Demolition Derby: Horse Racing Paying The Price For The Way Churchill Downs Inc. Does Business

Part Two of a two-part report on the eve of the 147th running of the Kentucky Derby
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Click here to read Part I of this two-part feature.

In 1999, Churchill Downs Inc. (CDI) bought both Calder Race Course in Miami Gardens, Fla., and Hollywood Park in Inglewood, Calif. Similar to its neighbor, the Fabulous Forum of Magic Johnson’s Showtime Lakers fame, Hollywood Park was the place to be in its heyday, attracting celebrities like Elizabeth Taylor, John Wayne, Richard Pryor, Charles Bukowski, and Michael Jackson.

By the time CDI took control of the track, Hollywood had faded to a distant second in Southern California’s racetrack pecking order behind Santa Anita. But it still hosted some major races, including the Hollywood Gold Cup, and was a more comfortable place for bettors of modest means to enjoy a day at the track.

In 2005, CDI flipped Hollywood Park and its adjacent casino to a developer for $260 million — or twice what it had bought the track for. Hollywood hosted its last race a few days before Christmas in 2013, and the grounds were eventually redeveloped into a mixed-use property that now includes SoFi Stadium, home to the Los Angeles Chargers and Rams of the National Football League, as well as an updated version of the old casino.

“There’s just no way we should have lost this racetrack,” the late horse trainer Mike Mitchell said shortly before the track’s closure. “They sold it to these developers, and we’ve been screwed ever since. And all I can do is thank Churchill for that.”

“The closure of Hollywood Park should be a lesson once and for all that thoroughbred racetracks should not be owned by publicly traded companies, whose prime directive is to maximize shareholder profit,” Daily Racing Form columnist Jay Hovdey told me back in 2013. “Churchill Downs Inc. certainly fulfilled its mission in that regard when it sold the property to a land-development company for twice its purchase price. Now the ultimate cost of that transaction is being paid by the California thoroughbred community.”

‘CDI was a sensible buyer and we hoped for good things’

Calder hung in there for a little while longer, thanks to a deal CDI cut with The Stronach Group, a privately owned conglomerate of racetracks and other ventures that’s recently been rebranded as 1/ST. That outfit owns Hallandale Beach’s far classier Gulfstream Park, a mere eight miles east from Calder.

In 2010, CDI opened a casino at Calder. According to Steve Screnci, president of the Florida Horsemen’s Benevolent & Protective Association, Gulfstream, which boasts its own racino, applied for some racing dates that had typically been awarded to Calder. A deal was then struck wherein 1/ST signed a lease to take over racing operations at Calder, which was rechristened Gulfstream Park West, while CDI maintained control of the casino.

1/ST took the racing reins at Calder in 2014. The following year, CDI demolished 1,000 of the track’s 1,400 stalls, followed by the entire grandstand, forcing folks who wanted to bet on the races there to either do so from the simulcast parlor at Gulfstream proper or, once the demolition was completed, in a handful of tents on the Calder grounds. None of this caught 1/ST by surprise. In fact, it was part of the deal all along.

“That wasn’t something that came as a shock to anyone,” said Craig Fravel, 1/ST’s CEO. “It was part of a broader business deal between the two companies. It had to do with simulcast content and ADW companies.”

When CDI purchased Calder, Screnci said, “I don’t think there was any great concern. CDI was a sensible buyer and we hoped for good things.” But the deal with 1/ST was “what led to the closing,” he added.

“I feel that Churchill Downs didn’t do its best for horse racing,” local trainer David Fawkes recently told The Thoroughbred Daily News. “They’ve done the same thing in Chicago with Arlington and to Hollywood Park. It’s sad because we all got on board to help them get their casino, and once they got what they wanted, they were done with us.”

Florida currently requires casino licenses to be coupled with parimutuel gambling. In most states, such a requirement would mean that casinos could only operate at horse tracks. But Florida is home to the country’s last few jai-alai frontons, which feature parimutuel wagering. So instead of continuing the tradition of thoroughbred racing at Calder, CDI opened a jai-alai fronton there in 2019.

“They figured out they could get a jai-alai permit, which would cost them a lot less than paying the horsemen and [allow them to] keep their casino at the same time,” said Screnci.

As for the Calder fronton’s atmosphere, Screnci said, “It’s dismal. There’s not a big appetite. It’s just kind of a front for a casino, like greyhound racing was.”

And CDI may not need that front for long, as there’s a piece of legislation working its way through the chambers of Tallahassee that would decouple casinos from all sporting concerns, save for thoroughbred tracks.

When asked if this means CDI could stop operating its casino-fronting fronton if and when this legislation passes, Screnci said, “Without question.”

Strictly business, nothing personal

Stripped of all the emotion and nostalgia surrounding the constriction of the American horse racing industry, one could credibly argue that CDI is doing right by its shareholders by adhering to coldhearted calculus.

“I think they’re operating in the best interest of their stakeholders,” said Patrick Cummings, executive director of a think tank called the Thoroughbred Idea Foundation that counts Gary Stevens and Donna Brothers among its board members. “That’s the goal of a public corporation. It’s a shame, but it’s just what has happened. Is that going to do damage to the sport? Yes. But is it the wrong decision of a publicly traded company? It probably isn’t. That’s bad for horse racing and it has been bad for horse racing during this whole two-decade-plus period of corporate consolidation. There was a time when many of these tracks were all individually owned and operated.”

When asked why CDI chose to abandon a stunner of a track such as Arlington, where the 2021 meet commences this Friday, April 30, Cummings replied matter of factly, “Because they have a 61% stake in Rivers Casino in Des Plaines.”

Cummings’ organization is a staunch advocate of fixed-odds wagering on horse races, arguing that it could be a powerful tool in attracting new bettors now that states are rushing to legalize sports wagering in the wake of the U.S. Supreme Court’s decision to overturn the Professional and Amateur Sports Protection Act.

With parimutuel betting, all wagers are placed in a pool where players are betting against each other and the odds can swing dramatically right up until post time. What’s more, the track and its partners take up to a 20% cut of each wager, up front. Conversely, when you place a fixed-odds bet, which is the prevailing wager in the vast majority of athletic competitions, you’re playing against the house and lock your odds in immediately, regardless of where they wind up by the time the horses break from the gate. 

To this end, Cummings presents a hypothetical scenario wherein a 22-year-old novice horse bettor makes a wager on a horse that opens with 4/1 odds, only to be bewildered when his payout is far less than he bargained for when the horse goes off at even money.

“The question for horse racing is how to monetize racing outside parimutuel betting, which is as anti-modern as you can get,” said Cummings. “I don’t know how any customer who’s new to the space can look at parimutuel betting and say, ‘Yep, that’s how I want to bet my money.’ In the game of parimutuel wagering against fixed odds, I don’t see how any modern customer could choose parimutuel. Racing has ignored evolving its wagering product. What have we done in 25 years? We’ve added the Pick 5. Now you have this rapidly spreading legal competitor growing by leaps and bounds, offering markets on sports that never existed legally in this country before.”

The fix has to be in

Cummings thinks racetracks’ recent reliance on casino subsidies is nothing more than a Band-Aid, and feels the industry has “to adopt elements of the Australian model.” By this he means opening the floodgates on fixed-odds wagering, which Dallas Baker, the Aussie-bred head of international operations for Betmakers, says took Australian horse racing “from surviving to thriving” after a key piece of legislation passed there in 2009.

“In the 10 years since, handle pretty much doubled on horse racing,” said Baker. “Prize-money levels have doubled. In Australia, where there are 25 million people, there is $25 billion bet on racing — 60/40 in favor of fixed odds vs. parimutuel. There are 330 million odd people in the U.S., and we bet $12 billion on horse racing. There are almost twice as many races in the U.S. [as there are in Australia]. If that doesn’t tell you something is wrong with the model, I don’t know what does. The lifeblood of our industry should come from the wagering dollar, which is where the U.S. has fallen behind.”

Baker is now based in New Jersey, which he calls “the biggest sports betting state in the U.S.” post-PASPA repeal. The company he works for, Betmakers, is sort of a one-stop shop for anyone looking to set up a sportsbook, and it recently entered into a first-of-its-kind deal to offer fixed-odds wagering on horse racing at Monmouth Park.

The New Jersey track has offered fixed odds and prop bets on its premiere race, the Haskell Invitational, since PASPA was struck down in 2018, but is awaiting state approval to go all in on all of its races.

“One of the difficulties of parimutuel wagering — the complaint I get from customers at the racetrack — they don’t get how when their horse got to the gate it was 2/1, then goes a furlong, and now it’s 3/5,” once all last-minute bets, some of them large, are tabulated, Monmouth Park CEO Dennis Drazin recently told US Bets. “They think something is wrong, and they are not interested in that sort of bet.”

Despite the fact that parimutuel and fixed-odds wagering are not mutually exclusive, Drazin’s track sits alone on the vanguard — for now. The national HBPA and 1/ST are not yet supportive of fixed-odds betting, but seem to be warming to it. 1/ST’s Fravel, while maintaining that “parimutuel wagering is the engine that drives what we do,” conceded that his company is “open to exploring areas where fixed-odds wagering might make sense.” Meanwhile, Eric Hamelback, the HBPA’s national CEO, is rightfully concerned that horsemen won’t get the same cut of the action that they do with parimutuel wagers.

“I serve on a national committee trying to figure out if fixed odds are good or bad. There’s significant interest, but a real question about the pricing,” said Drazin. “With a parimutuel bet, you’re getting 20% takeout. Takeout on fixed odds is going to be lower, so you have to grow your volume.”

Yet Hamelback calls fixed-odds betting “a very promising avenue to explore and get into at some point,” adding, “I try to base my opinions off of facts, and you can look very easily and find the comparisons in Australia. They applauded it. It’s compelling that fixed-odds wagering will increase the number of people who wager. It’s certainly simpler, and that is always advantageous when it comes to wagering on horse racing.”

As for Churchill Downs Inc., they declined to answer a question concerning their stance on fixed-odds wagering, which won’t be offered on this weekend’s Derby or Oaks cards.

“The last conversation I had [with CDI] was a while ago, and at that point in time, they weren’t ready to embrace fixed odds,” said Drazin. “I think it’s something they’re looking at and are studying. I just can’t tell you if they’ll ever do it.”

Photo by Jamie Rhodes / USA Today Sports

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