Sunday, June 28, 2009

Another Piece of Magna Heads Into Bankruptcy

MEC Pennsylvania Racing, a subsidiary of Frank Stronach's Magna Entertainment racing empire that somehow was omitted from MEC's bankruptcy filing last spring, has now joined the club. MEC Pennsylvania, which operates racing and parimutuels at the Meadows harness track in Washington, PA, filed for bankruptcy on Friday, saying it had lost $2.6 million last year and that, as of May 31st, 2009, had $4.7 million in liabilities and $4.9 million in assets. MEC Pennsylvania filed under Capter 11 of the Bankruptcy Code, which presumes a reorganization that will allow the company to continue in business, though nothing is ever certain in these cases. A lot depends on the goodwill and forbearance of the creditors.

Magna Entertainment had owned the Meadows track until 2005, when it sold the facility to Cannery Casino Resorts, which operates three casino-hotel complexes in Las Vegas. MEC took back a contract to run racing operations, while Cannery built and operated the slot machine facility. (It's unclear which entity is responsible for the only bowling alley at a US racetrack, which is scheduled to open later this summer.)

If MEC Pennsylvania does default on its contract as a result of the bankruptcy, Cannery would presumably take over the whole show.

More details to come, as well as a look at what's been happening in the main show of the MEC bankruptcy case.

Monday, June 15, 2009

Taking Care of Business, or Not, in Albany

Thanks Dave (Paterson) and Malcolm (Smith). Even by the historically low standards of Albany, your leadership has been stunningly incompetent. And now you've apparently -- one never knows where this circus will end up -- managed to lose Democratic control of the NY State Senate, with unpredictable consequences for a myriad unresolved policy issues. Two of those issues directly concern horse racing in the (declining) Empire State.

First, any upheaval in Albany can only prolong the agony of selecting a contractor to build and run the slot-machine palace promised for lo these many years for Aqueduct. We've been promised the slots, and their attendant boost to purses, for at least the last five years, so we've learned to expect delay, but this latest blow, completely unnecessary, has one feeling like the camel as more and more straw is piled on its back.

Purses in New York are stagnating, while costs continue to increase. Trainers, equally squeezed by cost pressures, are forced to raise day rates, just as owners hit by the financial trauma of the last couple of years scale back their commitment to racing. Day rates in New York for the average trainer -- to say nothing of the Todd Pletchers and Nick Zitos of this world -- are pushing hard against the $100 a day threshhold. Meanwhile, purses, while still quite decent compared to many US racing venues, are stagnating. Allowance races at NYRA tracks carry purses in the mid-$40,000s, while the maiden claimers and conditioned claimers that increasingly are used to fill out the race card often have purses of $20,000 or less. Racing has always been a tough place for an owner to make money, but it's getting tougher.

The slot machines (oops, they're supposed to be called "video lottery terminals," to comply with the NY state constitution) were intended to provide significant revenue to the state, while increasing purses and NYRA revenue enough to make racing a viable business, if not a source of Bernie Madoff-like profits. The legislation authorizing the machines provided for 4,500 of them at Aqueduct. Even at a very conservative prediction of $200 per machine per day, that would mean almost $1 million a day in profits, to be divided among the state, the racino operator, NYRA and the horsemen's purse account, with a little bit going to NY breeders. That little bit to purses might have pushed allowance races up into $60,000 territory, which would be enough, at least for a few years, to help us all survive in the game we love.

I've forgotten how many years ago the process of selecting an operator for the Aqueduct slot machine palace started. MGM was awarded a contract, but that was delayed first, by NYRA's indictment and the appointment of a court-ordered overseer, and then by NYRA's bankruptcy filing. One also suspects that MGM was in no hurry to proceed at Aqueduct, since slot machine play in Queens would inevitably siphon players away from MGM's Atlantic City properties. After NYRA emerged from bankruptcy, a new contract was awarded to Delaware Nort, which runs the slots at Finger Lakes, but that company reneged on its promised up-front payment, and, once again, the search for an operator is on. With the Senate in disarray, no one knows how long the process will take.

Meanwhile, we're still waiting for purses that will cover even a majority of our costs.

The second issue pending in the Legislature concerns funding for the health program that serves backstretch workers, but that's a story for another day.

Sunday, June 7, 2009

Handle, Purses on the Down Escalator

Thanks to Ray Paulick for posting the latest Equibase figures on handle and purses. Both figures dropped in May, as compared to a year ago.  Total US handle was off by 8.26%, to $1.375 billion, even though May, 2009 had one more weekend/holiday race date than the same month in 2008.  Purses for the month declined by a lesser percentage -- 6.73% -- to $105.1 million.

For the first five months of the year, through May 31st, total US handle was down 9.22% from the corresponding period last year, while purses declined by 5.54%  

While purses are generally set as a fraction of total handle or takeout, there are a couple of reasons why the decline in purses has been somewhat milder then the decline in total handle.  First, some tracks use slot machine revenue or other gambling income (e.g., the casino supplement in New Jersey) to augment the purse account.  Second, there's a time lag in the calculation of purses; tracks set an initial level for a race meet based on what they estimate the handle will be; when handle doesn't meet expectations, the purse account is subsequently adjusted downward. But eventually, purses will catch up to the drop in handle, making a tough business for owners and trainers even tougher.

While the 2008-2009 declines in betting and purses can be, and are in most industry circles being, blamed on the general US economic malaise,  the longer-term trend, which predates the financial crisis of the past two years, is equally depressing.  As this chart from Equibase shows, total US handle reached a peak in 2003 and has since been on a downward path; the total for 2008 was less than the amount for 1999, even before adjusting for any inflation in the intervening years. The final numbers for 2009, now that the big spring meets at Churchill and Santa Anita are ending, and the Triple Crown races are in the past, seems unlikely to do anything better than continue the trend that's been established so far this year.  Paulick estimates that this year's total handle will be the lowest since 1996.

With purses declining, or, at best, flat, and with costs increasing, owners are getting squeezed even more than is customary.  The rule of thumb used to be that purse money nationwide was equal to about half of the total cost of keeping all US race horses in training. And that's before taking into account the costs of breeding or buying those horses. That was bad enough, but I suspect that, when the final numbers are in for 2009, it'll be more like 40-45% of our costs being covered by purses. It's tough to stay in business on those terms, no matter how much one loves horses. At this point, if slot machines were installed at Aqueduct tomorrow, I couldn't be confident that those of us racing in New York would have a fair chance to break even.