Why We Are Where We Are, Part II–Real Estate Realities

[Wandering Eyes]

   The following continues a look at how long-term economic developments shape today's Thoroughbred sport. To read part I, click here.

Defining Development #5–Real Estate Realities

Has there ever been a time when rising real estate values have not heavily influenced the physical locations of Thoroughbred breeding farms and racetracks? This economic maxim has been especially dominant in the U.S. in the late 20th and early 21st centuries.

As for breeding farms, anyone who has driven over the past four decades along Harrodsburg Road south of New Circle Road  in Lexington, or along Florida State Road 200 both northeast and southwest of I-75 in Ocala, cannot fail to have noticed remarkable changes. Both routes once bordered farms that were key players in the advancement of Thoroughbred breeding in their states. Both are now full-fledged commercial corridors with restaurants, retail shops, office buildings, apartments, condominiums and single-family homes.

In Lexington, Keeneland co-founder Hal Price Headley has never been anybody's idea of a dummy. Occupied and expanded since the late 19th century by Headley and his father and grandfather before him, the family's Beaumont Farm grew to 4,000 acres of rolling Bluegrass hills and farmland.

Some pricier chunks of land close to the expanding city have long since been sold. One supposes that it was always in Headley's plan to retain sufficient acreage so that his estimable successors can continue the family tradition of leadership at Mill Ridge Farm on the rural western edge of the original Beaumont.

Much the same pattern has unfolded in Ocala. The retail, hotel and restaurant strip near the city's Paddock Mall, which opened in 1980, once was home to horse farms. Meanwhile, the high-value commercial strip extending southwest from I-75 was, until the 1990s, horse-farm territory. In the primest of all Ocala real estate, near the Interstate, were the sizable holdings of Bonnie Heath, one of the Florida industry's patriarchs. When Heath died in 2001, it only made sense for his family to sell the prime acreage and establish a successor Bonnie Heath Farm farther out from Ocala.

Buying rural property in path of residential or commercial development has been, maybe forever, an essential part of long-term planning for horse farm owners. Such plans provide an exit strategy for established breeders, should things go awry or succeeding generations choose different paths.

They also work for newly smitten breeders seeking to set up operations, fulfill personal dreams, produce some good horses, maybe make some money, or at least have fun trying. Then to cash out, perhaps 10, 15, or 20 years later when land values have escalated, thereby preserving or enhancing the kids' inheritance.

Nowhere has this plan been more prevalent than in California, long the nation's most explosive real estate market. If it works for horse farm owners, who thinks it should be any different for operators of racetracks?

Racetracks have their own real estate history, which has led to an excruciating handful of long-cherished properties being sold off, amid declining financial returns, for their burgeoning real estate value. Unfortunate casualties of the harsh realities of 21st century racing include several tracks established during the Great Depression when state governments were desperate for any kind of tax revenue.

These tracks include Bay Meadows, which opened in 1934, Hollywood Park (1938) and Golden Gate Fields (1941). Others, whose heads, hearts, and spirit rest uncomfortably close to the chopping block, include Santa Anita (1934) and Gulfstream Park (1939).

All were built in locations distant enough from city centers so that open tracts of land were available at affordable prices. After decades of first rising and then falling economic fortunes in racing, Hollywood Park was sold in 1999 for $140 million to Churchill Downs, which then resold it in 2005 to a property development firm for $260 million. Both Santa Anita and Gulfstream Park are now said to be worth multiples of that price for their development potential.

Is there any conceivable business model for racetracks today that would support such underlying real estate values? If so, has anyone worked harder to find it than the owners of Santa Anita and Gulfstream?

Santa Anita | Benoit photo

Both Frank Stronach, the immediate past owner of the two tracks, and his daughter Belinda Stronach, in charge today, despite their public battles, have labored to introduce new ways of attacking some of racing's key problems.

Frank, an unvarnished visionary whose visions are sometimes clear and sometimes not, aspired to build his own satellite network to simulcast races from a coast-to-coast roster of racetracks. Over the years, that roster has included either outright ownership or leasing of simulcast rights at Santa Anita, Gulfstream Park, Laurel Park, Pimlico, Bay Meadows, Golden Gate Fields, Lone Star Park, Colonial Downs, Remington Park, Portland Meadows, Thistledown and Great Lakes Downs.

Only the first three on that list remain, at least for the moment, as parts of the Stronach racing package. Family interests in all others have been sold off for various reasons, including several primarily for their property value. Over the years, Frank's original idea of a satellite network has evolved into FanDuel Sports Network's pair of racing channels.

Among numerous other efforts, the Stronachs strived, ultimately with little success, to build a home team kind of competition between Florida and California with the Sunshine Millions. Belinda has invested substantial sums in her own initiatives. These include continuing to upgrade Gulfstream's Pegasus World Cup, first started by Frank, and establishing Santa Anita's California Crown, both of which aim to attract new fans with food and entertainment packages supplementing high-class horse racing.

Additional Stronach father-and-daughter innovations include various forms of coast-to-coast multiple wagers on this continent, and links with Royal Ascot and other international race meetings. Considerable investment also has been required to maintain three racing surfaces–dirt, Tapeta, and grass–after racing ceased at the former Calder Race Course in 2020, leading Gulfstream to operate the dreaded year-round schedule.

Have any other tracks anywhere in the U.S. attempted so many innovations? Some of this investment has generated additional revenue, but not nearly enough to produce a return consistent with the tracks' real estate value. Without taking sides in the Stronach family war, it is hard to envision how Gulfstream, coupled or decoupled, can survive as a racetrack amid current economic realities.

Other industry stake holders, beleaguered by financial challenges of their own, have seen fit to blame Belinda for the injustice of it all. From the safe distance of my vantage point, it looks to me like critics might as well bay at the moon, or work out some scaled-down ownership model of their own.

Churchill Downs has followed a different path. As a publicly traded corporation tied by the short hairs to relentless demands of its shareholders, Churchill has little sympathy for anything that does not generate the requisite Return On Investment. When real estate values escalate to a point exceeding a racetrack's ability to produce adequate returns, Churchill sells it off and employs the capital elsewhere.

Churchill's decision to rid itself of Arlington Park fits this pattern. Rising real estate values allowed Churchill to cash out its investment in Arlington when a potential casino at the track posed a competitive threat to a free-standing casino the company operates 10 miles away.

Arlington Park | Coady

The Kentucky Derby is a far different story. The year's first Triple Crown race has long provided the sport's best grip on widespread public attention, and best way to draw in aspiring racehorse owners. Even at that, Churchill's corporate ownership has proven through hundreds of millions of dollars of continuing investment that the Derby had been an under-utilized asset.

This investment has vastly improved the track's aging physical facilities and enabled the Derby to maintain its market-leading television ratings. It also has enticed fans to ante up rising ticket prices for the matchless Derby experience of food, fun, hats, menacing juleps and a springtime weekend of racing at the highest level.

None of this would have been possible without Churchill's access to capital markets, based on its ability to generate a consistently high ROI. Such access is not available to the private ownership of Gulfstream Park and Santa Anita.

Two other real estate-related developments, both favorable to racing, involve racetrack makeovers underway in New York and Maryland. Both represent instances where the sport has benefitted from changes in the value of property long occupied by racetracks.

In New York, the escalating value of Aqueduct's real estate, adjacent to JFK Airport, provided an important bargaining chip for the New York Racing Association to use in securing funding for rebuilding Belmont Park. NYRA essentially traded the Aqueduct property to the state for a funding plan to right-size Belmont.

A different scenario unfolded in Maryland. There, ancient Pimlico, opened in the late 19th century, is based in a neighborhood where property values have struggled. This circumstance incentivized The Stronach Group to pass the deed to Pimlico to a new state-sanctioned racing authority, whose aim is to preserve Maryland racing and breeding. In exchange, The Stronach Group received, among other things, an agreement to eventually close Laurel Park and develop its more valuable real estate.

In New York, the sport stands to benefit from transferring racing from a dismal Aqueduct to a fresh and re-imagined Belmont. The challenges of winter racing remain, but declining foal crops may soon force some season-shortening in New York, and at numerous other tracks across the country.

In Maryland, rebuilding Pimlico provides hope for sustaining the national popularity of the Preakness. The race and events surrounding it retain an invaluable hold on popular culture in the state, the like of which is hard to find anywhere outside of Louisville on the first Saturday in May. That sense of infectious excitement should not be allowed to fade from the local or national scene.

Isn't it clear that today's racing leaders should work to overcome whatever obstacles there may be to lengthening the time span of the Triple Crown season, so as to preserve and enhance the at-risk second jewel? The challenge, as with so many other lost opportunities in racing's past, is to innovate, not stagnate.

Tomorrow, the conclusion:  Blessed are the Survivors

David L. Heckerman, 80, is a native of Southwestern Indiana and 1966 graduate of DePauw University. He spent most of his working years as a writer, editor, and columnist in the newspaper world, and, from 1980-2000, covering Thoroughbred auctions and the economics of racing and breeding at trade magazines based in Lexington, KY. He now lives in retirement in Evansville, IN, and may be reached at davidheckerman@twc.com.

 

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