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TMF: I guess the best way to begin would be to have you just lay out Speedway for us.
Wheeler: Well, Speedway Motorsports is a public company [and] its primary business is operating speedways. We have speedways in Charlotte, Atlanta, Dallas/Fort Worth, Bristol, Tenn., Las Vegas, and Sears Point. Our main profit maker is NASCAR -- Winston Cup and Busch Series races -- although we do a lot of other things on these tracks, including Indy car racing, auto shows [and] driving schools. We do music concerts sporadically. There's activity going on pretty constantly at these places year-round.
We also operate 600 Racing, which is a manufacturing facility for building and mass-producing racecars on an assembly line. We're the first people to ever successfully do that. That's brought the cost of racing down. And we have a subsidiary company called Finish Line Events, a mega-concessionaire and a souvenir business, which is a big profit maker for us.
Wheeler: No, we go outside. We do air shows for the Air Force. We do big boxing matches. We do some baseball parks. The main forte for Finish Line Events is catering large events where you have over 75,000 people, and there's only a few [companies] in the world that can really do that. This is one of them. We expect to see significant growth in that in the next few years.
We also have the Performance Racing Network, which is an auto racing broadcast network that not only does our races but does some of the races for World of Outlaws and does two weekly radio shows that are broadcast around the country. It's a significant profit maker for us also.
TMF: Obviously the biggest driver of your growth over the last several years has been the huge increase in the popularity of NASCAR both in terms of attendance and also in the way you've been able to market it through various channels. I wonder what you think has been driving that?
Wheeler: Well, I think America has finally discovered something we've known about for the last 25 to 30 years. I think NASCAR stock car racing is refreshing on the American sports scene. The drivers are throwback, role model-type athletes like the guys in the '40s and '50s -- like Joe DiMaggio and Stan Musial, Mickey Mantle and Rocky Marciano and Johnny Lujack. With the problems professional athletes are having today, I think some people are completely turned off by it, and I think that's one of things that's driving [NASCAR's growth].
The other thing is, I call it pro football on wheels. These cars are big. They make contact on the track, there's a lot of drama in it, and it doesn't take long to figure it out. That's the main thing. If you just dropped in here from the U.K. and you were trying to figure out NASCAR stock car racing versus the NFL, I think you'd have NASCAR figured out probably 50% faster than you would the NFL.
I think the vastly improved facilities have helped a great deal, particularly with the strong upsurge in female attendance. In 1975, 15% of the crowd was female. Today it's almost 40% and that's done a lot of different things. Number one, the security problems have just disappeared. Also, we've got a lot of sponsors in here that we would not have otherwise, like Kellogg (NYSE: K), Tide, etc.
That strong allegiance that the fans have to products puts us number one in product use by fans of all the major sports of America and that has driven a lot of mainstream American companies into NASCAR, whether they sponsor a car or race or just buy TV time. It's been very fruitful, sponsor-wise, in the last 10 years. Of course, really we pioneered the whole sponsorship thing, and the sports marketing that we see across the country in every sport today was started by people in racing because in those days we didn't have big TV contracts. We had to be very innovative as far as how our cash flowed, so we went after sponsors. The first one of major import, non-automotive, was R.J. Reynolds (NYSE: RJR) in the early '70s, so it's blossomed now. We've got about 200 companies involved in NASCAR right now and it helps tremendously.
TMF: I don't think anyone would ever have imagined seeing a corporate logo on the front of a football jersey, but as far as your automobiles go it's almost expected. I mean, that's really part of the culture.
Wheeler: That's true. But today, if you were starting the NFL over again, you would probably have sponsors. Each team would be called something. It's just that they didn't have to do that because they were the first sport to really get the big TV money. We had to go out and get money in other ways.
TMF: Your races are huge events, often more than 100,000 folks at one time. I wonder if you could just lay out sort of how you can bring off an event of that size?
Wheeler: Well, it is a logistical challenge. Take for instance the Coca-Cola 600, which we just ran here last Memorial Day Weekend. We had about 180,000 people. It takes about 100,000 hours and 6,000 people to produce an event like that, and that's a tremendous amount of number one, people, and number two, hours, to produce an event that's just one day. It's much more so than a Super Bowl or World Series or another event of major magnitude on the American sports scene.
We've been doing this so long that it's not like we just jumped into 180,000 people. We had a 100,000; we figured that out, 110, 120, 130 and all the way up, so we've had a lot of experience in this area of mega-crowds. We know the things that are going to happen. Every once in a while we'll see something brand new, but most of the problems and the challenges that we have reoccur all the time.
[Given] the fact that we've been doing this for so long, the 6,000 people it takes to produce the event have been doing it for a long period of time. Mostly it comes off pretty good. For instance, I say the successful business is really [about] the "Four T's" now.
The first "T" is "ticket," because you've got to sell them and get people in here. "Traffic" is the next "T" because you've got to get the people in and out of here, and we have been able to successfully get the people in in 2-1/2 to 3 hours and we can get them out in 2-1/2 to 3 hours. That's about 50,000 vehicles. There's nowhere else in America that moves that type of traffic, [and] that much, in such a short period of time. And the other "T" today is "television." We're going into a whole new era of taking what we're doing in the event and broadcasting it out not only throughout the United States but throughout probably 50% of the rest of the world.
Of course, the last "T" -- people laugh about this, but if you run one of the places you'll understand -- is the "toilets." I say the toilets because that represents the infrastructure: water, sewer, electrical, etc. All of a sudden you go from being a place where there's 200 people to a place where there's 175,000 or 180,000 and everything's got to work. We use pretty close to 750,000 gallons of water in one day to do [major events].
You've got to know what you're doing and you've got to have very experienced people working underneath you and that's why opening a new speedway somewhere is so difficult. We've done it and we've been through that, but the barriers to entry in this business are very formidable, and that's good for us.
TMF: You said the third "T" was television. Starting next season you've got the new television deal that covers the Winston Cup and Busch races and I think that's something that turned many investors on to racing as an opportunity. I don't think I'm as familiar, though, with how the big numbers filter down to companies like Speedway at the individual level.
Wheeler: Well, 10 years ago, an average race would be likely to get $100,000 to $200,000 from TV and it would probably be on cable. Five years ago, we got up over a million and this year 2,000, most of the contracts are in the $1.5 to $3 million range. [Next year] starts a whole new era because, as you mentioned before, we have a new TV contract. It's about $245 million for all the races of NASCAR and Winston Cup at the various tracks. Of that, Speedway Motor Sports is going to get about 28%.
I'll give you an example: Let's take the Coca-Cola 600 again. This year we got about $1.5 million from Turner to have it on. Next year, Fox will pay us in the vicinity of $7.5 million to produce that event. We will get to keep 65% of that. Ten percent of it goes to NASCAR, the sanctioning body, and 25% of it goes into the purse. I think the speedway stocks are pretty good buys right now because of the fact that no one really totally understands, I think on Wall Street, the tremendous asset that this new TV contract is going to be -- not only for the television revenue stream, but also for what it's going to do for the industry.
For the first time, the majority of the races are going to be on network TV: Fox and NBC. There will be a few races on Turner and F/X, but we will be able to penetrate into the top 10 markets now in a much stronger manner than we have before because the majority of the races are going to be on free network television.
We started out life as a regional sport, so it attracted a lot of regional advertisers, primarily in the Southeast. Then we became a regional/national sport and now we've become a national sport. But our weakness has been also that we haven't had the strength in the major markets, the top 10 markets that the NFL, NBA, and major league baseball have enjoyed. And that's primarily because those sports are on, for the most part, free TV and also they had teams in those areas.
As [NASCAR] continues to grow and blossom, the growth [plan] has been to put tracks in major markets like Dallas/Fort Worth, Southern California, Chicago, Kansas City, Boston -- the New Hampshire track -- and Miami. This is going to strengthen us a great deal. The ratings we have been getting [have] passed major league baseball and the NBA ratings-wise for the most part. We still are not able to compete yet with the NFL. It's going to take a couple of years of network television to penetrate into the major markets because that's where the growth has to come from. We've grown the heartland about as much as we can and it's very difficult to see percentage jumps of any consequence when you're out there in the heartland. You need to be in those big urban areas where there's a tremendous amount of people [and] therefore TV sets.
TMF: As it pertains to Speedway, do you want to grow by acquiring tracks, by building tracks, or just hosting more races at the tracks you have?
Wheeler: We built two tracks this year that were dirt tracks for a phenomenon that's really coming on strong in the U.S. called World of Outlaws racing. We built them beside Texas and beside Charlotte and they've worked out extremely well. The return on our investment on that is, we think, going to be in excess of 20% a year. We obviously are continuing to look at new things to acquire, new tracks. There are not many of them left to do so.
We know the next three or four years right now are going to be great growth years for us just simply because of the TV revenue package, and that income is going to grow in the next three years compounded annually at least 17%. We don't want to mess that up by paying too much for a track and it not being accretive to earnings, so we're going to be pretty careful.
The last track that was sold was Richmond. We were right in there, but the price got up to $215 million and I thought that was too much. It was purchased by another company in racing, and maybe they saw something I didn't see, but $215 million even with new TV money, it's a tough go.
TMF: You talked a little bit about World of Outlaws and looking at some of your earnings reports from last year, it seemed like the slower growth was coming from the non-NASCAR events. I wonder if you could talk a little bit more in detail about some of those other efforts that you're doing and how they will drive growth.
Wheeler: Well, I'll tell you, it takes about $750,000 in net income to produce one more penny earnings per share and I've always been a great believer in the quick nickel rather than the slow dime. The quick nickel, to me, is stuff like World of Outlaws. The two tracks that we have right now, particularly in 2001, should be able to each produce a cent and then contribute that toward our net income. If you have enough things like that going on, all of a sudden, you've got some profit centers -- not returning a tremendous amount of money, but they add up and it's that critical mass that you're looking for.
And the critical mass works in the racing business just like it works everywhere else, particularly when you're fighting weather. For instance, last weekend, we had two major events going on at the same time: one in Texas, an Indy Racing event, and one at Bristol, Tenn. -- the World of Outlaws. We put dirt on top of the asphalt half-mile track in Bristol. We had rain in Texas. We were fighting the heavy rains in Texas from the tropical depression they had last weekend and we got the race in, but we didn't get the crowd we thought we would.
On the other hand, in Bristol, we had a magnificent crowd and it more than made up for what happened in Texas. That's where that critical mass comes in and really helps you when you've got a lot of things going. It's just like our radio network. Five years ago our radio network was making between $500,000 and $600,000 a year. This year, our radio network will probably -- this is pretax -- will probably come in a little over $2 million. You get enough of those things going and it piles up, and it's that EPS number that you keep wanting to have.
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TMF: Are [Finish Line's services] primarily for your own facilities?
With the problems professional athletes are having today, I think some people are completely turned off by it.
I think the speedway stocks are pretty good buys right now.
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