On Track for More Gambling?

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International Speedway (Nasdaq: ISCA), the largest U.S. motor-sports track operator, unveiled a weak third-quarter report and said it would continue to sell discounted entry- level tickets to attract more customers. And there's one more thing.

The company told investors Thursday that it should learn by late December or early January if it can build a casino next to its Kansas City, Kan., track with joint-venture partner Penn National Gaming (Nasdaq: PENN) to try to pull in more revenue.

If Kansas authorities approve, International Speedway would follow the lead of companies that feature horses rather than horsepower, such as Churchill Downs (Nasdaq: CHDN). Churchill Downs is pursuing more dollars by installing slot machines and video poker at tracks or building casinos next to the tracks themselves. The trend seems to be catching on, as even Wynn Resorts (Nasdaq: WYNN) and MGM Mirage (NYSE: MGM) are competing to build a video-lottery-terminal facility next to New York City's Aqueduct horse racing track.

Disappointing past, uncertain future
The effort to promote horse racing tracks in some states in light of the decline of pari-mutuel betting illustrates why auto racing and horse racing officials view gambling and casinos as a possible revenue lifeline. For instance, last year at Churchill Downs, racing revenue fell by 9% while gambling revenues jumped by 73%.

International Speedway's stock lost 5.8% Thursday after the company said its earnings per share, excluding one-time items, were $0.33, or $0.05 below the Wall Street consensus. Revenue dropped to $172.9 million from $213.2 million.

Unfortunately, things aren't looking particularly rosy in the near future. The company has said that the next year will be so "challenging" that it has to expand its policy of offering reduced-price tickets. The prospect of building a casino that could supplement its motor track, a top executive told analysts, would "significantly contribute" to the bottom line.

A stop-and-go process
International Speedway wouldn't be the first public company to mix auto racing and gambling. Dover Downs Gaming & Entertainment (NYSE: DDE) operates a harness track/casino next to Dover International Speedway, which is owned by Dover Motorsports (NYSE: DVD). This is even further evidence that racing companies see the urgency and need for gambling to add value to their businesses.  

International Speedway is making a second try at a Kansas casino. The company and a partner won a license in September 2008, but they withdrew it two months later, citing the weak economy and unfavorable borrowing costs. They reapplied in 2009. Last month, Penn National bought out the original partner.

While Kansas Speedway is the only track pursuing a casino, International Speedway owns tracks in various states that allow gambling in horse-racing tracks. If there is success with Kansas Speedway, the company could find a new way to grow.

However, with jittery consumers raising a yellow caution flag for motor-sports investors and state legislators trolling for other sources of money, we could wind up with more gambling.