Could ‘Hollywood Park’ Be a Scratch?

Odds are Hollywood Park Inc. soon will be changing its name.

By entering talks to sell its namesake horse-racing track in Inglewood to Kentucky Derby host Churchill Downs Inc., Hollywood Park is taking its boldest step yet away from its racing roots and toward its main business of today--gaming.

Never mind that Hollywood Park Chairman Randall D. Hubbard also personally owns racehorses. Even if the Churchill Downs deal falls apart, Hubbard and Hollywood Park will probably sell the 61-year-old track to someone so that the company can plow more cash into its portfolio of riverboat casinos, card clubs and other gaming sites, analysts said.

That means Hollywood Park also will eventually shed its other racetrack, Turf Paradise in Phoenix.

The shift away from the ponies is being led not only by Hubbard but also by two new top executives at Hollywood Park: President Paul Alanis and the head of gaming operations, J. Michael Allen. Both were former top executives of a company named, appropriately, Horseshoe Gaming that has riverboat casinos in Louisiana and Mississippi.

Hollywood Park “wants to be looked at as a pure gaming operator,” said Joseph Coccimiglio, an analyst at Prudential Securities.

And once the 380-acre Hollywood Park track is gone, the next move for the company “could be a name change to better reflect its casino growth strategy,” said analyst Stuart Linde of Lehman Bros.

The changes also are giving a badly needed lift to Hollywood Park’s stock, which plunged 62% last year even though the company’s overall performance has steadily improved. In fact, the stock has been a laggard for years; since April 1994 it has dropped 45%, while the benchmark Standard & Poor’s 500 has nearly tripled.

It’s a gap no one appreciates more than Hubbard, who owns 10.6% of Hollywood Park, currently worth about $33 million. The stock closed Friday at $12.69 a share, up 38 cents, in New York Stock Exchange composite trading.

Most of the company’s recent operating gains have come from gaming, while the racetrack’s contribution has steadily declined. Gaming accounted for 69% of Hollywood Park’s total revenue of $427 million last year, whereas horse racing--which is struggling with waning live attendance throughout the sport--chipped in only $67 million. That’s down 15% from the track’s $79 million of revenue four years earlier.

Churchill Downs, which also is named after its famed track in Louisville, Ky., recently confirmed the talks to buy the Hollywood Park track “and a portion of the surrounding acreage.” But neither company disclosed potential terms, and Hollywood Park declined to comment further because of the negotiations.

There are various estimates about what the track might fetch, but $120 million is a “reasonable” figure, said analyst Harry Curtis of BancBoston Robertson Stephens in New York.

Hollywood Park overall has several casinos not only in California, but also in Nevada, Mississippi, Louisiana and Arizona. It’s also making plans to open a riverboat casino on the Ohio River in Switzerland County, Ind., about 35 miles southwest of Cincinnati.

But the company so far has stayed away from the gambling meccas Las Vegas and Atlantic City, N.J. Hollywood Park “sees more opportunity” in markets smaller than Las Vegas and Atlantic City because it “can buy in at attractive [price] multiples and improve the market values of those properties,” said Steve Patricola, an analyst with Credit Suisse First Boston in New York.

If the Hollywood Park track is divested, it would mark the second sale of a major Southern California track in the last few months. Its famed rival to the north, Santa Anita Park in Arcadia, was sold in December for $126 million to Magna International Inc., a Canadian company whose chairman, Frank Stronach, is also heavily involved in thoroughbred racing.

The Hollywood Park track dates to 1938, when it was started by a group of movie industry luminaries that included Jack Warner (of Warner Bros.) and had initial investments from the likes of Walt Disney, Al Jolson, Sam Goldwyn and Darryl Zanuck.

As racing attendance flattened, the company began aggressively building its gaming portfolio in the mid-1990s. And after a tough stretch in 1995-96--when it lost a combined $5 million--Hollywood Park turned a $9-million profit in 1997 and a $13-million profit last year.

But its stock has never really recovered from a surprise development that whipsawed the company last year.

Hollywood Park had planned to return to a “paired-share” structure, in which the company would have been divided into a real estate investment trust and an operating company yet have a single “paired” stock.

The setup had sizable tax advantages that appealed to Wall Street, and the structure was used by a handful of other companies including Santa Anita. (Hollywood Park also had once been structured that way, but gave up the status in 1992.)

But just as Hollywood Park was set to make the change, Congress effectively put the brakes on paired-share operations, dealing the company and its stock a major blow.

Now, Hollywood Park’s new direction should attract a different group of stockholders, which could benefit the shares’ price, Linde said. “They need to turn over the shareholder base,” he said. “You need to get through the overhang of people who still own it from the paired-share days.”

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Changing Stride

Hollywood Park’s decision to sell its namesake track and concentrate on its gaming interests has lifted its stock price. Monthly closes and latest:

Friday: $12.69

Source: Bridge