Volume IX, Issue 5, Page 97

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HDPRA or the NHRA no one knows yet

5/31/2007

It’s a day after the bombshell announcement from the NHRA that they had sold their “professional assets” to an investment group, HD Partners Acquisition Group, for a total of $121,000,000 in cash, stock and debt assumption.

So, after the initial shock of NHRA selling what they have sworn for the last five years wasn’t for sale, for most of us now there are more questions than answers. The first question I had regarding HDP was the same one that Butch asked the Sundance Kid which was “Who are those guys?”

W ell, here is what I’ve found out about the HD Partners Acquisition Corporation. They are an acquisition company headed by CEO Ed Hartenstein, who started DirecTV. HD Partners sold about $150,000,000 in stock to finance acquisitions and has a total market capitalization of almost $180,000,000 and, most important to drag racing, HDP is a publicly traded company listed on the American Stock Exchange. We’ll talk more about that later.

So what did HDP buy for about $110 million in cash and stock and assumption of $11.5 million in NHRA debt? The most tangible assets they got were the physical NHRA properties, which include four tracks, Indianapolis Raceway Park, Atlanta, Gainesville, and Columbus, and the NHRA headquarters building in Glendora, CA. You have to assume that when HDP decided to spend the money the NHRA tracks and the building in Glendora are basically the tangible assets they bought and NHRA threw in the intangibles of the pro class brands and their marketability. 

How much those properties are actually worth I don’t know. But considering the following: 1) NHRA’s office building is in Glendora, CA, located adjacent to a golf course and in the uber pricy Los Angeles real estate market; 2) the IRP facility is located in an area of Indianapolis where they’re building sub-divisions at a rapid rate close to the track; 3) a track owner who had interest in trying to buy the land that Atlanta Dragway is built on told me the land alone was valued a year ago at $22 million. What the land under Columbus and Gainesville are worth I have no idea, but certainly you would think the two would sell together in the tens of millions range.

One thing is sure, since HD Partners are a publicly owned company with investors who will absolutely demand a return on their investment, HDP must believe the tangible assets alone are worth more than what they paid for them and that allows them to take a flyer on their ability to take the sport itself to a higher profitability level. 

As for the NHRA itself, the series annually grosses over $100 million, so if you combine the physical assets, gross annual sales, and what revenues could be realized as the sole owners and marketers of the NHRA’s best brands then you would have to say the DHP folks made a good business investment.

Now, how will the sale affect NHRA drag racing (which actually means drag racing in total)?

The first thing everyone has to understand is that in many ways everything about how the NHRA is run will change eventually and inevitably. From this point forward the money-making arm of NHRA drag racing (NHRA Pro Racing) is in the control of an investment company that is publicly owned. That means that everything NHRA Pro Racing does will more than ever emphasize increasing revenues and profits.

For example in their May 31 press conference one of HDP’s “near-term growth opportunities” was to “Enhance average revenue per spectator across various customer touch points.” Translation: Get ready to pay more for tickets, food and everything else at an NHRA Pro Racing national event!

The sole reason for HDP purchasing the NHRA assets is to get a return on their stockholders’ money, and nothing else other than that is acceptable in their world. If you thought NHRA’s current management was too concerned with the bottom line just wait until you see how the bean counters for HDP operate. You haven’t seen anything yet, I guarantee it. Making money for their stockholders is the only (repeat only!) issue companies like HDP are business for. They didn’t make this investment because they love drag racing. They did it because they love making money and NHRA pro drag racing appeared to offer that opportunity.

With NHRA pro racing under the control of a publicly owned, for profit company for the first time, that means for the first time the profits or losses each NHRA property and event generates will be made public because as a publicly traded company the Feds require them to make that information public. NHRA hasn’t had to do that ever.

As far as immediate changes in the NHRA you are used to, chances are there won’t be any this year. My sources indicate that NHRA and HDP will soon announce that they have signed a long-term (25 year) agreement for the NHRA to administrate and produce the events for HDP. Essentially NHRA will hire itself out to put on the professional racing portion of NHRA sanctioned events. That doesn’t mean that the HDP management won’t change the ways business is done in the pro pits, however, especially when it comes to generating cash flow.

I don’t think NHRA drag racing, per se is going to see any immediate changes, but I expect that perhaps at the U.S. Nationals and surely, after the season is over, at the SEMA Show new programs and changes probably will be announced.

As for the sportsman racers’ future, I think it looks good long term.

A couple of years ago I had a very highly placed NHRA executive tell me in no uncertain terms that if the NHRA were to sell to some large company the first thing that company would do would be to eliminate the Sportsman classes. “It takes more money, more personnel, more time, and we get more grief from a single sportsman classes than any pro class. We lose money on the sportsman classes every year,” he told me.

Well, thanks to the efforts of Tom Compton and Wally Parks the sportsman classes and their participation at national events have been guarenteed for at least 25 years. This was confirmed to me by Len Imbrogno, NHRA Director of Sportsman Racing & Member Tracks.

So, the NHRA sportsman racers future seems safe for now, but there is no doubt that the HDP people have no interest in sportsman racing and I think that it is just a matter of time until the sportsman series is just a fond memory especially in the event that HDP sells NHRA Pro Racing or is bought out. My own opinion is that within five years NHRA’s only job will be as hired help to produce races featuring pro classes only!

Now let’s discuss the money. The following thoughts are just one fact and a couple of educated guesses on my part as to how the $121 million the NHRA got for selling the assets will be divided up. First, we know for a fact the $11.5 million went to retire NHRA debt. I think that the $100 million in cash the NHRA got as part of the sale will go into a fund that will deliver about a 10 percent return a year. That 10 million bucks will fund the Wally Park Museum, fund the NHRA pension plan and pay the NHRA’s employees. Finally the $9.5 million in HD Partners common stock will be split up among the NHRA board of directors and possibly some of the VP’s.

SEE ALSO

Finally, it is worth noting that this deal put together by Tom Compton and his team is identical to the proposal that Billy Meyer put to the NHRA back in 1987 which was rejected by Dallas Gardner and Wally Parks when they thought Billy Meyer might gain controlling interest of the NHRA, according to Glenn Menard and confirmed by others who were involved at the time. It probably didn't help that Billy was rumored to be pursuing the IHRA at that time.

In the coming days DRO will be analyzing more of the information we have been getting over the last hours about this momentous news, but one thing is sure. The NHRA that we knew yesterday is as dead and inconsequential as yesterday’s news, no matter how they try to spin it in Glendora or Santa Monica.  


jeffburk@dragracingonline.com

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