Now, when you buy a die-cast, a strange partnership cashes in. Credit: Gavin Lawrence/Getty Images

It's not unusual

ISC, SMI know what they're doing with Action Performance

With Tuesday's announcement, another piece of the puzzle that is NASCAR racing was laid into its slot.

The two entities which teamed up to buy Action Performance Companies might surprise you, but the results probably won't.

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International Speedway Corp. and Speedway Motorsports Inc., which between them host 30 of the 36 Nextel Cup Series events each year, have combined to buy Action, which is the industry leader in collectibles.

The way they did it was smart, too. The companies funded a joint venture, Motorsports Authentics, which will function as an independent company with ISC and SMI as equal owners. The company will then handle the production, marketing and sales of licensed motorsports merchandise. That means apparel and souvenirs.

The details of the purchase are fairly nondescript: Motorsports Authentics has agreed to buy APC for $13 per common share, which totals $245 million. The transaction is based on cash, not a mix of cash and stock, and a wholly-owned subsidiary of Motorsports Authentics will be merged into Action. Motorsports Authentics will then operate the surviving entity.

The two companies already control NASCAR races from a competition standpoint, and now they control it from a licensed merchandise perspective as well. Roughly 70 percent of Action's annual sales are derived from NASCAR, and it holds contracts with the majority of the star drivers in the paddock.

Here's the really neat part, business-wise. Action had recently announced plans to "optimize production, marketing and distribution of its die-cast and other products, divesting or discontinuing non-core businesses, controlling expenditures and expanding its traditional retail channels through the consolidation of certain functions."

Also, Action had restructured its wholesale distribution for NASCAR die-cast to a direct-to-retail model, cutting out a step in going to market. Action recently announced a restructuring of its wholesale NASCAR die-cast distribution to a direct-to-retail model. By doing so, Action's Charlotte, NC offices will take care of fulfillment for wholesale die-cast and apparel, a call center will be added to enhance order processing and customer service. That lowers the cost, as well as speed the products on their way to market. By doing things this way, Action will be aware sooner of trends, preferences and buying habits.

Action does have contracts with many other racing groups, like the National Hot Rod Association, the Indy Racing League and Formula One, and those will continue in their present forms.

"As part of Motorsports Authentics, we believe Action has significant long-term potential for generating positive cash flow and earnings," said Lesa France Kennedy, president of ISC. "We plan to leverage the extensive relationships and marketing expertise of both ISC and SMI to make this a successful venture.

"From a trackside sales perspective, ISC and SMI each promote a significant number of events in NASCAR's three national touring series including the NASCAR Nextel Cup schedule. As such, we believe we can capitalize on financial and operating synergies by approaching merchandise operations as a combined entity through Motorsports Authentics. Further, through the continued execution of its initiatives to improve financial performance, we believe that Action will be better positioned to capitalize on the continued growth in the popularity of NASCAR and other forms of motorsports."

Bruton Smith, owner of SMI and NASCAR's self-proclaimed "best friend," has suggested that at-track merchandise sales "historically have not been optimized." With even more control,

"We believe it is strategically important for NASCAR and other motorsports to have strong, well-run companies designing, marketing and distributing racing merchandise," said Smith, whose day job is running SMI as its CEO. "Licensed product is a significant segment of the industry that has historically not been optimized.

"Motorsports Authentics will integrate the intellectual property rights of a significant number of NASCAR's premier teams, drivers and tracks into a cohesive long-term merchandising strategy. It is our goal to ensure that our products are properly marketed through key distribution channels, which will help promote NASCAR and other motorsports while creating natural business synergies, particularly during event weekends."

A four-member management committee -- made up of two from each side of the fence?will be responsible for overall operations for the new company. In addition France Kennedy, John Saunders is also part of the board. Herb Baum, who was recently made executive chairman of APC, will not be back for next season, according to the release from earlier Tuesday. SMI's team includes Marcus Smith and Mark Gambill.

So now, when you buy a Motorsports Authentics die-cast or T-shirt, you'll be supporting what is known as a "vertically integrated" company. Being vertically integrated means, in essence, that money from various enterprises is flowing into the same bank account, albeit under a different name. You're already doing that to some degree, but with this announcement, the process is expanding exponentially.

It also consolidates the largest chunk of the estimated $2.1 billion motorsports collectibles market under one roof...or two, depending on how you look at it.