A Trackside View of the Economy

 | Feb 25, 2013 | 4:00 PM EST  | Comments
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Every day, those of us who follow the stock market are deluged with a steady flow of prediction and expectations. The macroeconomic picture is dissected, shredded and reassembled on a daily basis in the search for information about the direction of business and markets.

Economists are paid top dollar to sit in nice offices in New York and D.C. and work their magic models to tell us what is happening and to predict what will happen. All too often, their view of the world must get skewed by the comfort of the beautiful office and the limo ride home, because they get it wrong all too often. I prefer a method of economic observation known as going outside and looking around.

When I lived in the mid-Atlantic, I had developed the perfect anecdotal economic indicators based on the amount of motorized boat traffic in Chesapeake Bay and beach traffic on the Eastern Shore of Maryland. Twice a year, we had the perfect indicator when beach traffic combined with Nascar traffic to and from Dover Downs. The length of the backup at the Bay Bridge contained more information about the state of the economy than all of the economists and their models could ever hope to capture.

Since relocating to central Florida, I have endeavored to replace these walking-around economic studies with another indicator. I finally found it, thanks to a neighbor who had an extra ticket and a super-double-top-secret parking location. This past weekend, in the interest of research and economic accuracy, I headed over and took in the Daytona 500.

This may the perfect place to research the economy. Daytona and other premium sporting events are great tests of people's willingness to spend. These are the ultimate discretionary dollars. As one would expect, Daytona was pretty crowded on Sunday for the big race. Some 80% of the workforce is still employed, and these people value their entertainment, and the 500 is one of the biggest sporting events in the country.

However, a little walking around revealed a valuable story about the economy. I could have walked into pretty much any of the bars and restaurants around the speedway and gotten a seat or a barstool before the race. A few groups had tent parties in the parking lot, but they were not so crowded as to be uncomfortable. The fan areas and merchandise trailers outside the tracks were not the wall-to-wall consumer free-for-all that I have seen at Nascar events in years past. Before and after the race, I did not see as many people carrying goody bags full of shirts, keychains and other swag with a driver's name and image all over them.

In the stands were other signs that the consumer is not yet fully restored with confidence. From my seat, I could see that the backstretch grandstands were at best 60% full. There were a lot of empty seats in my section of the front stretch tower, and the stands were by no means full. People are just not inspired or comfortable right now about spending the big bucks to attend their favorite sporting event.

In addition to telling me that the economy remains in a state of better but not good, I also came away with a major tell on a few stocks. International Speedway (ISCA) and Speedway Motor Sports (TRK) are direct plays on Nascar racing, and I would not touch either of them at these prices. International Speedway is controlled by the founding family of Nascar, and it owns some of the best tracks in the sport, including Daytona, Talladega and Richmond. The company reported lower earnings and revenue for the fourth quarter of 2012 and issued 2013 guidance that was below analyst expectations. At 1.5x book value and an enterprise-value-to-EBITDA ratio of more than 8, the shares are priced too high, given the outlook for the business.

Speedway Motorsports, the other publicly traded track owner, has also been lackluster performer for the past five years. Given its price-to-tangible-book-ratio of more 2 and an EV/EBITDA ratio of more than 7, I suspect it will continue to underperform again in 2013.

Nascar suffers from a weak economy, and its attempts to improve its image have alienated their core fan base to a larger degree. It lost touch with the fact that huge crowds and rabid fans attract corporate attention, not the other way around. Some of the biggest stars in the sport are struggling to find sponsorship dollars as track attendance and TV viewership are in decline. Until that changes, Nascar-related stocks should be avoided and even considered as short-sale candidates on rallies.

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