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.

Copyright © 2017 Horse Racing Business

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.

Copyright © 2017 Horse Racing Business

A LIFE AND DEATH DECISION ON THE RACETRACK

The Sydney Cup in Australia is a venerable $2 million (AUS) Group 1 race run at a distance of 3,200 meters or about 2 miles.  The April 8, 2017 edition ended in tragedy and controversy.  It demonstrates why stewards in horse racing have difficult and thankless jobs.  Whereas referees in other sports sometimes make disputed calls that determine winners and losers, horse-racing stewards may have more at stake than offending irate players and fans.

In the Sydney Cup, a horse named Almoonqith broke down about half way through the race (near the finish line on the first lap) at Royal Randwick, causing two jockeys in the fourteen-horse field to fall.  Because the jockeys and the injured horse (subsequently euthanized) were on the ground, the stewards make a snap judgment to stop the race and declare a “no race.”

Randwick does not have sirens to alert jockeys, so the stewards radioed the official starter, who yelled at the riders as they came to the 800-meter mark.  However, approximately half the jockeys apparently did not hear and rode on and finished the race.

In the aftermath, the stewards were subject to a hail of criticism–by jockeys, trainers, and a host of others–for their decision.  Others approved of the choice.

The stewards were in a “no-win” situation in which there was no time for analysis.  Had they not stopped the race and another wreck had occurred on the second lap, the criticism would have been unrelenting that the stewards abandoned safety concerns.

If any rebuke is justified it is that Royal Randwick was derelict in not having a siren system in place to warn jockeys.  (Would Churchill Downs’ stewards be able to stop the Kentucky Derby if a pileup occurred soon after the start and endangered the rest of the field as it came into the stretch for the second time?)

Stewards normally have ample time and video/photos to assist them in making decisions, but sometimes they have to act without hesitation on gut instinct, weighing the negatives of calling off a race in progress against safety concerns for riders and horses.

The Sydney Cup has been rescheduled for April 22.

Copyright © 2017 Horse Racing Business

Click here for more details on the 2017 Sydney Cup.