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Hollywood Park: Losing bet on gaming doomed historic track
When Hollywood Park closes its doors for good Sunday, it will become the inevitable financial casualty of two bets reaching back to 1999. Those wagers worked out well for the two companies that tied their money to the track – a perverse turn of events considering the gaping hole the track’s closing will leave on the national racing landscape and the track’s deep history.
Hollywood Park was first targeted for a big payoff by Churchill Downs Inc., which bought the track in 1999 as part of a national expansion that had two goals: acquiring simulcast signals and planting stakes in potential casino-gambling markets. Six years later, however, frustrated by the state’s opposition to expanding casino gambling beyond Native American reservations, Churchill unloaded the track – at a $120 million markup from the price it paid.
The buyer in 2005 was a real-estate company, Bay Meadows Land Company, controlled by a California Democratic businessman with deep ties to the state’s legislature, Terry Fancher. His company, too, was betting on getting slot machines or casino games at the track, but unsuccessful efforts supported by Fancher and the rest of the California racing industry to improve Hollywood’s chances at reaping the rewards of expanded gambling failed miserably in the next three years.
Then the real-estate market collapsed.
That collapse was the only reason Hollywood Park held on until 2013. With the track located on valuable real estate, with quick access to nearby LAX and the city’s ports, Hollywood Park’s owners kept it operating solely because razing the facility and redeveloping the land wasn’t prudent until the real-estate market recovered. What’s more, it’s become apparent since a referendum failed in 2007 that the state has no interest in giving racetracks slot machines, and so Hollywood’s owners are finally cashing in their chips for the lucrative world of retail and housing development.
That reality might be off-putting to many local racing fans and historians, but the simple fact is that real-estate developers look at one crucial statistic in gauging the worth of a property: profit per square foot. Hollywood Park sits on a lot of square feet, 238 acres worth of sprawling property that includes a backside generating far more expenses than revenues and a spacious infield unused but by birds, a pretty park no one can picnic in, with value only as a backdrop for photographs that rarely make the papers these days.
Meanwhile, handle nationally on racing went into a free fall at the start of the 2008 economic meltdown after years of stagnation or small declines, although it has stabilized over the past two years. Handle at Hollywood’s summer meeting in 2008 averaged $11.8 million a day, a number that declined to $9.1 million in 2012, while average handle at its 2008 fall meeting was $8.3 million, below its 2012 fall meet average of $8.9 million. At the same time, real-estate values have been steadily creeping up.
“From an economic point of view, the land now simply has a higher and better use, so, unfortunately, racing will not continue here once the 2013 autumn meet is completed,” said the track’s president, Jack Liebau, when finally announcing the closing earlier this year.
Both Churchill Downs and Bay Meadows Land Company made no secret of their goals for Hollywood – slot machines. Churchill decided to bow out as the result of a breathtaking miscalculation by the state’s racing constituents in 2004 to support an industry-drafted referendum that would have forced Native American casinos to contribute 25 percent of their gambling revenues to the state and to local governments. Under the language of the referendum, if a single Native American casino refused to make the payments within 90 days of the referendum passing, the state’s racetracks and card rooms would get a backdoor right to operate as many as 30,000 slot machines.
The referendum was shot down by 84 percent of the voters. In defeat, the racing industry came off as petty and vindictive, eroding support for their efforts for expanded gambling while simultaneously serving up a stark reminder of the unbreakable political clout of the Native American casino lobby.
Frustrated by the vote and bowing to reality, Churchill reached its agreement to sell the track to Fancher’s company in 2005 for $260 million. Tom Meeker, Churchill’s chief executive when the company purchased the track for $140 million in cash from a company controlled by R.D. Hubbard, said after reaching the deal that the state “seems to have forsaken racing,” a reference to the company’s inability to get any authorization for casino gambling. That comment probably didn’t endear the state racing industry to lawmakers, either.
The sale allowed Churchill to retire nearly all of its long-term debt and post a $72 million profit for the quarter. Hollywood’s average handle when Churchill acquired the track in 1999 was $10.38 million for the summer meet and $9.66 million for the fall meet. When the company sold the track in 2005, those numbers were $10.42 million (little change) and $8.94 million (a 7.4 percent decline), respectively.
Fancher picked up right where Churchill left off, even if his language was coded in the type of business-speak that is familiar to anyone who has watched a racetrack set the stage for lobbying efforts to get slot machines. During a conference call to discuss the purchase of the track, Fancher said: “[We] will seek alternative uses for the current racetrack site, in collaboration with the city of Inglewood, in the event that our best efforts are unable to improve the underlying economics of the horse racing industry and stem the tide of horses leaving the state.”
Then he issued a warning to Gov. Arnold Schwarzenegger: “It would be tragic to see racing fall off the landscape in California. Governor, you can do something about it.”
Fancher and supporters of expanded gambling wasted no time in pursuing their goals, working behind the scenes to try to strike a deal to bring slots to the state’s tracks. Those efforts failed to bear any fruit. In 2007, a referendum that would have nullified the state’s agreements with Native American tribes – and opened the door to slots at tracks – failed nearly as spectacularly as the 2004 vote. Efforts to revive the issue have fallen flat ever since.
Fancher had vowed to keep Hollywood up and running as a racetrack only until 2008, but any plans for redeveloping the property then faded in the wake of the dramatic pullback in real-estate investment when credit and land values collapsed as part of the recession. Just in case anyone had any lingering confidence in Hollywood’s future as a racetrack as a result of the delay, however, the owner quickly put those hopes to rest when Bay Meadows Race Course, the company’s other racetrack holding, located in an industrial area south of San Francisco, was torn down late in 2008 and promptly redeveloped.
The larger concern for the racing industry is whether Hollywood’s fate will be shared by other similar racetracks. While crosstown circuit member Santa Anita is probably safe from redevelopment over the short run due to a combination of its billionaire owner’s ability to absorb losses and the property’s few viable redevelopment options in a tony location already crowded with retail and housing, other tracks without expanded gambling will face the same pressures over the long term unless they receive the right to operate slot machines.
With casino-type gambling reaching into nearly every nook and cranny of the continental United States, tracks without gaming have now become few and far between. Tracks in Illinois, Arizona, and Washington fit the bill. Kentucky, surrounded by casino states, obviously stands out, but only one Kentucky track, Turfway Park, is in dire financial straits. Churchill has the cash-cow Kentucky Derby; Keeneland is a not-for-profit that has consistently posted record attendance and handle figures despite the recession (and has sales revenue to fall back on); and both Kentucky Downs and, to a lesser extent, Ellis Park are reaping revenues from Instant Racing machines, devices that so nearly resemble slot machines that they are hardly distinguishable from the real things.
But in Texas and Virginia, two states where casino gambling seems a longshot at best, the future is grim. Tracks in those states, each with its own long equine pedigree, opened in places where racing seemed a sure thing, and at a time when the national gambling expansion was beginning to carry racetracks with it to the land of riches. But that has changed, seemingly irreversibly. Unless racing finds a way to resurrect its fortunes – and wean itself from the slot-machine subsidies that have so distorted the economic and political incentives shaping its present and future – more tracks will go the way of Hollywood Park, white elephants whose once best uses expired long ago.
I can't believe we are still stuck in an age wherein people are voting against something like gambling. It doesn't matter if a person thinks it is good or bad, it brings in tax dollars, which is always good. People that gamble will find somewhere else to gamble, not allowing slot machines isn't saving many people. California has a budget crisis. The majority of the people paying the taxes on gambling in Nevada are from California, why not keep them here and have them gamble here? If Hollywood parks plans went thru, and legal football betting was allowed, a great chunk of the budget shortfalls in California would be covered.
I believe in karma. This is the result of needing gaming that is supported almost exclusively by pathological gamblers.
Thank you for this article. It answered alot of questions I had about the history of the redevelopment. Yes, in theory, there is lots of land there that isn't used and "park like area" that isn't enjoyed by non-birds but isn't that the nature of a racetrack? The other side of the coin is that Hollywood Park is a historic area and a living symbol of America's iconic past. And it is still amazing to have a mile and 1/8th track with a beautiful turf track all in an urban setting. We will never see the likes again. Not to mention the wonderful weather and climate. Contrast our track here in Denver, Arapahoe Park, open about 8 weeks a year. It is a one mile oval, with only dirt around it and a few prairie dogs looking at the tote board (true). It's fine for what it is, but we are really, really, losing a treasure in Hollywood Park.
Steps must be taken now to ensure Santa Anita and Del Mar never meet the same fate. California horse racing cannot afford to lose another track of this magnitude.
If Santa Anita marketing wants to contact me, I would be glad to help get this going, and keep it going year round . I love racing, I dont want to see another Hollywood Park disapear ! JBoyes9151@aol.com
I submitted a plan to Marc Verge at Santa Anita on how to stimulate racing interest ! NO REPLY ! FIRST, EVERYONE needs food, we have to shop to eat and survive ! 2nd. EVERYTIME you go to the market(Vons, Ralphs, Albertsons) you get a voucher, for a Saturday Night racing program called "LETS GO TO THE RACES" You spend $5, you get a card with a horse is each of 9 races . The winning horse, pays off at higher payoffs as you get to the last race. Maybe $25, plus passes for the first race, all the way up to $5000 for the feature and final race. You can give people winning passes for running 2nd and 3rd, making them come out to the track, and add in a lunch..............just get them out there ! Its been done before, my generation in the 60's had the racing show every Saturday night, it got us all hooked into racing....................The races are replay shows from years back....................its easy, it works, so why has no one considered trying this again . Heck, we used to pool our change daily to go get a voucher at Vons................ LETS GO TO THE RACES ! Lets see the Indian lobby put the "kyboosh" on this idea ! "zzzzzzzzzzzzzzzzz-pppp" whew, that tommy-hawk flew right past my window ~
Sorry, but not only can we blame the closing of beloved Hollywood Park on the Native American lobby in California but, if we are not carefull, others will fall to this sad bit of under the table poker ! Gov Arnold was probably into the Indians pockets more than anyone over the past 10 years, the Idian lobby pretty much ran the show in California and "Ahnold" went right along with what they wanted !"cha chinggggg"" Enough is enough ! ! ! Horse racing needs to point out here in California the success of slots in the east, and give the people of California a blue print for maintaining racing, especially now that Los Alamitos and the OC is coming on board . The right type of political promotion can inform the public that racing is good for the economy, jobs , jobs, jobs........and the Indian strangled hold is bad for California. They at least, AT THE VERY LEAST should have a racing book in EVERY INDIAN CASINO with % going to live racing ! The reason racing is ebbing away is we have too many people making decisions who havent the expertise or knowledge of what makes racing go, and survive ! GIVE THE CASINO VOTE TO THE PEOPLE IN 2014 !
ive been there,im from ny and it is nothing special and so what if it is closed. santa anita will pick up the dates,lets face it attendance is down all over. wagering today on horse racing is being kept alive by simulcasting and off track betting venues. personally i hated hollywood park synthetic surface and i have only bet turf races there via off track betting. the land is worth more with the track gone. check out the old site of roosevelt raceway in ny, the area is one most fluorishing places in ny since the track was closed, no need for 2 harness tracks in ny area,yonkers picked up the dates. just a sign of the times. horse players will always play horses,doesnt much matter what track is in business as long as the product remains competitive and of quality.
Did any of these deal makers ever consider joining with Our Native Americans in a partnership?
SLOT MACHINES!! POLITICS is closing Hollywood Park... If theres countrys to invade and oil to protect theres plenty of money for that... How can people pay 2 Billion a day for the war machine and 2 Billion for Baseball or Basketball teams and not come up with One tenth of that to keep this Great Track Open? The Land Value of 238 acres at 1 million per acre is a huge appreciation from what it cost in 1938 when the track opened. It has more than kept up with Inflation caused by the Federal Resurve Corporation. This is corporatacracy at its worse. The home of Champions being closed by some greedy suits that don't see the great contribution a venue like that makes for a community. The greatest Horses in history called it home and should be kept open for the Love of Horses.