SBJ/December 24 - 30, 2007/This Weeks News

SMI on both sides of retail competition

Motorsports Authentics has an emerging competitor in the trackside retail business, and it’s a company from within its own family at Speedway Motorsports Inc.

The sibling rival is Sports Design, a little-known trackside retail company owned by SMI, which also owns 50 percent of Motorsports Authentics. International Speedway Corp. owns the other half of MA, which reported losses of $40 million to $50 million this year.

Sports Design has been around longer than Motorsports Authentics; it was founded about a decade ago and purchased by SMI in 2003. Its trackside retail operations have been limited to an ongoing relationship with Petty Enterprises and the now-defunct MB2 Motorsports, but Sports Design took on a much more prominent profile recently when it acquired the business at Penske Racing and Dale Earnhardt Inc., two of NASCAR’s top teams, for the 2008 season. Penske and DEI had been with Motorsports Authentics the past two seasons.

Bruton Smith, SMI’s chairman, insists that Sports Design will not cannibalize Motorsports Authentics.

“We’d never let that happen,” Smith said. “We’ve got too much invested.”

SMI and ISC each put $120 million into the acquisition of Action Performance and Team Caliber, which merged to become Motorsports Authentics in 2005. MA has posted losses in its first two years of operation.

SMI-owned Sports Design and Motorsports Authentics,
part-owned by SMI, both sell trackside.

Sports Design, which also handles at-event retail operations for concerts and other sporting events, is a subsidiary of SMI Properties, the licensing and merchandising arm of SMI. Licensing officials for multiple NASCAR teams say that Sports Design is advertising that it operates independently of MA, even though they have a common owner.

But it’s that appearance of overlapping business that reflects the complicated nature of the licensing industry in NASCAR. More than one licensing executive laughed when asked why SMI would own half of Motorsports Authentics, yet own another business with some of the same functions and potentially competing interests.

“Hey, it wouldn’t be NASCAR if there weren’t a conflict of interest,” said one licensing director at the team level.

Sasha Soares, the licensing director for Penske Racing, said she was curious about the relationship between Sports Design and Motorsports Authentics when she was negotiating with Sports Design.

“We asked lots of questions about that,” Soares said. “What we were told is that Sports Design operates totally independent of MA. We had heard that MA might be outsourcing some of its trackside business to Sports Design and that was a concern for us because we were not happy with MA and we were looking to go in a completely different direction. We were told that everything would be independent of MA.”

ISC also has a trackside business, Americrown, but it does not compete for the retail business of NASCAR teams. Americrown’s trackside business mostly carries merchandise with logos from NASCAR Sprint Cup and ISC tracks and events, as well as operating a food and beverage division.

ISC officials said they were aware of Sports Design’s new partnerships with Penske and DEI, but were not concerned about possible competition.

Marcus Smith, Bruton’s son and SMI’s executive vice president of sales and marketing, said Sports Design and Motorsports Authentics are more complementary than they are competitive. In fact, Marcus Smith said SMI in the past has discussed rolling Sports Design into Motorsports Authentics and still hasn’t ruled it out.

“They’re sister companies, so they could work together to improve the operations at both companies,” Smith said.

ISC, during its forecast for 2008, projected a break-even year for Motorsports Authentics. SMI has not issued its guidance yet, but Bruton Smith said he remains bullish on its prospects for a turnaround.

“We’re not going to let it go out of business,” he said.

Part of that turn-around strategy involved cutbacks in the trackside retail business. Motorsports Authentics ran close to 50 trackside trailers in 2007, but that number will be reduced by half in 2008. New CEO Mark Dyer said MA could no longer operate retail programs that were not profitable.

In some cases, Motorsports Authentics might have had an interest in running the trackside program for just one of an owner’s teams. At DEI, however, vice president Joe Hedrick decided to go with Sports Design to keep all of DEI’s teams with the same operator. Motorsports Authentics was asking DEI to subsidize some of the trackside operation, Hedrick said.

Still, competition remains extremely limited. Checkered Flag runs trackside operations for a handful of clients, but only one team: Robby Gordon Motorsports.

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