International Speedway Corporation Q3 2009 Earnings Call Transcript

| About: International Speedway (ISCA)
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International Speedway Corporation (NASDAQ:ISCA) Q3 2009 Earnings Call October 8, 2009 9:00 AM ET


Charles Talbert - Director of Investor and Corporate Communication

Lesa France Kennedy - Chief Executive Officer

John Saunders – President

Dan Houser - Senior Vice President and Chief Financial Officer


Alvin Concepcion – Citi

Tim Conder – Wells Fargo

Edward Williams – BMO Capital Markets


Welcome to the International Speedway Corporation 2009 third quarter conference call. (Operator Instructions) I would now like to turn the conference over to Charles Talbert, Director of Investor and Corporate Communication for International Speedway. Mr. Talbert, please go ahead.

Charles Talbert

Thank you operator. Good morning, everyone. Welcome to International Speedway Corporation conference call. We are here to discuss the company’s results for the third quarter ended August 31, 2009.

With us on this morning’s 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 the call. Forward-looking statements involve risks, uncertainties and assumptions. Actual future performance, outcome and results may differ materially from those expressed in these forward-looking statements. Please refer to the documents filed by International Speedway Corporation with the SEC, specifically the most recent reports on forms 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.

With these formalities out of the way I will turn the call over to Lesa Kennedy. Lesa?

Lesa France Kennedy

Thanks and good morning everyone. As I mentioned on last quarter’s conference call I will be joining these calls from time to time as developments warrant. While the challenging economy has impacted our business during the quarter we remain encouraged by the strength of our company. It appears the difficult economic conditions are showing some signs of stabilization and as such we are pleased that we are reiterating our earnings and revenue guidance, tightening to the lower end of the range.

However, we do not anticipate a quick recovery in the economy. In fact, we anticipate 2010 will continue to challenge our company. Fortunately, we have a focused management team that has a clear vision for ISC. We can’t control the external forces that work in the economy but we are appropriately managing the many aspects of the business that we can influence. John will go into some detail in a few minutes on this.

Before I turn over the call though I wanted to share with you our excitement around last month’s announcement that we have joined forces with Penn National Gaming to bring a Hollywood themed casino and hotel to the Kansas Speedway. Penn is a leader in their industry and shares our financial and operating philosophies and we believe this will be a great partnership. Our joint venture entity, Kansas Entertainment, has signed a management agreement with the Kansas Lottery Commission.

Although we have some hurdles yet to clear before the casino license is awarded, if we are awarded the license we believe that our project will be a successful one for the state of Kansas. The combined forces of Penn National as a leading regional gaming operator and Kansas Speedway, the leading entertainment destination in the state will be terrific.

As we have stated to the Commission, ISC is committed to realigning a second Sprint Cup date to the Kansas Speedway by 2011 as well as building a road racing course to bring in Grand Am events to Kansas Speedway. We haven’t been awarded the casino license yet, so we haven’t identified from which facility we will be realigning a date. I would anticipate that request to [occur] in early 2010.

The project is a winner for ISC, Penn National and the state of Kansas and importantly to our shareholders. John and Dan will both provide additional detail on the project during their remarks. With that I would like to thank you and I will now turn it over to John Saunders.

John Saunders

Thank you Lesa. Good morning everyone. I echo Lesa’s comments on the Kansas casino project. We are excited to be part of it and I know it will be very successful, adding value for our fans and as Lesa pointed out, our shareholders.

Moving into our third quarter discussion from a comparison standpoint, we had one less Sprint Cup and one less nationwide race in 2009 than in 2008. This is a result of the realignment of Auto Club Speedway’s Sprint Cup and Nationwide fall races from Labor Day weekend which fell in the third quarter of last year to October of this year, in fact this weekend. We are pleased with this change. The race will now be conducted in a more seasonable month and the new date is a coveted slot in the 10-race chase to crown the NASCAR Sprint Cup champion.

Our third quarter and year-to-date financial results are continuing as expected. We are not seeing marked improvement in non-contracted revenue categories and conversely we are not seeing further major declines in these categories either.

Advanced ticket sales declines are still in a range of 25-30% in units and revenue with a dramatic increase in ticket sales in the weeks leading up to the events. The economy and the associated unemployment will continue to affect admissions and related revenues for the foreseeable future. Unemployment is expected to increase above 10% and we do not anticipate noticeable improvement until 2011.

Until we begin to see clear signs the economy is improving, we remain very cautious about the outlook on consumer discretionary spending. Corporate sales are faced with some pricing pressure, particularly on those contracts that are now coming up for renewal that were signed prior to the start of the recession. This isn’t unexpected. We are doing a good job of managing the process by active prospecting and working with existing partners to keep them involved in the sport.

We are also seeing new partners enter the sport now that the cost of entry is within their means such as Able Body Labor and HP Hood. We are seeing partners expand their presence in the sport such as Carfax’s Sprint Cup Fall entitlement in Michigan. It is up to our team to grow this business as we demonstrate the power of NASCAR and the return on investment that can be generated from sponsorship.

In addition we are extending deals and signing new deals with a number of blue chip companies. While we secured entitlements for all Sprint Cup and nationwide events this year, we have seven Sprint Cup and six Nationwide entitlements whose term ended in 2009. Our corporate sponsorship group has been working on 2010 contracts since early this summer and the interest in this area is at the same level it was a year ago. I remain optimistic that they will be successful in securing renewals as well as new contracts.

It is important to remember that NASCAR has the largest sponsorship base in all sports and while we are diligently working with our partners to make sure each asset is working for them and if necessary reshaping their programs to generate incremental ROI. What we are hearing for those companies who have decreased their position in the sport is that it is not an ROI issue, but primarily due to budget constraints.

While certain sponsorship categories are seeing declines, particularly hospitality, our intellectual property is maintaining its value. Sponsorship will continue to be a significant revenue category for the company and as the economy improves an area of growth as well. We like many other companies have mitigated declines in earnings through cost containment initiatives.

While the measures we implemented are sustainable, the rate at which we reduce costs is not. We can’t expect to cut our way to prosperity. We need to be creative and aggressive in getting our fans to purchase tickets and if possible getting them to purchase the tickets sooner.

We have had positive results this year with reduced entry-level pricing. Not only have we seen over 90% of these tickets sold but also over 50% were to first-time buyers, an exciting by-product of this initiative. For 2010 we are going to expand our reduced pricing on a greater number of seats throughout our facilities to reflect consumer demand. We will further develop renewal pricing that will encourage and reward our best customers.

In addition to pricing we are providing them various incentives as well as special access privileges and as we market for the next generation of motorsports fans, we have expanded our youth initiatives to encourage families to attend. For example, at Richmond kids 12 and under get tickets at half price and at Michigan kids are free in general admission seating areas.

In total, we expect to reprice 1/3 of the available ticket units for our Sprint Cup events which represents over one half million seats. We are still in the 2010 budgeting process but we will be better able to provide you full year guidance on the 2009 fourth quarter and year-end earnings results call in January.

We believe based on our research and analysis that these pricing levels and initiatives are on target with demand and will not damage the long-term value of our business. It is important that we maintain the integrity of our pricing model by rewarding our best and loyal customers who renew early. You will not see ISC facilities discount our tickets in the sales cycle or as we get closer to weekend events.

Further, we limit and monitor the availability of certain promotional tickets to prevent any detrimental impact on our pricing model and long-term value of our business. We believe we are making the right decisions in sponsorship, admissions and pricing initiatives to improve the core business.

Motorsports Authentics continues to face significant operating challenges and as you may have read in Speedway Motorsports’ SEC filing this week MA has ceased paying certain guaranteed royalties under several license agreements where estimated royalties based on projected sales were less than stipulated guarantee minimum royalties. Importantly, all earned royalties have been paid. MA has received notices from certain licensors alleging default under the license agreements if MA does not pay unearned royalties within the stipulated cure periods.

MA’s management team is attempting to obtain extensions from the licensors where cure periods including a subsequent extension have lapsed or are near termination. However, if MA’s management team is not successful in renegotiating or they decide to allow license defaults to remain uncured, MA’s business and its ability to remain operating could be materially and negatively impacted. Ultimately the management team may pursue reorganization of its business. Dan in his prepared remarks will address the financial implications for ISC.

The management team at MA is attempting to renegotiate license agreements with essentially all present, significant licensors of NASCAR merchandising on terms that allow the company reasonable future opportunities to operate profitably through a revised business model.

Now moving onto the Kansas casino, as Lesa mentioned we are in the final stages to receive a casino management contract with the state of Kansas to be located at Kansas Speedway. We remain hopeful that a favorable decision will be made in our favor no later than December. Our proposal calls for an entertainment destination to include a premier casino and hotel with an investment in excess of $500 million.

The initial phase of the project will be a first-class, Hollywood branded casino with an overall budget of approximately $390 million and which will include a 100,000 square foot casino floor planned for 2,300 slot machines and 86 table games, a high energy lounge and a variety of dining and entertainment options. A hotel of at least 250 guest rooms is scheduled to start construction two years after the casino opens and we expect it to take two years to build.

Additional development in later phases include expanded gaming space, a spa, convention center and entertainment retail district would depend on market demand and could bring the project investment to over $800 million. The first phase is estimated to have an 18-24 month construction period with a maximum delivery date of 36 months from the contract effective date. We anticipate an opening in early 2012. The hotel is anticipated to commence construction within 24 months from the opening of the casino.

The 50/50 joint venture anticipates funding the first phase of the development with an equity contribution of $50 million from each partner and expects to fund the remaining portion, approximately $140 million, through nonrecourse secured debt financing. We do not anticipate needing any additional funding until 2014 when the hotel is anticipated to begin construction. As part of the approval process with the Kansas Lottery Gaming Facility review board, financial projections were provided for the project.

At this point it is estimated the joint venture will generate in excess of $50 million in EBITDA per year beginning in 2013 which is the first full year of the first phase of the project. This estimate does not take into account depreciation and interest expense which will lower the amount of pre-tax income to be recognized by ISC through its 50% equity investment in the joint venture. If awarded the casino license, this will be an excellent opportunity for Kansas Speedway to enhance and expand the experience of guests and will significantly contribute to ISC’s bottom line financial results.

So with that I would like to turn the call over to Dan Houser for the financial review. Dan?

Dan Houser

Thanks John and good morning to all of you dialing in today. As John discussed, considering the challenging macroeconomic environment we are pleased with the results for the 2009 third quarter. These results were in line with our expectations; however year-over-year comparability is impacted by unprecedented economic trends including the rise in unemployment that began in mid 2008 and will in all likelihood continue into 2010.

Also impacting year-over-year comparability was the timing of Auto Club’s fall NASCAR Sprint Cup and Nationwide Race weekend that was held in the fiscal third quarter of 2008 and is scheduled in our fourth quarter of 2009.

Second, during the third quarter we recorded a $13.7 million or $0.17 per diluted share after tax, non-cash impairment charge of long lived assets. Approximately $13 million or $0.16 per diluted share after tax was associated with adjusting the current carrying value of our State Island property to a fair market value based on our understanding of the metro New York real estate market and ongoing discussions with interested parties. Partially offsetting these decreases was Chicago Land’s IRL Weekend that was held in our fiscal third quarter 2009 versus the fiscal fourth quarter 2008.

Finally, the acquisition earlier in the year of the remaining 50% interest in Stock Car Montreal we didn’t own results in the consolidation of those operations in fiscal 2009. Our Montreal Nationwide event held in the third fiscal quarter in prior years was accounted for as an equity investment.

Now going to the income statement, admissions revenue for the third quarter decreased to $52.4 million primarily due to lower attendance driven largely by the previously discussed economic conditions, the timing of our fall events at Auto Club Speedway and the decrease in our average ticket prices as a result of our value pricing strategies. The weighted average ticket price for our Sprint Cup events held in the third quarter decreased approximately 4%. Year-to-date our weighted average ticket price is down 2%.

The decrease in motorsports related revenue to $106 million was primarily driven by the timing of the fall events at Auto Club and the impact of adverse economic conditions on sponsorship, suite and hospitality revenues for our NASCAR events conducted during the quarter. Partially offsetting the decreases were the previously mentioned consolidation of the Montreal Nationwide weekend, the timing of IRL’s weekend at Chicagoland and an increase in television broadcast rights fees.

For the third quarter ISC’s domestic television broadcast and ancillary rights were $60.1 million with $58.6 million associated with domestic broadcast contracts and $1.5 million of ancillary rights. The decrease in food, beverage and merchandise revenue was $12.6 million for the 2009 third quarter was primarily attributable to lower attendance and lower per capita sales for concessions and merchandise driven by economic conditions, lower catering revenues resulting from the decrease in corporate spending and the previously noted timing of the fall events at Auto Club.

The decrease in NASCAR direct expenses to $41.2 million was primarily attributable to the timing of the fall events at Auto Club Speedway. Partially offsetting the decrease is higher television broadcast rights fees, a percentage of which are paid as part of prize monies and to a lesser extent the Montreal Nationwide event weekend and the reclassification of race sanction fees for our Grand Am event, from motorsports related expense in prior years to NASCAR direct expense in 2009.

Motorsport related expenses decreased to $49.1 million primarily attributable to the timing of the fall events at Auto Club, lower promotional advertising and other race related expenses during the period resulting from focused cost containment initiatives and to a much lesser extent the previously mentioned reclassification of Grand Am sanction fee costs to NASCAR direct expense. These decreases are significantly offset by the Montreal Nationwide weekend and the timing of the Chicago IRL weekend.

Food, beverage and merchandise expense decreased to $8.9 million in the quarter primarily due to the timing of the fall events at Auto Club Speedway and variable costs associated with previously discussed attendance and corporate sales decreases. General and administrative expenses decreased to $26.5 million for the quarter. Driven by focused cost containment initiatives we reduced personnel related professional fees and various other costs associated with our ongoing business compared to the prior year period.

Depreciation and amortization during the third quarter was flat compared to 2008. The $13.7 million impairment of long lived assets is substantially related to the previously mentioned State Island property carrying value adjustment. The decrease in interest income to $237,000 is primarily due to lower interest rates on cash balances. Interest expense for the quarter decreased to approximately $3.8 million due to the repayment of the $150 million principal senior notes in April 2009 and largely offset by lower capitalized interest and higher average borrowings on our credit facility as compared to the same period of fiscal 2008.

The net loss from equity investments relates to our 50% interest in Motorsports Authentics. As John touched on earlier, MA’s management continues to face significant operating challenges and has made a strategic decision regarding withholding payment on unearned royalties that has led to certain licensors alleging default on their license agreements. While certainly not our intention at this point, we could choose to increase our investment in MA in the form of additional equity contributions or loans in amounts that could potentially be material to mitigate MA’s challenges.

Conversely, should MA’s license renegotiations and other strategic efforts be unsuccessful and ownership choose not to step in on a [keep well] basis, we could be faced with an additional impairment charge of up to approximately $15.5 million which is our current carrying value for MA. MA has exposure to a material amount of future guaranteed royalty payments that in a worst case scenario could in some cases be asserted as immediately due. ISC’s exposure to this liability is limited to $11.6 million in this worst case. As well, MA is currently not in compliance with one of its affirmative covenants under its credit security agreement as a result of its auditor modifying their 2008 audit opinion which was driven by SMI’s S4 filing this week.

Based on information received from MA late yesterday, we believe the bank will not take restrictive action with regard to this technical default and continue to allow MA to operate under its credit line while monitoring the situation. It is also our understanding that MA currently has no outstanding balances on the facility. MA is exploring other business strategies in conjunction with certain motorsports licensed merchandise stakeholders that allow MA reasonable future opportunity to operate profitably, avoiding either of the scenarios just discussed and supporting the carrying value of our investment in MA.

Our effective tax rate for the third quarter increased to 49.8%. The increase is primarily the result of the tax treatment of losses incurred in our equity investments. Excluding the loss on equity investment and the Staten Island impairment our effective tax rate for the third quarter of 2009 would be 38.3% and we continue to anticipate that our 2009 full-year effective tax rate on a non-GAAP basis will range between 38-39%.

Income from continuing operations for the three months ended August 31, 2009 was $4.5 million or $0.09 per diluted share on approximately 48.6 million shares outstanding. However, when you exclude the equity and net loss from equity investments and the Staten Island and other lesser asset carrying value adjustments, we posted earnings of $0.33 per diluted share for the 2009 third quarter. As described in the release, this is compared to non-GAAP net income for the 2008 third quarter of $0.73 per diluted share.

Now let’s have a look at the balance sheet. At August 31, our combined cash and short-term investments totaled $218 million. Our current deferred income was $112 million and shareholder equity was $1.1 billion. At the end of the quarter total debt was approximately $373 million including $150 million in senior notes due in 2014, $100 million in borrowings on our revolving credit facility, $66 million in tip bonds associated with Kansas, $51 million for a loan to construct our headquarters office building component of the Daytona Live project and $6 million in debt associated with Chicago Land and Route 66.

On our revolving credit facility, we paid $25 million of the outstanding balance in early October and expect to repay an additional $25 million around fiscal year end. We expect to have the borrowings fully paid down by the time the revolver goes current in June 2010. This plan assumes that our performance maintains. An unexpected further deterioration of operating results could lead to a reevaluation of our strategy.

In addition, in October we entered into a Master Shelf and Note Purchase agreement with a national insurance company. The master agreement provides for a $100 million private, uncommitted shelf facility for the issuance of senior unsecured notes over a three year period with interest rates that may be fixed or floating and with a maturity date of at least 7 years and not to exceed 10 years. We are not planning an initial draw on the facility but we felt it was prudent to enter into this agreement to provide us additional financial flexibility.

As we mentioned on the last earnings conference call we reactivated our previously authorized open market share repurchase program in June following our settlement with the Internal Revenue Service. We authorized our agent to purchase shares under certain highly opportunistic parameters which encompass price, corporate and regulatory requirements, capital availability and other market conditions. On a quarterly basis, we review and adjust if necessary the parameters of our stock purchase plans.

During the third quarter we purchased approximately 112,000 shares of our Class A stock for $2.8 million bringing the total number of shares purchased from December 2006 through August 2009 to approximately 4.8 million shares. We currently have approximately $39 million in remaining capacity on our $250 million authorization.

As it relates to capital spending, for the three months ended August 31st, we spent $24.1 million on capital expenditures which includes $9.4 million in spending for our new headquarters building from direct financing. We will be taking possession of our headquarters building later this month. While the building is in a joint venture, in accordance with the applicable accounting rules we have consolidated this variable interest entity into our financial statement. As a result, in addition to the capital expenditures we will record 100% of the debt and debt payment on the 25 year, 6.25% financing through interest expense.

For the nine months we spent $65.5 million on CapEx which includes approximately $35.3 million for projects at our existing facilities. For the remaining $30.2 million of spending for the nine months ending August 31, 2009 approximately $24.1 million related to the construction of the new ISC headquarters which is funded from long-term restricted cash and investments provided by the headquarters financing. The remaining balance is substantially associated with additional capitalized funding for our State Island property that is being marketed for sale and for our wholly owned subsidiary, Stock Car Montreal.

At August 31, 2009 we had approximately $90.5 million in capital projects currently approved of which approximately $45.6 million is expected to be incurred during the remainder of fiscal 2009. In addition to these approved capital projects we expect to spend the remaining long-term restricted cash and investments on our headquarters building of which approximately $8.3 million is expected to be spent in fiscal 2009.

As a result of these currently approved projects we anticipate approvals for fiscal 2009 and the long-term restricted cash and investments related to the headquarters building, we expect our total fiscal 2009 capital expenditures will be approximately $115 million to $125 million depending on the timing of certain projects. We expect approximately $68 million in spending for existing facilities, $32 million for our headquarters building and the balance in land purchases and for Staten Island and Stock Car Montreal. We review our capital expenditure program periodically and modify it as required to meet our current business needs.

In terms of our financial outlook we reiterate the lower range of our 2009 full-year total revenue guidance to $700 million and revised the top end range to $710 million. We are also reiterating our lower range earnings guidance for 2009 to $1.80 and revised the top end range to $1.90 per diluted share. The earnings guidance excludes results of MA, the carrying value adjustment to our Staten Island property, the net interest income impact from the IRS settlement on income tax expense and the accelerated depreciation for Daytona Live.

As John mentioned, we will be prepared to address 2010 guidance during the January release of our fourth quarter and full year 2009 results. This is approximately one month later than we have provided guidance in previous years. However, we believe that waiting until January will provide better information as to our expected 2010 performance, particularly in light of the late buying trends that have persisted through 2009.

In conclusion, while the recession may have officially ended, we remain cautious on how quickly the economy will improve. Many are feeling better as the stock market is increasing, home prices are stabilizing and the economy is improving as well. However, for consumer sentiment to make substantial gains there will need to be a recovery in the labor market. When people have confidence they are going to have a job and their income is stable that is when we believe we will see a boost in consumer spending.

With that I will turn it back over to the operator for the Q&A portion of the call.

Question-and-Answer Session


(Operator Instructions) The first question comes from the line of Alvin Concepcion – Citi.

Alvin Concepcion – Citi

Would you be able to give us a sense for the decrease in weighted average ticket prices in 2010 in light of the pricing initiatives that were announced?

Dan Houser

We are still going through the process on that and we will have some more specific guidance there when we go out in January. We certainly are taking a look at a broader range of value pricing possibilities. We have had a great response to that with those programs this year and as John mentioned have been very pleased that such a large percentage have been new buyers. I think at this point you might be thinking it is between 3-5% overall.

Alvin Concepcion – Citi

Would you be able to talk about comparable attendance growth in the quarter and how that has progressed throughout the quarter?

Dan Houser

We certainly don’t talk about specific events, but we have continued to see challenges. We have got one area, both Michigan and Florida are some of the top markets for being challenged here economically. We are seeing the effects of that there. So those were the biggest ones. As well, we are seeing some softness elsewhere but those are the areas that probably punched it up a little higher than the trend overall for the year.

Alvin Concepcion – Citi

Would you be able to talk about advanced ticket sales and how those are trending?

John Saunders

Right now, as I mentioned in my remarks, for 2009 they continue to trend about 25-30% off from last year but what we are seeing in all of our venues is a very dramatic and significant increase in ticket sales in the 3-4 weeks leading out in front of the event and where fans have great visibility, do they have discretionary income, do they have a job or are they worried about a job it is a dynamic that certainly benefits the event but it comes at the expense of a decline in the advanced sales. Hopefully in time that will turn around but it is not something we expect in the near-term here.


The next question comes from the line of Tim Conder – Wells Fargo.

Tim Conder – Wells Fargo

A couple of questions on MA. At this point in time is it fair to say that you may consider putting that as a discontinued operation given some of the commentary you made this morning and given yesterday’s filing. What other alternatives are you looking at? I know the NFL has something set up as a licensing trust model. Would that be a potential alternative you may consider something mirroring what that model is for the NFL?

John Saunders

I will let Dan speak to the discontinuing operations point of your question. Clearly we want to see something good for the industry happen here. It has been reported in the media there has been discussions about a new way forward, a new way in which to monetize the rights of the key stakeholders in our sport. Those discussions are going on. Our discussions, when I say our I mean MA, are primarily dealing with the issues that I talked about earlier with the unearned guarantees. These unearned guarantees are legacy costs that in a period of time we acquired these contracts through the acquisition of Action back in 2005 and the contracts were done in a period even prior to 2005 where life was pretty good where paying guarantees was not an issue.

As we have mentioned already, the world has dramatically changed and so it has caused us to come back and revisit this issue. We really believe, we want something to happen here that is better for the sport, better for our shareholders and hopefully seamless to the race fans. We remain cautiously optimistic we can come to an agreement with the licensors but it is just too early to tell. We are in the throes of that right now but as far as discontinuing operations…

Dan Houser

Great question. I am going to give you what I think is the answer and hopefully I won’t have to eat crow here later on. I don’t believe there is a discontinued operations treatment for equity investment. I believe what the treatment would be is once we either had through potentially, and this is a hypothetical scenario, through losses or impairments the investment is written down to zero. I don’t think you go negative on it in your recognition in your financial statement. That is just purely off the top of my head. As John said, we certainly think it is a bit premature for that. If we thought otherwise we would be talking about impairment charge here now. We certainly believe there are some real opportunities out there that this business that justifies the carrying value that we currently have on the books with what we know today.

Tim Conder – Wells Fargo

I mean if there would be a change in the overall structure, say just using what is out there with the discussion of the NFL license trust model, would that basically require the termination and the shutdown of the MA joint venture and then moving into that new model? That is kind of the progress that would have to occur, right?

Dan Houser

I think that is true in part but I think we still believe, and I think the stakeholders and the sport believe there are core competencies that MA has in the area of things like track-side distribution, the die cast memorabilia as well that we believe still all could net out and in the greater scheme of things we believe there are more than ample opportunity that supports our carrying value.

Tim Conder – Wells Fargo

The other question would be related to Kansas City. When you were exploring this path earlier and then basically it got put on hold and now it is being revisited, would you expect any type of contribution from this in late 2010 potentially? Obviously it would appear you would see a larger benefit once you got that second date in FY11 season. What you had outlined before when you were going down that path would that still be a similar type of timeline here going with Penn National assuming that everything falls into place with the Commission and so forth?

Dan Houser

With respect to the casino coming on line, we expect that clearly things with the year delay things got delayed and we are back to where we were about a year ago. We would expect should we be awarded the license, the casino to come on in 2012 with a full year of operation obviously in 2013. We have a contractual obligation as part of our application to realign a Sprint Cup date to Kansas Speedway in 2011. But we have not determined where that date will come from and we will take that up with NASCAR as we begin the 2011 scheduling season.

John Saunders

Keep in mind this additional date will be a realignment so yes we anticipate it has incremental economic value to the company overall but it is not like adding another fresh date in there. It is going to come from another facility. So it will be the incremental value that it adds.


The next question comes from the line of Edward Williams – BMO Capital Markets.

Edward Williams – BMO Capital Markets

A quick question to see if you can clarify for me a little bit about the advanced ticket sales. When you say down 25-30% is that the amount leading up to 3-4 weeks or is that leading up to the day of?

Dan Houser

It is in that leading up to 3-4 weeks. I think we have said before we anticipate for year-end ticket sales to be down about 15% year-over-year but that is leading up to that spark you get 3-4 weeks out.

Edward Williams – BMO Capital Markets

The per capita decline you are seeing for on-track spending could you quantify it a little bit as to what we saw, for example, in the third quarter? While you are looking for that John you made some comments before about really no longer being able to cut to prosperity. Is the cost cutting at this stage in your view largely done or is there more cost cutting you can do?

John Saunders

First of all, I think Dan mentioned in his comments we have taken significant and sustainable costs out of the business and these were in large part fixed costs so we don’t anticipate any creep back into the business. What we believe is unless there is a significant downturn in where we are with the macroeconomic conditions right now we don’t anticipate any further fixed cost reductions. Having said that, our management team is very aware of the situation we are in and costs are under tight scrutiny but if things get worse we will have to look at the business again. Right now we are hoping that is not the case.

Dan Houser

I think an important add-on to that is what we have achieved. These cost containments we have been doing are not sucking in our gut and tightening the belt and sooner or later we have to let our breath out. The good news is a lot of these are sustainable and a lot of these took place during the year in 2009 so we see them as being sustainable over a full year next year in addition to some other initiatives.

Back on the per capita, our per caps what we have been seeing is down mid teen’s in our concessions; food and things like that. Certainly higher on the merchandise in the 25% range on merchandise.

Edward Williams – BMO Capital Markets

Going back to the cost cutting for a moment, what is the magnitude for the delta that you would say looking into 2010, are they pulled out on an annualized basis that you pulled out during 2009?

Dan Houser

We will be able to talk…in January we will be able to talk about that. It is a little preliminary for us to give that at this point.

Edward Williams – BMO Capital Markets

What is the current carrying value of the Staten Island plans?

Dan Houser

Before we took the impairment it was $86 million. What we have taken it down to is $73 million which is basically what it would be an $80 million sales price less the selling costs, primarily commission and taxes. Now if we are so fortunate as to have a sale on this the cash benefit to the company is not only the sale price but we have a significant tax benefit against current earnings that we will achieve through those because it is an operating asset. It won’t be a capital loss. It will be an ordinary income loss. That will be cash directly back to us as well through estimated tax payments.

Edward Williams – BMO Capital Markets

My last question for you is how much of your sponsorship do you have locked in for 2010 at this point? If you were looking at your contracted revenues how much of that is set up for looking out to 2010 versus say where you were a year ago looking into 2009?

John Saunders

I would say it is roughly around 60%. I mentioned we gave got seven cup entitlements and six nationwide events that the team is chasing very aggressively. I would say at this point about 60%.


At this time there are no further questions. I would now like to turn the call over to John Saunders for closing remarks.

John Saunders

I just want to thank everybody for joining us on our third quarter call. Obviously we continue to be challenged and we are monitoring all aspects of our business very closely. We look forward to seeing you on our fourth quarter call in January. Thanks everyone.


This concludes today’s conference call. You may now disconnect.

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