KENTUCKY DERBY HISTORY: THE “STREET CAR DERBY”

The Indianapolis 500 was not run from 1942-1945 due to World War II and a number of other prominent sports events were suspended as well. The Kentucky Derby was also in jeopardy in 1943 and 1944.

In his 1945 memoir, Down the Stretch, Matt Winn, longtime president of Churchill Downs, said that the 1943 Kentucky Derby was, in his mind, “the greatest Derby” because it was held at all.

In February of 1943, the U. S. Office of Defense Transportation (ODT) asked Americans to forgo unnecessary travel.  ODT’s written statement specifically noted that ODT would be requesting that the Kentucky Derby be called off, as railroads were clogged with war-related traffic.

Winn explained his response to ODT:

“My answer was made up of several parts.  First, I advised that special trains had not been run to Louisville since 1941; that they had been cancelled in 1942.  I told the ODT that we would cooperate in every possible way to discourage passenger travel into Louisville, if such travel merely was to see the running of the Derby.  I explained that our only concern was to run the Derby; that we were not concerned about how large, or how small, the crowd.”

Winn described how the ODT asked for a list of Derby boxholders who lived out of town, and followed up by sending them letters with a request to forgo travel to Louisville for the race.  Boxholders complied and most did not accept Churchill Downs’ offer to refund their money, but instead donated their seats to members of the military located nearby Louisville, such as at Fort Knox.

The 1943 Kentucky Derby became known as the “Street Car Derby” and attracted a crowd of 65,000.

Winn summed up the day:

“None of those who were at the 69th Derby could be forgetful that a world conflict raged.  The swirl of men in all the uniforms of the Armed Forces was a grim reminder.  Yet for that one afternoon there was a lulling of the life that is; the life of a war-torn world; there was a short return to the pattern of the peaceful, happy life that was.”

(Winn dedicated his memoirs—dated July 3, 1944–to his grandsons, one in the Navy and the other in the Marines, who were “somewhere in the battle zones.”)

In 1944, Churchill Downs reprised the Street Car Derby.  The 1945 Kentucky Derby was held on May 5 and three days later American celebrated “Victory in Europe.”

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The Kentucky Derby series began on February 20 and ends on May 1, with articles appearing weekly on Monday.

ROONEYS, MELLONS, AND HORSE RACING

Dan Rooney died this week.  By all accounts he was a charitable and humble man, one of five sons of the late Art Rooney.

Were it not for Art Rooney’s gambling winnings at the racetrack, reportedly at Yonkers and Saratoga, there likely would be no Pittsburgh Steelers, at least not a Rooney-owned team.  Rooney’s betting proceeds allowed him to buy the franchise in the early days of the NFL and keep it afloat during hard times.  While the Steelers made him wealthy and famous, his favorite sports were horse racing, baseball, and boxing.

Rooney family members are active in racing to this day, with ownership of Shamrock Farm in Maryland, a Thoroughbred breeding facility, and Yonkers harness racing track in New York.

The Rooney family came to Pittsburgh as poor Irish-Catholic immigrants and eventually made their fame and fortune in the world of sports.  Meanwhile. another Pittsburgh family with Irish roots, the Mellons, became rich beyond imagination owing to the investments of Andrew Mellon in companies like Aluminum Company of America and Gulf Oil.  Andrew’s son, Paul Mellon, became a pillar of horse racing.

The Rooneys and the Mellons were vastly different in terms of background—Duquesne vs. Yale and the Pittsburgh Steelers as opposed to Carnegie-Mellon University.  However, they had in common that Pittsburgh was the fountain of their success and wealth and both had a longtime devotion to the sport of horse racing.

Rest in peace Mr. Rooney.

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PENN NATIONAL GAMING OPERATING RESULTS, 2016

On February 24, 2017, Penn National Gaming filed its annual operating results for 2016.  The company is traded on NASDAQ under the symbol PENN.

PENN profiles itself as follows:

“Penn National Gaming, through its subsidiaries, owns, operates or has ownership interests in gaming and racing facilities with a focus on slot machine entertainment.  The Company presently operates twenty-six facilities in seventeen jurisdictions, including Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Maryland, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario.  In aggregate, Penn National’s operated facilities feature approximately 31,000 gaming machines, 800 table games and 3,000 hotel rooms.”

PENN is the third largest gaming company in the United States and owns the most horse racing tracks of any American firm:

Thoroughbred Racetracks:

Hollywood Casino at Charles Town Races (West Virginia)

Hollywood Casino at Mahoning Valley Race Couse (Ohio)

Hollywood Casino at Penn National Race Course (Pennsylvania)

Sam Houston Race Park (Texas)

Zia Park (New Mexico)–offers Thoroughbred and Quarter Horse racing

Standardbred Racetracks:

Freehold Raceway

Hollywood Casino Bangor (Maine)

Hollywood Gaming at Dayton Raceway (Ohio)

Plainridge Park Casino (Massachusetts)

In 2016, Penn had net revenue of just over $3 billion in comparison with $2.8 billion in 2015.  Net income in 2016 was slightly over $109 million in contrast to $686 thousand the year before.  (Penn had operating losses in 2013 and 2014.)  Diluted earnings per share were $1.19 in 2016 versus $.01 in 2015.

The preponderance of Penn revenues and profits derive from slot machines.  In 2016, 87% of net revenue came from slots and the rest was from hotels, food/beverages, and pari-mutuel wagering at racetracks.

The overriding strategic strength and weakness of PENN are the same.  As long as slots remain popular, PENN is well positioned.  However, with slots accounting for such a large portion of revenue, the company is extremely vulnerable to a decline in the popularity of slots.  In the short term this is unlikely to be a negative, yet over the longer term it remains to be seen whether tech-savvy millennials, as they age, will find slot play as attractive as today’s older generations.

In 2016, PENN sstock began the year at $16.02 per share and closed the year at $13.79 for a decrease of 14%.  In 2017, the stock has recovered nicely and traded most recently at between $18 and $19 per share.

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