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Auto racing revs up revenues, profits

Now in its 89 year, the Indy 500 has become auto racing’s oldest and biggest event.  But it is only a small part of a sport that has zoomed from a regional favorite to a big business on a national scale.  By's John W. Schoen
Indianapolis 500 Media Day
Twenty-three-year-old Danica Patrick is a contender in this year's Indianapolis 500 race. Patrick is driving a car backed by Indiana-native David Letterman.Jim Mcisaac / Getty Images
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When the green flag comes down at the Indianapolis Motor Speedway at noon on Sunday, some 300,000 racing fans in attendance will be joined by more than 4 million TV viewers watching 33 cars circle the 2.5 mile track at speeds of up to 230 mph. Now in its 89th year, the Indy 500 has become auto racing’s oldest and biggest event. And the race — along with rest of the sport — has become big business.

“It has a huge economic impact on tourism and entertainment dollars that are spent for hotels, food and travel while people are here for a three- or four-day weekend,” said Greg Schenkel, president & CEO of the Indy Partnership, a local economic development group. Year-round, Schenkel’s group estimates some 400 racing-related companies in the region employ 8,800 people, generating $425 million in wages.

That economic impact has now spread nationwide. Once a regional sport concentrated mostly in the Southeast, auto racing has zoomed ahead in national popularity in the past decade. And as that popularity has revved higher, so have the fortunes of many track owners, drivers and race car owners, as well as the sanctioning bodies that schedule and own the rights to these races.

International Speedway, the largest publicly traded track owner, last month reported first-quarter profits of $41.1 million, up 48 percent from a year ago. Rival Speedway Motorsports Inc. said first-quarter earnings fell 43 percent to $14 million, due largely to a change in race dates for some of the company's premiere events. The company said it’s still on track to earn $2.15 to $2.25 a share for 2005 — up from $1.70 a share last year.

Races are sanctioned by dozens of groups, but the one in the front of the pack — in overall size and growth rate — is the National Association for Stock Car Auto Racing, or NASCAR. Owned and managed by the family of the late Bill France Sr., who staged his first races on Daytona Beach in the 1930s, NASCAR’s three major circuits — the Nextel Cup, NASCAR Busch and NASCAR Truck series — account for roughly half of total track attendance last year.

Because it’s a private company, NASCAR doesn’t release financial numbers. But its success has landed “Big” Bill’s sons, William Jr. and James, on the Forbes 400 richest Americans list, with estimated fortunes of $1.3 billion each. Grandson Brian now steers the company as chairman. Granddaughter Lesa France Kennedy is president of International Speedway, which the France family controls, that owns about a dozen major tracks including the Daytona International Speedway.

Tickets, T-shirts and TV
There are lots of ways to make money driving cars around a track: from ticket sales and corporate sponsorships to “trackside” merchandise — everything from food to T-shirts to souvenir “die-cast” car replicas. But like most sports, the TV rights to events like this weekend’s race make up one of the biggest revenue sources that fuels the sport and funds the prize money for drivers and car owners. (Sanctioning bodies like NASCAR typically take 10 percent of the broadcast revenues, with track owners getting 65 percent and the rest going to pay the prize money for drivers and car owners.)

NASCAR is nearing the end of auto racing's biggest-ever TV deal: a five-year $2.4 billion package of broadcast rights split between NBC and Fox. (MSNBC is a joint venture of Microsoft and NBC.) That TV contract has a lot to do with increased interest in the sport, according to NASCAR spokesman Andrew Giangola.

“Before that (contract), individual tracks negotiated individually with the networks,” he said. “You could have a race on CBS and the next week on ABC and the next week on ESPN. So you lacked the consistency; fans didn’t really know where to find the races. And there was no incentive for the networks really to promote it in a big way.”

Now, with car-mounted cameras and production paced to match the action on the track, national TV coverage has become a key driver of the sports growth, according to Kagan Research analyst John Mansell.

“Part of it has to do with the improved camera work and graphics and the just the overall onscreen quality and experience,” he said.

Race car drivers and car owners have also profited from the growth of the sport, and the payoffs for star drivers have begun to rival those of big-money sports like football, basketball and baseball. On NASCAR’s popular Nextel Cup series, for example, the 44 top drivers pocketed winnings or $1 million or more last year, according to NASCAR, with Dale Earnhardt Jr., the top prize winner, walking away with $7.2 million. And unlike salaried players for major league teams, drivers have a variety of prize sources. Aside from the main payoff provided by the track owners, numerous sponsors put up separate purses for individual races and circuits — in return the right to slap their logos on cars and drivers.

As the sport has grown, track owners have been expanding the racing circuit into markets that didn’t have major sanctioned races. In the last 10 years, major races have been added in California, Las Vegas, Chicago, Kansas City, Dallas, Miami, Detroit and New Hampshire (to attract Boston race fans), according to NASCAR’s Giangola.

And as new markets have developed, track owners have competed for the best race dates. The tug-of-war landed in court last year when a shareholder of Speedway Motorsports, Francis Ferko, sued NASCAR for not granting a key date to a Texas track owned by SMI. Last year, as part of the settlement of that suit, two races were moved from two Southern states to Texas and Arizona.

NASCAR still controls where and when races are sanctioned, leading to some continued grumbling that the France family holds an unfair advantage in its dual role as a track owner and sanctioning body. But industry analyst Dennis McAlpine says that as long as the sport keeps growing, the grumbling will likely be drowned out by the roar of cars on the track. 

“When more money comes in, the tracks get more, the team owners get more, the drivers get more, so everybody benefits from it,” he said. “So far they have not had a situation where one side has screwed the other.”

Growth takes a pit stop
The growth of auto racing took something of a pit stop last year, when both attendance and ratings took a dip, according to Mancell. Part of the drop was the result of fewer races; with 194 races in 2004 compared with 217 the year before. Overall attendance dropped 11.5 percent to 15.8 million, while average TV ratings dropped 9 percent to 14.6 million households, according to Kagan Research.

Still, the most popular races at many tracks routinely sell out. That has spurred track owners like International Speedway to invest in adding more seats: The company plans to spend $100 million this year on various projects.

“International Speedway has been traditionally loathe to do expansion until they’ve got a substantial demand built,” said McAlpine. “So they won’t add seats until they’ve got a backlog probably two or three times bigger than what they’re going to add.”

The company’s most ambitious project to date is a proposed track in New York City, which the company says — despite its solidly blue state demographics — is home to millions of racing fans. International Speedway has already bought hundreds of acres on Staten Island and proposed building a $600 million facility that would include an 80,000-seat race track.

But it will be 2009 at the earliest before the green flag goes down on any race in the Big Apple. Even before construction begins, the company will have to win various state and  local permits required to develop the site.

And, perhaps ironically, transportation may be one of the biggest stumbling blocks. Opponents fear that race days would bring big traffic jams on the four-lane Goethals Bridge linking Staten Island to New Jersey. To solve the problem, the company is proposing shuttling fans from nearby parking lots by bus and ferry.