Motorsports Authentics mulls business model

The future business model of troubled merchandise giant Motorsports Authentics will be decided soon after its owners explore ways to turn around the company.

In the company's four years in existence, it has been a licensee, a trackside retailer, an apparel company, a novelty company, a diecast car company and a distributor. But with another year of losses looming, Motorsports Authentics' 50-50 joint owners, International Speedway Corp. and Speedway Motorsports Inc., are now looking at each of those units as part of an overall re-evaluation.

"We're deeply committed to this business," said Roger VanDerSnick, senior vice president at ISC, who will become COO on June 1, and one of four board members at Motorsports Authentics. "We're just trying to figure our way through this economic downturn like every other company. What's important is to figure out what the right model is for the long term, not to change things just because of the downturn. But we are going to see this through."

VanDerSnick said he wouldn't talk specifically about potential changes for Motorsports Authentics, but team and industry officials say several scenarios are being explored.

Might the company reduce itself to a retailer or a diecast carmaker? Will it continue in the apparel and novelty business?

These are among the options in front of the third management team in four years, this one led by interim president Joe Mattes, who was installed in March while retaining his job as vice president of licensing for Dale Earnhardt Jr.'s JR Motorsports. Former CEO Mark Dyer split from the company in February.

This evaluation could lead to sweeping changes in Motorsports Authentics' broad business, and, in turn, change the licensing landscape in NASCAR, specifically the trackside shopping experience for the fan. One scenario on the retail side includes adopting golf's method of building temporary stores on-site, which would move the merchandise out of the trailers and into more of a department-store setting.

"We've adjusted our inventory control and buying cycles and implemented changes to make MA leaner and more efficient," VanDerSnick said. "Now we're in longer-range planning, but there's not a timeline on it. Discussing our business planning publicly is not something we're going to do.

"I wouldn't say everything is on the table. We're not going to flip the business to a private equity. But to the extent that we're committed to a better way of doing things, we're open to a lot of different things."

Motorsports Authentics is expected to lose money again this year, making three years out of four the company has posted losses.

"You look at the two companies that own MA, and they've got to be saying, 'What have we got ourselves into?' " said long-time industry analyst Dennis McAlpine of McAlpine & Associates. "They've got to be looking for a way that they can make some money out of this thing, or at least get their losses down.

"Right now there are a lot of factors. Attendance is down, and that hurts. Are consumers spending all their money just to get to the track and they're buying less merchandise? Eventually, the business will recover, but the downturn is taking its toll."

Indications are that Motorsports Authentics is trying to streamline its business. Officials are expected to meet with VF Corp. in the coming weeks to discuss selling the apparel business, which includes licensed hats and T-shirts. Much of Motorsports Authentics' losses have been tied to a lack of inventory control, according to its owners, especially in the apparel division.

The licensed novelty business also is believed to be on the selling block, possibly to a company such as WinCraft that specializes in items such as keychains, car flags and bumper stickers.

If those scenarios play out, Motorsports Authentics could wind up as a trackside retailer with a focus on diecast cars, similar to the model that Action Performance used in the 1990s to build its business before adding an apparel division. Its business peaked at more than $400 million in sales and 500-plus employees in 2002.

Action was eventually purchased by SMI and ISC for $245 million and merged with its competitor, Team Calibre, to form Motorsports Authentics in 2005.

"It's a much tougher business now," said Fred Wagenhals, Action's former CEO. "The sport has changed, the popularity of the drivers has changed, the economy has changed. Retail is tougher today than it's ever been. They've got to make adjustments."

Those adjustments could come in the form of the way product is sold at the track. It is now sold out of trailers that are lined up together to form a type of merchandise row.

"What they're telling us is that they're evaluating how to make the trackside selling experience better for the fan," said Geoff Smith, Roush Fenway Racing's president. "They want to be able to make the buying experience more meaningful. What shape that takes, I don't know."

Whichever direction Motorsports Authentics chooses to go, it will be with far fewer workers than it had two years ago. Its roster of close to 500 employees has been chopped nearly in half, with the latest round of cuts in March shuttering 40 more jobs.

The company lost $6 million in 2006 and $20 million in 2007 (not including millions more in write-downs), before turning a $3 million profit last year on the back of Earnhardt, whose merchandise accounts for 35 percent to 40 percent of all NASCAR-licensed product sales.

Earnhardt's sales jumped last year when his car number changed to No. 88 at Hendrick Motorsports and his co-sponsors, Amp Energy and National Guard, replaced Budweiser. That also was the year Motorsports Authentics made significant cost cuts to its trackside selling program, which contributed to an improved bottom line.

Still, more losses are projected in 2009.

Mattes is working with Motorsports Authentics' four board members, two from ISC and two from SMI, to chart the company's new course.

ISC's representatives are VanDerSnick and incoming president John Saunders.

SMI is represented by Marcus Smith, president and COO, and Don Hawk, vice president of business affairs.

"The question is: What model is sustainable?" McAlpine said. "And can you get there painlessly? I would be surprised if you could."

"It's no secret that we've had some bumps in the road as we've tried to pull this thing together and run it the right way for the industry," VanDerSnick said. "A lot of things do very well over there. We've got a hard-working and loyal employee base that does trackside well, that does diecast well, that's doing apparel well. We've got the wherewithal to stomach this."
by Michael Smith
Michael Smith is a reporter with SportsBusiness Journal