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NASCAR Running Out of Gas?

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Recession forces America to forgo second-favorite sport.

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Joe Six-Pack, the presidential campaign's prototypically average American -- the one that Sarah Palin so desperately wants to affiliate with -- isn't doing so well. His income can't keep up with the cost of gas, food and health care. His retirement account has tanked in the stock market crashes. His wallet is shrinking, and as a result, one of his favorite sports -- NASCAR -- is feeling the pinch.

NASCAR's television ratings in the US are second only to those of professional football. Its fans -- who might be the most loyal of any sport, with the possible exception of European soccer -- spend more than $3 billion on official products annually. But a mountain of financial problems has kept fans away this year. Even loyalty has a price.

Still more troubling is that the sport's sponsors include a number of the financial, automotive, and consumer goods companies hardest-hit by the economic downturn. General Motors (GM), Chrysler, Sears (SHLD) and Chevron (CVX) will cut or drop sponsorships next season. Dario Franchitti, the 2007 Indianapolis 500 winner, switched to NASCAR this year - but was forced out of the series because of a lack of sponsors.

Teams with legendary family names in stock-car racing -- Petty, Waltrip, and Earnhardt -- may enter 2009 with unfunded cars. Because the cost of running a top team is so high, sponsorships generally run from $25 to $30 million. Several reports indicate that the series could even have trouble filling 43-car fields next season.

"It's a scary time right now," Jeff Gordon, 4-time NASCAR champion, said recently. "We see strong teams struggling to get sponsorship."

Earlier this month, International Speedway Corp (ISCA), which operates 13 motorsports facilities, including the home of the Daytona 500, cut its fiscal 2008 forecast for the second time this year because of lower spending in the current economic environment. NASCAR and International Speedway are basically one in the same: The France family started and still runs both organizations. The only other public company that hosts NASCAR events is Speedway Motorsports (TRK), which operates 7 racetracks.

The France family, however, isn't gun-shy. According to a recent Barron's article, the family, already the controlling shareholder, has been steadily buying shares in its own company.

Although some teams may be forced to drop out of NASCAR, the league -- whose expansion from regional to national popularity has been something to behold -- is here to stay. It doesn't hurt that it has some powerful friends: In the $700 billion bailout plan passed earlier this month, NASCAR tracks got some help. Motorsports complexes will now be classified as entertainment complexes -- think amusement parks -- for tax purposes. Technically, it provides a 2-year extension of a 2004 statute that allows the racetracks to depreciate their investment at a faster rate.

Still, it's the type of pork that Joe Six-Pack -- even if he plans to vote for anti-pork crusader John McCain -- would appreciate.

For more on NASCAR, check out Hoofy & Boo's always astute report.


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No positions in stocks mentioned.

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