The sports industry continues to feel the impact of the extended shutdown. As the most leagues have returned to action, led by motorsports, their financial foundations are being assessed.
The outbreak of the coronavirus 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 begin to lift.
The discretionary nature of spending for personal and business entertainment has come under intense pressure. Along with the fact that most events are allowing limited capacity, many consumers are not ready to return until a vaccine is readily available. Ticket renewals and sponsorship agreements are paused.
The grassroots component of motorsports has been a quiet surprise. The number of races and car counts have been trending positively at local short tracks and drag strips. Parts manufacturers and warehouse distributors are shipping larger quantities of product after as slow start of 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 entities 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. There are considered prestigious due to their scarcity, high barrier to entry, exclusivity to operate, and the leagues vested interest to protect their teams.
Top-tier professional motorsports contains these characteristics. Nascar’s schedule has primarily three facility operators. The Charter System outlines the team ownership structure and specifies race cars and prize structure.
Typically, sports leagues and sport franchise debt are secured by national television contracts, ticket sales, luxury suites, sponsorship agreements, concessions, and related revenue.
The merger and going private transactions of NASCAR / International Speedway Corporation and Speedway Motorsports in November 2019 came under recent review by rating agencies.
Specifically, Nascar Holdings, LLC has a $1.4 billion term loan and Speedway Motorsports, $300.0 million in senior notes.
The shutdown limited the ability of track operators to host live events with spectators in attendance. Although the current season will run in its entirety, profit and cash flow will decline substantially as a result in lost attendance related revenue.
The possibility of an outbreak at the 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 contracts expire in 2024 and total almost $850.0 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 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 towards the checkered is the goal.