Full Throttle

In a matter of 20 pages, Kentucky Speedway began an assault against one of the most powerful entities on the American sports landscape Wednesday.

Out of options for gaining one of the coveted Nextel Cup racing dates, the 5-year-old Sparta track filed a lawsuit against NASCAR and its sister company, International Speedway Corporation, alleging the companies violated federal antitrust laws to horde Cup dates for themselves while squeezing Kentucky Speedway out of consideration in the process.

The speedway is seeking a 2006 Cup date and $400 million in damages, which automatically would be tripled with a court victory. But in filing the 20-page lawsuit in U.S. District Court in Covington, the speedway’s owners, led by Jerry Carroll, could be risking the track’s success by betting that they have a strong enough case, either through a court decision or a settlement, to force NASCAR to bring Nextel Cup racing to Kentucky.

As noted earlier these type of suits are very hard to win and more often than not, they are decided via a settlement agreement long before a trial date arrives.

As George points out in the previously linked post, ” I thought Sherman was to provide anti-trust protection for competing busineses. When Kentucky starts their own competing SERIES they may have a chance with Sherman.” To which I whole heartedly agree. As opposed to actual competitors to NASCAR and the ISC, the individual speedways are closer to being venders of the NASCAR name. Nothing more than caboose’s to NASCAR’s gravy train.

The effect of a ruling in favor of the Kentucky investors would shake ISC and the sanctioning body to it’s very core.

“So what?” asked Cincinnati lawyer Stan Chesley, head of Kentucky Speedway’s legal team.

“It may have a profound effect on NASCAR, and it may have profound results on ISC, but as far as Kentucky Speedway investors are concerned, they did everything they could to bring a Nextel Cup race to Kentucky Speedway,” Chesley continued. “And the only reason they don’t have one is because NASCAR and ISC want the France family to have control.”

As these things go none of the three parties involved are talking, at least on the record and are deferring inquiries to their respective lawyers.

Their is someone willing to speak and he speaks with some authority. Samuel Cherry, an Alabama-based lawyer, represented Francis Ferko and Texas Motor Speedway in his suit against NASCAR and ISC. What he has to say can’t be encouraging for those in Kentucky.

At first glance, it seems NASCAR and ISC are operating an illegal monopoly in violation of federal antitrust laws, said Samuel Cherry, an Alabama-based lawyer who represented a plaintiff in a similar suit against NASCAR and ISC from 2002-04.

But, Cherry said, it’s not that easy to prove. His client, Francis Ferko, a Speedway Motorsports Inc. shareholder, sued NASCAR and ISC in 2001 because Texas Motor Speedway, one of SMI’s tracks, had not been awarded a second Cup date that had been promised. The suit alleged antitrust violations, just as Kentucky Speedway’s does.

That suit was settled in 2004 when SMI paid $100.4 million to buy out an ISC track in Rockingham, N.C., and transfer Rockingham’s Cup race to Texas.

That settlement, Cherry said, was pushed by NASCAR’s 1994 promise to award Texas the Cup date, not the antitrust portion of the suit.

“I think Kentucky is going to have a difficult time prevailing,” Cherry said. “We made the same antitrust allegations, but I didn’t feel very good about them.

“We said there should be competitive bidding for races, but your competitive environment has to pass business sense, and that’s where NASCAR has a strong argument, because they’ve been able to maintain a good business model. The competitive dynamics that at first glance appear to be collusive knock you down, but on closer examination, you appreciate the business logic to that approach.”

Cherry said he declined an opportunity to get involved in Kentucky’s case because he doesn’t believe it to be as strong as SMI’s.

As Bruce K. Johnson, a sports economics expert in the area of antitrust law at Center College points out there are risks involved.

“(Carroll) must think there’s a huge amount at stake, and it must be so important to him that he’s willing to jeopardize the Busch Series race and the Craftsman Truck race,” said Bruce K. Johnson, a sports economics expert in the area of antitrust law at Center College in Danville, Ky. “But then, suppose Kentucky Speedway wins and NASCAR and ISC are declared to be illegally restraining trade; the court could impose a remedy that would involve ownership of the NASCAR circuit being separated from any racetracks. The France family might have to sell off one or the other, NASCAR or ISC. That could certainly change the dynamics of the way NASCAR works.”

Johnson said an approximate value of a Nextel Cup race to Kentucky Speedway would be similar to the $100.4 million that SMI paid to ISC last year to acquire a second race for Texas Motor Speedway.

As fans will remember that race was acquired by the owners of Texas buying Rockingham Motor Speedway and switching it’s date to Texas. Rockingham is still without a NASCAR date and will be for the foreseeable future if not forever.

Two other notes. One of the demands of the suit - assuming Kentucky wins - is for NASCAR to place up for bid all their race dates. Which raises the question how could tracks like legendary Darlington or Kentucky itself afford a bidding war with the more well-heeled venues in the sport? My guess they couldn’t.

Secondly is the nature of the Texas, SMI settlement. The operators were promised a second NEXTEL Cup date, Kentucky has never been given such assurances as noted below.

UPDATE: Mike Contreras writing for Insider Racing News makes a good point I hadn’t considered.

The lawsuit alleges they are “under-served”. This would mean they have few opportunities to view a Nextel Cup race in their area. But that ignores the fact that Lexington [Kentucky] is 200 miles away and Cincinnati is 114 miles away from Indianapolis. The fine folks in Columbus may need to trek the 175 miles to Indy or would have to suffer the cruel and unusual horror of a 234 mile trip to Michigan but the fact is the Brickyard and MIS are not that far away.

Now maybe in the minds of the folks at the speedway; Indianapolis, Chicago, and Detroit are too far away to serve the deserving and discriminating Cincinnati NASCAR fan, and only Kentucky Speedway can provide the needed date for these poor, trodden upon, fans. But that would mean we would have to ignore that at some 5 hours of driving time from Fort Mitchell, Chicago is the most distant of three tracks in the area. But please suspend any semblance of sense; we are talking about lining the promoters’ pockets.

He makes a good point. If Kentucky is relying on a “under served” defense they may not have a leg to stand on. All NASCAR officials need do is show the demographics of a typical event and average miles traveled by fans to lay waste to the Kentucky area being under served.

The case

Kentucky Speedway sued NASCAR and International Speedway Corporation last week, alleging that the companies, both controlled by the France family, have illegally conspired to award Nextel Cup races to ISC-owned tracks, preventing Kentucky Speedway from obtaining a coveted Nextel Cup race. Kentucky Speedway is alleging this action is a violation of federal antitrust laws, and it is seeking a 2006 Nextel Cup race, the right to bid on future Nextel Cup races and $400 million in damages, which automatically would be tripled with a court victory.

Historical precedent

In 2002, Francis Ferko, a shareholder at Speedway Motorsports Incorporated filed a similar lawsuit against NASCAR and ISC for violating antitrust laws. In that claim, Ferko was attempting to get a second Cup race for Texas Motorspeedway, a track owned by SMI. The case was settled in 2004 when SMI purchased an ISC track in Rockingham, N.C., for $100.4 million and transferred the Cup race from Rockingham to Texas.

A significant difference in the SMI and Kentucky cases is that SMI had a 1994 promise from NASCAR that Texas Motorspeedway would receive a Cup race. Kentucky has never received such a promise, and in fact has been told by NASCAR that it will not receive a race.

The impact

If the case were to go to trial and Kentucky Speedway were to win, the power structure in NASCAR undoubtedly would be altered. NASCAR no longer would be able to funnel Nextel Cup races to ISC-owned tracks, which essentially are owned by the same family that runs NASCAR.

By filing the lawsuit, Kentucky Speedway has placed itself in a tenuous position with NASCAR, causing a strained relationship that could last the length of the case, which might take years to resolve. NASCAR has not commented on the case nor said if Kentucky’s two other NASCAR-affiliated races (Craftsman Trucks and Busch) are in jeopardy, but Kentucky Speedway’s lawyer, Stan Chesley, acknowledged that is a possible ramification of filing the lawsuit.