Racing on Empty

• ByTim Melvin, RealMoney.com Contributor
• On 12:59 pm EDT, Tuesday June 2, 2009

I have a dedication to hands-on research. In order to provided the most up-to-date information possible I am willing to go to whatever lengths necessary. In this spirit of dedication, when my good friend and attorney called last week with an offer of free tickets to the Nascar race this past weekend in Dover, Del., I accepted. I am not a rabid fan of the sport, but I have attended several times and always enjoyed it.

We got off to a late start, as our habitually late friend from the mountains of Western Maryland showed up even later than usual. I admit I was concerned, as traffic is usually a major issue going to the race. Dover is not a big town, and it is mostly two lanes roads into town. The track holds something like 180,000 people, so the roads quickly become jammed. A late start would also mean we would have to park miles away from the track and walk in. To my amazement, there was almost no traffic, and we found a spot within an easy walk of the track.

I like anecdotal economic evidence. I read and crunch the hard numbers that are continually released by various agencies and officials, but sometimes just getting out and walking around can tell you a lot. In years past at the spring race, the traveling carnival of Nascar would be packed. In the fan areas packed full of sales trailers and exhibits, it would be almost impossible to move an hour before the race began. Not so yesterday. It was easy to move around, and only the most popular drivers had lines at the sales counters. It was clear that attendance was down substantially from years prior.

When we went into the track, it was clear that the economy is hurting Nascar events. I had never seen empty seats at a race. There were thousands of them on Sunday. Entire sections of the stands were covered with giant banners and closed to hide the sparseness of the grandstands. The north grandstand was half-full at best. There were even empty seats in the main stands that look over the finish line. The economy and rising unemployment rate make it increasingly difficult to justify the $80-plus tickets and travel costs.

This gives us valuable anecdotal economic information. Talk of "green shoots" and hope from China are nice to read. Watching what people are actually doing with their money gives us even more useful information. Nascar fans tend to be among the most rabid in all of sports. If they are staying home, it does not bode well for consumer spending. We saw in the report released yesterday that consumer spending is continuing to decline, and it looks to me as though entertainment spending is plunging even faster than other types of discretionary spending.

In addition to gleaning economic information, there are some trading ideas here. Nascar is being hurt by the economy, and the sport has other problems as well. The decline of the U.S. automobile industry is going to have a huge effect on the sport. Ford, General Motors and Chrysler contributed an enormous amount of money to Nascar in years past, and that is coming to an end. The pace car at Sunday's race was not a Mustang or Corvette but a Toyota hybrid. Revenue and earnings at the major publicly traded racing stocks are going to hurt.

Nascar depends heavily on corporate spending and sponsorship. Longtime sponsors of winning drivers, such as Lowe's and DuPont, are not going to go away, but less successful drivers are having a hard time finding the corporate dollars to run their teams. Finding sponsors of each of the 36 races is also becoming increasingly difficult for Nascar. The sport is not going away, but the recession is going to hurt it.

International Speedway is among the most vulnerable. The firm is controlled by the France family, which is also the owner of privately held Nascar. International Speedway owns 13 tracks and the Nascar satellite radio operation. The stock is not ridiculously overpriced, but I believe earnings and revenue will continue to plummet and take the stock price with them in months ahead.

On International Speedway's recent conference call, management disclosed that ticket presales were down around 20% this year and that average ticket prices were down. Management said that overall sales will be down closer to 15% with strong walk-up sales. I believe that is dead wrong and that race-day sales will also decline. Unemployed and underemployed people simply do not spend the hundreds of dollars needed for a family trip to the race. The France family includes some great businesspeople, and this company will survive, but right now the stock price is too high, given the headwinds it is facing.

Speedway Motor Sports is the other company that operates tracks that host Nascar events. It has eight tracks that currently feature Nascar events. Standard & Poor's recently cut its ratings on the company's debt, citing double-digit revenue and earnings from the weak economy. Once again, I believe that the earnings estimates are too high for the company and that the stock has further to decline.

Paying attention to what is going on can help clarify the investment scene. When it comes to understanding what is happening in the economy at any given moment, all the figures and projections in the world do not speak as loudly as empty seats.

Buzz up!