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Stock Strategist

Efficient Scale and Intangible Assets Support International Speedway's Narrow Moat

Recent broadcast contract provides near-term stability, while alternative track uses add a layer of upside potential.

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 International Speedway's (ISCA) narrow economic moat remains intact, extending from efficient scale and intangible assets. Efficient scale is relevant when a product is offered to a limited-size market and the operator can efficiently serve the end users, keeping competitors away. We think this holds true for International Speedway, as the need for more than one track in any major metropolitan area would be unlikely, given high costs associated with such a project coupled with the likelihood of weaker returns for all track operators in the location. We doubt NASCAR would sanction another race in the same geographic location and find it unlikely that another racing organization could enter a market and have clout with track operators, given NASCAR's established credibility.

We believe the fact that all parties (sponsors, drivers, teams, and track owners) can be financially motivated to reach common goals helps foster a powerful intangible asset competitive advantage. Drivers are encouraged to participate to get paid purse monies and accumulate points, which satisfies sponsors and track operators that depend on driver appearances to increase brand loyalty and ticket sales. This intricate financial model, developed over the history of stock car racing, has generated some of the most lucrative sponsorship and licensing relationships across the major sport categories. While admissions and concessions have declined over the past five years, NASCAR recently secured a 10-year $8.2 billion contract, representing a 46% increase in annual rights fees over the prior contract. We believe this development indicates that stock car racing and the NASCAR brand still carry influence with sports fans (and sponsors), and we think declining attendance is a cyclical rather than secular phenomenon. This intangible asset has allowed International Speedway to increase motorsports-related revenue steadily and stay profitable over time.

Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.