In what is a continuation of its trend to build a strong content offering, Sirius Satellite Radio announced last week that it signed an agreement giving the company exclusive North American satellite radio rights to broadcast Nascar racing and events beginning in 2007, taking the broadcasting rights fees away from competitor XM Satellite Radio. The move was met with some questions from Wall Street.

Under the terms of the agreement, Sirius will pay Nascar $107.5 million in rights fees throughout the five-year term of the agreement, with the highest payments being made in the final years of the contract. Sirius said it will broadcast every race in Nascar’s three top racing circuits–the Nextel Cup Series, the Busch Series and the Craftsman Truck Series–on a newly created Nascar channel. The channel will broadcast 24 hours a day, seven days a week and will offer other Nascar-related programming when no live races are being broadcasted. Sirius also gains the right to sell all advertising time on the channel, including during race broadcasts.

The move was met with some concerns from Wall Street analysts, particularly on how the price paid will affect future content acquisitions and whether Sirius will be able to recoup the costs of the Nascar broadcasting rights through increased subs.

Of particular concern with regard to the price paid, “many investors have wondered if Sirius overpaid to reach Nascar’s 75 million fans,” Robert Peck, analyst with Bear Stearns said in a Feb. 23 equity research report. He noted that the deal averages out to about $21 million per year throughout the course of the contract and added that the per year cost is “significantly” higher than estimates of what XM was previously paying to broadcast Nascar races.

But the nature of the Nascar racing schedule could make for a difficult value proposition for fans to buy into satellite radio purely for Nascar broadcasts. Sean Butson, analyst with Legg Mason said in a Feb. 23 equity research report, “Many of the races will still be available on broadcast radio and with only one race occurring at a time, out-of- market fans are not necessarily displaced as they often are in other sports when teams are not playing at home.”

But Butson noted that if Sirius is able to draw just one percent of the 35 million viewers of this year’s Daytona 500, which ran on Feb. 20, “we believe the company will break even on the deal.”

Alden Mahabir, analyst with Vintage Research, said in a Feb. 23 equity research report that this deal, as well as other recent content costs paid by Sirius, could drive up content prices and ultimately create future financial difficulties for both XM and Sirius in the future.

“When satellite radio first started, both providers were able to secure branded content on mostly revenue-share structures with very small fixed payments,” Mahabir said. “We naturally wonder, given the big-ticket prices of the National Football League, Major League Baseball, Howard Stern and even Nascar, if other content providers will be encouraged to ask for more given these mounting precedents. We cannot help but wonder if undue competition will ultimately spell problems for both XM and Sirius.

(Robert Peck, Bear Stearns, 212/272-6665; Sean Butson, Legg Mason, 410/454-5917; Alden Mahair, Vintage Research, 646/472-5216)