA are non-profits.

The formation of the Charter system in 2016 created a system that would guarantee full-time license holders automatic entrance into every race of the season for nine years. Charters which are transferable were granted to full-time teams. There are total of 36 charters. This leaves four open sports with a starting field of 40.

The Charter system moved the sport away from the longstanding independent contractor model. The purpose was the promote a more predictable, sustainable, and valuable team business model.

NASCAR was founded in 1948, by Bill France, Sr. His son, Bill France, Jr. ran it from 1972 to 2000. Brian France has been CEO since then. His uncle, Jim France is EVP and sister Lisa France Kennedy is CEO of International Speedway Corporation.

Nascar is governed by a Board of Directors. The six members include: Mike Helton, Brent Dewar, Gary Crotty, Jim France, Lesa France Kennedy, and Brian France.

Reports indicate that NASCAR is owned solely by Jim France and Lesa France Kennedy. It has been stated that Brian France has no financial stake.

The investment bank Goldman Sachs has been working the France family to explore strategic options for their ownership interest. Highly respected in the sports finance industry, the institution has been involved in team sales, stadium deals, and media properties.

It is not uncommon for family held entities, with third generation ownership to investigate exit opportunities. They may want to monetize the value of the business or take advantage of a favorable opportunity.

The current environment for the sports business is positive. There are rising prices for sports team asset values and record sales prices. The pool of potential buyers is strong resulting from a bullish stock market and advantage business climate.

Liberty Media acquired the entity known as Formula One in January 2017. The transaction price represented an enterprise value of $8.0 billion and an equity value of $4.4 billion. The complicated deal structure involved issuing stock and new debt and refinancing existing.

Change is constant. Transformation to the core aspects of the legal and financial structure, along with an informed set of stakeholders may serve of a potential deal for Nascar.