The Glitter of Statistics Is Not Gold : Gambling: Positive revenue figures at tracks mask fears of horsemen for their future.

At a quick glance, horse racing in California looks good.

Santa Anita stockholders continue to receive dividends. Hollywood Park stock has increased almost 400% in the last year. And Del Mar had so much money sitting around that it remodeled its facility for $80 million.

But these seemingly strong indicators are an illusion.

Horse racing, not only in California but everywhere, is in trouble.

The sport isn’t going to collapse tomorrow, the day after, or even five years from now. But it’s at the stage that a decade from now, horsemen might be shaking their heads and saying, “If only we had done something 10 years ago.”

The problems are easy to identify, the solutions difficult to uncover.

Track operators are worried about the spread of casino gambling on Native American land and what their competition might be doing.

Horse trainers are worried about the loss of clients and about the card club that will open at Hollywood Park in February.

The owners of horses are worried about purse money tailing off, making it difficult for them to stay in business.

Breeders are worried about an over-supply of horses causing a drop in prices if there is a cutback in racing dates.

California racing leaders met almost a year ago, hoping to reach a problem-solving consensus and plot a course of recovery. After two days, nearly a dozen interest groups were unable to agree on where racing is going or what business racing is in. There was even disagreement on racing’s past.

“The trouble with racing is that each part of the industry doesn’t respect the other,” trainer Dick Mandella said.

Said Ralph Scurfield, chairman of the California Horse Racing Board: “We need to form a we in the industry. Unless we become a we, racing will not benefit, no matter which way it goes. Without the we, racing’s going to get chewed up.”

THE PRESENT

The state of California received about $130 million from racing for the fiscal year that ended in mid-1992, with 65% of the total coming from the three major thoroughbred tracks in Southern California. The state spent only $8 million on the regulation and supervision of the sport.

That makes for a very hefty profit. But it also masks the declines that are going on. The $130 million was the lowest take since 1983.

Santa Anita, once considered the model of U.S. horse tracks, lost almost $3 million on racing last year. Last winter, Santa Anita struggled through a season that was undermined by a massive tote-machine failure on opening day, record rainfall that turned the track into a quagmire, a bizarre tax situation that led to the track’s actually hoping for less business at the end of the season, and the death of Chairman Bob Strub, whose family has operated Santa Anita since it opened in 1934.

Del Mar, blaming a sluggish economy, showed no on-track business gains, despite a virtually new facility. Even betting and attendance at intrastate satellite locations were down. But the track’s overall handle was up 4.4% because of a large increase in the out-of-state locations that offered its races.

Things look better at Hollywood Park. For the first year since 1980, Hollywood Park’s key business indicators--attendance and handle--might surpass Santa Anita’s. But even with that good news, it is projected that track revenues will increase only marginally this year. Instead, R.D. Hubbard, chairman of the board, is banking on non-racing revenue from a card club to double the company’s revenues by 1995.

Hollywood Park is also expanding its racing interests, with a link to casino gambling potential. The track recently agreed in principle to buy the Woodlands horse-greyhound facility in Kansas, where casino gambling might be legalized by the end of 1994. And Hubbard has had recent conversations with the owners of the Pimlico and Laurel tracks in Maryland, who are hoping to build a new track in Virginia.

But it’s the idea of a Hollywood Park card club--an alternative form of gambling--that some say will be a death blow to racing and others say will be the savior.

Does racing need alternative revenue sources to survive?

It depends.

GAMBLING ALTERNATIVES

The death of Strub in May created concern about what might now happen to Santa Anita.

Steve Keller, who joined Santa Anita in mid-1991 and took over after Strub’s death, says racing will not take a back seat to real estate endeavors under his stewardship.

Santa Anita’s realty company has long been involved in non-racing ventures, including the 73-acre fashion park adjacent to the track. Santa Anita Realty currently has investments in Seattle and the Baltimore area, but its biggest client is Santa Anita Park. Under their paired stock arrangement, the racetrack company pays realty more than $12 million a year in lease fees.

“Racing is still going to be our focal point,” Keller said. “We are interested in developing our excess property, but racing is still going to be the centerpiece of our activity.”

A few years ago, at Churchill Downs, President Tom Meeker was saying the same thing. But now, with the competitive threat of riverboat gambling near his track along the Ohio River at Louisville, Meeker is interested in getting aboard.

“If we stick with just live racing, few (tracks) will survive,” Meeker said. “Simulcasting is a second choice. Gaming is a third.

“I think that most major racing centers will adopt the third alternative. They will make gaming an ancillary business to go with racing. It’s not a pleasant sight. The proliferation of VLTs (video lottery terminals) is an insidious competitive threat. But as a public company, you have to do some things.”

Hubbard, as the head of a public company, thought that he had to do some things. He convinced Inglewood city officials and then the voters that a card club on the premises of Hollywood Park would be in everyone’s best interest.

“The casino could enhance racing,” said Harry Ornest, a Beverly Hills sportsman who is vice chairman of the Hollywood Park board. “Non-racegoers are going to be exposed to racing through the card club. They can go from one building to another and participate in live racing.”

No one at Hollywood, however, has the answer to a reverse question: Will the track be losing horseplayers if some of its bettors are exposed to card playing and never go back to the races?

Regarding the positions of Meeker and Hubbard, Santa Anita’s Keller said: “Churchill Downs had a gun to its head--it didn’t have a choice. Maybe Hollywood Park didn’t have a choice. But if other forms of gambling should come our way and threaten our survival, then we would owe it to our shareholders to assess the situation. But our plan, as long as other forms of gambling aren’t a threat, is to build on our core business.”

Still, Keller couldn’t be certain his plan was the only way to go.

“Let alone 10 years, I can’t even visualize what’s going to happen to racing in the next five years,” he said.

Joe Harper, the president of Del Mar, sees it this way: “Racing is our only product. I can’t preach to other tracks, but racing is our product, and we don’t need another product. Racing needs to be innovative, to wrap itself in a better wrapper.

“I’d rather go down with the positives than struggle with the dragons and demons.”

ONLY ONE TRACK?

Retrenchment and consolidation have become popular words in California racing.

“The game isn’t going to be the same as we know it now,” said Cliff Goodrich, president of Santa Anita. “For those that survive, it will still be a good game to be in, but not everybody is going to survive. There’s going to be fewer tracks, fewer horses, fewer trainers and fewer owners. It’s going to be tough for those who don’t stay around.”

The idea of fewer tracks--the merging of Santa Anita and Hollywood Park, for instance--has been around for a few years.

In 1989, Santa Anita undertook a secret effort to cannibalize Hollywood Park and move all the racing dates to the Arcadia track. It was dubbed the “Century City Project.”

Code words were used, Santa Anita being called King and Hollywood Park Queen. Merrill Lynch was hired to do a comprehensive study of the possibility.

An executive summary of the plan, prepared in January of 1990, said:

“King will acquire Queen in a transaction structured to optimize the dividend payout level to King’s present stockholders. Live racing will be discontinued at Queen, with Queen’s racing dates to be transferred principally to King. The pavilion at Queen will be used exclusively as a year-round simulcast facility. The end of live racing at Queen will free up approximately 200 acres of land at Queen, which will be developed by King over the next ten years in a mixture of commercial, retail and residential projects.”

The plan fell apart when Marje Everett, then chief executive officer of Hollywood Park, strongly objected.

The idea had been brought forward by Tom Gamel, a Denver industrialist, horse owner and former board member at both Santa Anita and Hollywood Park.

“To substantially improve racing and make some money doing it, we need to have less but higher-quality racing, with only one racetrack in the Los Angeles area,” Gamel said. “They better do it before it’s too late.”

Two years ago, Gamel suggested to Hubbard that shareholders at Hollywood Park and Santa Anita merge their investments, with the only live racing in town at Santa Anita.

“It’s the showcase,” Gamel said. “It’s the prestige track, and it outdraws and out-handles Hollywood.”

Gamel estimates that the land at Hollywood Park could be worth as much as $800,000 an acre.

“Hollywood, with its nearness to LAX, would be easier and more profitable to develop,” he said.

Gamel’s plan would leave Hollywood as a card club and satellite betting facility. Hubbard, of course, is already full throttle on development, but not, he says, at the exclusion of live racing.

His first non-racing project, a golf center, has been a disappointment in the year it has been open, falling short of the projected $2 million in revenues. Hollywood Park recently announced plans for a shopping center on 28 acres that it doesn’t use for racing. The targeted opening date is 1996.

“If you started from scratch now, it probably would cost $200 million or more to build Hollywood Park,” Gamel said. “How many businesses are there that take $200 million to build, and are only open half the year? It doesn’t make any sense.”

Hollywood Park’s Ornest also questions the feasibility of Southern California continuing to support three major thoroughbred tracks. But he doesn’t make it sound as though Hollywood Park would stand aside to reduce the clutter.

“Does it make sense to have three major tracks within about 90 miles of each other?” Ornest said, adding: “There has been so much consolidation of other major businesses, who is to say that it couldn’t happen here in racing?”

Gamel’s plan would leave gaps in the current schedule, between the end of Del Mar and the start of the abbreviated Oak Tree meeting at Santa Anita, and between the end of Oak Tree and the start of Santa Anita the day after Christmas.

“When you have Hollywood Park and Santa Anita both running, each track doubles its expenses,” Gamel said. “By running fewer days of live racing, you can improve the quality of the product. I’m big on simulcasting. Keep Hollywood as a simulcast facility. Bring in the Santa Anita and Del Mar races, as Hollywood does now, and import a lot of races when live racing isn’t being run. Import the best racing that’s out there to fill in the gaps.”

Ed Allred, who owns 50% of Los Alamitos, the Orange County track that runs nighttime quarter horse and harness racing, questions whether racing of those breeds will survive into the next century.

“I can’t see all of us surviving this decade,” he said. “Especially if we take one more big hit like we did when the state lottery started. If Indian gaming gave us a hit like that one, say of about 15%, then things would get out of hand. These are very nervous times.”

FUTURISTIC THINKING

One of racing’s few breaks recently has been the simulcasting of races. While hurting on-track attendance, it has given a needed boost to mutuel handles.

Some in racing see it as the salvation.

A bill that would have allowed Northern and Southern California to exchange races at will, perhaps doubling the number of races on a single card, was introduced in the California legislature. But by the end of the session, it had been watered down so much that it was not a factor.

Goodrich said that a return to the original legislation can be successful next year, but even that won’t be a panacea.

“The North-South exchange is not the answer to our problems,” he said. “It’s an answer to those who say that the game is too slow and there’s too much time between races, but it would only be a short-term fix.”

Goodrich said that one of the cures for racing’s malaise is interactive telecasts of races, with fans betting at home.

“We should be moving quickly to capitalize on this development,” Goodrich said. “Racing has always had the problem of moving too slowly, and this is something that we shouldn’t be left behind on again.”

THE FUTURE

It’s difficult to determine the future of racing when few in the sport even have a vision of it.

Santa Anita and Hollywood Park won’t sacrifice racing dates to each other, let alone participate in a grand plan that would result in the two companies becoming one.

“We’d run more dates, we’d be receptive to that, but we don’t want to give up any,” Santa Anita’s Goodrich said. “Our projections show that if we raced fewer dates, we’d lose money. Fewer dates would be very harmful to the bottom line.”

They can’t even agree on how much racing is good for the sport. A year ago, Hollywood Park’s Hubbard wanted to reduce the number of racing days, but only if everyone lost dates. He received no support.

“There is a lot of debate about whether the racing calendar is oversaturated,” said Ralph Scurfield, chairman of the racing board. “Several schools of thought exist. If the number of racing days was reduced, horses would get a much-needed rest, and races filled with mediocre horses would be minimized. The handle would not be adversely affected, because fields would be full, resulting in more wagering activity and better-quality racing.

“The other theory is to have as many racing days as possible. Bettors have more opportunities to make wagers and increase the handle.”

Again, varying opinions, but no consensus.

“We should anticipate the future and bust our fannies to shape it to our benefit,” said Biff Lowry, an official with the California Authority of Racing Fairs. “Racing has never had any strategic planning.”

And now, more than ever, its future might depend on it.