—
Get the Flash Player to see this player.
The Globe and Mail's Greg Keenan has been following Frank Stronach's fortunes since 1995. He recently travelled to Florida for a look at Gulfstream Park, Mr. Stronach's big bet on the future of horse racing. Globe and Mail photographer Tibor Kolley took his camera along for the ride.
HALLANDALE BEACH, FLA. - It's a brilliant Saturday afternoon at Frank's Energy Beach. The hip hop and rock music is pulsating. A crowd buzzes around the bar. Coconut palms sway in the breeze rustling the cabanas and the twentysomethings are savouring the party.
But this beach is nowhere near the water — it's two kilometres away from the blue waves of Biscayne Bay off south Florida. This beach sits on the first turn at Gulfstream Park, a racetrack and gambling palace in the midst of a multimillion-dollar makeover that is converting it into Frank Stronach's vision of horse racing in the 21st century.
"It's like being at the beach, only with horses," says Ryan Johnson, a 23-year-old from Miami with a parrot named Sunny on his left shoulder.
As strange as a beach bar at trackside is to old-time horse race fans, Mr. Stronach's dream is grandiose and daring in the Sport of Kings, which is burdened with all the arrogance and resistance to change that title conveys. The idea is to transform his racetracks into destinations — for shopping, dining and entertainment — that will attract younger, well-heeled, new customers and restore profits to his own beleaguered company and an industry that while not on death's door, is certainly on the critical list.
The founder of Magna International Inc. has been scorned for his view that Magna Entertainment Corp. (MEC) on its own could mushroom into a bigger business than the auto parts giant he founded in a Toronto garage in 1957 — now cranking out sales of about $24-billion (U.S.) annually. But if he's right, his vision could transform the declining racetrack business and silence critics who accuse him publicly and privately of using hundreds of millions of dollars of other people's money to pursue a private passion.
If the Gulfstream project and planned life-altering surgery at other MEC tracks fail, the troubles could bounce back to Magna, which many believe is the bank of last resort for the racetrack company.
"I'm as confident as I've ever been," says Mr. Stronach, who points out that, for the second time in a year, he is prepared to invest his own money in MEC. "I would be intelligent enough to know [when] I'm up against a brick wall and I'm getting my head bloodied. I would know enough not to throw good money after bad."
Cash generators
Gulfstream is the home of the Florida Derby, one of the key tune-up races for the Kentucky Derby and racing's Triple Crown. As a fixture of the winter racing season and one of the jewels among U.S. tracks, it blossomed through the 1980s and 1990s and even after Mr. Stronach purchased it in 1999.
It was erected in 1939, part of a Depression-era spurt of growth as U.S. states strapped for cash ventured into pari-mutuel betting to generate new revenue. The original building was torn down in 2004. MEC constructed a new facility that encloses bars, slot parlours, a poker room and restaurants that stretch the length of the grandstand. Except for the beach, it's not radically different from other North American tracks that also offer slot machines.
The real departure is taking place in front of the new facility, at a cost that has been pegged at between $350-million and $400-million.
In what was once a massive parking lot, the hiss and spark of welding torches and the clash of hammers on metal heralds Phase 1 of the Village at Gulfstream Park, a retail emporium that will include 70 high-end shops, several restaurants and an open plaza leading directly to the walking ring where horses parade in front of fans before every race.
Phase 2 will be a condo development and hotel.
A new casino will be built to house the slot parlours now located inside Gulfstream, Mr. Stronach says, because slot machines were not permitted in Florida tracks when the plans were drawn up.
As he sees it, a family visits for a day or part of a day. The mother goes shopping. There are plenty of activities for children. The father watches the races and gambles a bit.
Gulfstream, he vows, will be profitable once the shopping emporium is fully operational.
Over the next four to seven years, similar projects will be undertaken at Santa Anita near Los Angeles — already approved by regulators and MEC's board — Golden Gate Fields near San Francisco, Laurel Park in Maryland and possibly Lone Star Park near Dallas.
Track owners, horse breeders, industry observers and shareholders in MEC are watching this almost as keenly as they concentrate on thoroughbreds thundering down the stretch. So far, the chairman and founder, shareholders of MEC and investors in MEC's parent company, MI Developments Inc., are down more than $500-million.
That's how much money MEC has lost since 2003 amid a series of troubles:
- Gulfstream's retail development is more than two years behind schedule;
- The company's management suite has had a revolving door — Mr. Stronach is in the second year of his second stint as interim chief executive officer. Several MEC tracks are for sale and proposals for new tracks in California and Michigan have been abandoned;
- Auditors have warned for more than a year that MEC's ability to continue as a going concern is in serious doubt;
- A New York hedge fund that is a major shareholder in MI Developments has sued Mr. Stronach, insisting the real estate company cut all ties with MEC. The fund and another major investor are trying to block a new arrangement that involves transferring $150-million in cash out of MI Developments to Mr. Stronach as part of a plan under which he will take over MEC. That issue will be raised on Wednesday at the MI Developments annual meeting in Toronto;
- To top it all off, in the summer of 2005, hurricane Wilma blew apart Gulfstream's tote board, which lists the results of races, and flung the track's mileage poles into the pond that sits in the middle of the 11/8-mile racing oval.
"Did we make some mistakes?" Mr. Stronach asks. "Of course we did. The basic concept is still sound."
He compares his company to the dot.com startups of the 1990s but with one key difference.
"They put in hundreds of millions of dollars to realize an idea with no assets. We have enormous assets."
Gets little attention
Horse racing, at its best, is a spectacle. The pageantry will be on full display this afternoon as the race for the Triple Crown kicks off at the Kentucky Derby at Churchill Downs in Louisville, Ky.
Swell gentlemen and elegant ladies in fancy hats will sip mint juleps and sing the race's anthem, My Old Kentucky Home.
A similar party will rock MEC's Pimlico Race Course in Baltimore two weeks from now during the second leg of the Triple Crown run. Baltimoreans will imbibe Black-Eyed Susans as they cheer on the horses in the 133rd running of The Preakness.
The problem is there are too few spectacles. The highlights include those two races, the third leg — the Belmont Stakes — the annual Breeders Cup in the fall and the Queen's Plate in Toronto.
Beyond those galas, the sport attracts little attention from national television networks. As a business, it's in dire straits, with isolated pockets where it is holding its own.
The New York Racing Association, operator of Aqueduct, Belmont Park and Saratoga, lost a reported $34-million and is still in court protection under Chapter 11 of the U.S. Bankruptcy Code.
MTR Gaming Group Inc., which runs tracks in West Virginia, Pennsylvania, Ohio and Michigan, lost $11.4-million last year.
National attendance statistics are impossible to calculate because Gulfstream and other tracks with slot parlours now let patrons in free.
The amount of money bet on horses has remained relatively static for 25 years while gambling over all has exploded in the United States.
Betting on horse races, dog races and the Florida sport of jai alai amounted to $2.8-billion in 1982 or about 27 per cent of the $10.4-billion that was gambled nationally.
The most recent annual figures produced by Christiansen Capital Advisers LLC, a consulting firm in New Gloucester, Me., show gambling had soared ninefold to $90.9-billion by 2006. But of that total, horse racing's share has fallen dramatically.
Money wagered on horses at racetracks has fallen every single year since 1996, even though the total amount bet on horse racing has fluctuated little in the past decade, according to separate figures compiled by The Jockey Club. Americans wagered $2.9-billion at tracks in 1996 and just $1.7-billion last year.
The amount wagered off track soared to $13.1-billion from $8.7-billion in 1996.
The numbers underline one of the key issues for the industry, for Gulfstream and for Mr. Stronach: How do tracks attract more people and compete with other forms of gambling?
Mr. Stronach believes that once people have been lured to the tracks, the thunder of the hooves will ultimately win them over. He figures people think they can become skilled at picking out a winning horse or a great jockey.
"Lotteries are pure luck. Slot machines are pure luck."
Controversial beginnings
MEC was born in controversy when Magna purchased Santa Anita near Los Angeles in 1998. At the time, Mr. Stronach was also in the midst of examining and financing other ventures such as a giant theme park in his native Austria and a luxury transatlantic airline.
All that activity spawned a shareholder revolt and the racetrack business was eventually spun off under the control of MI Developments.
A buying spree turned MEC into the largest operator of racetracks in North America and pushed its debt above $500-million.
Mr. Stronach concedes now that he probably bought too many tracks.
Amid the company's growing pains, CEOs and other senior executives were coming and going.
Mr. Stronach's first tenure as CEO ran from March, 2006, to March, 2007, when he was replaced by telecom veteran Michael Neuman. Mr. Neuman departed after just four months and Mr. Stronach has been in the job since then.
Departures from the boards of directors of both MEC and MI Developments have been a regular occurrence.
Plans to use MI Developments to buy out MEC's minority shareholders led to another revolt earlier this decade and cost former federal cabinet minister Brian Tobin his job as president of MI Developments.
Some of those same shareholders are in the forefront of the fight now to prevent Mr. Stronach's latest plan to refinance MEC.
New concepts
One of the more successful tracks is Del Mar Thoroughbred Club in San Diego, which was founded by Bing Crosby and some of his Hollywood pals in 1937.
"One thing that we have recognized in the last decade is that in order to be successful you better market something other than your sport," says president Joe Harper, who sat on MEC's board of directors for two years earlier this decade. "I hate to say that, but a number of years ago, it was obvious to me that the old come and bet the ponies marketing concept really didn't work."
So Del Mar started crazy hat days on Fridays, added concerts by high-profile acts such as Billy Idol and others and, as Mr. Harper tells it, pushed the party rather than the product. Del Mar has no slot parlour because they are not allowed at California tracks.
It's not rocket science, but it's working.
From 1991 to 2000, Del Mar led U.S. tracks in average daily attendance. On opening day last season, 42,842 people pushed through the turnstiles, the second-largest daily attendance in the track's history.
A substantial profit is turned over every year to the state of California, which owns the track, he says.
Another way of generating excitement and keeping people interested is having short race meets, Mr. Harper adds. Horses run at Del Mar for seven weeks during the summer — 43 days.
Less is more, agrees Doug Reed, director of the Race Track Industry Program at the University of Arizona in Tucson. "A Tuesday afternoon of ho-hum racing, there's just way too much of that," Mr. Reed points out. "I can do that any day. Why am I going to go there when I've got so many other choices?"
Mr. Stronach holds precisely the opposite view and plans to lobby for more racing dates for Gulfstream.
"We would race when we think we [could] get the most customers," he says. "It makes no sense to build a facility and run it only three months."
To do that, he must change regulations in Florida, which he describes as the state closest to offering free enterprise in horse racing.
One of those rules is that thoroughbred races are not allowed to begin after 7 p.m.
At MEC's Lone Star Park near Dallas, regulators require two races a day solely for Texas-bred horses.
California restricts the number of U.S. races that can be simulcast at tracks to 23, even while it permits unlimited broadcasting of international races.
"It's ridiculous. It's absolutely ridiculous," says Barry Schwartz, who as chairman of the New York Racing Association from 2000 to 2004 tried to generate some buzz by handing out 100,000 free passes to Saratoga in upstate New York. The attorney-general at the time, Eliot Spitzer, shut the program down.
Fragmented ownership and arrogance have also contributed to the decline of the industry.
"We got ourselves into this mess," laments Kent Stirling, executive director of the Florida Horsemen's Benevolent and Protection Association Inc. (FHBPA).
"We were the Sport of Kings and we believed that," Mr. Stirling says. "TV came along in the 50s and we had a good story to tell, we had Native Dancer and horses like that and we just paid no attention to TV — we're the Sport of Kings, we'll always be there, no foresight at all."
There was a high-water mark in the 1970s when perhaps the greatest thoroughbred yet, Secretariat, captured the Triple Crown in 1973 and landed on the covers of Time and Newsweek and a teenaged jockey named Steve Cauthen was burning up tracks around North America.
Behind the scenes, however, were forces that pushed racing to the wall. The first state lottery began in the 1960s in New Hampshire and by the 1970s, all states had lottery fever and were hungrily eyeing the casino business as a way to raise revenue, notes Richard Wilcke, director of the department of equine business at the University of Louisville.
"By the 1980s, [with] the impact of the lotteries, the impact of all the other competition, the expansion of television networks in the U.S. into other sports, racing was starting to feel it pretty good," Prof. Wilcke says.
Gambling thrives
A tour of the neighbourhoods around Gulfstream reveals the fierce competition for the gambling dollar.
Just 10 blocks away is Mardi Gras Racetrack and Gaming Center. It offers casino action similar to Gulfstream's — slot parlours and poker rooms — as well as greyhound racing.
A 30-minute drive north, the Isle Casino & Racing of Pompano Park is a harness racing track that also has a casino and poker rooms.
Ten kilometres west is Calder Race Course, which is open for races when Gulfstream isn't. It doesn't have slots now, but recently won approval for the machines in a referendum.
The 800-pound gorilla in the area is the Seminole Hard Rock Cafe and Casino in neighbouring Hollywood, Fla., run by a native tribe in that state. During one week in April, Hard Rock's entertainment ranged from Reba McEntire to former Soviet president Mikhail Gorbachev, for whom tickets fetched $87, $72 and $57.
"Seminole Hard Rock outspends Gulfstream, Mardi Gras and Pompano Park in marketing dollars by about 11 to 1," says Christiansen Capital Advisor's Insight, The Journal of the North American Gambling Industry.
Mr. Gorbachev's visit was a sharp piece of marketing, acknowledges Aaron Perry, Gulfstream's vice-president of strategic development and marketing, who suggests it would be a good idea to have former Federal Reserve Board chairman Alan Greenspan address an audience at his track.
A November concert by The Village People at Gulfstream was a sellout and Mr. Perry is negotiating with other bands.
One of those at that concert was 74-year-old Sam Gordon, president of the FHBPA.
"We want to bring the people back here. Frank happens to be right on this bringing people back to the track," Mr. Gordon says over a bowl of soup at Christine Lee's, a restaurant whose owner he helped persuade to relocate to Gulfstream.
The windows at Christine Lee provide a sweeping view of the racing oval and rows of multistorey condominiums along Biscayne Bay in the distance.
The population of one million people within a five-minute drive represents a great market for the retail centre, Mr. Perry says.
Mr. Gordon is not thrilled about that development in front of the track, in part because he thinks the new grandstand is beautiful and should be a prominent site along the six lines of U.S. Highway 1, the north-south artery that cuts through the northern suburbs of Miami.
"The shopping centre, he may be right and I could be wrong," he says. "Anything to get people, that's the key. Getting people here, then we can convert 'em."
But Gulfstream holds no appeal for Mr. Schwartz, who is also a breeder, with 45 race horses in training at Stonewall Farm, his 700-acre operation in Granite Springs, N.Y., about an hour north of Manhattan.
Until this past winter, Mr. Schwartz had been taking horses to Florida for 30 years. This year they raced instead at Santa Anita, MEC's track near Los Angeles. "Gulfstream, there's no place to sit," he says. "Where are you going to sit and watch the races? They destroyed what was a really, really wonderful racetrack."
Switching to California meant he was attending another MEC track, Santa Anita, but good promotional and marketing campaigns there made the atmosphere much more enjoyable, he says.
"It's nice to go to a racetrack with people," he says.
Back at Frank's Energy Beach, however, there is still work to do to get the twentysomethings to pay attention to the horses.
"What horses?" asks Lamarr Rollins, a 21-year-old Bostonian who is studying architecture at the University of Miami. "There's going to be a bikini fashion show later."
© The Globe and Mail
