Archives for May 2013

THE MEN BEHIND OXBOW, A CAST OF CHARACTERS FOR THE AGES

The 2013 Preakness Stakes was won by a 15-1 longshot, owned by an extremely low-profile college-dropout billionaire–who now has disdain for the industry that made him rich–conditioned by the second-oldest winning trainer in Preakness history, and ridden by a half-century-old jockey coming off a seven-year retirement.

Brad Kelley, Oxbow’s 56-year-old Nashville, Tennessee-based owner, was nowhere to be seen at Pimlico, just as he wasn’t when one of his horses won a Breeders’ Cup race last November. This is unsurprising, as Mr. Kelley is a semi-recluse, who reportedly has no public email address and rarely returns phone calls.

Mr. Kelley is the fourth-largest American land owner, and his vast holdings include the famed Calumet Farm in Lexington, Kentucky. He is a staunch conservationist and protector/owner of exotic animals. Mr. Kelley grew up on a farm in Franklin, Kentucky, and attended nearby Western Kentucky University, which he dropped out of four times and never graduated.

Mr. Kelley made his fortune in manufacturing and selling discount private-brand cigarettes. By happenstance, while in another business, he came across and acquired a cigarette-making machine that was going to be thrown out. This was the beginning of Commonwealth Brands, a company he sold for $1 billion in 2001. Since then, Mr. Kelley has had a change of mind and is strongly opposed to smoking.

D. Wayne Lukas, Oxbow’s Hall of Fame trainer and onetime basketball coach, has now won six Preakness Stakes, which puts him one behind trainer Robert Wyndham Walden (1843-1905). Mr. Lukas last won a Triple Crown race in 2000, the Belmont Stakes. As the years went by, some pundits said or whispered that “Coach” was done as a top-notch trainer.

The 77-year-old Mr. Lukas is the second-oldest trainer to win the Preakness, behind Sunny Jim Fitzsimmons (1874-1966). Mr. Fitzsimmons was nearly 83 in 1957 when he trained Bold Ruler to win the race. Bold Ruler was owned by Mrs. Gladys Phipps, the grandmother of Ogden Mills Phipps and Stuart Janney III, Orb’s co-owners.

Ironically, Orb’s trainer, Shug McGaughey, and the Phipps family were deprived of a Preakness win in 1989 by the third-oldest winning trainer of the race, the-then 76 year-old Charlie Whittingham. Mr. Whittingham sent out Sunday Silence to defeat the Phipps Stable-owned and McGaughey-trained Easy Goer, in what may be the most thrilling Preakness of all time.

Gary Stevens, Oxbow’s 50-year-old Hall of Fame jockey, came out of a seven-year retirement in January 2013. Mr. Lukas told Mr. Stevens soon afterwards that he had a promising 3-year-old for the jockey to ride. Oxbow was the third Preakness winner for Mr. Stevens, and he also has three wins each in the Kentucky Derby and Belmont Stakes. His first Triple Crown win was in 1988 on the Lukas-trained filly Winning Colors in the Derby.

When future generations hear oldtimers speak of the 2013 Preakness, the victorious cast of characters will make for a story better than fiction.

Copyright © 2013 Horse Racing Business

BETTER NOT TAKE THIS FELLOW TO SOME AMERICAN RACETRACKS

Poor customer service is a common complaint.

Consumers adapt their expectations to the kind of retailer they are doing business with. Certainly, customer-service expectations are much lower at Wal-Mart than at Nordstom because the value proposition offered by each is so different.

As a rule, the more upscale a company’s offerings, the higher the customer expectations. This principle vividly came to life last week, when news reports and a YouTube video depicted three men in China taking sledgehammers to a Maserati, worth about $480,000 retail. This exhibition occurred outside the venue for the Quingdao International Auto Show. The Maserati owner hired the men to destroy his car because of his dissatisfaction with poor dealer service and inadequate quality of the auto, plus the dealer he purchased from put in a used rather than a new replacement part.

While the Maserati owner was eccentric, to say the least, one can empathize with his frustrations.

One business that has been notorious for having weak customer service and subpar amenities has been racetracks. Like the Maserati owner, I have often felt like my patronage was not wanted at a racetrack.

The view here is that when racetracks have become racinos, the level of customer service has improved dramatically. The casino operators seem to insist on treating customers with respect and providing an all-around better environment.

Copyright © 2013 Horse Racing Business

PENN NATIONAL GAMING OPERATING RESULTS

Penn National Gaming (PNG) recently released its operating results for 2012. PNG describes itself as “a leading, diversified, multi-jurisdictional owner and manager of gaming and pari-mutuel properties…” with over 20,000 full- and part-time employees.

At the close of 2012, PNG owned, managed, or had investments in 29 facilities in 18 states and Ontario. These included eleven racetracks (five Thoroughbred, four harness, and two greyhound) and five off-track wagering facilities. The Thoroughbred racetracks are Beulah Park in OH, Hollywood Casino at Charles Town, WV, Hollywood Casino at Penn National, Sam Houston Race Park in TX, and Zia Park Casino in NM. Beulah Park is to be relocated from near Columbus, OH to a start-up facility close to Youngstown, OH.

In a major strategic development announced in November 2012, PNG said it plans to separate most of its gaming assets and real property assets into two publicly traded companies. The operating entity will remain Penn National Gaming and the tax-free spin-off of real estate assets into a REIT will be known as PropCo. The REIT will lease back its assets to PNG for use by PNG subsidiaries.

PNG had net revenues of $2.9 billion in 2012, a 5.4% gain over 2011. The company stated: “The vast majority of our revenue is gaming revenue, derived primarily from… slot machines (which represented approximately 84% and 88% of our gaming revenue in 2012 and 2011, respectively) and to a lesser extent, table games…” The balance of revenues derived from multiple sources, such as concessions and racing operations.

Net income was nearly $212 million in 2012, a decrease of 12.5% from the previous year. Diluted earnings per share (i.e., adjusted for stock options) were $2.04 in 2012, compared with $2.26 in 2011. Management attributed the decline in earnings to sundry factors like persistently sluggish economic conditions, new competition in the Midwest, and capital expenditures.

PNG typically has paid no cash dividend but has been active (though not in 2012) in repurchasing its common stock. If the proposed spin-off of the real estate assets is achieved, the REIT must, by law, “distribute at least 90% of its annual taxable income as dividends.”

PNG’s stock is listed under the symbol PENN on the NASDAQ Global Select Market. In 2012, PENN traded in the range of $37-$51.98, and has surpassed its previous peak in 2013. The stock has been trading at about an average price-to-earnings ratio for NASDAQ.

Copyright © 2013 The Blood-Horse. Used with permission.