Del Mar Races See New Costs And Declining Revenues
Tuesday, July 18, 2017
Credit: Associated Press
For the last 10 days, a hive of activity at the Del Mar Fairgrounds has transformed the grassy courtyard behind the grandstands into a beautifully manicured paddock for the race horses to strut their stuff before heading out to the racetrack. Flowers have been planted and fences power washed, paint has been touched up and pathways raked. But most importantly, the soft dirt track around the perimeter has been mounded up just right for the horses.
“We are putting on the safest possible racing event we can and to do that we decided to give away a week of racing to allow us to renovate the track between the fair and the racing season,” said Josh Rubenstein, chief operating officer of the Del Mar Thoroughbred Club.
Wednesday is opening day at the Del Mar racetrack. Horse racing is on the decline nationwide, forcing the Del Mar Thoroughbred Club to make some changes.
Seventeen horses died at the Del Mar racetrack last year.
“Since 2007 we’ve invested over $15 million in racing surfaces,” Rubenstein said. “We spent another $1 million from the offseason of last year to this year in terms of renovating the main track and bringing in some additional consultants, so we’re very pleased with the effort and we think when the horses are down here that jockeys, trainers and horses will really notice a difference.”
Out on the racetrack, heavy equipment peeled off 12 inches of dirt and rebuilt the foundation of the track. Agricultural engineer Mick Peterson was busy taking samples of the dirt to be tested.
“What we’re doing here is we are just taking and bagging samples to go back to the laboratory to be tested,” Peterson said. “The key here is to get consistency at the same depth.”
Peterson is director of Equine Agriculture at the University of Kentucky and cofounder and executive director of the Racing Surfaces Testing Laboratory in Maine.
“By having a good track, they are managing muscular skeletal disease mechanisms,” Peterson said.
His goal is to make the track so similar to the training track at Santa Anita that the horses will not feel the difference.
“All our measures are meant to make this track as similar to Santa Anita as possible; to make sure that everything is as consistent as possible," Peterson said.
Peterson hurries out of the way as three tractors bear down on him, making endless circles around the track to aerate it and add just the right amount of moisture.
Del Mar bucks a trend but still needs subsidies.
The shorter summer meet is a calculated risk, a decision that balances many factors as the Thoroughbred Club navigates changes that are challenging the horse racing industry nationwide.
“We’re very fortunate to have this beautiful facility right next to the ocean,” Rubenstein said. “People want to come out here that aren’t necessarily core horse racing folks.“
In fact, Del Mar is bucking the trend in the horse racing industry, which is on a slow and steady decline. One of the biggest issues is changing demographics.
“You need to have a fan base that is regenerating, and if your core audience is an older male, it’s tough to do that,” Rubenstein said. “We came up with events such as a world-class concert series that people who are at the races get to see for free, events like craft beer festivals, food truck festivals ... these are all things that will get the local community out here that may not necessarily be horse racing enthusiasts, because we’ve created it as the place to be.“
There used to be three main horse racing venues in California, but Hollywood Park closed its doors in 2014. Now only Santa Anita and Del Mar are left and Del Mar helped pick up the slack with a new fall meet.
But the fall meet at Del Mar has eroded attendance at the summer meet. David Watson is a board member of the 22nd Agricultural Association which operates the fairgrounds. He said falling attendance at the Del Mar races is a long-term trend.
“You can see that in 2004 the attendance was about 733,000," he said, pointing to figures in the Del Mar races media guide. “And with the exception of one minor blip, it’s been going down, steadily going down, and in 2016 the attendance was 534,000. Just a steady decrease in attendance since 2004.”
Watson said revenue from the races used to easily cover the annual cost of bond repayments on the grandstands, but not any more. The grandstands were rebuilt in 1991 and recently upgraded. That debt is now about $45 million and the yearly payments are about $3.3 million. Last year the Thoroughbred Club was only able to pay the Race Track Leasing Commission and the District $1.7 million.
Fitch Ratings Agency has not downgraded Del Mar racetrack’s bond rating: it has remained triple-B minus for years. But analyst Scott Monroe said the track's revenues have fallen rapidly in the last three years.
“What happened last year,” Monroe said, “racetrack net revenues fell down to $1 million. Prior to that they had been $2.6 million, and on average the previous five years they had been $5.5 million. So you can see this continued gradual decline in racing revenues. There’s been a general decline in the horse racing industry.“
Monroe said Fitch expects the long-term decline in horse racing to continue.
“As long as revenues don’t fall more than 2 percent annually,” he said, “they can hold on to their triple-B minus rating.“
That is because, while horse racing revenues are declining, profits from selling food and drinks at the races have gone up. The Thoroughbred Club is now using up to $4 million dollars of food and beverage sales — money that used to go to the fairgrounds budget — to cover the annual debt payments on the grandstands.
When the Del Mar Fairgrounds opened in the mid 1930s, the land cost the 22nd Agricultural District $25,000. The buildings cost half a million dollars, courtesy of the New Deal’s WPA money. Horse racing provided a steady source of funds for the fairgrounds.
Now, 80 years later, with horse racing on the decline, the fair board's Watson said the equation has changed.
“For at least the last two years the payments that we received from the Thoroughbred Club had not been sufficient to cover the payments on our bonds," Watson said. “So we had to supplement the Thoroughbred Club monies with our district monies in order to make our bond payments.”
Rubenstein, of the Thoroughbred Club, does not believe subsidizing the racetrack with money that used to be part of the publicly owned fairground’s budget is a problem.
“I look at it a little differently,” he said. “I look at it as the food and beverage revenues help us put on this world class product that we have.“
He said Del Mar is taking a page out of the Las Vegas playbook.
“Las Vegas, in the '90s, their revenue was 85 percent dependent on gaming, now that’s 45 percent,” he said. “We’re in a similar trend here."
Watson said this year’s racing revenues will be higher because the Breeders’ Cup, the Super Bowl of horse racing, is being held here this fall for the first time.
“The Breeders' Cup will provide a temporary reprieve from the downward trend," he said. “I suspect that all the revenues we will receive from the Thoroughbred Club will dramatically increase for 2017 and there will be a positive benefit from the Breeders’ Cup. The question is, how will that be sustained after 2017?”
Most people coming to Del Mar are not thinking about the future of horse racing, they are looking forward to the excitement of opening day. More than 40,000 people, many in flowery hats, are expected to show up.
Del Mar Races See New Costs And Declining Revenues
Josh Rubenstein, chief operating officer, Del Mar Thoroughbred Club
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