CASE 7

Motorsports
Legal Issues in an Entertainment Services
Channel

Background
As tourism director for a major metropolitan city in the United States, Linda Swader was
exploring the possibility of hosting a motorsports race in the downtown streets of the
city. Typically, a street race represents the culminating event of a festival week celebrat-
ing a city and its people and has an estimated economic impact of $50–75 million.1
Other cities such as St. Petersburg, Florida; Denver, Colorado; Houston, Texas and San
Jose, California were recent race venues involving open-wheel leagues such as the Indy-
Car Series and the Champ Car World Series. Arguably, the most famous race in the
world, the Grand Prix of Monoco, has hosted Formula 1 open-wheel cars in the streets
of Monte Carlo for over sixty-five years. Swader would soon initiate discussions with
representatives from each of the three open-wheel series to determine the level of interest
on each of their parts in terms of holding a race in her city.
Swader was also a member of the economic development commission for the city.
The commission members met recently with a group of local entrepreneurs who plan
to build a permanent racetrack on the outskirts of the city limits. The entrepreneurs
were seeking some degree of taxpayer-financing to complete the project. The track, a
mile and a half oval, would be primarily designed to host stockcar races from leagues
such as NASCAR and the ARCA Series, as well as possible open-wheel events. NAS-
CAR and its affiliated stockcar racing series, with its 75 million fans is rivaled only
by the National Football League in terms of leadership among spectator sports in the
United States.2 Hosting a NASCAR Nextel Cup race virtually assures financial success
for any racetrack community fortunate enough to be selected as a venue. For example,
the Las Vegas Convention and Visitors Authority estimates that its Nextel Cup race
brings $106 million in non-gaming revenue to the city each year.3 As an aside, NAS-
CAR had no interest in running street races in the United States in terms of its top
two stockcar leagues, the Nextel Cup Series and the Busch Series. A lesser NASCAR
created series, the Rolex Sports Car Series had participated as a support event for the
Grand Prix of Long Beach, California open wheel Champ Car street race in recent
years.

1
Tybur, Bill (2006). “PIR Attempting to Sink Potential Phoenix Street Race,” RacingPress.com. Retrieved September
6, 2006, from: http://www.racingpress.com/btpirstreet060106.shtml, (June 1).
2
Anonymous (2006). “What is NASCAR?” The Irish Times. (July 21).
3
Wolfe, Jeff (2006). “NASCAR WEEKEND: Another Sip From the Cup?” ReviewJournal.com. Retrieved September
6, 2006, from: http://www.reviewjournal.com/lvrj_home/2006/Mar-12-Sun-2006/news/6126281.html, (May 12).
552
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 Case 7: Motorsports 553

Last month, at a national convention for tourism directors, Swader met with col-
leagues from Miami, Florida; Cincinnati, Ohio, and Phoenix, Arizona. She discussed
her city’s interest in pursuing motorsports entertainment as an economic development
engine in terms of tourism and employment opportunities for her community. Each of
her colleagues had prior experience with motorsports venues in their cities and briefly
discussed challenges they encountered in recent years. To a person, each recommended
that Swader do her homework in terms of NASCAR and its influence on the sport.
Swader left the convention with notes in hand and plans to familiarize herself with the
business of NASCAR.

Swader Does Some Research on Motorsports

Upon returning home, Swader quickly completed her background research. She discov-
ered numerous publications that provided information about NASCAR and motorsports
in general. Two types of motorsports have dominated the American landscape over the
last century: open-wheel racing with its heritage closely tied to the Indianapolis Motor
Speedway in Indiana and stockcar racing with its roots in the south and Daytona,
Florida.
NASCAR and the International Speedway Corporation (ISC) with interlocking boards
of directors are both controlled by members of the France family—whose patriarch, Bill
France, started NASCAR in the 1950s.4 ISC is the track-ownership affiliate of NASCAR,
the sanctioning body. Racetracks owned or operated by ISC host 20 of 38 Nextel Cup
series races each year. Though ISC is a publicly traded company on the Nasdaq Stock
Exchange, the France family owns controlling interest in the corporation. NASCAR,
however, remains a privately owned organization. In total, ISC owns 12 racetracks in
the United States with all but one being oval tracks. Upon reviewing the list of tracks,
Swader located five ISC-owned or affiliated racetracks that host Nextel Cup races all
within a six-hour drive of her city, with one of the four only 80 miles away.
The Indianapolis Motor Speedway (IMS) and the IndyCar series are both privately
owned endeavors of the Hulman-George family—whose patriarch Anton “Tony” Hul-
man, Jr., purchased the historic track in 1945 and brought it back to life after the war
years.5 In 2007, the IndyCar series, which predominately races on oval tracks, is com-
prised of 17 events. Of the 17 races, 6 will be held at ISC-owned tracks with 2 others
held on NASCAR Nextel Cup affiliated tracks in Texas and California. In recent years,
the IndyCar series has struggled to put together an optimal race schedule for its league.
With its use of ISC racetracks, IndyCar seldom, if ever, receives priority over Nextel Cup
events at these venues. For the 2007 season, however, ISC had agreed to three date
changes that provided IndyCar its best schedule to date.
Open wheel racing has witnessed the demise of its historically strong fan base since
the breakup of the original series in 1995. Today, the existence of two competing series,
comprised of the IndyCar Series and the Champ Car World Series, which races entirely
on permanent road courses and temporary street circuits, mostly hinders growth pro-
spects for American open wheel racing in terms of driver talent, sponsorship dollars
and media exposure. Almost simultaneously in the mid 1990s, NASCAR made its debut
at the Indianapolis Motor Speedway and has dominated the nation’s motorsports land-
scape ever since.

4
Musgrave, Beth and Alicia Wincze (2005). “Kentucky Speedway Sues NASCAR.” The Lexington Herald-
Leader, (July 14).
5
www.indianapolismotorspeedway.com.

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554 Part 5: Cases

Swader also found numerous newspaper articles that documented the experiences of
her tourism colleagues. In 2002, the city of Miami, Florida and two local entrepreneurs
presented an open-wheel CART, now known as Champ Car, race in the streets of down-
town Miami. In the days and months leading up to the race, ISC and its Homestead-
Miami Speedway filed suit to stop the race, and asked for the opportunity to bid on a
downtown race itself.6 Though the event was not stopped, the race was not considered
a financial success and continued for only two more years.7 More recently, in 2006, ISC
and its Phoenix International Raceway (PIR) lobbied the Arizona state legislature to in-
stitute an urban noise ordinance that would effectively ban racing from city streets.8 The
City of Phoenix planned to hold a festival race weekend with the Champ Car series in
2007 within weeks of a scheduled NASCAR Nextel Cup race at PIR. Eventually, the City
and Champ Car agreed to move the street race to later in the year and as a result, ISC
lost interest in pushing for the new legislation. On a more encouraging note, Swader
learned that the IndyCar series encountered no interference when it added a new street
race for 2007 in Detroit, Michigan on Labor Day weekend even though it and NASCAR
race on separate weekends in August at the ISC-owned Michigan International Speedway
located 90 miles west of Detroit.9
In 2005, the independently owned Kentucky Speedway, located just south of Cincin-
nati, Ohio, filed a $400 million lawsuit against NASCAR and ISC.10 The track wants a
Nextel Cup race and without one, its financial future is questionable. The Kentucky
Speedway hosts NASCAR Busch series, NASCAR Craftsman Truck series, and IndyCar
series races. Speedway Motorsports Incorporated (SMI), alleging ISC received preferen-
tial treatment from NASCAR in soliciting race dates, filed a similar suit in 2002.11 SMI
owns several oval racetracks throughout the United States. In addition, SMI had an oral
agreement from NASCAR that promised a second Nextel Cup race at its Texas track.
NASCAR settled the SMI lawsuit out of court by awarding the SMI-owned Texas Motor
Speedway a second Nextel Cup race by relocating an existing North Carolina race to the
track. As a result, however, Texas Motor Speedway dropped the season ending IndyCar
race from its fall schedule to focus on its new Nextel Cup race.12
Without Nextel Cup races, the Homestead-Miami Speedway and the Pikes Peak Inter-
national Speedway (PPIR), located south of Denver, Colorado, faced similar financial
hardships as the Kentucky Speedway prior to their purchase by ISC. Under ISC-
ownership, NASCAR immediately awarded the Homestead track a Nextel Cup race.
Upon the purchase of PPIR, ISC permanently closed the track at season-end to pursue
plans for building a larger track closer to the Denver metropolitan area that would host a
Nextel Cup race. PPIR was an annual stop on the IndyCar series as well. The Kentucky
Speedway lawsuit seeks the creation of a competitive bidding process for Nextel Cup
events. NASCAR has stated that at no time in the Speedway’s brief five-year history was
it promised a Nextel Cup race and insists that a bidding process for awarding races

6
Corral, Oscar (2002). “Legal Fight over Miami Auto Race Sees No Finish Line in Sight,” The Miami Herald,
(September 30).
7
Anonymous (2003). “CART Eliminates Miami Road Race,” Chicago Sun-Times, (December 19).
8
Cipolloni, Mark (2006). “NASCAR/ISC Gets Dirty in Phoenix, Out to Destroy Open Wheel Racing?”
AutoRacing1.com. Retrieved September 6, 2006, from: http://www.autoracing1.com/MarkC/2006/0527Phoenix-
Lies.asp, (May 27).
9
Josar, David (2006). “Detroit Resumes Racing,” The Detroit News, (September 30).
10
Musgrave, Beth (2005). “NASCAR Requests Dismissal of Lawsuit,” The Lexington Herald-Leader, (September 14).
Hodges, Jane (2004). “Daytona Beach, Fla.-Based Racetrack Developer Settles Suit with Rival.” The Seattle
11

Times, (May 15).

12
Blount, Terry (2004). “Second Cup Date will Cost TMS.” The Dallas Morning News” (April 22).

Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
 Case 7: Motorsports 555

would hurt the sport. Since 1999, NASCAR has created only three additional Nextel Cup
races, all on ISC-owned tracks.13 With no Nextel Cup event at the Kentucky Speedway,
the $170 million facility with 70,000 seats may be sold. Industry insiders believe, how-
ever, that without a Nextel Cup race to headline, the owners may not even get $50 mil-
lion for the racetrack.14 Yet, smaller racetracks not dependent upon Nextel Cup racing
continue to be constructed. With the opening of the 25,000 seat, $70 million Iowa Speed-
way in 2006, the IndyCar series gains a new oval track for the 2007 season.15

Swader’s Recommendations?
After completing her research, Swader was ready to meet once again with city officials to
discuss the future of motorsports in her city. What once seemed to be an exciting growth
opportunity for this major metropolitan city instead may represent a complicated legal
quagmire that no one had anticipated. At the very least, she has concluded that motor-
sports is very much a business and not simply a day at the races.

Discussion Questions
1. Diagram the typical channel of distribution for 3. What channel strategy might you recommend to
motorsports. What entity would be considered the director of the IndyCar series in terms of
the “manufacturer”? What entity would be con- selecting venues for its races? Discuss.
sidered the “retailer”? 4. What course of action do you recommend for
2. What legal issues in marketing channels appear Swader? Should she pursue a street race or
to be involved here? Discuss. should she recommend that the city focus on a
permanent racetrack? Discuss.

Musgrave, Beth and Alicia Wincze (2005). “Kentucky Speedway Sues NASCAR.” The Lexington Herald-
13

Leader, (July 14).

14
May, Lucy (2005). “Owners Might Sell KY Speedway.” Cincinnati Business Courier, (May 16).
15
Cavin, Curt (2006). “Why Here? Iowa Speedway Opens for Business.” Autoweek, (September 25).

Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.