Archives for March 2021

There is strong sentiment in the U. S. Congress to mandate a national minimum wage of $15 per hour under the Federal Labor and Standards Act.  This would supersede state minimum wage requirements and have a deleterious impact on many but not all horse trainers and horse breeders.

In New York City, the minimum wage is already $15 an hour and a racehorse trainer must pay at least $15 per hour and $22.50 for overtime. In 2019, a prominent New York City-based trainer was fined over $1.6 million for numerous labor violations, including failing to pay overtime and lax time keeping of employee hours worked. Another top-tier New York trainer quit, citing the cost of doing business.

Minimum wage laws vary considerably.  In New York state outside New York City, Long Island, and Westchester, the minimum wage is $12.50 per hour, whereas in Kentucky the state minimum wage is $7.25 hourly, and in California the minimum wage is $13 for employers with 25 employees or less and $14 for employers with 26 employees or more. The minimum wage in California is scheduled to increase to $15 per hour by 2023 regardless of number of employees and Florida voters in November 2020 passed a constitutional amendment raising the hourly minimum wage from $8.56 now to $15 by 2026.

Exemptions are written into minimum wage laws.  For instance, agricultural workers are exempt from overtime requirements and employers can make adjustments for meals and lodging provided to employees.  Exceptions are made as well for tipped employees and some student workers.

According to the Congressional Budget Office, a federally-mandated minimum wage of $15 per hour by 2025 would lead to a loss of 1.4 million U. S. jobs, but lift 900,000 people out of poverty. 

The flaw in a federal minimum wage is that it does not account for marked cost of living differences across the country.  For instance, a trainer at Belmont Park or Santa Anita likely has a day rate that accommodates a $15 per hour minimum wage, whereas a trainer at Mountaineer Park or Ellis Park would have a day rate that would not. 

Living on $15 per hour while working as a groom at Golden Gates Fields in San Francisco is a challenge no doubt, but $15 per hour would go much further at Oaklawn Park in Hot Springs, Arkansas.  As for farm workers on racehorse breeding farms, they are generally exempt from overtime provisions and are often compensated partly with housing.

A federal hourly minimum wage of $15 would have little effect on stables located in high cost-of-living areas but would be onerous for stables in low cost-of-living venues.  All trainers are classified by the federal government as operating small businesses, as determined by the number of people employed…and many and perhaps most small businesses would struggle to survive with a $15 federal minimum wage. 

Copyright © 2021 Horse Racing Business

Arlington Park is one of the most modern and attractive racetracks anywhere.  Despite its 93-year history in the Chicago, Illinois suburb of Arlington Heights, the track, rebuilt in 1985 after a fire, will be closing permanently after the 2021 meet ends on September 25.

Churchill Downs, Inc. released the following statement:

“Arlington’s ideal location in Chicago’s northwest suburbs, together with direct access to downtown Chicago via an on-site Metra rail station, presents a unique redevelopment opportunity.  We expect to see robust interest in the site and look forward to working with potential buyers.”

This statement reflects CDI’s conclusion that a close-out real-estate transaction is financially superior to keeping Arlington Park a going concern by accepting a proposed slots-machine deal with the state of Illinois.

The mayor of Arlington Heights said he was sad to see the racetrack cease operations but added that his city would derive more economic benefit from a mixed-use facility than it would from the racetrack.

As with any facility going out of business, the people whose livelihood depend on Arlington Park, as well as the suppliers who service it, will pay a high price.  The human lives disrupted are often obscured by sterile economic development analyses.

Gone from the greater Chicago area are Sportsman Park and harness tracks Maywood and Balmoral.  With the Arlington Park closure, only Hawthorne will be left.

This should be a major concern and action priority for the American racing industry.  Losing a state-of-the-art retail operation in the third-largest city in the United States has very negative ramifications for breeding farms and auction companies especially.  Fewer and fewer big-city places offering pari-mutuel wagering will have consequences.  Not only will access be lost to huge markets for racing bloodstock but future fans and racehorse owners won’t be cultivated.

Like Santa Anita near Los Angeles and Aqueduct in New York, Arlington Park is situated on land that, from a strictly financial standpoint, is too valuable for a racetrack. The privately-held Stronach Group, owner of Santa Anita, is not subject to activist shareholders.  By contrast, Churchill Downs Inc. certainly is and its CEO and board have to act accordingly.

The state of affairs with Illinois racing is grim but not hopeless.  A proposed turnaround solution is beyond the scope of this current post.  A future discussion here may delve into the matter further.

To reiterate, if the Chicago area is soon to be left with but one racetrack that is a major blow to the American racing and breeding enterprise, and not a problem confined to Illinois.

Copyright © 2021 Horse Racing Business

On February 21, 2021, the Securities and Exchange Commission released a 10K for Churchill Downs, Inc. (CDI), reporting operating results for the year 2020.

During 2020, CDI opened Oak Grove historical racing facility and Oak Grove hotel.  Oak Grove is near Fort Campbell, Kentucky, just across the Tennessee border.  CDI also opened Newport Racing and Gaming in Kentucky, south of Cincinnati, Ohio.  (Although the Kentucky Supreme Court in 2020 ruled elements of historical racing gaming to be illegal, the Kentucky legislature on February 1, 2021 approved clarifying legislation and the governor signed the bill into law.)

Net revenue for 2020 was $1.054 million, down by 21% from 2019, primarily due to pandemic-caused suspension of gaming operations.  While gaming operations were idle, net revenue from online wagering on horse racing via TwinSpires soared to $405 million, up 39% from 2019. 

CDI had a net loss of $81.9 million in 2020 compared to net income of $137.5 million the previous year.  However, after adjustments, such as a tax benefit from the CARES Act, CDI had net income of $33.3 million for 2020.

Adjusted diluted earnings per share for 2020 were $0.83 in contrast to $4.43 in 2019. 

CDI identifies four business segments within its corporate umbrella:  gaming, online wagering, Churchill Downs racetrack, and all other, which includes racing operations at its remaining racetracks and United Tote.

Gaming had net revenue of $443.9 million in 2020 vs. $694.8 million in 2019.  Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for this segment was $176.7 million in 2020 and $280.9 million in 2019.

Net revenue for online wagering was $409.9 million in 2020 and $291.6 million in 2019.  Adjusted EBITDA was $109.3 million in 2020 and $66.3 million in 2019.

Net revenue for Churchill Downs racetrack was $160.5 million in 2020 and $289.4 million in 2019. Adjusted EBITDA for 2020 was $38.3 million versus $137.7 million in 2019. CDI reported that “the loss of ticket revenue, fewer sponsorships, and lower wagering during Derby week” resulted in a $121.8 million decline of revenue from 2019.

The catchall “all other” segment had net revenue in 2020 of $74.7 million and $84.2 million in 2019.  Adjusted EBITDA was negative $37.8 million in 2020 and negative $33.5 million in 2019.

CDI stock (symbol CHDN) was $137.87 per share at the start of 2020 and closed the year at $196.44, with a low of $52.90 per share coming at the outset of the COVID-19 pandemic.  At this writing in 2021, CDI stock is at $238.92 per share.

(On Wednesday, March 9, 2021, Horse Racing Business will discuss the recently announced decision by CDI to sell the land Arlington Park racetrack near Chicago occupies, particularly the ramifications for the U. S. racing and breeding enterprise.)

Horse Racing Business 2021