<PAGE>
 
                                                                   EXHIBIT 10.40

IRREVOCABLE STANDBY
LETTER OF CREDIT NO. S983013



                                January 23, 1998



Magna Bank, N.A. (successor in interest to MagnaTrust Company),
  as Trustee under the Indenture described below
1401 South Brentwood Boulevard, 9th Floor
St. Louis, Missouri  63144


Ladies and Gentlemen:

General
-------



     At the request and on the instructions of our customer, Gateway
International Motorsports Corporation (the "Account Party"), an Illinois
corporation, First Tennessee Bank National Association (sometimes referred to
hereinafter as "we" or "us"), as Letter of Credit Bank, hereby establishes this
Irrevocable Standby Letter of Credit No. S983013 (hereinafter referred to as the
"Letter of Credit") in favor of Magna Bank, N.A. (successor in interest to Magna
Trust Company), as Trustee (sometimes referred to hereinafter as "you") under
the Indenture of Trust dated as of May 1, 1996, between The Southwestern
Illinois Development Authority (the "Issuer") and you (the "Indenture"),
pursuant to which Twenty-One Million Five Hundred Thousand Dollars
($21,500,000.00) original aggregate principal amount of Taxable Sports Facility
Revenue Bonds Series 1996 (Gateway International Motorsports Corporation
Project)  (the "Bonds") were issued.

     This Letter of Credit is issued in an initial amount of Two Million Five
Hundred One Thousand Eight Hundred Twenty-Five Dollars ($2,501,825.00)
(hereinafter, as reduced from time to time in accordance with the provisions
hereof, the "Stated Amount") pursuant to the
<PAGE>
 
January 23, 1998
Page 2

Reimbursement Agreement dated as of December 1, 1997, between the Account Party
and us (the "Reimbursement Agreement").

     This Letter of Credit is being issued to you at the request of the Account
Party to replace funds previously held by you under the Indenture in the Debt
Service Reserve Fund (as such term is defined in the Indenture).  You have
verified to us that the Stated Amount, on the date of issuance hereof, is equal
to the Debt Service Reserve Requirement (as defined in the Indenture).  You will
be permitted to make a draw hereunder upon (a) the occurrence of any event
entitling you, under the Indenture, to withdraw moneys from the Debt Service
Reserve Fund, or (b) upon receipt of notice from the undersigned of the
occurrence of an Event of Default under the Reimbursement Agreement or (c) ten
days prior to the date on which this Letter of Credit is to expire if, by such
date, we receive written notice from you that you have not received a Substitute
Funding Instrument (as defined in the Indenture) or cash or a combination of the
two equal in the aggregate to the amount of the Debt Service Reserve Requirement
in effect at such time.

     This Letter of Credit is effective immediately and, unless it expires
earlier as hereinafter provided, will expire at 2:00 P.M., prevailing Memphis
time, on July 31, 1999; provided, however, that the term of this Letter of
Credit shall, absent ninety (90) days' notice from the Bank to you and the
Account Party in its absolute discretion to the contrary, be renewed by the Bank
in accordance with the terms of the Reimbursement Agreement and the Indenture
for additional twelve (12) month periods, each of which shall expire on July 1
of such additional period with a final expiration date of July 1, 2001.  The
Bank will provide you with notices of such annual extensions upon request. Upon
expiration, this Letter of Credit must be surrendered to us at the counters of
our International Department, First Tennessee Bank National Association, 165
Madison Avenue, Memphis, Tennessee 38103.

Demands for Payment
-------------------

     Subject to the foregoing and the further provisions of this Letter of
Credit, a demand for payment may be made by you by presentation to us, at the
counters of our International Department, First Tennessee Bank National
Association, 165 Madison Avenue, Memphis, Tennessee 38103 of (a) your executed
sight draft, appropriately completed, in the form attached hereto as ANNEX A and
                                                                     -------    
made a part hereof, and (b) a draw certificate executed by your duly authorized
officer in the form of ANNEX B hereto.
                       -------        

     The sight draft drawn under this Letter of Credit must bear on its face the
clause "Drawn under First Tennessee Bank National Association Irrevocable
Standby Letter of Credit No. S983013." No drawing made hereunder shall exceed
the Stated Amount (as reduced from time to time in accordance with the
provisions hereof) available to be drawn hereunder at any time.
<PAGE>
 
January 23, 1998
Page 3

Reduction in Stated Amount
--------------------------

     The Stated Amount will be permanently decreased from time to time upon
written notice from the Trustee to the Bank of the reduction of the Debt Service
Reserve Requirement and direction to reduce the Stated Amount by such amount.

Reinstatement
-------------

     After any Drawing, the obligation of the Bank to honor demands for payment
hereunder with respect to further such drawings will be reinstated up to the
total amount specified therein upon receipt by the Bank of payment of all
amounts so drawn plus any accrued interest on such amounts due under the
Reimbursement Agreement, provided that the Bank shall have the right to notify
the Account Party and the Trustee not later than the tenth (10th) day (or, if
such day is not a Business Day, on the next preceding Business Day) following
the day on which a payment in respect of a Drawing is made that such
reinstatement shall not occur if (i) such drawing or a previous or subsequent
drawing has been made hereunder for which the Bank has not been reimbursed for
amounts then due by Account Party or (ii) an Event of Default under the
Reimbursement Agreement shall have occurred and then be continuing.

Payment
-------

     Prior to the expiration of this Letter of Credit, demand for payment may be
made by you under this Letter of Credit at our aforesaid counters at any time
prior to 2:00 P.M., prevailing Memphis, Tennessee time, on a Business Day.  As
used herein, the term "Business Day" means a day on which we (at our aforesaid
counters) are not required or authorized by law or executive order to close for
the purpose of conducting a commercial banking business or on which the New York
Stock Exchange is not closed.  If demand for payment is made by you hereunder at
or prior to 10:30 a.m., prevailing Memphis, Tennessee time, on a Business Day,
and provided that such demand for payment and the documents presented in
connection therewith conform to the terms and conditions hereof, payment shall
be made to you of the amount demanded, in immediately available funds, on the
same Business Day on which the demand is made or not later than 1:30 P.M.,
prevailing Memphis, Tennessee time, or such later Business Day as you shall
specify.  If demand for payment is made by you hereunder after 10:30 a.m.,
prevailing Memphis, Tennessee time, on a Business Day, and provided that such
demand for payment and the documents presented in connection therewith conform
to the terms and conditions hereof, payment shall be made to you of the amount
demanded, in immediately available funds, not later than 1:30 P.M., prevailing
Memphis, Tennessee time, on the next Business Day following the date of demand
or such later Business Day as you shall specify.
<PAGE>
 
January 23, 1998
Page 4

     If a demand for payment made by you hereunder does not conform to the terms
and conditions of this Letter of Credit, we shall give you notice without delay
but no later than the time payment would otherwise be due hereunder that the
demand for payment is not in accordance with the terms and conditions of this
Letter of Credit, stating the reasons therefor and that we are holding any
documents at your disposal or are returning the same to you, as we may elect.
Upon being notified that the demand for payment is not in conformity with the
terms and conditions of this Letter of Credit, you may attempt to correct any
such non-conforming demand for payment if, and to the extent that, you are
entitled (without regard to the provisions of this sentence) and able to do so.

     All drafts paid under this Letter of Credit shall be paid solely from the
funds of First Tennessee Bank National Association and not from funds of the
Issuer, the Account Party or any general partner or guarantor of the Account
Party.

Expiration
----------

     This Letter of Credit shall automatically expire at 2:00 P.M., prevailing
Memphis, Tennessee time, at our aforesaid counters on the earliest to occur of
the following dates:

          (a) July 31, 1999 (assuming the Bank has notified you of its intention
     not to renew this Letter of Credit as provided in the Reimbursement
     Agreement) or such subsequent July 1 to which the term of this Letter of
     Credit shall have been automatically renewed or otherwise extended by the
     Bank in accordance with the terms of the Indenture and as described above;
     or

          (b)   the date on which the Stated Amount is reduced to zero (0); or

          (c) the date 10 days after the Bank notifies you of the occurrence of
     an Event of Default under the Reimbursement Agreement; or

          (d) the date on which we receive an executed Certificate As To
     Alternative Funding of Debt Service Reserve Fund, appropriately completed,
     in the form attached hereto as ANNEX C, and made a part hereof, with
                                    -------                              
     respect to the acceptance of a Substitute Funding Instrument  (as defined
     in the Indenture), cash, or a combination thereof in substitution for this
     Letter of Credit.

     Upon expiration, this Letter of Credit must be surrendered to us at the
counters of our International Department, First Tennessee Bank National
Association, 165 Madison Avenue, Memphis, Tennessee  38103.
<PAGE>
 
January 23, 1998
Page 5

Entire Agreement
----------------

     This Letter of Credit sets forth in full the terms of our undertaking, and
this undertaking shall not in any way be modified, amended, amplified or limited
by reference to any document, instrument or agreement referred to herein or in
which this Letter of Credit is referred to or to which this Letter of Credit
relates, except for the exhibits attached hereto and made a part hereof,
references to the Indenture and Reimbursement Agreement for the definitions of
certain terms, and any amendment to which you consent, as beneficiary of this
Letter of Credit.  Any such reference shall not be deemed to incorporate herein
by reference any document, instrument or agreement except for such exhibits,
such references to the Indenture and the Reimbursement Agreement and any
amendment to which you consent.

Transfer
--------

     This Letter of Credit is transferable in its entirety (but not in part) to
any transferee who has succeeded you as Trustee under the Indenture and may be
successively transferred.  Transfer of this Letter of Credit to such transferee
shall be effected by the presentation to us of this Letter of Credit for
endorsement of the transfer accompanied by an executed Transfer Of Rights To
Draw Under Letter of Credit, completed in the form of ANNEX D attached hereto
                                                      -------                
and made a part hereof.

     Only you (or a transferee as permitted by the terms of this Letter of
Credit) may make a drawing under this Letter of Credit.  Upon the payment to you
or your account or to the transferee or its account of the amount specified in
any sight draft drawn hereunder, we shall be fully discharged on our obligation
under this Letter of Credit to the extent of such drawing (pending reinstatement
thereof as provided elsewhere herein).

Governing Law
-------------

     This Letter of Credit shall be subject to the Uniform Customs and Practice
for Documentary Credits, 1993 Revision, International Chamber of Commerce
Publication No. 500 (the "UCP"), except if this Letter of Credit would have
otherwise expired by its terms during any period when our business has been
interrupted by acts of God or other events not within our control, our
obligations hereunder shall continue for a maximum of thirty (30) days after
resumption of our business, notwithstanding Article 17 of the UCP.  This Letter
of Credit shall be deemed to be issued under the laws of the State of Tennessee
and shall, as to matters not governed by the UCP, be governed by and construed
in accordance with the laws of the State of Tennessee.
<PAGE>
 
Communications
--------------

     Communications with respect to this Letter of Credit shall be in writing
and shall be addressed to us at the address of our counters set forth above
(Attention: International Department), specifically referring to the number of
this Letter of Credit.

     We hereby agree with the drawer of a sight draft drawn in compliance with
the terms of this Letter of Credit that the same shall be duly honored on
presentation to the drawee.  At your request, we have agreed that any notices to
you will be given by confirmed fax and by overnight delivery such as Federal
                                   ---                                      
Express to:

               Magna Bank, N.A.
               Attn: Kent T. Schroeder
               1401 S. Brentwood Boulevard, Ninth Floor
               St. Louis, Missouri 63144-1401
               Fax #: 314/963-2475

with copy to:  Carolyn B. Ryseff, General Counsel
               Magna Bank, N.A.
               1401 S. Brentwood Boulevard, Ninth Floor
               St. Louis, Missouri 63144-1401
               Fax #: 314/963-2496


                              Very truly yours,

                              FIRST TENNESSEE BANK
                              NATIONAL ASSOCIATION

                              By: /s/ Patty L. Wiley
                                 ------------------------
                              Title: Vice President
                                    ---------------------
<PAGE>
 
                                                                         ANNEX A
                                                                         -------


                              FORM OF SIGHT DRAFT
                              -------------------



                                         DATE: __________________
AT SIGHT

PAY TO THE ORDER OF ___________________________________ THE SUM OF
U.S.$_______________________________________________ DOLLARS.  DRAWN UNDER FIRST
TENNESSEE BANK NATIONAL ASSOCIATION IRREVOCABLE STANDBY TRANSFERABLE LETTER OF
CREDIT NO. _____________.

                              MAGNA BANK, N.A., as Trustee


                              By:_________________________
                              Name:_______________________
                              Title:______________________



TO:  First Tennessee Bank National Association
     International Department
     165 Madison Avenue
     Memphis, Tennessee 38103
<PAGE>
 
                            Annex B to First Tennessee Bank National Association
                                            Irrevocable Standby Letter of Credit
                                                                     No. S983013


                              DRAWING CERTIFICATE
                              -------------------

     The undersigned, a duly authorized officer of the Trustee named below (the
"Trustee"), hereby certifies to First Tennessee Bank National Association (the
"Bank"), with reference to Irrevocable Standby Letter of Credit No. S983013 (the
"Letter of Credit"), issued by the Bank in favor of the Trustee, that:

          (1) The Trustee is the Trustee under the Indenture.

          (2) The Letter of Credit has been provided to the Trustee in
     satisfaction of the requirement of a Debt Service Reserve Fund under the
     Indenture.

          (3)  Choose One:

          ____ (a) The Trustee is required, under Section 5.10 of the
               Indenture, to withdraw moneys from the Debt Service Reserve Fund
               in the event there are insufficient funds on deposit in the Bond
               Fund established under the Indenture to pay scheduled payments of
               principal and interest to the holders of the Bonds.  The Trustee
               hereby certifies that there are insufficient funds on deposit in
               the Bond Fund to pay principal and interest on the Bonds, and
               that any other conditions precedent to a withdrawal from the Debt
               Service Reserve Fund under the Indenture have occurred.  The
               amount of the sight draft(s) accompanying this Certificate is
               less then or equal to the lesser of (i) the amount of the
               shortfall in the Bond Fund or (ii) the Stated Amount.

          ____ (b) You have notified the Trustee that an Event of Default has
               occurred under the Reimbursement Agreement, thus entitling
               the Trustee to draw up to the entire amount available under
               the Letter of Credit.

          ____ (c) The Trustee has not received a Substitute Funding
               Instrument, or cash, or a combination thereof equal in the
               aggregate to the Debt Service Reserve Requirement in effect
               on the date hereof, which date is within ten (10) days of
               the expiration of the Letter of Credit. The amount of the
               sight draft(s) accompanying this Certificate is equal to the
               lesser of (i) the amount of the shortfall in the Debt
               Service Reserve Fund or (ii) the Stated Amount.
<PAGE>
 
          (4) The amount of the sight draft(s) accompanying this Certificate
     does not exceed the amount available to be drawn under the Letter of
     Credit.

          (5) Upon receipt by the Trustee of the amount demanded hereby, (a) the
     Trustee will apply the same directly for the purpose specified in paragraph
     (3), and (b) no portion of said amount shall be applied by the Trustee for
     any purpose other than as set forth in paragraph (3) above.

     Any capitalized term used herein and not defined shall have its respective
meaning as set forth in the Letter of Credit.

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the _________ day of ________, _____.


                                    MAGNA BANK, N.A., as trustee



                                    By:________________________
                                    Title:_____________________
<PAGE>
 
                            Annex C to First Tennessee Bank National Association
                                            Irrevocable Standby Letter of Credit
                                                                     No. S983013


      CERTIFICATE AS TO ALTERNATIVE FUNDING OF DEBT SERVICE RESERVE FUND
      -------------------------------------------------------------------

     Magna Bank, N.A., as Trustee (the "Trustee"), and Gateway International
Motorsports Corporation (the "Account Party") hereby certify to First Tennessee
Bank National Association (the "Bank"), in connection with the Bank's
Irrevocable Standby Letter of Credit No. S983013 (the "Letter of Credit") (any
capitalized term used herein and not defined herein shall have its respective
meaning as set forth in the Letter of Credit) issued by the Bank in favor of the
Trustee, that:

     (a)  The Trustee is the Trustee under the Indenture, and the Account Party
is the Account Party under the Reimbursement Agreement.


     (b) The Trustee has accepted the deposit of a Substitute Funding
Instrument, cash, or a combination thereof in the amount of the Debt Service
Reserve Requirement for deposit to the Debt Service Reserve Fund.

     (c)  By its terms, the Letter of Credit expires as of the date of this
Certificate.

     (d)  The Trustee is delivering the Letter of Credit to the Bank herewith
for cancellation.

     IN WITNESS WHEREOF, the Trustee and the Account Party have executed and
delivered this Certificate as of the _____ day of ____________, ____.

                              GATEWAY INTERNATIONAL MOTORSPORTS
                              CORPORATION, as Account Party

                              By:_________________________
                              Title:______________________

                              MAGNA BANK, N.A., as Trustee

                              By:_________________________
                              Title:______________________
<PAGE>
 
                            Annex D to First Tennessee Bank National Association
                                            Irrevocable Standby Letter of Credit
                                                                     No. S983013


                                                                         ANNEX D
                                                                         -------

               TRANSFER OF RIGHTS TO DRAW UNDER LETTER OF CREDIT
               -------------------------------------------------

To:  First Tennessee Bank National Association
     International Department
     165 Madison Avenue
     Memphis, Tennessee 381301

Re:  First Tennessee Bank National Association Irrevocable Standby Letter of
     Credit No. S983013

     For value received, the undersigned beneficiary hereby irrevocably
transfers to:

                       _________________________________
                              (Name of Transferee)


                        ________________________________
                        ________________________________
                                   (Address)

all rights (in their entirety) of the undersigned beneficiary to draw under the
above Letter of Credit.

     The transferee has succeeded the undersigned as Trustee under the Indenture
of Trust entered into between The Southwestern Illinois Development Authority
and Magna Trust Company, the original trustee and predecessor in interest to the
undersigned, as Trustee, dated as of May 1, 1996.

     By this transfer, all rights of the undersigned beneficiary in the Letter
of Credit are transferred to the transferee, and the transferee shall have the
sole rights as beneficiary thereof, including sole rights relating to any
amendments, whether increases or extensions or other amendments and whether now
existing or hereafter made.  All amendments are to be advised directly to the
transferee without necessity of any consent of or notice to the undersigned
beneficiary.
<PAGE>
 
     The Letter of Credit is returned herewith, and we ask you to endorse the
transfer on the reverse hereof, and forward it directly to the transferee with
your customary notice of transfer.

     IN WITNESS WHEREOF, the undersigned beneficiary has executed and delivered
this Transfer as of the ____ day of ____________, ____.

                              MAGNA BANK, N.A., as Trustee

                              By:_________________________
                              Name:_______________________
                              Title:______________________