International Speedway Speeds Away

Sports fans have it tough as investors. Oftentimes, there is no way to directly invest in their favorite team or league. So what is a rabid NASCAR fan to do? Well, in this case, there are several potentially attractive options, including International Speedway (Nasdaq: ISCA  ) and Speedway Motorsports (NYSE: TRK  ) , two of the leading companies that own and operate racetracks. Interestingly enough, the same family that runs NASCAR also runs International Speedway.

International Speedway's third-quarter results were quite good, keeping in mind that quarterly results can be a bit rocky depending on how many racing events were held in that quarter. Revenues were up about 7% to $178.9 million, driven by increased food and beverage sales, while net income dropped a tad to $34.3 million vs. $36.8 million last year, influenced partially by ongoing legal expenses. Some key corporate sponsorships were closed in the quarter; AMD (NYSE: AMD  ) and John Deere (NYSE: DE  ) both signed up for sponsor deals, reflecting companies' increasing desire to reach NASCAR's burgeoning fan base.

The trouble with International Speedway is that, especially since it's a part of such a hot sport, its expected revenue growth of 10%-15% for the next few years almost seems like a letdown. Consider that the broadcasting rights for NASCAR were renewed late last year in an eight-year deal worth $4.5 billion, which translates into a 40% average increase in annual licensing revenues. While International Speedway does receive a good chunk of revenues in broadcasting fees -- $135 million through the first six months of 2006 -- 25% of those revenues have to go back to NASCAR as part of prizes and point fund money. All in all, it's nothing for an investor to sneeze at.

Does International Speedway look promising as an investment? With $113 million in year-to-date free cash flow, even annualizing that number to around $150 million to $200 million places the company at anywhere from 13 to 17 times free cash flow. With middling returns on equity (in the 16% range for 2005) and substantial capital expenditures required to keep growth humming, perhaps it's better to be a fan in the stands rather than an investor in this one.

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Fool contributorStephen Ellis doesn't hold shares in any companies mentioned. You can see his holdings foryourself. The Fool'sdisclosure policy goes vroom.

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