Wheeling & dealing
Wheeling & dealing
Vintage warplanes rumble low over southern Cabarrus County. Below, they pray, a bugler sounds taps, and a bald eagle soars over the infield during “The Star-Spangled Banner.” Aaron Causey rolls his wheelchair forward — a Taliban bomb took his legs and maimed his hands. The Army sergeant and his wife, Kat, lean into a microphone, and their voices echo across the grandstands: “Drivers, start your engines!” It’s Memorial Day weekend, and more than 100,000 fans leap to their feet as the 36,000 horsepower of 43 race cars sets the grandstands trembling.
A violent stream of sound and color explodes across the starting line, with eventual winner Kevin Harvick’s Budweiser Chevrolet splashed in red, white and blue and sprinkled with stars. The Coca-Cola 600 is high-octane NASCAR patriotism, and as the pack rockets out of the second turn, its 200 mph shock wave ruffles an American flag the size of a football field swathing a section of Charlotte Motor Speedway’s backstretch stands. The banner is one of the biggest in the nation, but what it conceals is flagging attendance. Under it hide more than 5,000 unsold seats, though the speedway has removed at least 25,000. “You don’t want to show that to folks back home,” says Craig Depken, a sports economist at UNC Charlotte who studies NASCAR. Charlotte Motor Speedway once claimed a capacity of 172,000.
Now, it’s officially 134,000.
Cars and racing have made the speedway’s founder rich, but his numbers have dropped, too. As recently as 2006, Ollen Bruton Smith was midfield on Forbes magazine’s list of the 400 richest Americans, with a fortune estimated at $1.4 billion. Post-recession, that has shrunk by half, but he’s still the only individual with controlling interest of two corporations on Business North Carolina’s list of the largest public companies based in the state (page 56). Sonic Automotive Inc., his chain of 111 car dealerships, is No. 33, with market value of about $1.1 billion. Speedway Motorsports Inc., which owns eight tracks that host 13 races in NASCAR’s top series, ranks 37th, with about $740 million.
The speedway, which is in Concord, is the nucleus of a regional racing industry with an annual economic impact of $4.7 billion, according to a UNC Charlotte study of 2005 data. That’s why Smith made headlines when, a week before the Coca-Cola 600 in May, he mentioned moving one of its two top-tier races to his Las Vegas track. “Money, money, money,” he muttered, hinting he could make more of it in Nevada — plus financial incentives he might wheedle from Vegas boosters. (This came mere months after claiming he would be interested in buying the Carolina Panthers from Jerry Richardson, and that he’d keep the team in Charlotte without demanding local and state money for renovations to Bank of America Stadium — an altruistic gesture he hasn’t extended to Cabarrus County.) Though he quickly backed off the threat, it was the second one he had made in recent years.
Meanwhile, his companies, both dented by the recession that began in 2007, are battling back. Sonic Automotive escaped a brush with bankruptcy in 2009, partly because its repair business benefitted from the nation’s aging fleet when Americans quit buying as many cars. “Bread and butter for a dealership is service,” says Richard Nelson, a Chicago auto-industry analyst with Stephens Inc., an investment bank based in Little Rock, Ark. “It counts for a relatively small part of revenue — in the case of Sonic about 14% — but it typically produces more than half the gross profit.” Sonic’s more than $568 million of revenue from service and repairs last year was a company record.
To survive the downturn, dealers had to get more efficient. “Several years ago we had 22,000 dealers,” says David Westcott, a Burlington Buick and GMC dealer who is chairman of McLean, Va.-based National Automobile Dealers Association. “Now we’re at somewhere over 16,000. We went from 17 million units a year sold down to 9 million.” Sonic built on its recession-resistant luxury brands and began buying rather than leasing property for its dealerships to take advantage of low mortgage-interest rates. Investors were pleased. Its stock recently traded at more than $21 a share, after dipping below $1 four years ago. Last year’s net income — $90 million on $8.4 billion of revenue — was up nearly 20% from 2011.
Speedway Motorsports also grazed the wall and recovered, but it faces a more fundamental question: Has the public’s fervor for stock-car racing faded? “Even thinking about taking a race from the backyard of NASCAR and moving it to one of the frontiers of the sport is not a good idea,” Depken says. Last year, ticket sales for NASCAR races had slipped roughly 40% since the recession set in. For Speedway Motorsports, revenue skidded from a high of $611 million in 2008 to about $490 million. After peaking at nearly $41 a share in May 2007, its stock fell to about $10 in March 2009. It trades now for less than $20.
Television contracts have helped business — since 2001, NASCAR has sold TV rights as a package, splitting revenue with track owners — and boosted the company’s performance last year, along with a slight uptick in ticket sales. After losing $6.4 million in 2011, Speedway Motorsports swung to a profit of about $42 million last year.
So, the prospect of more money might motivate a motorsports mogul, even one who’s 86 years old, to move a race. But many say it was another attempt to bully officials into reducing the speedway’s tax bill and handing over tens of millions of dollars in incentive payments for building a drag strip and other improvements there. “Sometimes Bruton does things just to get the Cabarrus County commissioners’ knees knocking,” Depken notes. H.A. “Humpy” Wheeler, who for 33 years was the speedway’s president, agrees. “He’s just bluster on that one. Bruton is kind of an oligarch who doesn’t like people to say no to him.”
Though publicly traded only since the 1990s, the roots of both his companies can be traced to a Depression-era cotton farm in Stanly County. Smith, born there, hated farming but loved cars. He raced briefly, then started selling them from his family’s front yard before he began promoting dirt-track events. After serving in the Korean War, he began thinking big, and the impact today is dramatic. South of downtown Concord, Charlotte Motor Speedway’s Smith Tower looms over a checkered-flag-inspired piazza, its seven stories sheathed in reflective glass and flanked by soaring grandstands and more than 50 trackside condominiums. Nearby are the $60 million zMAX Dragway and a 0.4-mile dirt track.
Smith borrowed $1.5 million to build the speedway with driver Curtis Turner. Opened in June 1960, it went broke in a year, and a bankruptcy trustee forced him out in ’62. He walked away with sufficient money to buy a Ford dealership in Rockford, Ill., added others in Texas and, by the mid-’70s, had accumulated more than 10 along with several insurance companies — plus enough stock to regain control of the speedway. He hired Wheeler in 1976 as its president and general manager, and they clicked for more than three decades. In 1990, Smith bought troubled Atlanta Motor Speedway. In 1991, a nearly $2 million lighting system enabled Charlotte Motor Speedway to become the first big track to have races on prime-time television. He built the $250 million Texas Motor Speedway, completed in 1995, the year Speedway Motorsports became the first company in its industry to trade on the New York Stock Exchange, with a $68 million public offering. Back then, stock-car racing was riding a “power curve,” says Wheeler, who likened it to baseball’s boom in the 1920s. “NASCAR’s went on a little longer than usual, until about 2006. Then it did what all sports do — it plateaued.”
Temperament — Smith’s careerlong penchant for confrontations — as well as timing shaped the company. When Concord halted construction of the 30,000-seat drag strip after neighbors complained about the potential noise, he threatened to move not just a race but the racetrack (“Old and in the Sway,” January 2008). It was not until placated by the prospect of $80 million in incentives — and local officials’ efforts to get the main road from Interstate 85 to the speedway renamed Bruton Smith Boulevard — did he announce the speedway would stay. But a Superior Court judge threw out a lawsuit he filed in 2009 to collect the incentives.
“There was never a public hearing or a written agreement, both of which are required by the state’s economic-development laws,” Cabarrus County Attorney Richard Koch says. But the suit isn’t settled, according to Bill Diehl, Smith’s personal attorney. “I filed it, I argued it, we lost, we have appealed, and we’re waiting a decision from the N.C. Court of Appeals. We think we’re right. Bruton’s a smart businessman, very successful, a man of few words. But when he believes in something, he pursues it.” The appeals court took the case in April. Among the high-profile cases the Charlotte lawyer is famous for is Smith’s divorce.
The car czar doesn’t confine his feuding to government officials. Though they’ve had a marriage of convenience for more than half a century, Smith and the France family, who control NASCAR and International Speedway Corp., are a match made elsewhere than heaven. Smith finds it especially galling that a bigger, better-heeled rival runs the sanctioning body that has final say over virtually every move Speedway Motorsports makes. “We are an investment-grade company, and they’re not,” says Charles Talbert, International Speedways’ director of investor and corporate communications. “They have more debt than we do. Due to some of their maneuvers prior to 2007, they’re paying down a lot of debt on their balance sheet.” The Daytona Beach, Fla.-based company, which owns 12 tracks and a drag strip, earned about $70 million last year.
Even his partnership with the promoter many credit the Charlotte speedway’s success to didn’t end well. Wheeler, then 69, announced his retirement at a surprise press conference before the Coca-Cola 600 in 2008. They had disagreed on building the drag strip, and the amiable Wheeler cringed at Smith’s antics. Then came the breaking point. Wheeler knew one of Smith’s sons was being groomed to succeed him but was infuriated to find Smith was building his son an office without informing him, the racetrack’s president. “I’d take anything Humpy says with a large grain of salt,” Diehl says. “If they have anything good to say about each other at this point, I don’t know about it. Nor do I think he knows what he’s talking about.”
Smith, his son Marcus, president and chief operating officer of Speedway Motorsports, and son Scott, president of Sonic Automotive, declined to talk to Business North Carolina for this story. It was uncharacteristic reticence for a man — the chairman and principal stockholder of both corporations — who has never been shy of publicity. He even promoted himself to be elected to the NASCAR Hall of Fame this spring — after not being nominated its first four years. (Bill France Sr. and Bill France Jr. were in the inaugural class in 2010, along with legendary drivers Richard Petty, Junior Johnson and Dale Earnhardt.)
One reason the Hall of Fame is in Charlotte is because so many racing teams and shops are based nearby, an industry that grew up next to the speedway Smith built, and the money-losing attraction gets a big boost in attendance when fans come to town for the May and October races. But he wasn’t chosen — some say because balloting was held only days after what an Associated Press story called his “most recent headline-grabbing stunt.”
Smith’s passion for cars is on display in Charlotte, too. East Independence Boulevard is a cavalcade of automotive history. Grass grows in cracks on abandoned car lots beneath faded signs of dead brands. Others are bustling. This is the home field of two of the nation’s biggest players in stock-car racing and auto sales.
Town and Country Ford, one of the city’s largest and oldest dealerships, was one of the first in Smith’s fiefdom. It was from an office here that Sonic, its corporate headquarters now in a suburban building several miles away, sprang. The company, which sold more than 230,000 vehicles in 2012, is the nation’s third-largest publicly traded dealership chain. Along East Independence, Hendrick Automotive Group is represented by Lexus, Mercedes-Benz, Chevrolet, BMW, Mini Cooper and other marques, a mix of makes similar to Sonic’s. Rick Hendrick’s company, which sold about 150,000 cars and generated $5.9 billion of revenue in 2012, is the nation’s second-largest privately owned dealership group. He also owns NASCAR’s most-successful Sprint Cup team, an endeavor fueled by his success in auto sales — the same way Smith’s dealerships spawned Speedway Motorsports.
“You couldn’t find two more opposite people,” Wheeler says. The low-profile Hendrick is soft-spoken and often somber, perhaps a reflection on relatives and friends lost to racing-related accidents (cover story, March 2009). They compete for car sales, but in a roundabout way, Hendrick also threatens Speedway Motorsports’ bottom line. Take, for example, his star driver Jimmie Johnson, who has dominated the sport the last several years. Such polished, charm-schooled racers turn off fans weaned on rowdy, colorful characters such as the late Earnhardt. This cultural change could affect NASCAR’s future even more than the weak economy has hurt its recent past.
But for now, barely more than three years until his 90th birthday, Bruton Smith seems undaunted. He is still firmly at the wheel of his duel-pronged, automobile-based empire and shows no signs of throttling back. He derides the idea of retiring and, at least publicly, leaves succession an open question. A third son, David, is executive vice president of Sonic. But even a larger-than-life character must eventually face the question of what comes after. “There’s not much depth there,” says Wheeler, now a motorsports consultant. “Who runs things when he’s gone?” Tax and management issues could put both corporations on the block, he speculates, though Diehl scoffs at that idea. “They’ve got brilliant in-house lawyers, both at Sonic and Speedway,” he says. “You can be confident they’re prepared.” And the NASCAR Hall of Fame? “In my opinion,” Executive Director Winston Kelley says, “it’s not a matter of if Bruton gets inducted, it’s only a matter of when.”