In Florida Deal, CDI Also Moves on From HRTV

Churchill Downs continues to reduce its racing interests.

By Frank Angst and Jim Freer

Churchill Downs Inc., which has enjoyed strong profits from its gaming operations, continues to reduce its racing interests.

As part of its agreement to have Frank Stronach's The Stronach Group take over racing operations at Calder Casino & Race Course, CDI announced May 28 that it will walk away from its involvement in HRTV when early next year TSG becomes sole owner of the racing channel.

The plan for CDI to separate from HRTV, which in 2007 saw CDI equally partner with Stronach's former Magna Entertainment Corp. operation on the racing channel, was announced May 28 as part of the dates deal between TSG's Gulfstream Park and CDI's Calder.

In a May 28 release, CDI outlined the Florida plan to its shareholders and the public. The company said it has entered into a binding term sheet under which The Stronach Group will operate, at TSG's expense, live racing and maintain certain facilities used for racing and training at Calder in Miami Gardens, Fla.

The Stronach Group plans to run the minimum number of race days at Calder required by Florida law while also running live racing during the rest of the year at Gulfstream. On May 23 representatives from TSG said Calder would race 40 days, likely in the fall.

The 230 race dates in South Florida will be maintained, with Gulfstream offering the vast majority of those dates. The arrangement will be in effect through the end of 2020.

CDI president William Carstanjen said the transaction makes sense for all of the stakeholders of the Thoroughbred racing industry in South Florida in light of the limited supply of Thoroughbred horses racing in the region.

"Without this arrangement, there is no other apparent, viable long-term solution to preserving racing in South Florida on a year-round basis," Carstanjen said. "In addition, CDI and TSG addressed the future of their HRTV partnership and other outstanding topics of discussion between the companies, all of which sets the stage for a mutually productive working relationship going forward."

The transaction is anticipated to be completed by June 30, 2014. It is contingent upon regulatory approval, certain amendments to Calder's agreement with the Florida Horsemen's Benevolent and Protective Association, execution of certain other definitive agreements (such as the facility lease), and other usual and customary closing conditions.

The deal will involve a lease to TSG of Calder's racetrack and certain other racing and training facilities, including a portion of the barns on Calder's backside consisting of approximately 430 stalls.In addition, the two companies reached agreement with respect to extending their current contracts to provide each other with their respective horse racing content for simulcast and account wagering purposes.

Some aspects of the binding agreement will require approval from the Florida Division of Pari-Mutuel Wagering. In addition to the request to change some racing dates, the Florida DPMW will need to give special review to the proposals for TSG-owned Gulfstream to lease Calder's racing operations, and for CDI to operate the Calder casino but not its racing product.

As of late morning May 28 neither Gulfstream nor Calder had submitted applications for dates changes or other requests, a spokeswoman for the Florida DPMW said. But the two tracks have been providing information to the regulatory agency and could make formal applications by the end of May with a goal of halting overlapping racing dates this summer.

Officials at Gulfstream and at Calder have declined to comment on their pending negotiations with the Florida DPMW.

"I am hopeful that we can get something done by then, but I expect it will take several rounds of paperwork," said Lonny Powell, chief executive officer of  the Florida Thoroughbred Breeders' and Owners' Association. "(The Florida DPMW) will have to review some things that are new and unprecedented. It is helpful both tracks and the Florida HBPA are together on this, and we think they have a deal that is very positive."

Several questions pertain to the Calder casino. To retain its casino license a Florida pari-mutuel outfit must have at least 40 racing programs per year for each racing permit. Calder has its Calder permit and its Tropical-at-Calder permit, and thus has an 80-day requirement.

Sources familiar with the CDI-TSG deal said Churchill will seek permission to keep one permit dormant each year on a rotational basis, and thus be required to hold only a minimum of 40 racing dates.

Powell is among those who believe June 29 could be a target date for ending head-to-head racing. That is the last scheduled race day for each track during Florida's 2013-14 fiscal year that ends June 30.

The request to cancel some Calder weekend dates and perhaps add some weekdays to Gulfstream's schedule will require approval by the other seven pari-mutuel facilities within 50 miles of Calder and 50 miles of Gulfstream.  But the Florida DPMW could override any objections if it believes the schedule changes would help the tracks' pari-mutuel handle and other revenue.

It is widely expected the Florida DPMW will exercise that option, primarily because Calder handle numbers have been low compared with those at Gulfstream. The two tracks can be expected to provide data showing a considerable reduction in total expenses if they return to a normal schedule.

One example of the handle numbers was for the May 9-11 weekend: Gulfstream had 25 races and Calder had 24 over the three days. Gulfstream's average daily all-sources handle of $4 million was five times greater than Calder's $753,000 average daily all-sources handle, according to a review of Equibase charts.