Horse racing fans often lament its undeniable decline in popularity.  It is commonplace to hear or read that the sport is moribund and that its fans are old and dying out.  Some people decry the sparse coverage in the newspapers and on television. 

My many years consulting for and researching troubled companies have taught me that virtually every such business thinks that the situation facing it is unusual if not unique.   This is normally not the case at all and horse racing is no exception.  Many old-line businesses and industries are coping with change. 

The fact is, the United States has become a compartmentalized society aligned around specific and sometimes very narrow interests and this presents opportunities and challenges.  The television networks have had their audiences carved up by cable channels and the Internet.  The major newspapers are fighting for their lives in the face of the Internet.  Major retailers have been eviscerated by specialty shops and online vendors and huge shopping malls often look deserted, not unlike Aqueduct on a cold Winter day.  Even baseball, the reputed American national pastime,  has valid concerns over the sport’s diminishing appeal to boys. 

Like a multitude of mass-market enterprises, horse racing will never be what it once was.  Executives in the horse racing industry must get over the past–it’s not coming back–and continue to take the steps necessary to survive and even prosper as a niche sport. 

Horse racing is not an isolated case of a venerable institution fighting for a better future.  Consider the state of NASCAR, golf, outdoor sports in general, newspapers, and sports writers, as discusssed below.

1. NASCAR is sometimes cited as a sport that horse racing should emulate. To be sure, the car racing that originated with drivers hauling bootleg whiskey in the South has grown into a blockbuster enterprise with the most television viewers among all sports except football. But the growth trend is faltering.  Forbes magazine (March 2, 2009) ran an article titled “Pileup,” in which it said: “The sport is suffering declines in sponsorship, attendance, and financial stability, and the roots go a lot deeper than the lousy economy.”  Consider the following facts and statistics from the Forbes article:

  • Between 1998 and 2005, NASCAR’s national television ratings outpaced every professional sport, growing by 180%. The National Football League’s TV ratings actually declined in the same time frame by 10%. From 2005 through 2008, NASCAR’s national television ratings decreased by 21%, whereas the National Football League ratings fell by 10%.
  • Advertising revenues have taken a hit-for example, by 16% in 2008 for NASCAR’s Sprint Cup circuit.
  • Track attendance declined in 2008 for the third year in a row from an average of 130,000 per race to 118,000. International Speedway Corporation cut admission prices for some of its seats by as much as 40% for the Daytona 500.
  • Sponsorship deals are increasingly hard to get. Major sponsors have quit the sport-for instance, Coors Light, Tide, Domino’s Pizza, and Eastman Kodak.
  • The way that NASCAR is structured, team owners are treated like third-class citizens, getting what is left after NASCAR and the drivers take their hefty cuts. Consequently, more and more racing teams are closing up shop or selling out, including NASCAR icon Richard Petty.
  • Finally, indications are that fans are increasingly bored with the action and are resisting the ticket prices.

This is a case-in-point that every product or service has a life cycle. While NASCAR is still producing attendance numbers and television ratings that are sensational, the sport is likely to be in the early phase of a downward trajectory, comparable perhaps to horse racing at the dawn of the television age in the early 1950s. Like horse racing, NASCAR will need to find ways to attract new fans and improve its core product in an era of tremendous competition for the entertainment dollar.

2.  Another sport that has been experiencing a significant downturn in the United States is golf.  More golf courses have been closing than opening in recent years.  According to the New York Times, the sport has lost four million players (from 30 million to 26 million) since 2000.  The percentage of avid golfers, who play at least 25 times a year, fell by a third.  About one million golfers quit the game every year and fewer than that take it up. One of the main reasons offered is the cost of playing and the other is that  people increasingly don’t have the time to spend on a golf course, and in particular married men with children.   As a result, golf industry insiders have been experimenting with attracting high schoolers, families, and women.  Golf is part of a general decline in participatory outdoor sports like tennis and snow skiing.

3.  The Wall Street Journal (April 7, 2009) headline read:  “Baseball Writers Brace for the End.”  The article began with this verbiage:  “Baseball’s independent press corps, once the most powerful in American sports, is fading.  As newspapers cut budgets and payrolls, the press boxes at major league ballparks are becoming lonely places, signaling a future when some games may be chronicled only by wire services, house organs, and Web writers watching the games on television…It is not clear how many newpaper beat writers and columnists will vanish.”

Horse racing commentators and fans often bemoan the fact that racetrack beat writers and columnists are on the verge of extinction.  That is true, but the ranks of sports beat writers per se are being thinned because of the winds of change that are taking their toll on print newspapers.

4. Any bricks-and-mortar business whose goods and services can be delivered over the Internet is in danger of being decimated if not completely destroyed. Take newspapers. Almost all major newspapers have announced staff cuts.  The New York Times is $1.1 billion in debt and is trying to sell its stake in New England Sports Ventures (which owns the Boston Red Sox), as well as its corporate jet, to make it through 2009.  It may also shutter its money-losing subsidiary the Boston Globe.  Well-known newspapers have closed (the Rocky Mountain Daily News), some have gone strictly online (Seattle Post-Intelligencer), others have limited home delivery (the Detroit Free Press and the Detroit News) and a number have filed for bankruptcy (the Tribune Company-publisher of the Chicago Tribune, Los Angeles Times, and the Baltimore Sun). Similarly, Borders Group (book, music, and movie stores) and Blockbuster Inc. (movies and music) are hemorrhaging losses as online companies like Amazon and Netflix seize the market.

Like a wide variety of traditional bricks-and-mortar businesses in the early 21st century, racetracks’ future is online. Game, set, match, the Internet business model has prevailed. If the racing industry is going to grow handle, it will be largely through advance deposit wagering. That is the state of affairs and nothing can be done about it except to adapt.

In this regard, racetracks have a much better future than newspapers. The Internet is a made-to-order distribution channel for pari-mutuel wagering, whereas newspapers will have a difficult time making money from commodity-like online publications. Advance deposit wagering firms provide a convenient proprietary service that customers are willing to pay for through (reasonable) takeout, whereas newspapers supply information, most of which is readily available for free. However, a special-interest newspaper like the Daily Racing Form should do very well online because of the proprietary information it provides to handicappers.

5.  On an unrelated topic, Horse Racing Business ran an article on March 7, 2009, titled “Halsey Minor for Racing’s Jobs.” It proposed that high-technology entrepreneur and longtime avid racing fan Halsey Minor would be good for the sport as a racetrack owner. An excerpt reads:

“If Minor joined up with some of the bright young minds in the industry to operate a racetrack, in the right location and under the right circumstances, the results might be highly desirable. With the bankruptcy filing at Magna Entertainment this week, a few prospects come to mind.”

Minor made an attempt to acquire a large stake in MEC in October of 2008 and has renewed his effort in the past several weeks. Now that MEC has filed Chapter 11 bankruptcy and major creditors are dissatisfied with the company’s reorganization plan, Minor’s chances have improved.

Minor is a technology innovator, has deep pockets, and is clearly a proponent of Thoroughbred horse racing. I repeat here what I said in the March 7th article: “The racing fraternity should embrace Minor with open arms, as a force for change and experimentation-a straw that stirs the drink.”

Copyright © 2009 Horse Racing Business


MTR Gaming Group, Inc. owns Mountaineer Casino Racetrack and Resort (formerly Waterford Park) in Chester, West Virginia, on the Ohio River.  It offers slots, table games, poker, and Thoroughbred racing at this facility. The Company opened Presque Isle Downs in Erie, Pennsylvania, in 2007 with a casino complex, restaurants, and a racetrack with a Tapeta synthetic surface designed by former trainer Michael Dickinson. The cost of Presque Isle Downs was approximately $294 million.  MTR Gaming Group ‘s Scioto Downs is a harness track in Columbus, Ohio. The Company is a 50% owner in Running Aces Harness Park in Minneapolis, Minnesota. In 2008, the Company closed Jackson Harness Raceway in Michigan and sold two Las Vegas properties: Ramada Inn and Speedway Casino and Binions’ Gambling Hall & Hotel.

Mountaineer Casino Racetrack and Resort has 3,220 slot machines (located in both the casino and the nearby racetrack), 55 table games, 40 poker tables, 359 hotel rooms, a spa, a fitness center, dining facilities, including an upscale steak house, bars, a 69,000 square-foot theater and events center, and a 13,500 square-foot convention center.

Mountaineer is 35 miles west of Pittsburgh, Pennsylvania, and 40 miles south of Youngstown, Ohio. Pennsylvania recently legalized slot machines and The Meadows Racetrack and Casino in Washington, Pennsylvania, is only 40 miles from Mountaineer. The Meadows has slots but is not permitted table games.

Presque Isle Downs is located on 272 acres (58 of which are open space) and has a 140,000 square-foot clubhouse that offers 2,000 slot machines with authorization for 3,000. The racetrack is situated adjacent to the casino. Presque Isle Downs has fine and casual dining. Erie, Pennsylvania, has 3,000 hotel rooms. Living within 90 miles of the complex are 2.2 million people and the nearest competitor is 75 miles away.

Scioto Downs in Columbus, Ohio, is a pari-mutuel harness racing track. Running Aces in Minneapolis, Minnesota, has harness racing and a 50-table card room in which players bet against one another rather than the house.

For the year ended December 31, 2008, MTR Gaming Group increased revenues over 2007 by 13.2%–from $415.8 million to $470.8 million. Gaming comprised 88.8% of revenues and pari-mutuel commissions accounted for 3%, with the remainder coming from food, beverage, lodging, and other.

Operating income increased from $26.6 million in 2007 to $38.2 million in 2008, or by almost 44%. However, because of losses from the discontinued operations in Michigan and Nevada, the Company had a net loss of $17.7 million in 2008 ($.65 per share), compared to a net loss of $11.4 million in 2007 ($.41 per share). MTR Gaming Group had net income of $7.8 million and $4.5 million in 2005 and 2006, respectively.  By agreement with its lenders, MTR Gaming Group cannot pay a dividend on its common stock unless the creditors approve.  The Company has stated that it intends to retain all earnings.

In 2008, EBITDA (earnings before interest, taxes, depreciation, and amortization) was positive for Mountaineer ($51.4 million) and Presque Isle Downs ($33.5), but negative for Scioto Downs (-$1.4 million).

At the close of 2008, MTR Gaming Group had a capital structure comprised of 81.9% debt; in 2007 the corresponding figure was 81.5%. This debt load was up significantly from the previous three years–73.2% in 2006, 63% in 2005, and 58.4% in 2004–because of the building of Presque Isle Downs. In its most recent 10Q filing for the first quarter of 2009, the Company states as a major risk: “Our substantial indebtedness could adversely affect our financial health.”

The Company had a positive cash flow for 2008 from operations, but interest on its debt resulted in a negative cash flow overall. Another risk factor is that  the company is being sued by a jockey injured during a race at Mountaineer. Management believes that its liability insurance is sufficient to cover an adverse court decision but is not certain.

In May 2007, MTR Gaming stock was trading at about $16 per share.  Its 52-week range is $.73-$7.23 per share. The stock closed at $1.08 per share on April 9, 2009.

MTR Gaming Group had the unfortunate timing of taking on huge debt to build Presque Isle Downs in 2007, just prior to the downturn in the U. S. economy. Compounding matters, The Meadows Racetrack and Casino added slots at its harness racing track, and this decreased the attraction of Mountaineer Casino and Racetrack to Pittsburgh-area customers. Still, Mountaineer has the advantage of having table games and poker, which, under Pennsylvania law, The Meadows cannot offer. Even so, MTR Gaming’s indebtedness, coupled with the economic malaise, prevents the company from taking on more debt to build the additions needed at Mountaineer to offer first-class facilities for poker and table games. An additional stock offering is not practical to raise funds to pay down debt because of the Company’s depressed stock price and the economic uncertainties that are affecting all gaming firms in the United States.

Scioto Downs is an underperforming property that could be closed or sold when better times come around. It is highly unlikely that Scioto Downs will be permitted to to install slot machines, at least any time soon. The casino ballot initiative that Ohioans will likely vote on in November 2009 will be for casinos only in four major cities (Penn National Gaming’s Raceway Park in Toledo is a proposed site).  There is a bipartisan move underway in the Ohio legislature to allow the state’s racetracks to install slots without a voter referendum, but the governor has indicated that he would likely exercise his veto.

MTR Gaming Group has pursued the same debt-financed path to rapid growth that most of the leading casino companies have employed.  Now, with the slowing economy and worldwide credit freeze, MGM Mirage, Harrah’s, and Las Vegas Sands are in danger of defaulting on their debt and Trump Entertainment Resorts and Magna Entertainment Corporation are in bankruptcy. 

The view here is that MTR Gaming Group stock is a risky play but one with plenty of upside potential. The Company has gotten rid of several subsidiaries that were incurring losses or barely earning a profit. If the Company can survive the present economic situation, business at its casinos in Erie, Pennsylvania , and Chester, West Virginia, will pick up. These are both facilities with a lot to recommend them in terms of market advantages. The Company would then have the cash flow to begin to get out from under some of the debt. This would probably not be enough, however, given the sizeable interest on the debt, and a stock offering would also be necessary.  Another option for MTR Gaming Group is to try and sell either Mountaineer Casino Racetrack and Resort or Presque Isle Downs to raise cash.  Other gaming companies have pursued this path, such as MGM Mirage, which sold Treasure Island in Las Vegas and may sell its casino operations in Michigan and Mississippi. 

By contrast, there is a troubling probability that if the economic situation does not improve dramatically in the next year, MTR Gaming Group would be unable to cope with its mountain of debt. In that case, the Company’s common stock would be subordinate to the debt holders in any court-supervised reorganization plan.

From an investor’s viewpoint, MTR Gaming Group’s stock is similar to casino stocks in general:  potentially lucrative turnaround plays fraught with risk.  It is uncertain whether the Company can continue to make the payments on its debt during the current economic slowdown.  A prolonged pullback in consumer spending and increases in unemployment could push the Company into bankruptcy.  Conservative investors who need their portfolios to live on now or in the near future should stay away from this stock.  However, aggressive investors could see a great deal of price appreciation in MTR Gaming Group stock once consumers are willing and able to spend more on entertainment.

Copyright © 2009 Horse Racing Business

Disclosure: Bill Shanklin is not currently a shareholder in MTR Gaming Group but has owned shares in the past.