Updated on 09/17/2011 2:18PM

Pegram a partner in Fair Grounds deal

Lou Hodges, Jr.
Thoroughbred owner Mike Pegram is now a partner in Fair Grounds, dashing the hopes of Churchill Downs which had hoped to acquire the New Orleans track.

Fair Grounds Race Course and the horse owner and businessman Mike Pegram came to terms on a partnership Monday, giving Fair Grounds the finances to pay off a $25 million settlement with a Louisiana horsemen's group, and giving Pegram some degree of control over Fair Grounds.

Few details of the agreement between Pegram and Fair Grounds were disclosed Monday night. Representatives of Bryan Krantz, Fair Grounds's president, general manager, and majority shareholder, declined to offer specific information concerning the plan, as did Pegram, who was reached via cell phone.

"I'll confirm that I'm the partner in the Fair Grounds bankruptcy, but that's all I can do," Pegram said.

Douglas Draper, a bankruptcy attorney working for Fair Grounds, said the partnership fulfills all the requirements of a $25 million lawsuit settlement between Fair Grounds and the Louisiana Horsemen's Benevolent and Protective Association. Draper said the partnership was not contingent on financing or zoning.

The partnership agreement is subject to approval from a bankruptcy court judge. A court hearing is scheduled for Aug. 27, and approval of the settlement and partnership would lead to dismissal of Fair Grounds's bankruptcy case. The Louisiana HBPA is to be paid all but $2 million of the settlement amount by Oct. 15. After legal fees are deducted, the settlement money will be distributed to horsemen whose horses won purses at Fair Grounds during the disputed period.

The Fair Grounds-Pegram partnership strikes a blow to Churchill Downs Inc., which doggedly pursued the acquisition of all or part of Fair Grounds. Fair Grounds races between Thanksgiving and the end of March, and Churchill Downs lacks a major winter racing venue. Just two weeks ago, Churchill Downs still appeared to have the upper hand in complicated negotiations and had signed an agreement with Fair Grounds through which Churchill Downs would go into a bankruptcy court auction - originally scheduled for Aug. 16 - with a lead $45 million bid to acquire the track and its assets.

But Churchill Downs's plans fell through when Fair Grounds and the Louisiana HBPA agreed to a $25 million settlement on the evening of Aug. 6, precluding the court auction.

The Louisiana HBPA filed a lawsuit in 1994 contending the state's racetracks were improperly deducting revenue from video poker machines, thus shorting track purse accounts. Other racetracks reached early settlements with the horsemen, but Fair Grounds let the case play out in court. The horsemen won the original case, but an appeals court overturned that ruling. Finally, the Louisiana Supreme Court voted unanimously in favor of the horsemen's suit, and Fair Grounds declared bankruptcy to protect itself from the forthcoming legal judgment.

The judgment, computed through an established formula, totaled more than $89 million, an amount significantly greater than the value of the racetrack and its assets. Then began a prolonged and convoluted series of maneuverings, which appear finally to be coming to a close. Monday's agreement provides Fair Grounds with financing for the $25 million settlement and to pay off its other creditors, who are owed more than $12 million.

Pegram owned Kentucky Derby winner Real Quiet, who won two-thirds of the Triple Crown in 1998, and has remained actively involved in the Thoroughbred business. He previously made an unsuccessful bid to acquire Ellis Park in western Kentucky, but was a somewhat surprising suitor for Fair Grounds. Besides Churchill Downs, former Fair Grounds owner Louie Roussel, Magna Entertainment Corp., and several lesser-known groups also made overtures toward acquiring the track.

Fair Grounds's business has slid in recent seasons, but the track remains a desirable winter venue and is well on its way to getting an ontrack slot-machine parlor. The final impediment to slots is a licensing suitability check by the Louisiana State Police, which can be undertaken once the new ownership structure of the track has been cemented.