According to the SEC filing made by Speedway Motorsports, Inc., one potential suitor speculated upon by this blog (in addition to a possible bid by Tony George and a group of outside investors should the IMS be offered for sale), Speedway Motorsports has entered into a new credit facility agreement with its lenders that provides for "a five-year $250,000,000 senior secured term loan" which it may draw "in a single advance no later than August 1, 2013" under certain terms and conditions. The credit agreement further permits the company to increase its revolving loan of credit or establish a term loan in an aggregate additional amount of $100 million. Amounts borrowed under the new credit agreement can be used to refinance existing debt and finance, among other things, "the acquisition of additional motor speedway and related investments," provided that certain prior senior notes due by 2016 are paid or redeemed in full. Speedway Motorsports already own some of the major motorsports tracks in the country, including Charlotte, Bristol, Kentucky, Las Vegas, Atlanta, Sonoma, Texas and New Hampshire. It's certainly not beyond the realm of speculation that a company like Speedway Motorsports would be interested in the IMS if it is offered for sale.
A spokesman for the IMS, Doug Boles, denied a report by this blog to another blogger yesterday of a rumored plan by the Hulman-George family members to sell the IMS, but the legislation sponsored by Sen. Young imposes no restrictions on the sale of the IMS as a condition to state taxpayers being on the hook to contribute up to $5 million annually over the next 20 years to service debt on bonds issued to raise funds the IMS says it needs to make improvements to the Speedway's motorsport facilities. There have been numerous rumblings in recent years of a potential sale of the IMS, as well as an attempt by former IMS CEO Tony George, along with a group of investors, to purchase the IndyCar series just last fall.
Last March, the IBJ reported on what was but one of many management changes in recent years that the IMS had expanded to the size of its board to add "four high-profile business leaders," including John Ackerman, Jeff Belskus, Mark Miles and James Morris. Belskus, who succeeded Tony George as CEO of the IMS following his ouster in 2009, was forced to step down as CEO last October and Miles was named as its new CEO. Miles formerly served as head of the Central Indiana Corporate Partnership and chaired the local 2012 Super Bowl Committee. Ackerman is the managing director of Cardinal Equity Partners, a private investment firm. Morris is the former CEO of the Indianapolis Water Company who now is the President of Pacers Sports & Entertainment. Shortly after joining the Pacers organization, Morris was instrumental in convincing the CIB to pay $33.5 million in taxpayer funds to the Pacers to cover operating costs for Banker's Life Fieldhouse over three years, an amount which was more recently increased by $10 million to $43.5 million over a four-year period. Two other outside businessmen sit on IMS' board of directors, including Andre Lacy and Michael Smith, according to the IBJ.
Family member owners who sit on the IMS' board of directors include Mari Hulman-George and her three daughters, Nancy George, Josephine George and Katherine George-Conforti. Mari's son Tony George, resigned from the board last year following reports that he and a group of investors were attempting to purchase the IndyCar Series owned by the IMS. “I realize that my recent efforts to explore the possibility of acquiring IndyCar represent the appearance of a conflict, and it is in everyone’s best interest that I resign,” George said in a statement. “It goes without saying that I want to do what is best for this organization.”
At the same time the IMS was beefing up its board with heavy hitters, the Indianapolis Star reported--after SB 91 had already cleared the Senate--that the IMS had stepped up its lobbying efforts and had doled out more than $100,000 in political contributions during the past couple of years. "By the time the election campaign had ended , the IMS had contributed more than $100,000 to Hoosier politicians and campaign committees -- 12 times more than speedway officials had donated over the entire previous 10 years when such contributions totaled about $8,500," the Star reported. "We made a strategic decision,” IMS spokesman Doug Boles said, “that it was time to be more than a passive observer." "Boles said the Speedway’s increased involvement arose from a general desire to become more politically active and came before it made specific plans to ask for state assistance." "It did not," Boles said, “coincide with our planning.”
When SB 91 was heard in committee, public testimony was limited to representatives of the IMS. Sen. Luke Kenley, chairman of the Senate Appropriations Committee, revealed that lawmakers had been in discussions with IMS officials for the past two years before springing the $100 million tax give-away plan many weeks after the legislature convened for its current legislative session. As reported by the Indianapolis Star:
"I think it's a pretty good plan," Kenley said. "We've worked with the Speedway people for almost two years now; we've been very slow to bring this out. They were very hesitant to come to state government but they don't see where they can find the capital resources they need in any other way. We think we've refined it down to the point if they succeed with this the state will get a return on their investment in terms of more tax dollars being raised than were before."
Kenley said the state thinks it will get back, and then some, the tax revenues it foregoes thanks to increased use of the facility.
"It's a 20 year plan. I would expect that within five years, if they develop the Speedway the way they are talking about doing so and having bigger and better and perhaps more events there, they are going to generate more activity, then we should start seeing some return within a five-year period," he said.Kenley's suggestion that the IMS could not obtain financial resources from the private sector seems specious given that Speedway Motorsports is able to continue to expand, grow and improve its many motorsport facilities through private, traditional lending resources. The rapid progression of the IMS legislation has left little time for public debate and consideration of the ramifications of financing improvements to a privately-owned race track, while lawmakers and IMS officials have been working on their plan secretly for at least two years according to Sen. Kenley. Sen Young's state legislative plan to provide up to $100 million of state-funded assistance to the IMS was only amended into SB 91 in the Senate Rules Committee on February 11, which referred the bill to the Senate Appropriations Committee where it was quickly heard by its chairman, Sen. Luke Kenley, three days later on February 14 and reported to the full Senate with a do pass recommendation. The full Senate voted to pass SB 91 on February 19 by a 37-12 vote after little debate only eight days after the legislative plan was first unveiled to the public.
Many unanswered questions remain that lawmakers pushing SB 91 appear unwilling to address before passing the massive state give-away. The proponents of SB 91 say the IMS will spend at least $2 million annually from its own resources, in addition to the up to $5 million in state aid to finance up to $100 million in improvements to the privately-owned IMS; however, SB 91 does not expressly provide for any contribution by the IMS. What it does is create a Motorsports Investment District ("MID") consisting of the IMS and its adjoining properties, such as its 18-hole Brickyard Crossing golf course, parking lots and the land on which a former motel was demolished in 2009. The MID is allowed to capture state income and sales tax revenues generated within the MID up to a maximum of $5 million annually over a period of 20 years.
The legislation vests the Indiana Finance Authority with the authority to set up the MID and issue bonds. Proceeds from the bonds may be used for: "1) Structures or other capital improvements that are located in a qualified motorsports facility; and (2) Financing or refinancing structures or other capital improvements described in subdivision (1) or the payment of bonds or leases for structures or other capital improvements described in subdivision (1)." Does this mean bond proceeds can be used to refinance existing debt that may be owed on the IMS' facilities? If that is the case, then it raises even more concerns that the end game may be to use the bond proceeds to leverage a sale of the IMS. The contribution from IMS resources for the capital improvements is not expressly set forth in SB 91; it can only be implied. The IFA is required to enter into a written agreement with the IMS concerning the terms of financing of the capital improvements, but the legislation does not provide what those terms are.
According to assessment records for the Marion County Assessor's office, the 26 parcels of land in Speedway owned by the IMS are currently assessed at $81.9 million, or about one-fifth less than the amount of money the state intends to invest in new improvements at the IMS. A provision of SB 91 that has caught our eyes provides that the bond trust indenture "may not mortgage land or capital improvements." It may, however, pledge the covered state tax revenue stream and "lease rentals, receipts, and income from leased capital improvements." This raises a serious question of what happens if pledged revenues are insufficient to pay off the bonds, in particular, if operations at the IMS ever cease. You may recall the revenue bonds the Indianapolis Airport Authority issued to build a $300 million maintenance hub for United Airlines, which was secured by the lease payments the airline paid to the Authority. The last I heard, the bond holders still had not been paid at least $170 million still owed to them after United closed the maintenance hub and filed bankruptcy. Revenues from the current tenants have been inadequate to cover any of the outstanding debt. The bond holders haven't yet written off their investment, and the Airport Authority has only been willing to offer them pennies on the dollar to settle the matter. The Airport Authority is unable to redevelop the property as it sits due to the pledge of future revenues still held by the bond holders.
The situation would be more tenuous with the IMS bonds because the state won't own the land and improvements, even though state revenues are pledged to secure the repayment of the bonds. If the IMS ever ceases operation, the pledged revenues to secure repayment of the bonds will completely evaporate unless a new owner is found who can operate it as a going concern. Since the bond holders aren't allowed to hold a mortgage on the land and improvements financed by the bond proceeds, that lack of security is likely to increase the risk to the bond holders, thereby increasing interest costs on the debt.
Despite the prominent and historic role the IMS has played in Indianapolis, its inner workings have been very shrouded in mystery and secrecy. Because it's a privately-owned business, the public knows little about its financial picture. Its annual revenues, profits and even attendance at race events are a closely-guarded secret. What is known is that the management of the IMS has had a tumultuous recent past, with three different CEOs in the past several years alone. Much of that tumult seems to stem from massive losses the IMS sustained from its launching of the IRL series, now known as IndyCar, which caused a major rift in open-wheel racing that contributed to declining attendance at its marquis race event, the Indianapolis 500, and its costly and short-lived foray into Formula One racing. Those losses may have reached into the hundreds of millions of dollars according to some reports.
I respect that a private, family-owned business wants to keep their affairs to itself, but when they step into the public realm and seeks to use their wealth and influence in this state to convince our state lawmakers to publicly finance $100 million in improvements for their private concern, then they should expect to open up their financial affairs to the public to offer assurances that it truly seeks this generous offering to preserve its family-owned business for the long-term and not merely to use it as leverage for a potential sale. SB 91 provides no disclosure or assurances to the public as to what the Hulman-George's family intentions are. The legislature's pursuit of the passage of SB 91 with reckless abandon and questionable motives leaves the public extremely wary and skeptical.