International Speedway Corp. (NASDAQ:ISCA)
Q4 2010 Earnings Call
January 27, 2011; 09:00am ET
Lesa France Kennedy - Chief Executive Officer
John Saunders - President
Dan Houser - Senior Vice President & Chief Financial Officer
Charles Talbert - Director of Investor & Corporate Communications
Amit Chandra - Wells Fargo Securities
Thomas Andrews - BMO Capital Markets
Barry Lucas - Gabelli & Company
Good morning and welcome to the International Speedway Corporation 2010 fourth quarter and full year results conference call. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate in the question-and-answer session. (Operator Instructions)
I would now like to turn the conference over to Charles Talbert, Director of Investor and Corporate Communications for International Speedway. Mr. Talbert, please go ahead.
Thank you operator. Good morning everyone and welcome to the International Speedway’s conference call. We are here to discuss the company’s results for the fourth quarter ended November 30, 2010. With us on this mornings call are Lesa France Kennedy, Chief Executive Officer; John Saunders, President; and Dan Houser, Senior Vice-President and Chief Financial Officer.
After our formal remarks, a question-and-answer period will follow. The operator will instruct you on procedures at that time.
Before we start, I would like to address forward-looking statements that may be addressed on this call. Forward-looking statements involve risks, uncertainties and assumptions. Actual future performance, outcomes and results may differ materially from those expressed in these forward-looking statements. Please refer to the documents filed by International Speedway with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors which could cause actual results to differ from those contained in these forward-looking statements.
So with these formalities out of the way, I will turn the call over to Lesa Kennedy. Lesa.
Lesa France Kennedy
Good morning and thank you for participating on todays call everyone. Another terrific motor sport season ended our Homestead-Miami Speedway for the closest finish and a history to cage for the Sprint Cup Championship. We now have websites that are on 2011, with a premier endurance motor sports race, the Rolex 24 Daytona this week, followed by three weeks and the culminating in this 53rd running of the Daytona 500.
This is a historic moment for us. We are excited about the events at Daytona, with the $18,000 tax-repaving project complete. For more indications, the racing surfaces terrific and everyone is excited about the upcoming event and we expect another capacity crowd for the Daytona 500. The fans should be in for some amazing races.
While we hope for a stronger economic environment at this point, we do believe conditions are getting better, but most importantly the fundamentals of our business remain sound. As I discussed on the last call, we have moved forward on various strategic initiatives to ensure that ISC remains the leader in motor sports entertainment.
We have taken the necessary steps on the cost side of the business to provision the company for the long-term success.
Our sound financial policies maintain a strong balance sheet that provides a significant competitive advantage within our industry. Speaking of our industry, NASCAR just yesterday announced new changes to the sport. There were a number of compelling changes. I’m most excited about and I also believe our fans will be too with the new point system.
There will be one point per division. The winner gets 43 points and last place gets one point. While the point system has been simplified to the fans, NASCAR has kept the integrity of the systems. Another change of note relates to the change for the NASCAR Sprint Cup.
The top ten positions will get into the chase based on points. The 11th and 12th position will be based on wins, which is an added incentive to winning races. These changes as well as the previous modifications that NASCAR has implemented are based on fan feedback. This is always in reporting time of the year policy (ph) NASCAR mostly important, our fans and our sponsors.
So with that, I would like to thank all of you now and turn it over to John Saunders.
Thank you Lesa and good morning everyone. During the quarter we hosted seven NASCAR Sprint Cup series events, five nationwide series events and four Camping World Truck series events. The quarter-over-quarter comparison was impacted by certain factors, which are outlined in the earnings news release.
We are pleased that in light of the continued macro economic headwinds we still ended this year with solid results. Dan will provide a detailed review of our financial performance later in the call.
Going into the 2011 season, we are still seeing challenges in consumer spending, but remain encouraged by initial corporate spending trends in many areas. From a consumer standpoint, we believe that ticket pricing initiatives implemented last season are on target with demand, providing attractive price points for all income levels.
The only material change to our ticketing policy will be the availability of single day ticket options at Kansas and Chicago end. These facilities were only a seasoned ticketing model and this year based on customer feedback, we have uncoupled a substantial number of tickets, while still offering I might add selling a significant number of season ticket packages and these packages remain an important component of our admission.
The uncoupling of tickets at these facilities will allow for a broader universe of potential ticket buyers. However, it will have a near term financial ramification. But over the longer term we expect to see greater demand for these marked key events.
While ticket pricing will not be adjusted at our other facilities, we are focused on a number of initiatives to drive ticket sales. Specifically, we are focused on the overall guest experience to improve seating at our facilities, as well as new fan amenity such as improved track score boards.
Much like corporate sales we are actively prospecting for race fans. We can’t stress enough the importance of getting guests through our gates. For the next generation we are focused on youth marketing and first timers to aggressive promotions, which include education on the sport with introductory and fan experience videos and webinars. We are also aggressively outbound prospecting on group sales.
All of this is being supported by increase levels of consumer research, leveraging technology with addition of such things as mobile websites and highly segmented online promotional campaigns. Advanced ticket sales for our Sprint Cup events remain in the range of approximately 5% and 6% off from last year in units and revenue respectively.
Also, our retention rate is roughly the same at the same level as last year in the low 50% tile range. We expect our customers will continue to make their purchasing decisions late in the buying cycle. Fortunately, we have the processes and technology in place to handle the increased informational and transactional volumes.
We believe pricing strategies and related consumer initiatives, coupled with facility enhancements through C upgrades and widening which were impact capacity levels are on target. Designed to stimulate removals and advance sales that will provide a path back to a more normalized advance ticket sales trend.
We have the largest portfolio sponsors in any motor sport promoter in the country and corporate support for our industry remains strong. Our partners continue to tell us that their investment in IFC has a positive ROI. Many current partners have committed incremental investments with IFC during the off-season. Interest levels from new partners is better than it was in 2009, but their budgets are not yet quite back to pre-recession levels.
Many new companies to this sport are looking to handover the smaller position in years past. For fiscal 2011 ISCA has agreements in place for approximately 76% of its gross marketing partnership revenue target, which is essentially where we were last year at this time, which is good news. For the 2010 season we sold our entire event entitlement inventory for our NASCAR Sprint Cup and nationwide series events.
For 2011 we have five entitlements either open or not announced for the 21 Sprint Cup event and four entitlements either open or not announced for the 16 nationwide events. At this time last year, we had four Sprint Cup entitlements opened and three nationwide entitlements opened. We have a strong track record of selling entitlements and are working aggressively to secure these entitlements for all of our 2011 Sprint Cup and nationwide entitlements at rates equal to last year.
Let me touch on the television ratings. Ratings for Sprint Cup were down approximately 11%. While not where we would like them to do be, there were a number of unique circumstances that contributed to that decline. Specifically NASCAR’s first major event and typically the highest rated event, the Daytona 500 was delayed for a considerable amount of time. While there were more viewers of 14% gain over last year, the delay contributed to the decreased ratings.
After that, the Winter Olympics held in North America provided a significant amount of live viewing opportunities. The marquee event, the finals in the men’s hockey game between United States and Canada aired directly competing with NASCAR’s Las Vegas event. We also had to complete against World Cup Soccer last year. Due to both the Winter Olympics and the world cup being held once every four years, it was inevitably going to have an impact on viewers.
Lastly, while in the longer term we believe it will provide increased ratings, there was an impact of viewership with ABC Network moving the majority of its races to cable with ESPN.
To follow up on Lesa’s comment regarding NASCAR’s announcement yesterday, I too share their – her enthusiasm for these changes. One change that has the potential to positively impact TV ratings is NASCAR’s decision to move certain Sprint Cup start times. Once the NFL begins its season, which coincides with the start of the chase, the Sunday races will start at 2:00 p.m., with the final three chases starting at 3:00 p.m. In addition to moving all of the start time of the NFL first games of the day, the NASCAR pre-race show will move from ESPN-II to ESPN, which will broadcasting our event.
We believe the strong finish in the chase for the Sprint Cup championship, the fan favorable initiatives NASCAR has implemented, the new track surface for the Daytona 500, realigned events and with network consistency having ESPN hosting the races next year, rating should show an improvement from last year.
Let’s remember and a testament to its values, the NASCAR Sprint Cup continues to be the dominant number two sport on television among all key demographic groups, including males 18 to 34. The Sprint Cup was the number one or number two sport on television, 20 of the 36 at that weekends last year. From a network and particularly from cables perspective, since they generate subscriber fees, its NASCAR’s ability to drive the second largest audience amongst sport properties; it’s very attractive.
And on a personal and subjective note indicators such as ratings will take time, but today’s racing is arguably some of the most exciting and competitive we’ve ever had and fans old and new will take notice. While the number of major NASCAR events affordably remains the same, there will be some notable differences to our event schedule year over year.
As previously stated, Kansas speedway has added a second Sprint Cup day in anticipation of our Hollywood casino opening in 2012. This, as well as realignment by speedway motor sports, certain other Sprint Cup event dates have changed. Specifically Phoenix International Raceway is now the second Sprint Cup day in the season and Chicagoland will host the first race in the chase for the Sprint Cup championship.
As we had noted on earlier calls, we decided not to host any IndyCar events in 2011 and this was done purely for business reasons. So on a comparability, year-over-year will be effected due to schedule changes. The earnings release provides a quarterly breakdown of these series schedules.
Subsequent to the fiscal year end we announced the termination of the agreement with KD Holdings for the sale of our Dayton Island’s New York property. KB Holdings did not fulfill the terms of the second amendment to our agreement to close the transactions by November 30. As a result of the transaction terminating, we are discussing the sale of the Staten Island asset with several potential buyers and KB Marine remains a potential buyer.
On a parallel path we are actively working with the department of environmental conservation to secure approval to fill the site, which will allow the property to be appropriately developed, ideally for port related and logistics activities. We believe this site has potential to provide significant economic development and job creation to Staten Island, the city and the State of New York as a whole.
We are hopeful that the DEC recognizes the potential for the jobs and economic benefit and will provide the necessary permitting to allow the property to be appropriately developed. I don’t have a time frame on this getting completed, but we will keep you posted.
And now I will turn the call over to Dan Houser.
Thanks John. Good morning everyone and thanks for joining us today. Our fourth quarter results were impacted by the ongoing economic trends, which continued to drive the decrease in attendance-related as well as corporate partner revenues. Our fiscal fourth quarter 2010 comparability was also impacted by a number of other factors, including non-cash impairments of capital assets, charges related to the interest rate swap, settlements and amortization, operating results for our equity investments and the loss on the early redemption in Senior Notes.
Let’s take a look at the income statement. Admissions revenue for the fourth quarter decreased to $43.7 million, primarily due to lower attendance drive largely by economic condition, as well as the lower rated average ticket price as a result of our value price and strategies. For the quarter and fiscal year, the weighted average ticket price for our Sprint Cup events decreased approximately 1.5% and 6.3% respectively.
The decrease in motor sports related revenue to $127.6 million was primarily driven by the previously mentioned economic conditions, resulting in lower sponsorship suite and hospitality revenues. Partially offsetting these decreases was an increase in television broadcast and ancillary rights.
For the quarter, ISC's domestic television broadcast and ancillary rights were $81.4 million, with $79.5 million associated with domestic broadcast contracts and $1.9 million of ancillary rights. The slight decrease in food, beverage and merchandise revenue, the $16.4 million, was primarily attributable to lower attendance, partially offset by sales at a major music festival conducted at Auto Club Speedway.
The decrease in prize and point fund monies and NASCAR sanction fees, the $49.9 million, was primarily attributable to a reduction in overall prize and point fess as compared to the same period in the prior year. These decreases were partially offset by an increase in the TV and ancillary rights, a portion of which are paid competitors as part of prize and point fund monies.
Motor sports related expense decreased to $37.5 million. The decrease was primarily attributable to lower promotional advertising and other race related expenses during the period, resulting from our focused cost containment initiatives. Food, beverage, and merchandise expense of $11.6 million was comparable to the fourth quarter of 2009.
General and administrative expense decreased to $25.8 million for the quarter. The decrease was primarily attributable again to our focused cost containment initiatives. The increase in depreciation and amortization expense to $18.8 million for the quarter was primarily attributable to ongoing capital spending for maintenance CapEx and other facility enhancements.
The $7.8 million non-cash impairment of long-lived assets is primarily attributable to the net book value of certain assets either removed from service as part of ongoing capital improvements, after which we determined they were no longer expected to benefit future operations.
The decrease in interest income was primarily due to lower interest rates on cash balance. Interest expense for the quarter decreased to approximately $3.4 million. The decreases related to the early payment of the 2014 notes through the tender offer and a lower outstanding balance on our credit facility as compared to the same period in the prior year. The earnings impact of the interest rate swap was $7.3 million. I will discuss this in more detail later in the call.
The $6.5 million loss on early redemption to debt is attributable to the partial redemption of senior notes maturing in 2014. Of note is that while we recorded a charge for early redemption, the transaction had a positive net present value. I have no detail on this too.
Equity and net loss from equity investments represents our 50% equity investment in Motor sports Authentic and Hollywood Casino at Kansas Speedway. The equity and net loss of $270,000 is our 50% portion of certain start-up costs for the Kansas Speedway Casino.
Our effective tax rate for this quarter was approximately 31%. Without certain state tax credits accrued in the fourth quarter of 2010, our effective tax today would have been approximately 39.4%.
Income from continuing operations for the three months ended November 30 was $15.2 million or $0.32 per diluted share, approximately $48.1 million shares outstanding. However, when you exclude the impairment of long-lived assets, recognition of the interest rate swap expense, the charge for early redemption to senior notes and equity and net loss from equity investments, we posted earnings to $0.59 per diluted share for the 2010 fiscal fourth quarter. As described in the release, this is compared to non-GAAP net income for the 2009 fiscal fourth quarter of $0.63 per diluted share.
Taking a look at the balance sheet, at November 30 our combined cash and cash equivalents totaled $84.3 million. Current deferred income was approximately $49.2 million and shareholder’s equity was $1.2 billion. At the end of the quarter total debt was approximately $306 million, including $87 million in the senior notes, $64 million in chip funds associated with Kansas, $2 million in revenue bonds, $51 million for a loan to construct our headquarters building and $102 million in borrowings for our new three – on our new $300 million revolving credit facility.
In November we entered into a new five-year $300 million revolving credit facility. Pricing on the facility is based on a pricing grid ranging from LIBOR plus 150 to 225 basis points, depending on the better of our debt rating or the company’s leverage ratio. Currently, interest accrues at a rate of LIBOR plus 175 basis points. On a comparable basis, the previous credit facility, negotiated in a dramatically different credit market ranged from LIBOR plus 30 basis points to 80 basis points, based on our highest debt rating.
As I mentioned, at fiscal year end we had $102 million in borrowings on our credit facility. The other half of the borrowings are related to the cash tender offer we completed in October for a 5.4% senior notes due 2014. Last week we announced the closing of $65 million or 4.63% senior unsecured notes due 2021 in a private placement.
The proceeds were used to pay down a portion of the balance on our credit facility. The balance that of the strategy is that we not only extended a significant portion of near term maturities, but also received favorable rates.
As it relates to our interest rates swap, in June 2008, in anticipation of refinancing the $150 million senior notes that were mature in April 2009, we entered into an internet rate swap on a notional amount of $130 million with the maturity of February 2009.
By fall 2008 financial crisis and a resulting credit market collapse let us term end the rhythm of swap and extend it to February 2011.
Since then we have monitored credit markets for attractive refinancing opportunities. Last year as the Federal Reserve Bank was against sending signals it would embark on a policy of quantitative easing to stimulate economic growth and as a result of our anticipated reduction of the debt issuance from $150 million to $65 million, we discontinued the cash this cash flow hedge and settled the related liability for approximately $39.0 million.
As a result of these transactions we recognized approximately $7.3 million and $23.9 million in expense in our consolidated statement of operations during the three months and full year ended November 30 respectively, attributable to the interest rates swap.
At November 30, 2010 we had a balance of approximately $6.6 million net of tax related to the interest rate swap remaining and accumulated other comprehensive loss on our consolidated balance sheet.
This balance along with other deferred financing fees incurred in connection with the $65 million of senior notes issued by private placement will be amortized in interest expense over the life of these notes, effectively increasing the yield on the notes from 4.63% to approximately 6.4%.
Our Hollywood Casino at Kansas Speedway joint venture is progressing as planned. We anticipated funding the initial phase of the development with a mix of equity contributions from each partner, as well as third party finance. We currently estimated our share of capitalized development cost for the project, excluding our initial contribution of a land will be approximately a $155 million.
At the end of the year we have contributed $43.4 million, which is included on our balance sheet as equity investments. In addition, we will continue to incur certain costs and related costs through the casino opening, a number of which will be expensed through equity and net loss from equity investments.
During the fourth quarter we had purchased 1,22,816 shares or our Class A stock for approximately $2.8 million, bringing the total number of shares purchased from December 2006 through November 2010 to approximately 5.2 million shares. At the end of the quarter we had approximately $29 million in remaining capacity on our $250 million authorization.
As our operating cash flows have stabilized and we believe our share price remains undervalue, based on current projections we anticipate seeking approval from our board to again buy shares consistently over the year possibly, up to an amount equal to the remaining capacity.
Returning capital through repurchasing shares and an annual dividend payment, which this year will be approximately $9 million is an important component of our long-term capital allocation strategy. If suppose our share price enhances the enterprise value and further positions ISC’s future success.
As it relates to capital spending, for the three months ended November 30, 2010, we spent $31.2 million on capital expenditures, which includes $29.6 million for projects that are existing facilities. The remaining million spending is primarily related to finalizing construction on our head quarter’s build, which was funded long-time restricted cash and investments.
In the 2010 fiscal year CapEx totaled approximately $105.9 million, which includes $85.7 million for projects at our existing facilities. The increase in the amount over what was projected for existing facilities last quarter was primarily due to timing of payments related to the repaving projects as they come. The remaining balance of approximately $22.2 million is related to our Headquarters building, which was funded from $9.1 million in long-term restricted cash and investments, the purchase of a land in Daytona and additional capitalized spending for the Staten Island property.
At November 30, we have approximately $55.9 million remaining in capital projects currently approved for existing facilities. These projects include the track repaving at Phoenix; grandstand seating enhancements; and improvement at Michigan and Watkins Glen; parking improvements at Daytona; infield enhancements at Talladega; installation of track lighting and track enhancements at Kansas; improvements at various facilities for expansion of parking, camping capacity and other uses, and a variety of other improvements and renovations to our facilities, all of which enable us to effectively compete with other sports venues consumer and corporate spending.
As a result of these currently approved projects and anticipated additional approvals in fiscal 2011, we expect their total fiscal 2011 capital expenditures at our existing facility with approximately $65 million to $75 million depending on the timing of certain projects. We review the capital expenditure program periodically and modify it as required to meet our current business needs.
As previously stated, from a capital expenditure standpoint, our first and foremost top priority will always be fan and competitor safety, as well as critical maintenance and regulatory complaints. A significant portion in our future capital expenditures at existing facilities will be allocated accordingly. While the focus on allocating capital to generate returns in excess of our cost of capital, these investments do not provide immediate directly traceful returns, but are required to maintain our facilities to be able to host our events.
In addition, as we compete for the consumer’s discretionary dollar with other entertainment options, we must make enhancements to upgrade our facilities. We are confident that our focus on driving incremental earnings by improving the fan experience through initiatives such as improved seating will lead to increased ticket sales as well as pricing power involvement.
In terms of our 2011 financial outlook, as John mentioned our 2011-event schedule will have some notable differences from 2010. The earnings news release details the major events by series in the quarter. For 2011 we anticipate total revenues to range between $635 million and $650 million. The revenue we recognized from television and ancillary media rights for NASCAR’s top three racing series, which is included in motor sports related revenue will increase approximately 3% to $278 million.
As a result of the reduction of $20 million in direct expenses in G&A, driven by our previously announced company wide initiative to reduce operating costs, we currently expect our full year EBITDA margin to range between 35% and 36% of total revenues and expect our full year operating margin for 2011 to be between 22% and 24% of total revenues. We expect our effective tax rate in 2011 to be approximately 38% to 39% for the full year.
Based on all the above assumptions, we expect 2011 full year non-GAAP earnings between $1.60 and $1.80 per diluted share, assuming we move forward with approximately $30 million in share repurchases. From the earnings perspective, the fourth quarter will be almost significant, followed by the first, third and second quarters.
Our 2011 guidance excludes any further loss on impairment, resulting from the removal of assets not fully depreciated; gain or loss on the sale of the Staten Island property and any unanticipated further impairment in that property and any income statement impact related to Kansas Casino development.
ISC remains a profitable and financially sound company. As the consumer begins to feel better about their financial situation, we anticipate seeing an increase in their spending on discretionary items. Through our ticket pricing initiatives and fan amenity improvements, we would expect to see gains for our top line revenues from the renewed spending. However in the interim, we have been proactive and addressing the cost side of our business. Based on these initiatives we expect improvement on our margins year-over-year. This is the first step in reversing the trend and declining bottom-line results.
In closing, we are always focused on strengthening our core business. Our priorities remain at a strong financial position to improve operating margins and to continue a disciplined profit allocation strategy.
With that I will turn it back over to the operator who will lead us through the Q&A procedures.
Thank you. (Operator Instructions) Your first question comes from Tim Conder of Wells Fargo Securities.
Amit Chandra – Wells Fargo Securities
Hi, good morning all. This is Amit Chandra going in for Tim Conder with Wells Fargo. Can you fill us in on when you expect formal or hard negotiations to take place on your TV contract?
This is John. You have to remember here that we are 2011, this is the beginning of 2011 and this contract goes through 2014 and we are not hearing any desire from anybody to renegotiate anything before that and what we are hearing though here are that Fox has been a major player. TN 10XT, ESPN, all remain interest in NASCAR and so we are not (Inaudible) to any kind of negotiations that are contemplated before what would normally take place in preparation for the 2014.
I would add that its an exciting time I think for the industry, the way the we view it, because the whole value proposition of broadcast and the interactive right seems to be – it’s not yet defined, but we feel like its improving.
So we think there’s a pretty good environment out there going forward. We talked about ratings this year and nobody’s happy about that, but it was a bit of a perfect storm if you will in terms of what we are up against in 2010. But we expect the process to go through as it is done in the past on a time basis. I don’t know Dan if you want to add anything for that.
Well, thanks John. I mean I think that there are a lot of anomalies last year that impacted ratings. Starting now with the Dayton 500 we actually have a significant increase in eyeballs, but lost the dealership numbers due to the unexpected issue with the red flag that lasted for a while.
This year we are starting on a new racing surface, so we think we got a great launch to the season. We’ve got – we don’t have competition from Olympics and World Cup, which inevitably are going to draw some eyeballs on a sports viewing basis. And also anytime you move to cable, you are probably going to suffer some erosion in dealership, because there is less cable viewers than there are network viewers.
So all those things considered over a long run, we are ready for some positive news on ratings this year and as David Hill mentioned in his comments the other day, he is looking to see what happens here going for.
Amit Chandra – Wells Fargo Securities
Okay, great. I appreciate that. And as a follow up question, what are escalators typically running in sponsorship renewal contracts and what’s the average length of the contracts being renewed?
We expect pricing year-over-year to maintain and I think in that statement, most of the environments, it’s kind of flat as the new up. We certainly are seeing where we use to be looking at three or five years terms, we are still in the two to three. We very really like to – it has to be a unique situation where we want to do a one year deal, because we just don’t feel that unless its an extension or something that a company can come in and really capitalize on a venture into the sport with a one year experience.
So that – because we’ve got a little more churning now and we’ve got comparable sales levels, our teams really happen to work really hard, but we have a highly motivated lien and mean aggressive sales team across the company, here at corporate as well in the field that are highly energized about the opportunities in 2011. Lots of discussions going on, lots of interest. We are still battling a headwind that corporate budgets are not back to the level that they were pre-recession.
Amit Chandra – Wells Fargo Securities
Okay, great. I appreciate your time gentlemen. Thank you.
Your next question comes from Thomas Andrews of BMO Capital Markets.
Thomas Andrews – BMO Capital Markets
Good morning everyone.
Thomas Andrews – BMO Capital Markets
A couple of questions if I may, are your costs at an appropriate level now for raise to your business or do you think that anymore can be eliminated?
I think at this point we are – you got to remember that we are not only talking about taken out $20 million this year, we have taken out $25 million that we have sustained since 2008. So that’s approaching $50 million across all the business since the beginning of the recession.
We think that at this point the company needs to take some time to adjust to these reduced resource levels and I think that we feel that we are at of point where we are ready to appropriately position, to capture the headwinds. Once the wind changed on the economy we got the right structure to be able to capitalize on that. So I don’t see us going further in that direction, unless there is a change in trends, macro economically much different than what seems to be the consensus out there today.
Thomas Andrews – BMO Capital Markets
Okay. Can you elaborate on Kansas City, timing of key events, what your initial feeling is on what the EBITDA contribution might be?
From the casino?
Thomas Andrews – BMO Capital Markets
The casino, first off all on the timing again we are tracking for opening in 2012 and what we’ve talked on previous calls is an estimate on EBITDA for the casino at the joint venture level to be approximately $50 million. So it’s pretty significant. We are excite about projects on track, its on time, its on budget, it’s early on that things are going well and we think it’s going to be a significant creator generator of earnings and cash.
Thomas Andrews – BMO Capital Markets
Okay, and just one more if I may, can you provide any color on ABC’s decision to move this Sprint Cup events to ESPN to the cable network? And what might make them move them back if anything?
I am sorry, ABC moving to ESPN?
Thomas Andrews – BMO Capital Markets
Yes, well the way we view that, obviously in the first year when you think about network like ABC, approximately 115 million homes and ESPN somewhere right around the 100 may be just slightly below. Right out of the gate year-over-year you’ve got 15 million less homes by going to the ESPN platform, but we think in the longer run the ESPN platform placed to our demographic is better than the ABC platform, particularly with the 18 to 34 demographic.
So we think that is going to ploy out better going forward and as we talked about our NASCAR announced last night, moving the freeway show form ESPN 2 to ESPN, which will then carry the subsequent broadcast in the chase season along with adjusting start times, so you are not up against the 1 O’clock NFL kick off times. It’s just a better long-term strategy for us for the sport.
Thomas Andrews – BMO Capital Markets
Great. Thanks very much.
(Operator Instructions) Your next question comes from Barry Lucas of Gabelli & Company.
Barry Lucas – Gabelli & Company
Thank you and good morning.
Barry Lucas – Gabelli & Company
A couple of items. John may be we could talk about sponsorship, because I am not concerned, but would like to drill down. It looks whether we are talking about corporate sponsorship or entitlements, we are roughly at the same level that we were a year ago. So bookings are essentially flat. While the economy has improved, ad spending is up. We got the GM with its IPO in good shape Chrysler back. So I don’t know how to put this any other way, but why aren’t you doing better?
Well, I think I mentioned that from an entitlement standpoint I think we have one more cup entitlement open versus last year and one more nationwide entitlement opened last year, but I stress a lot of these things are in discussion and we have a lot of confidence that these entitlement inventories will get sold. We’ve done that historically when the environment was worse last year.
But sometimes the timing – but as you pointed out, we are on track with what our target was last year versus this year and again touched on the enthusiasm and the optimism that our marketing and sales folks have across the company. So sure, we would like to have it further along a year ago, but we are not really concerned about that this point and time.
Yes, another thing is while the number of entitlements are – can service is a barometer of source. Cable minded depends on the churn. The entitlements are 25%, 30% of the overall corporate spend. So if you have more entitlements coming up this year than last year, you are going – its not out of question that you’ve got some more of those right now opened than you did a year ago.
It doesn’t give us a high level concern. The ones that are opened for the most part are late in the season. We got – our teams are working hard and discussions on many, many options and we feel like we are holding around pretty well in that area.
Barry Lucas – Gabelli & Company
You sent that to the corporate side to sponsorship and what you are saying here?
Well that’s what I am speaking off.
Barry Lucas – Gabelli & Company
Yes. What I am saying is that, a major amount of what we are selling are the official status areas. So you can have some – the entire amounts are significant pieces of inventory and their easy, things to talk about the number of that maybe sold or not, but it’s not necessarily an overall broader of how that category is doing.
Barry Lucas – Gabelli & Company
And as long as you are growing down, $65 million to $75 million on in CapEx on existing properties, what’s the residual in the headquarters building, which I assume is outside of that. And any thoughts on what those cost might be to finish the film in Staten Island?
Well right now there is – we are not spending really anything on film in Staten Island. We’ve got holding cost going in there, you know property taxes and just you know some security on the property and things like that. And I think that part of the run rate on that is maybe $2 million, $3 million a year until the property is sold.
The office building is virtually done, I think we’ve got $1 million or so and restricted cash balance at November 30 left on that but it's basically done. Best area, maybe is sort of longer term and how effective either NASCAR or how much can you effect the change and bring those younger race fans into the sport over the next several years, and maybe even just extend that further, talk about opportunities to do other deals like Kansas or MA activity. That will, you know maybe has a chance to either move the need, improve asset utilization, something in the you know more two to three, four, five year time frame as opposed to what is going to happen maybe over the next year?
This is John. From a consumer’s standpoint, we are on strategy and part of that strategy is very much targeting a younger demographic, getting younger fans into the sports. And we are greatly accelerating things like utilization social media platforms, and taking a look at understanding where the technology is going to craft strategies that really solidify to get experience in stadiums being better than in the living room, because we are interested in selling tickets and we think it’s going to be very important going forward that we focused on leveraging this technology and its going to take a few years to resonate to your point.
And as well as, I mentioned first timers; what our research is showing is that first time attendees to NASCAR events are perhaps a little bit intimidating and we need to – they are big events, they have a lot of traffic, a lot of parking, a lot of logistics about them and as we look to bring in new fans we’ve got to be much more sensitive that they are not as well schooled or educated as how you move around the property and where things are, and how you understand the events and what’s happening on the race track.
So, there are numbers of initiatives there that I could talk all day about, but I will tell you that some of things we have put in place already are resonating well. We feel really good about the Daytona 500 targets.
In fact since the beginning of the year, our tickets sales are up 30% over the same period of time last year and if you recall last year it was up dramatically. So that’s spike in the sales process continues to grow. So there is a litany of things on the consumer side that we believe are going to move the needle to your point. But they are going to take a little bit of time, but primarily it’s going to be in a younger, newer fan base coming into this sport but not leaving the core values that they keep those core fans involved and I think we are all very, very sensitive to that.
So, we are felling pretty good about where this can take us in the future. It’s very focused and we are building momentum, and as I said its part of our strategy and we are executing against it.
And, Barry just to your longer terms of strategic question. I think that the first thing to that is what we have done over the second half of 2010 to give us some runway on a capital structure is really the first big stop, and making it – continuing to have the company have plenty access to drive powder for opportunities that will build share holder value. We’ve got a big one going on in Kansas.
This is a big project and it’s really from our view point the equivalent of building a new track and its going to drive the returns that building a track you know with a fresh date from NASCAR works. So this is a big deal from our perspective that we’ve got going on right now.
In the longer run as we’ve said before, our strategy is not – isn’t that we have a gaming strategy per say right now. We still focus on where we have opportunities for ancillary development around our facilities and partnering with the right strategic partners there. You know certainly I think those opportunities they will increase as the economy gradually improves and are interested in strategic acquisitions in the sport, but they’ve got to be at a multiple, at a price that is good for our for us and our share holders.
(Operator Instructions) There are no other audio questions at this time.
Well, thank you operator and thank you everybody for joining us on the call. Once again, we’re enthused, we’re focused and we are looking forward to the Daytona 500. We got cost out of the business, which is improving margins and as Dan talked about, our capital allocation strategy, including the balance sheet are in great shapes. So thank you and we look forward to talking to you on the first quarter call and see you at the Daytona 500. Thank you.
Thank you. That concludes today's conference call. You may now disconnect.
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