Del Mar Races See New Costs And Declining Revenues
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.
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.
Tomorrow is opening day at the Del Mar racetrack. Horseracing is on the decline nationwide forcing Del Mar to make changes. Workers have been moving softer on the track making a rapid transition from the fair to the racist. 17 horses died during the races last year and the thermic club decided to shorten the race beat this you're taking extra five days to meticulously graded we work the door track. Our number one priority is safety. In terms of getting resources, $15 million have been sent 2007, another million in the off-season of last year in terms of renovating the main track. Bringing in additional consultants. We think when the horses are down here, jockeys, trainers and horses will notice a difference. Out on the track, Rick Peterson is taking samples of dirt. We are taking and bagging samples to go back to the laboratory to be tested. They say the soft dirt is 150. Our goal is to minimize the adaptation. All our measurements are to make it as safe as possible. The horseracing industry is on a slow and steady decline. So far, Delmar is bucking the trend. Used to be three major racetracks. Hollywood Park closed in 2014. Major racing in Southern California takes place at Delmar and Santa Anita. With that, we added a fall meet. That has eroded attendance at the summer meet. Fairgrounds for member says attendance is a long-term trend. They are swimming against the tide. Horseracing industry in general is not doing well. The problem is the trend is down. Attendance is down. Revenue down. You can see that going back more than a decade. They say revenue from the races no longer covers the $3.3 million cost of annual bond payments for the grandstands. The ratings horseracing revenues have fallen. The thermic club is using food and beverage sales, money used to go to the fairgrounds to cover the annual debt payments on the grandstands. They don't believe subsidizing the racetrack will be a problem. I look at it differently. I look at it as the food and beverage revenues help us put on this world class product. We are fortunate there is a large segment that love coming to Delmar that enjoys horseracing. Watson says this year's revenues will be higher because of the breeders cup being held here for the first time. It will be the first weekend of the fall meet in November. There will be a very positive economic benefit. How that be sustained after 2017? When the fairgrounds opened in 1930s, horseracing provided a lot of financial backing. With horseracing on the decline, the fairgrounds support the races.! At most are not thinking about the future, they are looking forward to the excitement of opening day. More than 40,000 people are expected to show up. Joining me now is Josh Rubenstein. Welcome. Was the track the cause of death for most of the 17 horses that died last year or was it something else? The track was absolutely not the cause. As everybody in industry thinks about every day, if there was one thing we could do to prevent injuries and fatalities, we would do it. My question, if the track wasn't the reason for the death of any of those 17 horses, why have you spent so much effort in rebuilding the surface of the track? We are attempting and we feel we have been successful is to create a consistent surface on a year-round basis. With Hollywood Park going out of business in 2014, there are two main racetracks in Southern California. In working with the management, we have basically reconstructed our track to be very similar if not exactly the same in terms of grading and banking. If you talk to experts in horse science they will tell you consistency is the key factor for safety. The difference between the two tracks may have been a contribute and cause to death and injury of the horses? I am not saying that. We want to do everything we can to create the safest possible environment. Talking to trainers and jockeys, there was one individual who said we have issues with the racetrack. We want to do everything in our power to create the safest possible environment. Talking to experts, creating that consistency on a year-round basis was the recommended path to do that. The decline in horseracing is a national trend. There were 15,000 you are horse races nationwide last year. What you think the popularity of horseracing is declining nationwide? A lot of that has to do with the economic downturn we experienced. From a breeding standpoint, we started to see an uptick. When that economic downturn hit, people with less disposable income were breeding fewer horses. As the economy begins to rebound, we will see positive trend on those numbers. It takes time to get those horses to the races. As we heard, Del Mar used to make more than 5 million a year. Now that is bringing less than 2 million, the food money the fairground takes in his pay for those bonds. What will happen if you need more and more of that to help pay for the bond? We don't look at it as food money. What we have done similar to Las Vegas in the mid-90s, 85% approximately of Las Vegas casino strip revenue was gaming related. Now that number is 45%. That trend is taking place here as well. We look at the overall revenue return from racing to master those over $10 million. The year prior it was just under 12 million. We don't focus a lot -- while internally, we understand where the money comes from. As long as racing returns and substantial profits, we are overall pleased with the operation. Could you give us an idea of some of the well known horses coming here. We are fortunate to have the best in the world, air gait -- arrow gait. He won the Pegasus will cup in Florida he recently one Dubai World Cup which is another $12 million race. He has amassed close to 18 million in earnings. Is trained by arguably the best in the business. He will be racing this Saturday, July 22 and if all goes well, we'll see him again August 19. Tomorrow is opening day at the racetrack. I have been speaking with Josh Rubenstein. Thank you. Thank you.