08/21/2007 11:00PM

Coping with a major bailout

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DEL MAR, Calif. - There it was. Plain as day. Cards on the table and few holds barred.

The epic struggle over just how much profit is enough profit was played out Wednesday morning in a boardroom at the offices of the California's 22nd Agricultural Association, where the commissioners of the California Horse Racing Board asked representatives of the Bay Meadows Land Co. to divulge once and for all their intentions for their two prime California holdings, Bay Meadows and Hollywood Park.

The nominal subject at hand was the California racing calendar, and what it will look like in 2008, 2009, and 2010. Bay Meadows Land Co. has refused to commit its tracks to holding race meets beyond the fall of 2008, while the racing board wants to lay out a three-year master plan for the state's racing schedule.

The most significant lesson of the session, however, delivered with both passion and eloquence by both sides, illustrated nothing less than the fundamental incompatibility of the modern Thoroughbred racing business with the demands imposed by corporations burdened by heavy debt and shareholder expectations.

It costs a lot to own a racetrack these days. No one gives that a second thought. Operating expenses and state taxes are relentless, while revenues continue to be elusive, thinned by a growing number of fingers in the parimutuel pie.

Which is why it should be no surprise to hear Terry Fancher, head of Bay Meadows Land Co., describe the California racing business as "deteriorated." As principal executive of the Stockbridge Capital Group, the parent of Bay Meadows Land Co., Fancher must answer to influential investors such as the huge California Public Employees Retirement System (CalPERS), who expect a steady and healthy return on what they risk from their pension funds.

"We are perfectly happy to remain in the racing business so long as that makes sense," Fancher told the commissioners. "But we need to run our company such as there is a financial return. We can't sustain the losses that others can do that don't have the financial responsibility, the discipline, that sort of thing. We're a financially motivated, responsible company, and we have to remain that way."

There was sympathy for Fancher's position, up to a point. And no one disputed the fact that Bay Meadows Land Co. has treated its properties well.

But for Bay Meadows Land, the racing business was intended only as a viable means to an end, a bridge to the eventual development of the property for commercial and residential purposes. Half of Bay Meadows already has been developed, and the other half is only a court ruling away from a green light to bring on the wrecking ball. Plans for the Hollywood Park property are not as far along, but as Fancher noted, in that particular real estate corridor, near LAX and the Los Angeles west side, "things seem to move quicker."

Because of this, there is no way Bay Meadows Land can commit to anything beyond next year. Fine, says the racing board, then the racing board and the rest of the California racing entities will feel free to craft a multi-year calendar taking the Bay Meadows Land position into consideration. This puts in play any number of new permutations, including expanded use of such established facilities as Fairplex Park and Pleasanton, and perhaps even the Quarter Horse track at Los Alamitos.

"Bay Meadows has made an investment of more then $300 million in the Hollywood Park property," said Cliff Goodrich, former president of Santa Anita Park and now representing Fairplex Park. "Most of us don't have that bogey to overcome when we look at growing and maintaining this crazy business, and we understand that.

"But the racing board has only one industry to regulate. And every Thoroughbred entity in this room - with one exception - is able and willing to commit to a calendar of racing for the next three years."

What is comes down to, for Bay Meadows Land, is an exit strategy. But for the racing industry left behind, as represented by the people in that room, it was what their business would look like once Bay Meadows Land Co. withdrew, and what should be done to avoid excessive trauma.

Fancher did not try to sugarcoat his position, but where Fancher slipped - or perhaps told too much truth - was when he said, "We don't think we can make a long-term commitment to a business that is failing."

That hurt. And as the sting winced its way around the room, representatives of the California fairs, California's owners, California's trainers, and other racing associations thought of ways to refute such a harsh condemnation of their business. Coming on the heels of Del Mar's $24 million day last Sunday, Fancher's assessment did sound off base. Chairman Richard Shapiro pointed out that Santa Anita, Fairplex, and even Hollywood Park had experienced recent increases in business, reversing downward trends.

"We're on the upswing," said Drew Cuoto, executive director of the Thoroughbred Owners of California. "And we need to continue the momentum and build on it."