IRGSE State of the State

irg-logoSince coming to IRG Sports & Entertainment (IRGSE) as Vice Chairman of the Board of Managers and Chief Executive Officer, I have had the good fortune of welcoming many ideas, meeting other IRGSE executives, learning of our affiliated umbrella company’s efforts into my collective mix of interest and future discussions on the past, the current, and more importantly to the point of this document — addressing the future IRGSE architecture.
I have had the opportunity of meeting and dialoguing with multiple IRGSE senior leadership teams in order to get a better understanding of the inner workings of an organizational structure that runs with passion as a “core-competency” and yet a willingness to understand that a diagnostic framework for managing change is a burning imperative of any turnaround. IRGSE is in the very early innings of a sustainable turnaround led by its people and their passion.

Making change part of the business model

Turnarounds are rarely spontaneous. They require a “nothing is sacred” approach to the future. In sports, this can often be very difficult to digest, not to mention to implement, unless you broker honest dialogue about the needs for corporate renewal and specifically change.

At IRGSE, this change initially manifested itself in the hiring of key executive level staff in almost every department of the IRGSE management. This has included men and women from major motorsports sanctioning bodies, publicly held motorsports companies, and major media organizations. With new hires comes the responsibility of the company to allow each to grasp the obligation of their role and begin the business of renewal. We were blessed with several key executives who not only stayed on, but also increased their roles in varying formats as well.

IRGSE operates in essentially three silos: Sanctioning Bodies, Tracks/Venues, and Specialty Experiential Products. It is important to recognize that in each, we, as a holding company, meet certain demands of these businesses uniquely. With that, I will address, for the benefit of our stakeholders, the thinking of our business and plans.

IRGSE will become a sustainable success by engaging in best practices of cost control centralization and deployment of funds only when supporting fact-based growth strategies in equilibrium with reasonable risk. IRGSE enjoys access to world-class intellectual talent and financial resources available from its parent company. This affords IRGSE’s corporate goals to be aligned with like-minded employees who wish to be a part of the transformation from an “outlier” company in the professional motorsports entertainment and automobile enthusiast marketplace to becoming a major industry thought-leader, as we build the first globally-accepted, single source provider of a universal drag car and drag bike sanctioning body to the largest, most advertiser-attractive, global demographic group coming of age — Generation Z.

Additionally, IRGSE will use our additional “Intellectual Property” assets to accelerate our efforts in support of our sanctioning bodies, as well as to develop topline fiscal growth in their own silos of competition on a year-over-year basis, so that our tracks and the Specialty Experiential Products like the world-class Palm Beach Driving Club or the World Series of Drag Racing “out-pace” or become a “strong second” in comparable business units in the marketplace.

Furthermore, given that IRGSE is both a product and a supply chain company, like most sports entertainment companies, any investment of time reviewing the current fiscal health and needs of the IRGSE business silos allows one to read that the new business deal flow is the greatest challenge presented. It is that specific element of generating “new from new” business that plays directly to the strength-zone of the new management team, the realignment of silos, and future-forward thinking of everyone at IRGSE.

Sanctioning Body Silos: The IHRA, IHRA Australia and the IDBL

In spring of this year, IRGSE realigned the leadership of the International Hot Rod Association (IHRA), welcoming both new outside and inside leadership at the executive and director level. With that, IRGSE issued previews about the most important elements of the future for the IHRA — change.

Not change for the simple sake of change, but rather for the re-positioning of future sustainable growth across our base of sportsman racing and professional product. The IHRA is blessed to offer the number one sportsman racing program in the world with the largest purses in the world. With corporate support across many industries, the IHRA is arguably the most successful grass-roots racing product in motorsports.

In addition to new leadership, we consolidated most every business function to one central location, offering the best practices of most leagues and governing bodies. These new efforts also addressed (for the very first time) development in support of the future of corporate involvement by establishing working relationships with Nielsen, Winmo, and offering new CRM products to our tracks, teams, and future sponsors. A new digital magazine version of Drag Review will be introduced in 2017 by a dynamic creative agency with experience in professional and amateur sports. Additionally, IRGSE has commissioned a complete overhaul of the company’s digital presence on web, social, OTT, and handheld devices for each sanctioning body IRGSE operates. Many of these new developments plus a few more will be made more specifically known to all parties in 2017 by their respective executives at IRGSE.

Most importantly, in early 2017, IRGSE will announce a marquee relationship with the preeminent sports media company in North America for the IRGSE stable of sanctioning bodies. This alliance will address both linear television and digital delivery, seeing the IHRA return to mass media for the first time since the late 1990’s.

This is a significant commitment on behalf of all parties, and one that has taken a tremendous amount of time from all involved. This media relationship has been built by both parties to support the stake holders of IHRA drag racing globally into the future. We offer the only format of motorsport that meets the current and future consumption of sports media product via “Snackable” bits of sports entertainment. In fact, our entire product inventory is made for the new mediums of Instagram, Facebook Live, and What’s App video. When these new mediums are combined with the awareness from the gravitas of our new media partner, we will have achieved a platform offering a measurable structure at an affordable price point for advertising partners.

The IHRA sanctions nearly 100 tracks around the world offering more than 80,000 racers an opportunity to compete at IHRA-sanctioned facilities and venues annually with many participating via memberships and local market events. We will speak further about Australia and general membership, but to move on to the largest challenge — the professional product of the IHRA, and its future in short and long term.

While exciting, the professional product was, and has been for the last many years, losing tremendous amounts of capital with no immediate end in sight, as the business model for this element of the IHRA needed the most attention and was the most out-of-date. It was a bold move, but the management of the IHRA, and the stakeholders of the professional component of the IHRA, made decisions to truncate the USA-based National Points Season of events by removing three National Points events from the schedule. With many of these events existing at IRGSE tracks and venues, we felt we needed to show leadership in our decision; and thus, felt the financial burden across two silos within our company — the IHRA and our tracks. It was necessary, and required the serious attention of our collective stakeholders. We are thankful for their support.

One step back for two forward…

It was a bold, but necessary step to address the issues of the IHRA USA-based professional points racing series in 2016. After speaking with most of our future and current stakeholders, including our incoming media partners, new national partners, as well as drivers and teams across multiple sanctioning bodies, we have decided to defer the IHRA professional, USA-based “National Points Championship” racing events into the 2018 calendar year.

Sometimes the elements and possible consequences of an important decision are so complicated that we can allow indecision to grip the process by over-analyzing the situation and attempting to frame an outcome beyond the answers readily available. The short answer on why the 2017 year is being deferred for the professional series events is between the timing of obligations to be 100% sure of quality IHRA top-fuel teams in concert with our pending street racing plans for future IHRA USA-based national championship point races, the timelines and commitments became increasingly difficult to assure our board, managers, and collective new stakeholders that going for the sake of simply going forward was not a risk acceptable to a reasonable business person and we are in no hurry to fail.

In fact, the more we ponder a decision, the confusion can become so uncomfortable that we tend to avoid important decisions altogether. Of course, this does nothing but stoke a low-level sense of anxiety and frustration about the circumstances and avoidance is not a great strategy for long-term sustainable success. So, in keeping with our IRGSE turnaround mantra, we chose to stabilize, organize, and revitalize the IHRA professional model further. It will simply take more time and we are comfortable with that decision, as we operate with a longer lens view in the room. Again, we value the teams, racers, and sponsors who also addressed their thoughts on this issue with respect that their view of a larger, more sustainable platform for IHRA racing into the future was worth extra time.

The IHRA Australia and the New Global View

In early Summer, IRGSE announced that it was investing in the professional and amateur Australian motorsports ecosystem by acquiring rights to, and establishing a new entity to develop, support, and maintain the sport of drag racing, drag racing lifestyle events, and programming in the continent of Australia. This effort includes the employment of new executive level leadership in Sydney with offices in both Victoria and Sydney.

It is with great pleasure that we can look back on this decision, even in the early days, as a textbook acquisition making the sums of our parts indeed much greater together than alone. Under the leadership of our Managing Director in Australia, and in concert with our executive team in the USA, we have exceeded our tracks under IHRA sanction and increased the existing sanctions to nearly 10 years apiece, whist providing a much-needed stabilization to the sport of drag racing in Australia.

Our IHRA membership across the board are experiencing some of the highest adoption and renewal rates in recent years, even as we must address new price points offering not only more benefit, but also larger purses in our sportsman racing. Specifically, as we are enjoying the migration from another series in Australia to the new IHRA Australia, our membership is well ahead of schedule.

Finally, with their professional season just beginning and the television awareness for our IHRA sanctioned 400 Thunder Series in Australia already ahead of last year, the future of our product in Australia and the model they are using may well be the future in some format for our USA-based professional programming. As evidenced in Australia, the global view model of the IHRA is a success, and confirms what we believe to be a path for our future product professionally.

The International Drag Bike League (IDBL)

IRGSE, under our Sanctioning Body business silo, is also the owner of the International Drag Bike league (IDBL). The IDBL is the world’s largest all-motorcycle drag racing organization. With a history of more than 20 years of successful event programming, this series draws more than 700 entries and tens of thousands of spectators annually to its motorcycle lifestyle events.

In 2016, in similar fashion to the IHRA, the IDBL welcomed new executive leadership from the world of professional sports media and world wrestling enterprises. Under the direction of new leadership, the IDBL continued to flourish while producing six national points events featuring the largest purses in the sport.

The exciting action of the IDBL is headlined by the world’s quickest motorcycles – the nitro-burning, 1,500-plus horsepower, 250-mph+ Top Fuel Drag bikes. Legendary, popular racer and multi-time world record holder Larry “Spiderman” McBride and rival Dave Venite made motorcycle history in the IDBL when the duo produced the sport’s first side-by-side five-second run. To date, Larry “Spiderman” McBride has more than seven million views online and is followed by more than 100,000 race fans digitally. We are proud to have Larry as only one of our professional competitors.

Looking forward, the Pro Street category is a fan favorite in the IDBL. We see this category only growing in its importance and relevancy, as this category allows the motorcycle manufacturers and sponsors to align their products to exactly what is in their stores and franchised dealerships. No other motorcycle sanctioning body offers the fastest street bikes a place to showcase their “uniqueness” to interested consumers like in the IDBL. This category highlights the world’s quickest street bikes. Without the use of a wheelie bar or racing slick, these machines cover a quarter-mile in six seconds at 220 mph, often with the front wheel in the air most of the way providing for the deep fan engagement that sponsors crave.

The sponsors of the IDBL have been very vocal for the support of growth. For the 2017 Championship year, the IDBL will encompass five national points race events featuring nine categories of competition from Top Fuel to a standard, daily-driver street bike category. More importantly, the schedule will see the return to a fan and competitor favorite track — Rockingham Dragway in Rockingham, North Carolina — for the IDBL World Finals on November 4 and 5, 2017. By every measure, the IDBL is poised for sustainable growth for the sponsors and competitors. The pending media agreements will only elevate the already strong platform that the IDBL offers to the motorcycle manufacturers.

The Tracks and Venue Silo

IRGSE, under the Tracks/Venues business silo, owns and operates four major motorsports facilities in the United States, each with varying levels of revenue opportunity given their relative size and scale of venue. The race tracks of Cordova International Raceway (CIR), Maryland International Raceway (MDIR), Memphis International Raceway (MIR), and Palm Beach International Raceway (PBIR) make up this silo. While each maintain a professional drag strip with various seating arrangements, two tracks specifically are called into the future to provide growth drivers for IRGSE — Memphis International Raceway and Palm Beach International Raceway.

Memphis and Palm Beach offer multiple revenue streams for the company. Memphis affords IRGSE one of the largest, unused oval race track venues in the United States capable of hosting NASCAR and IndyCar events with seating for 30,000 plus first class hospitality in suites. Palm Beach affords IRGSE one of the largest, private road course venues that is fully lit with LED lighting allowing for 24/7 running of private testing and specialty events programming. Private events from Ferrari, Lamborghini, Aston Martin, Rolls Royce, and Tesla to name only a few, are some of the marques that have investment in events in Palm Beach. Additionally, Palm Beach is home to the Palm Beach Driving Club, an IRGSE-owned, experiential product aimed for high net worth individuals who own exotic cars and are looking for private instruction from some of the best former and current racers in the sport, while using the Palm Beach lifestyle as an opportunity to grow their businesses.

Each venue saw increases in certain elements of live programming in 2016, but like other outside venue operations, weather played a specific determining factor to the success of each and programming specifically for one venue.

IRGSE determined that several venues needed capital expenditures to produce a greater future. IRGSE investments were made in Maryland, Memphis, and Palm Beach. Cordova needed particular life-safety repairs, which were done immediately upon new management being installed in Cordova.

Maryland saw new grandstands erected providing for an improved spectator layout while netting more parking for fans and vendors. Additionally, Maryland received a new track surface that saw the facility set multiple new track and national records. Both items were in demand in the second year of the MBP Promotions event / the World Cup Finals as the facility was at capacity and sold-out from competitors and RV parking. Maryland looks forward to continuing the long-standing relationship it enjoys with the event and the MBP promotions executives who deliver excellence in promotion and execution. Maryland continues to provide solid returns for drag racing and live mass-spectator participatory events like the Spartan Race, which was hosted by Maryland yet again given the close proximity to the Washington, D.C. metroplex.

We expect to see more large scale participatory events like concerts, especially as Maryland, like our other facilities, are located at or in major metropolitan areas which offer no sound or noise ordinances; thus, making us ideal partners for concert and mass-gathering event promoters.

In Memphis, the World Series of Drag Racing, the oldest contiguous drag race in the United States is in its 63rd year. It is a wholly owned event, produced in our IRGSE Specialty Experiential Products silo. It was hosted in late August with a level of corporate financial support that was 10 times that of previous incarnations of this great racing event. At-track attendance was under the stated goals even for a first-time event. The significance of the corporate base, plus the flawless execution of the event, saw track record times rivaling that from National Hot Rod Association (NHRA) and IHRA. Most importantly, those in attendance witnessed world-class drag racing from some of the greatest names in the sport.

This event, and more importantly the venue, has nothing but an upward trajectory as the marketplace, civic leaders, and corporate sponsors from the Mid-South region are supporting the re-birth of Memphis as a major hub for racing entertainment. While we will need to double-down our communications efforts, attracting consumers was in large part very successful for the entirety of the Memphis schedule. We continue to expect big things from management in Memphis. Additionally, and in similar fashion across all the IRGSE family of companies, we have introduced in Memphis new senior management in sales and communications this fourth quarter to develop the future and hit our goals.

Finally, regarding Memphis, the venue has big plans for the 2017 schedule including the re-introduction of major sanctioning bodies with nationally televised events and the return of the IHRA Summit World Finals which played to capacity. It will indeed be one of the better stories in motorsports to see Memphis and the Mid-South region come back on-line into the motorsports world.

In Cordova, the decision to move the World Series of Drag Racing from this venue poised the greatest financial risk to IRGSE, but as stated earlier, the obligations of a turnaround are to live the “nothing is sacred” mantra. In Cordova, IRGSE was faced with a lack of clarity on the operational and sponsorship deficiencies until we installed new senior management. This action proved what was suspected that Cordova’s needs were out of alignment with the goals of the company in 2016 in the greater sense of what was needed to promote the longer lens view of management.

In short, we addressed the needs of the Cordova market and we were very happy with the new management’s capacity in Cordova in 2016. As such, we have programed several new initiatives that will require the hiring of additional management support. There is the possible return of the World Series Drag Racing at some point given the continued interest in the event with a completely prepared venue capable of producing the returns expected from the risk profile since we have invested larger sums in programming for the event.

Palm Beach’s venue is home to multiple revenue sources from the 2.6-mile road course to WKA Karting to a major drag strip that can host 20,000 people to the South’s preeminent full course mud bog, hosting events in the important truck and diesel segment. Palm Beach is also home to the Palm Beach Driving Club (PBDC) and the respective hospitality centers that each week host business and specialty events from corporate parties to car manufacturer roll-outs. Palm Beach was proud to continue the hosting of the on-track festivities for the Ferrari Cavallino, the launch of the new Rolls Royce products, the launch of the SUV product from Maserati, as well as numerous private events in the automotive ultra-high performance categories.

Palm Beach is also home to a world class testing road course lit for 24/7 racing and testing. The road course and its management is capable of hosting or promoting larger scale nationally or internationally sanctioned events that wish to take advantage of the ideal location and demographic appeal of South Florida and the greater Miami/Fort Lauderdale/ West Palm Beach metroplex. With our dynamic location and existing partner hotels, led by the PGA National Resort and Spa, we offer a platform that no other racing or motorsports venue can touch. This is all only minutes from Palm Beach International Airport where we offer helipad support for regular contract customers; thus, positioning PBIR well for future growth. Again, as we have elsewhere in the IRGSE companies in 2016, we have also added to the senior executive management in Palm Beach with executive experience from NASCAR, IndyCar, and Le Mans racing with more recently engaged c-level experience with Walt Disney motorsports and experiences.

Specialty Experiential Products Silo

IRGSE owns, operates, or co-promotes specialty motorsports products and mass gathering events ranging from the Palm Beach Driving Club to the oldest drag race in the United States to hosting mass gathering participatory events at our venues. The World Series of Drag Racing, will be celebrating its 64th year. This silo is a thriving revenue mechanism that we can drive more value for the IRGSE stakeholders.

Looking to 2017 and beyond, Palm Beach Driving Club added a new managing director and is positioned well for the future. Blessed with its location and geographic interest in high performance cars and their lifestyle, the PBDC is only getting larger. Starting in 2017, PBDC will service a national interest in the Club from enthusiasts wanting to be a part of the numerous off-site experiences from the world’s great racing and related events to simply having a private, members-only venue in a desired location where the sun and the ocean meet their racing and driving interests.

The World Series of Drag Racing will see only further investment into both the programming and promotion of the oldest drag racing event in the world. In 2017, the event will mark 64 years of contiguous running with last years’ event in Memphis hosting world class teams and racers from the two largest drag racing sanctioning bodies (NHRA and IHRA), as well as numerous racing legends and celebrities from “Big Daddy” Don Garlits to the first woman of Drag Racing, Ms. Shirley Muldowney. IRGSE anticipates strong demand for the race from sponsors and teams, as well as municipalities, as we bring this event with the largest mixed-field of professional competitors for our fans and stakeholders.

Finally, as we do in Maryland International Raceway in the greater Washington, D.C metroplex, IRGSE will look to continue to support large mass gathering participatory sports with renewed emphasis on our tracks and venues located within the Miami, Fort Lauderdale, and West Palm Beach metroplex; the greater Chicagoland area in Cordova; and the Mid-South region via our Memphis facilities. At each venue, we offer unlimited power, RV hook-ups, and large land mass under supervised protection with no noise ordinances or obligations beyond that which a potential lessee wishes to produce.

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

― Winston S. Churchill

Any turnaround is a daunting task and not for the faint of heart. The call is only ever answered by those who see themselves as optimists. In sports, turnarounds are done under the crucible of the fans view and the sponsors’ needs. Often these are not in alignment with each other. With an eye to humility and humanity to the fans, sponsors, and our stakeholders, the men and women of the new IRGSE whom have accepted to see the opportunity in every difficulty, it will be a wonderful story written together. It is with my personal admiration to you all that I look forward to 2017 and beyond.

In a relatively short period, together we have quietly made the IHRA the third largest sanctioning body in the world via our movement in Australia. Furthermore, IRGSE welcomed in 2016, the start of a multiple year relationship with The Enthusiast Network (TEN) and their world class automotive events. In 2017, we will be starting another company-wide automotive event programming block with another quality motorsports programmer that will see over 100 events in the street racing segment across our IRGSE owned tracks. Our bundling for the benefits of promoters and sponsors is seeing gains. When you think of what we can make of all the assets we are privileged to own, the future is very bright. I believe that coming through a very trying 2016 year, adding our new managers at every level in every business silo, and the pending announcement of a major new media partner, IRGSE — to borrow a phrase from our corporate roots — has gone from a “hold” to “buy”.

With best wishes for a wonderful Holiday Season;

Regards,

C.

Chris Lencheski

Vice Chairman of Board of Managers and CEO

IRG Sports and Entertainment

P.S. – Please remember in your prayers; the men, women and the families of our Armed Services who sacrifice so much every day to provide the freedoms we so uniquely enjoy in this great country!

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