International Intrigue

One morning this week, Dick Duchossois was hanging out with the trainers at the track apron as they watched their horses work out at Arlington International Racecourse.

A mother from nearby Barrington Hills approached with her three children.

“Are you Mr. Duchossois?” she asked.

“Yes, I am,” Duchossois said.

“I want to thank you for what you’ve done with this racetrack,” she said. “We used to live in Arlington, but we never went. But since you took over, and made it such a great place for the families to come, we’re out here all the time. The kids just love it.”

Duchossois (DUTCH-ah-swah) noted that one of her sons was the right size to be a jockey. He couldn’t have ordered a better testimonial. At 78, Duchossois is the fit-looking, sharp-thinking owner of Arlington International, a track executive whose already large stature in racing grew even more recently with the announced merger of Arlington and Churchill Downs Inc., the acquisitive Louisville company whose holdings include Churchill Downs racetrack, the home of the Kentucky Derby, and much more.

Duchossois has become a key player in the national infighting between Frank Stronach, the leader of Magna Entertainment Corp., and Churchill Downs, two aggressive companies that have been gobbling up many of the country’s prime racetracks. The Churchill company has seven properties in five states, the most important of which are Churchill Downs itself, Hollywood Park and now Arlington. Stronach, whose pending takeover of Bay Meadows will give him control of both tracks in the San Francisco area, is also represented by seven tracks in five states. His jewels are Santa Anita and Gulfstream Park, which run the high-profile dates that are so lucrative in the era of race simulcasting. Santa Anita and Gulfstream are wintertime requisites for the Nevada and Atlantic City race books and the many tracks that supplement their live racing cards with imported TV signals from other tracks.

Largely because of Santa Anita and Gulfstream, Stronach’s tracks accounted for 23% of all the betting on thoroughbreds in the U.S. last year. But this was before Arlington International became part of the Churchill Downs mix, bringing to the table a showcase facility in suburban Chicago and, not incidentally, the deep pockets of wealthy industrialist Duchossois.

The Churchill-Duchossois marriage, which is expected to be approved at a special shareholders’ meeting Sept. 8, appears to be a cornucopia for both sides. Duchossois is becoming a 30% investor in Churchill Downs--no other shareholder owns more than 11%--in a stock deal that will enrich him by more than $72 million. For Churchill, adding Duchossois to the team means the Kentucky company’s coffers are no longer bare.

“It’s a great deal for Churchill,” said Duchossois, who rebuilt Arlington after a fire destroyed the grandstand of the historic track in 1985. “They’re getting a track that has absolutely no debt. We don’t owe a dime. And now Churchill, which has spent a lot of money to acquire the tracks it has, is in a position to spend more if it needs to.”

Arlington International reported a profit of more than $10 million for 1997, the year before Duchossois closed down the track, his long-running feud with Illinois Gov. Jim Edgar having reached an impasse. Duchossois, who felt that politicos during Edgar’s regime unduly favored casino-gambling interests, reopened Arlington this year and has doubled the purse of today’s Arlington Million, the track’s signature race, to $2 million.

“I think if Edgar had stayed on, we would have closed down permanently,” Duchossois said. “On top of everything else, I don’t think he understood how much Arlington meant to the state and the community. He comes from southern Illinois, and his idea of racing was a track like Fairmount Park, a small track in that part of the state.”

With Gov. George Ryan in office, Duchossois has received many of the legislative advantages he’s long lobbied for. Churchill Downs Inc. wouldn’t have made the merger deal otherwise, and Duchossois has been accused by some of hiding that part of his agenda. But Duchossois says that the new tax breaks aren’t just for Arlington, they will benefit every racetrack in the state.

“The merger will initiate a strategic relationship between our company and a world-class facility that is committed to quality live racing,” said Tom Meeker, president of Churchill Downs Inc.

Officials of Churchill Downs and Stronach’s Magna Entertainment decline to characterize their battles as an all-out war. But there is no question that Churchill Downs coveted Santa Anita, before Stronach swooped in with a successful $126-million bid at the end of 1998, and that Churchill settled for Calder Race Course, another South Florida track, after Stronach bought the tonier Gulfstream Park. Stronach was also interested in Hollywood Park, but he thought that the $140-million asking price, which Churchill paid, was too high.

“This is a rivalry that’s not intentional,” said Lonny Powell, president of Santa Anita and vice president for racing of Magna Entertainment. “What you have are two companies that happen to be involved in similar things. And while it does have the flavor of a war, I don’t think it’s a major motivating factor for either of us. It’s not like Burger King against McDonald’s, or Coke versus Pepsi.”

Duchossois sat in his office not long ago and compiled a chart of how the racetrack consolidation will eventually shake down.

“There will be five divisions,” he said. “There’s going to be the Churchill group and the Stronach group. Then there are the New York tracks [Belmont Park, Aqueduct and Saratoga], and all the tracks in the Middle Atlantic states. The fifth part of the picture is Keeneland, with its interest in Turfway Park.”

The unanswered questions regard how much more track-buying Stronach and Churchill Downs will do. Rarely a week--or even a day--goes by without Stronach kicking a tire someplace. Among his many proposed projects are an entertainment center at Santa Anita and the building of a new racetrack, one that would replace Bay Meadows, in Dixon, Calif. Mysteriously, Stronach has requested an application from the Illinois Racing Board for racing dates in 2001, even though he doesn’t own a track in this state.

“I can’t comment about any of the possible things that are out there,” Powell said. “But with our company, the pots are always simmering.”

There’s also a high turnover of Stronach employees, and this week Magna Entertainment’s new chief executive, Mark Feldman, announced a commitment of $5 million to launch an interactive betting system that will have TV and the Internet for underpinnings.

“We plan to be the leading destination for news and information about horse racing,” said Feldman, who came from the cable network E! Entertainment Television.

Churchill Downs executives have reservations about Stronach’s plans.

“I’ve spent some time with Stronach,” said Duchossois, who will join the Churchill board after the completion of the merger. “He’s a very bright guy. He’s very smart, but I don’t think he has the infrastructure to pull it all off.”

Stronach’s grand plan, of incorporating racing into a full-entertainment atmosphere, has also been questioned.

“Churchill Downs is intensely focused on improving the horse-racing product,” said Rick Baedeker, president of Hollywood Park. “We’re not giving a second thought to secondary entertainment possibilities. We feel that it’s what’s on the track that matters.”

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CHURCHILL HOLDINGS

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Track Estimated Sale Price Racing Days Churchill Downs (above) Built by Churchill 77 Hollywood Park $140 million 101 Arlington National $72 million (stock) 103 Calder Race Course $86 million 171 Ellis Park $22 million 41 Hoosier Park Built by Churchill 65 Kentucky Downs Not available 7

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MAGNA HOLDINGS

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Track Estimated Sale Price Racing Days Santa Anita (above) $126 million 114 Gulfstream Park $87 million 63 Golden Gate Fields $87 million 106 Bay Meadows Sale pending 106 Thistledown $14 million 187 Remington Park $10 million 79 Great Lakes Downs $11 million 131

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