A Question of True Value : Is the Track Hollywood Park Agreed to Buy Overpriced?

The Woodlands, the Kansas City, Kan., racetrack that Hollywood Park has agreed to buy for $70 million, including debt, isn’t worth anywhere near that much, according to evidence surfacing this week in a Kansas tax dispute.

The Woodlands is 60% owned by Hollywood Park Chairman R.D. Hubbard.

The dispute, concerning a 1990-91 tax valuation in Wyandotte County, Kan., is being heard in Topeka by the state Board of Tax Appeals. The county is trying to defend its valuation of $59.5 million for the track because it fears a loss of tax revenue. One local school district depends on the Woodlands for 40% of its budget.

But the Woodlands argues that the track’s market value was only $22 million last year and that the advent of riverboat gambling in neighboring Missouri will push that number even lower. Hilton Hotels Corp., Promus Cos.--parent of Harrah’s--and other gambling operators are preparing to open floating casinos on the Missouri River as early as next spring.

“They say it’s worth only $22 million,” Wyandotte County Commissioner Richard Kaminski said in a telephone interview this week. “To me, that’s a fraud against the (Hollywood Park) stockholders.”

R. Scott Beeler, the Woodlands’ attorney, contends, however, that the track’s valuation for tax purposes is naturally less than its sale price because the tax assessment doesn’t include intangibles such as racing licenses.

“They (Woodlands officials) may say the sale price is irrelevant, but if it supported a lower valuation instead of a higher one, you can bet they’d mention it,” said Linda Terrill, the county’s attorney.

A national authority on business valuations hired by the county appraised the Woodlands at $47.4 million--too low to please the commissioners, but more than twice the track’s estimate. The appraiser, Cliff Fisher of Daytona Beach, Fla., said that number included only the tax value. According to his analysis, the full value of the business, including licenses and personal property, is $51 million.

Because Hubbard’s ownership position in the Woodlands raises conflict-of-interest questions, a committee of Hollywood Park directors has hired the investment banking firm of Oppenheimer & Co. to advise the board on whether the transaction is fair to stockholders.

When Hollywood Park announced Nov. 18 that its directors had approved the Woodlands purchase in principle, the company did not disclose the size of the debt. Hollywood Park officials later acknowledged that the debt is about $50 million. The debt plus the $20 million in cash and stock that Hollywood Park will pay Hubbard and the track’s other owner, Wichita businessman Richard Boushka, comes to a total purchase price of $70 million.

G. Michael Finnigan, chief financial officer of Hollywood Park, has emphasized in recent interviews that the Woodlands debt is “non recourse”--meaning that if the Woodlands should fail, creditors would have no legal right to collect from Hollywood Park. But as long as the Woodlands has revenues, it must pay interest on the debt.

The Woodlands, which conducts both thoroughbred and greyhound racing, is being promoted as a site for casino-style gambling in Kansas. Gambling legislation must first receive two-thirds approval from the Kansas House in a vote expected in January. The proposal then would go before voters in a statewide referendum later next year.

Finnigan said the proposed sale price reflects the Woodlands’ value as a racing facility only and does not include a premium for its potential as a casino gambling venue. He said the Woodlands loses money on horse racing, but makes a profit on dog racing. He declined to provide any figures.

However, according to the Kansas Racing Commission, the thoroughbred racing handle has fallen sharply in the four years that the track has been open. From $42.2 million in 1990, the handle dropped to $34.5 million in 1991, $11.7 million last year and $7 million in the 64-day meeting that ended last month. The track’s share of the horse racing handle is about 10%, which does not cover expenses.

The dog racing handles are far higher--$110.7 million for the fiscal year ended June 30, the Racing Commission said. But average daily handles have fallen steadily, from about $500,000 when the track opened in 1989 to about $300,000, a commission official said.

Hollywood Park directors would not have approved the deal unless they fully expected the casino legislation to pass, Finnigan said, adding: “We’re not interested in buying racetracks as racetracks.”

That philosophy is being pursued at Hollywood Park’s home turf in Inglewood, where a card club approved by city voters last year is expected to open in February.

Under their deal with Hollywood Park, if the Woodlands wins the casino vote, Hubbard and Boushka get a hefty cut of the profits--beyond their initial $20 million.