The Frontstretch: When Is A Monopoly Not A Monopoly? by Matt McLaughlin -- Tuesday January 8, 2008

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When Is A Monopoly Not A Monopoly?

Matt McLaughlin · Tuesday January 8, 2008

 

48 years into a misspent life lived on the edge, I don't think I shock very easily anymore. A healthy dose of cynicism helps one get by in a quirky world that seems to have gone mad at times. But I have to admit, when I learned a judge in Kentucky dismissed the lawsuit the Kentucky Speedway had filed against the ISC and NASCAR on Monday, my jaw dropped into full “fly-catching mode.”

For those not familiar with the lawsuit, the Kentucky track's argument was fairly simple. NASCAR awards Cup race dates annually to tracks of their choice, and they say that they do so with “the best interests of the sport” in mind. (Yeah, this California Labor Day experiment has proved to be a real asset to the sport). Anyways, the International Speedway Corporation (ISC) owns twelve of the twenty-two race tracks that will host Cup events this season, with those tracks awarded nineteen of the 36 points races that are on this year's schedule. Yes, that's more than half the season; and along with that distinction, keep in mind each date NASCAR awards gives tens of millions of dollars to track owners. Add in the concession money, TV money, etc. and we're not talking chump change here – making ISC the leading company in line to profit from the sport’s current schedule.

In the meantime, Brian France remains the CEO of NASCAR, a privately held company that belongs to the France family. That’s ironic, seeing as the ISC is run by Jim France – Brian’s uncle – with sister Lisa on the board of directors. While the ISC is a publicly-owned company, a controlling interest in the stock is held by the various members of the France family. So… how could there be a conflict of interest there, right? I mean, it seems perfectly logical that between swerving away from palm trees on his ride home, Brian might call Uncle Jim and tell him, “In the best interests of the sport, I think NASCAR has to take a date from Watkins Glen, the Dogpatch of the Circuit, a crumbling relic, and award it to a rival track owner.” Does that seems plausible to you? If it is, keep laying out the milk and cookies for Santa Claus.

How blatant is this conflict of interest? NASCAR and the ISC share the same corporate headquarters on Speedway Boulevard in Daytona Beach, Florida – it’s to the point they even share receptionists. To the casual observer, it might seem pretty obvious the relationship is a bit too cozy; but in the eyes of “Bubba Law” – the way it is administered in the Third World backwater country of Florida – these two are separate companies.

Kentucky's lawsuit tried to call NASCAR and the ISC on this Grand Illusion. They noted that since the same family ran both companies, and ISC was a major player in procuring race dates – which NASCAR awards – the playing field wasn't level for an independent track operator trying to land a coveted Cup date. And there is evidence that goes beyond anecdotal that suggests this the case.

For example, look at Homestead-Miami Speedway. Originally, the government paid for a great deal of the cost of building that track as a way to generate income into an area that was devastated by Hurricane Andrew – especially after the USAF decided not to rebuild the airbase devastated by the storm. But NASCAR decided only to award Homestead a Busch Series and Truck Series race when the track was first built, claiming it wasn't worthy of a Cup date. Even after another major and expensive redesign, the France family refused to budge; it looked like about the only way the track was going to get a Cup date was if the owners sold out to the ISC.

Well, that’s exactly what happened. ISC bought the track in the late 1990s, the taxpayers got the shaft, and – presto-chango – Homestead and the ISC had a Cup date. Similarly, when independent investors proposed a track in the Northwest, NASCAR had no interest in scheduling a Cup date in that area. But once the ISC proposed building a track in that same place, suddenly that land was all but guaranteed an event before a shovel dug into the ground. That commitment was intended to help leverage state governments into bankrolling a portion of the costs of building the track. At least this time – perhaps wizened by the Homestead debacle – the local politicians told the ISC to tape a flying flip at a doughnut, with the voters loudly repeating that offer.

But for some reason the right, honorable District Judge William O. Bertelsman didn't see a conflict of interest in the incestuous relationship between the ISC and NASCAR. A cynic might think that Hiz Honor will now be dumping a few cubic acres of cash into his basement for administering Bubba Justice Southern Style, but I have no credible evidence to prove that's the case. Bertelsman's argument is that this is a classic case of “producers” and “distributors.” In his ruling, the judge noted:

“A producer of a product is free under current antitrust laws to select its distributors, and to refuse to deal with would-be distributors, no matter how worthy or deserving they may be…”

Now, I'm not a lawyer. (There's one less reason to hate me). But in trying to find an analogy that fits my life, I present this: Let's say in a given area there are beer sellers (distributors) who sell the big two breweries, Bud and Miller/Coors. These are your distributors, prices are set at a certain level, and everyone makes money. Then, out of nowhere a new, third distributor wants to enter the same market and sell the product cheaper – even though they pay the same for the product. Well, that might upset the apple cart, so the producers decide they will not provide products to the new distributor, in order to keep prices high. Without the top selling flavors of beer, the new distributor is now doomed: You could argue the upstart can still get other brand of beer and microbrews, but the fact he can't get 30 packs of Coors Light and Bud are ultimately going to bankrupt his business. If that's legal… it shouldn't be, as it certainly isn't good for the consumer.

Throughout its history, NASCAR and to an extent the ISC have been the happy recipients of the benevolence of Bubba Justice, backroom style. The fight may not be over; the Kentucky track has the right to appeal today's decision, and all indications are they will. In response, NASCAR will keep spending millions of dollars to thwart this lawsuit, because it threatens to cost the France family their cozy way of doing business. Even worse, if the suit were ever to reach an open courtroom, NASCAR would be forced to open its accounting books, a possibility they will resist until their last dying corporate breath. If folks were ever to see the obscene profits the France family makes, fans might rise up and stone them in the streets.

My guess is it's time for Kentucky to move beyond the lawsuit and invite the Federal Trade Commission to take a good look at the relationship between NASCAR and the ISC, as well as how the Cup schedule gets decided. My guess is governmental hearings would finally force the Frances to do what we all know is right: divest themselves either of their holdings in either NASCAR or the ISC to level the playing field for all track owners. At this point, we know this much: if this judge's ruling is upheld as correct in the eyes of the law, there is no conflict of interest – but to the eyes of logic, the status quo is a shameful monopoly.

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M. B. Voelker
01/08/2008 07:37 AM
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What’s so hard to understand about the fact that in a Free Country the owners of a business have the right to do business where they choose and with whom they choose? Kentucky’s lawsuit is and has always been as asinine as it would be to sue Dunkin’ Donuts for building a store in the neighboring town instead of in your town.

The kind of government interference with private business owners right to choose how to run their own business that you’re calling for is the utter antithesis of the American way of life.

If the law permitted government to tell Nascar where to hold its races it would also permit the government to tell your employer to close your workplace and open one in a city a hundred miles away instead.

If you want to live in a communist country where the government controls the businesses better move to China fast because all the other communist countries failed and China is moving towards giving their businesses more autonomy.

Margo L
01/08/2008 08:42 AM
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As anyone with any education at all knows ,business owners do not have the right to do business as they see fit . And thats because of , not in spite of, this being a free country . There are very good laws and regulations on the books to prevent companys like ISC and NASCAR from running over anyone or any law that gets in the way of their idea of success . KEEP UP THE FIGHT KENTUCKY SPEEDWAY .

M. B. Voelker
01/08/2008 10:05 AM
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Monopolies are not permitted. But with the IRL, Champ Car, ARCA, USAR, American LeMans, USAC, NHRA, IHRA, ASA, and on through the rest of the alphabet soup of race sanctioning bodies out there Nascar is far from a monopoly.

Dave S
01/08/2008 12:36 PM
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Sports in general can’t be viewed in a monpolistic sense like an electric utility. We don’t NEED sports, we need electricity. Therefore anti-monopoly law is necessary to regulate utilites.

Henry
01/08/2008 01:24 PM
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Kentucky was told before they started construction that they would not get a Cup date. What do they not understand?
Besides, they do not allow ticket-holders to bring in their own coolers. I am not sympathetic to their crocodile tears.

Mike
01/08/2008 03:13 PM
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Please point out the section in the federal constitution where the gov’t has a right to interfere in the activities of a private company. There is none.

Try reading “The Politically Incorrect Guide to Capitalism” by Dr. Robert Murphy to get a sense of what the free market entails.

Vote Ron Paul
www.ronpaul2008.com

T. Smith
01/08/2008 05:24 PM
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I must agree with M.B., NA$CAR is not a monopoly. I would say that Beach Boy Mafia would be a better title.

raceguy
01/08/2008 09:16 PM
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NASCAR and ISC are a monopoly and should be broken up no questions asked. So none of you have a problem with you taxes paying top dollar for homestead and having NASCAR use thier infuence to buy it for pennies on the dollar? They have been doing this for decades and this is how they totally control the market. I just can’t believe your not pissed knowing alot of the money in the bank is your tax dollars.

Matt
01/08/2008 09:22 PM
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Hey MB,

Clearly you don’t own a private business. The concept of free trade is all well and good (and you can wrap it in an American flag) but take from someone on the front lines of a small business, the degree to which the goverment regulates, monitors, and legislates a small business would take books to document.

Of course the cozy relationships big businesses enjoy with elected officials mean they don’t have to play by the same rules as the upstarts. One need only recall that the state of Florida decided that building a pedestrian bridge over Speedway Boulveard wasn’t a public project but should be funded by NASCAR and the ISC. But a week after Daytona Speedway hosted a high profile media mania visit by presidential candidate George W. Busch then Florida governor Jeb Busch decided to fund the bridge after all. It’s just too bad that the ISC didn’t get Jeb to pay for the soft walls surrounding the track as well or perhaps Jeb would never have had to sponsor the autopsy photo privacy act after 2/18/01 (which I strongly agreed with)

But wait a second. Another hallmark of a democracy is a free press. So why would a governmental bill intended to limit the Orlando Sentinel’s right to access those photos as part of an investigative piece of journalism be allowed to pass and withstand court challenge? I mean such an investigation could have made NASCAR look bad.

To take another governmental action near and dear to my heart recall the legislation to protect the Harley Davidson Motor Company in the 80s. Harley went to Congress with proof the Japanese big four bike makers were “dumping” thier product on the market. (In other words selling it below cost and at prices cheaper than in thier own domestic market.) Well, hey, if Honda wants to lose money on thier big CC street bikes, that’s thier right as a business entity, right? This is after all free enterprise, a hallmark of our country even if it costs Americans jobs at the benefit of Japanese workers and corporations. Even in the face of Free Enterprise Congress imposed tariffs on any Jap bike larger than 700ccs. Given some breathing room Harley developed new products that appealed to consumers at a set price and to this day Harley dominates the 700cc and up Cruisr Market. In fact they went to Congress a few year’s early and told them to rescind the tarriff early as they could compete with the Japanese bikes head on. And so it shall be, forever and ever, amen.

Jeff Meyer
01/08/2008 10:06 PM
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Need a better example?
I just spent millions upon millions building the very best stock car track ever conceived. Seats 100k, yada yada.
NASCAR tells me I will never get a Cup date.
NASCAR/ISC build their own inferior tracks in NYC and Washington state and the Denver area. (Using mostly taxpayer $ I might add) Do you think they would ever build these proposed tracks if they werent the ones issuing the Cup dates? Or if there was a chance say, the NYC track, would NOT get a date? If you do, you are a naive moron.

Marc
01/09/2008 08:02 AM
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People, People, People, you are way off the mark here. NASCAR may be a single supplier, but they do not qualify as a monopoly. The monopoly laws were set to govern things like railroads, utility companies, and basic needs suppliers, so that 1 company would not control American livelihood. NASCAR is not a necessity. In fact, it is mere entertainment, and anyone is free to build their own. In fact, I think Brian France and Vince McMahon are the same person. I don’t see anybody wanting to break up the WWE.

M. B. Voelker
01/09/2008 10:36 AM
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Actually, we DO own a business.

And there is nothing in the Constitution permitting the government to tell us where we can or cannot open offices or telling us that we can deal with Client A but not Client B or the if we deal with Client X we must also deal with Client Y.

The overregulation of businesses is almost entirely due to socialist contamination of our politics and the failure of the ordinary American to actually READ the Constitution.

The government does not exist for the promotion of “good ideas” to promote niceness. Its legitimate involvement with regulating business is almost entirely confined to the enforcement of contracts and the prevention of fraud.

Larry Thacker
01/09/2008 04:44 PM
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Kentucky, let me see other than being the favorite topic of Jay Leno’s monologue and country music’s main source of cd sales, who are they now? No wonder Bubba judge did not take the suit seriously. If he only knew this Independent track is a sub division of of the Greater Cincinnati he would have taken the suit more seriously. If they had had the forethought to give the track a name identifying it with Ohio he would have taken the suit more seriously. I guess ol Teddy Roosevelt was the last good monopoly buster. Got two good ones running for the presidential nomination now. Edwards wants to Lawyer up and bust them, Obama wants to make nice and reason with them. Maybe the Kentucky and greater Cincinnati area should start a PAC and pick one to help them with their cause. I would pic the lawyer, this monopoly has to go, its bad for racing. It will always be tainted with this arrangement, just smells bad on both sides of the Ohio River. On a side note, a few miles down the road from that track is where they do all the mountain top removal mining and valley fills. They will have the biggest damn dirt track ever when they get through. You talk about a monopoly, will leave the South in a cloud of dust virtually. Seriously, lets lawyer up and fight this thing. We can wait on Al Gores global warming to take care of Florida and have this big high flat dry plateau up here in Kentucky to race on or we can bust up this monopoly now and share the sport.

marc
01/09/2008 05:18 PM
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Less Government, More Private Enterprise. That is the principles America was built on. Hey Matt, bet you want Hillary to be President, Too.

David
01/09/2008 07:05 PM
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Matt, I love ya’ man, but you are dead wrong here, and your beer distribution analogy is seriously flawed. Ever heard of “protected territories” in business relationships? I sure have, and was the beneficiary of such relationships in the ten years I owned a business.

I like to call it “free association”. Sadly, we are all about freedom when it suits us but in favor of the heavy hand of government intrusion when things aren’t as we like.

Bottom line, dude, no one is stopping you from forming your own sanctioning body for stock car racing.

Larry Thacker
01/09/2008 07:45 PM
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Let me see the people that own the tracks that get the cup races are owned by the organization or family members who dish out the cup races. If not a monopoly what do you call it. Conflict of interest for sure. Do district judges check their brain at the courthouse door or does some brain write them a check. If you took the family ties out of the mix and had them in seperate buildings this might not look so bad. Even sharing the same receptionists. Lends a new meaning to the term justice is blind.

Bob Mc Intyre
01/10/2008 03:45 PM
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hey MB,
blah blah blah blah blah socialist contamination of politics blah blah blah.
but, i do agree more people ought to read the constitution rather than just quote it.

Matt
01/10/2008 07:51 PM
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While some valid points are made let’s look at another example, anti-trust action taken against Microsoft. Obviously Microsoft dominates the operating system universe though there are alternatives out there. What got them in some hot water was bundling thier Internet Explorer browser with Windows. Competitors of Internet Explorer screamed foul. The Justice department found those complaints to be valid. Is surfing the net a life essential activity or is it entertainment?

I am no fan of government intrusion. As a hot rodder I resent the Hell out of the government telling me what I can to them, as far as lifting four wheel drives, dumping the cats on my Trans Am, or running a 67 350 in my Monte. Back in the day a fellow by the name of Joel Rosen ran Motion Performance and teamed up with Baldwin Chevrolet on Long Island to produce the legendary Baldwin-Motion line of hyper muscle-cars. One of his later projects was producing a series of V8 powered Chevrolet Vegas. As a former owner of two (home made, not BM) V8 Vegas I can say those things were scary quick. One ride in a buddies BM 454 Camaro convinced me I’d never ride in it again. And so everyone was happy, right?

Nope. The feds got outraged. Rosen was dumping the emmisions systems off his cars. It wasn’t anything everyone wasn’t doing in thier garage or under a shade tree anyway, but he was doing it for profit. But as Rosen saw it, if he didn’t provide a buyer with a V8 Vega, either the guy would build his own or buy an earlier (and higher polluting) Chevy hi-po car with none of the emmisions junk. The government issued a cease and desist order and threatened Rosen with huge fines and even jail time. His business was effectively ended except for selling some garish auto body parts and the parts needed to build a V8 Vega at home.

So it the government could attack a small business that produced less than a 1000 V8 Vegas, why should NASCAR be exempt?

mmack
01/11/2008 10:28 AM
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Matt, you’re still missing the point on monopolies.

NASCAR would be in a monopolistic situation if it A) bought up all stock car racing organizations (ARCA, Hooters Cup, etc.) and declared itself the onlyorganization in the US solely responsible for ‘stock car’ racing in the U.S., B) bought or forced ALL the other non-stock car racing sanctioning bodies (IRL, ALMS, NHRA, etc) out of business (And by forcing them out of business, they start their own “copy cat” leagues) and then declared itself the sole auto racing sanctioning body in the U.S., or C) Practiced vertical integration to where they set rules on every aspect of the sport from who builds your chassis and engine all the way up to owning <>every<> track in the series.

The Microsoft example that you use is a perfect example of anti-trust law and monopolistic intent. While yes, you can live a full life without surfing the net, if you want to you should have choices on the software you can use. Netscape was a stand-alone app added to your PC. Microsoft used their market position to undercut Netscape by giving their browser away free with something you NEED to run a computer. Why buy from X when it’s free from Y? A similar situation would be something Wal-Mart has been taken to court for doing: The accusation is that they come into a town, open a store, and deliberately underprice prescriptions, using the profits from other departments to make up from the loss. When the small pharmacies around town go belly up because they can’t match Wal-Mart’s prices and still be profitable, Wal-Mart has 100% of the pharmacy business in the town and slowly the prices are raised back to profitable levels. That’s an example of the type of “undercutting” Microsoft was sued for.

NASCAR hasn’t done anything like that YET that we know of. If they said to Kentucky Speedway “We will give you a race IF you don’t run races from any other series on your track”, then they might have something, a broken contract at the least. If Kentucky did what NASCAR said to the letter, NASCAR gave them a Cup date, and then took it away to give to an ISC track and Kentucky went belly up, then that’s on the fringes of a monopolistic practice.

Think of it this way: I build a car dealership in my town before I decide what brand or brands I want to sell (Pretty dumb, I know, but it’s an analogy). I do my research and decide I want to open a Chevrolet dealership in my town. My town already has a Chevrolet dealership (it does in real life). I go to GM and say “I want to buy a franchise to sell Chevrolets. It will be five miles from the existing Chevy dealer in my town.” GM does market share analysis and says there’s no way two dealerships selling the same make of car five miles apart will turn a profit. They decline to offer me a Chevrolet franchise. Should I take them to court for restraint of trade? I had no confirmation from GM before I broke ground that I could get a franchise, much like Kentucky Speedway didn’t have a Cup date confirmation.

As for the V8 Vega case, Emission controls are a Federal Mandate from the EPA to manufacturers. If you go into business advertising a product or service that removes something federally mandated to be on a car or ANYTHING else, expect a visit from Uncle Sugar. True, you, I or anyone else can disconnect every emissions control from our car or truck and the government will be blissfully ignorant. But we’re not advertising it. Now if it comes out NASCAR simply dumps used motor oil from the garages into a grass parking lot, the EPA may come calling to talk to the fine folks in Daytona.

Matt, I don’t like the way NASCAR has changed for the (IMO) worse any more than you do. As an open wheel and stock car racing fan, I see ominous signs that I saw during the heyday of the late CART series. But this column may be “yelling just to yell”.

Bobb
01/11/2008 07:36 PM
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Yeesh!

Matt!
What the F%$#!

Just because someone builds a racetrack… there’s no requirement that NASCAR give them a date!

How the heck do you swallow this bunch of stoopidity?

NASCAR owes Kentucky nothing; there’s no contract, no requirement, no duty, no understanding.

Back away from the computer and take a deep breath of… something.

Look at it this way; I’mna build a new garage; Lexus owes me a car to put in it?

Yeesh!