TROUBLES AT HOLLYWOOD PARK : Debts, Cash Flow Problem May Prompt Sale of Los Alamitos

There would seem to be an urgency for struggling Hollywood Park to sell its Los Alamitos track in Orange County because of several sizable debts coming due soon.

According to a report filed earlier this year with the Securities and Exchange Commission, Hollywood Park must pay a short-term bank loan of $6 million by the end of July.

The report also shows that Hollywood Park Realty Enterprises, the track’s sister company, has a principal payment of $2.8 million due this year on $30.3 million in municipal bonds that were issued in 1983 through the City of Inglewood, where Hollywood Park is located.

Lesser payments due this year, according to the report, are $873,000 for the Diamond Vision board in the Hollywood Park infield and $229,000 to Lloyd Arnold, the harness-racing operator whose lease was bought out by Hollywood for $6 million in 1983. Hollywood Park has already paid Arnold more than $4 million and a final payment of $1.75 million is due in 1988.

Auditors for Hollywood Park have said that the track violated a covenant on a $70-million loan from 1984 when it didn’t maintain a positive cash flow in 1986. Wells Fargo Bank, the lender, has waived the covenant until the end of July, when Hollywood Park’s $6-million note is due. If the July note is paid, Hollywood will probably receive a one-year extension on the major loan.

Meanwhile, Hollywood Park’s thoroughbred season, which began April 22 and runs through July 27, will likely be the worst for attendance since 1941, the track’s fourth year of operation. Daily crowds have been averaging just more than 20,000 and betting has been running at $4.5 million, which is the first time Hollywood Park’s average handle has been under $5 million since 1979.

Although Hollywood Park is land rich and cash poor, and the light at the end of the tunnel has been reduced to a flicker, some prominent investors still have apparent high hopes.

“If they sell the other property (Los Alamitos), they can use the money to rid themselves of that big debt,” said Louis Wolfson, who won the Triple Crown with Affirmed in 1978 and owns almost 5% of the Hollywood stock. “If such a thing occurs, that might save them as much as $9 million a year in interest.”

Marje Everett, chief executive officer of the track, owns just under 10% of the stock and is the largest investor. Everett, however, frequently refers questions about Hollywood Park’s financial situation to Neil Papiano, the track’s general counsel, and this week Papiano said:

“Everybody likes to reduce their debt and we’re doing that. Pressure? I don’t see any pressure to sell Los Alamitos right away, although we’re actively talking with a few groups with that in mind.”

Steven Weissman is an international insurance broker from New York whose family owns about 2% of the Hollywood stock.

“I get the feeling that the property around Hollywood Park is going up rather than down in value,” Weissman said. “Things ebb and flow in horse racing. I can’t see Hollywood Park’s situation staying bad forever.”

An independent appraisal puts the value of the 340 acres at Hollywood Park in the $120-million range and estimates that the track’s 300-acre Los Alamitos holdings are worth $100 million.

Hollywood Park bought Los Alamitos, which includes a golf course and nonracing property conducive to commercial development, for $58 million in 1983. Hollywood Park, however, has been unable to obtain zoning clearances from the City of Cypress to develop the land.

Papiano said that at least two insurance companies are interested in buying all or part of the Los Alamitos property. He would not identify the parties, but one is believed to be Reliance Group Holdings, Inc., a New York-based company that is involved in insurance, investments and real estate.

One source said that Reliance has about a month left on a 45-day option to buy Los Alamitos and has already had discussions with lessees that have long-term agreements with Hollywood Park to run quarter horse and mixed-breed meetings at the Orange County facility. A spokesman for Reliance in New York could neither confirm nor deny his company’s involvement in any negotiations.

Papiano said: “No matter what happens, Hollywood Park is not getting out of the harness and quarter horse business. And staying in may involve other concepts than Los Alamitos.”

Asked if that meant there was a possibility that Hollywood Park might run all three types at the Inglewood track, Papiano declined to comment. Right now, Hollywood runs thoroughbred and quarter horses in Inglewood, and harness racing at Los Alamitos.

In May, Hollywood Park was offered $40 million in cash for 190 of the acres at Los Alamitos by Dee Hubbard, a quarter horse and thoroughbred owner-breeder, and Dr. Edward Allred, a quarter horse man. Hubbard, who is concerned with the survival of the slumping quarter horse business in California, said that Hollywood paid $27 million for the same acreage four years ago.

Everett is said to be negative toward this offer because Hubbard made an unsuccessful buy-out offer of about $135 million for both tracks last December.

Another drain on the Hollywood Park coffers has been the consistent paying of dividends to stockholders, including a quarterly pay-out of 40 cents a share in April. Shareholders received approximately $12.2 million in dividends in 1985-86.

Hollywood Park is considered a real estate investment trust, which enables it to operate without paying income tax as long as it pays 95% of net income to shareholders.

For last year, the track has reported net income of $3.5 million, from both racing and real estate sources. That was a decline of $1.7 million from 1985.

The track alone, however, showed a net loss of $4.7 million in 1986, compared to a deficit of less than $500,000 in 1984.

An advantage Hollywood enjoyed early last year has been eliminated this year. In 1986, Hollywood owed horsemen $1.1 million in purses from the summer meeting, an amount that was allowed to carry over until the track’s short season at the end of the year.

Purses are based on a percentage of the money bet at the track. Don Johnson, a spokesman for the horsemen, said that last year’s delayed purse money was paid in full by the end of the fall meet and that this year Hollywood is running fairly close to the percentage of wagering it owes in purses, although the horsemen’s preseason projections for betting have fallen short.

Last year, Hollywood Park’s annual meeting of shareholders was held in May. A date has not been announced for this year’s meeting. There is speculation that company officials have delayed the meeting this year while waiting forsome positive news regarding Los Alamitos to develop.

In the recent report to the SEC, Hollywood Park said: “Although (the) operating company has arranged for the infusion of additional funds to finance operations, (the) operating company recognizes that operations must improve, absent a refinancing, in order to successfully meet the financial covenants (the positive cash flow) of the loan agreement.”

Efforts were made last year to cut costs in several areas. The advertising budget was trimmed by 34%, to $4.2 million.

But poor business resulted, with attendance off 12% from 1985 and betting down 8.5% In important areas such as admissions, program sales and parking, revenue was down $1.7 million.

This season, being able to take bets on the Triple Crown races helped Hollywood Park’s handle by $3.4 million, and the largest crowd of the season, 44,379, turned out on Kentucky Derby day, but most of the marquee horses remained in the East and the track’s problematic grass course kept many of the turf runners in their barns.

“With the tremendous influx of European grass horses to the West Coast, what is needed is two grass courses,” said one trainer. “There’ll be so many grass horses ready to run when Del Mar opens (July 29) that it’ll be tough for a lot of us to get them in the races.”

There has been all kinds of room for stakes horses to run at Hollywood. The average field for a stakes races has been six horses. More than that will probably start Sunday in the season’s richest race, the $500,000 Hollywood Gold Cup, but the big purse wasn’t enough to lure Manila and Broad Brush, two of the best horses in training, from the East Coast to compete.

In November, for the second time, Hollywood Park will hold the Breeders’ Cup, seven nationally televised races worth $10 million. Last fall, Santa Anita’s Oak Tree tenant was able to use Breeders’ Cup day as a focal point for a season that resulted in substantial gains at the turnstiles and the betting windows.

At Santa Anita, however, the Breeders’ Cup came at the end of the season, with early prep races serving as a build-up for the big day. Hollywood Park’s Breeders’ Cup will be the fourth day of the fall season, before any momentum has formed, and the top horses will likely be scheduled for rests after they’ve run in the cup races.

Just across the street from Hollywood Park is the Forum, where the Lakers’ recent championship has given a figurative glow to the neighborhood. Sadly for a track that was once No. 1 in America, there’s not enough glow to go around in Inglewood.