20 January 2009
Fort Erie EDTC Has Conditional Offer To Buy The Track; New Drop Dead Date January 26th
The facts as I know them:
The Fort Erie Economic Development and Tourism Corporation (FE:EDTC) has made an offer to buy Fort Erie Race Track from Nordic Gaming (El Ad Group) for $35 million and turn the track into a not for profit organization similar to Woodbine Entertainment Group.
Meanwhile, Nordic has given the government until January 26th to come up give them $3.2 million in bail out money (which will be part of the purchase price for the track if the EDTC offer is accepted). If the government does not give in to Nordic's demands one way or another, Nordic will withdraw their racing license for at least 2009. Apparently, if Nordic doesn't withdraw, the ORC will be in a position to take the license away from them, and then Nordic may never be able to operate a race track in Ontario again.
Right now, the ORC has given Nordic a license until January 31st. They can choose to extend the license to the end of February, for example, which will buy more time for Nordic to make a conclusive decision regarding the 2009 season.
The question of whether slots will be able to continue at Fort Erie without live racing is also debatable. Nordic has a contract to operate slots until the fall, however, as Sue Leslie (from the HBPA) pointed out on phone at today's press conference, slots were put into race tracks with the intent of propping up the race track industry first and foremost. Without live racing, it is her contention that slots will not be able to operate.
This whole slot situation is a gray area for racing in Ontario and the OLG. And it could wind up in the courts, as slots definitely benefit both Nordic and the OLG, and Nordic especially, if racing were not to continue.
About the proposed purchase
James Thibert, the executive director of the EDTC came up with a pretty inventive plan to try to save Fort Erie racing. However, there are a lot of ifs in the deal.
First, the government has to loan the EDTC the money to buy the place. A 40 year low interest loan underwritten by the Ontario government is being sought. The $35 million purchase price was arrived on what Thibert believes the land to be worth. He states the land is worth on average $100,000 per acre.
I think the price per acre is debatable because if Fort Erie were to close, industrial land prices would go into the toilet in the Fort Erie area, as people would be forced to move causing demand for industrial land to weaken.
Fort Erie race track just had its property assessed at $21 million for tax purposes. Assessment prices are usually on the modest side, but the current global economic recession may mean that the assessment could be considered inflated as real estate prices are dropping in Canada at this time.
Also, Woodbine (the OJC at the time) sold Fort Erie in 1996 or 1997 for $10 plus the assumption of $3 million in debt. Granted, Woodbine wanted out at that time. With slots not in the picture, they were struggling keeping Woodbine afloat.
However, Woodbine must have figured the land was worth something at that time. I have a hard time believing industrial land in Fort Erie has gone up that much since then. But I'm not into real estate, so what do I know?
Thibert did state that Nordic received a similarly priced deal in June by a group of businessmen, but they declined to make the deal because Nordic supposedly cares about horse racing (yeah right!). Most likely is that the deal was conditional on financing that never happened. Nordic knows $35 million is a great deal for them.
And the $35 million price doesn't factor in that the business according to Nordic is a losing proposition. Thibert estimates that the track costs $11-12 million a year to operate, while only taking in around $8-9 million in revenues (which includes $4 million from their share of the slots).
It is pretty much agreed up that the race track can't make too many more cuts to help decrease cost expenses. So Thibert has also proposed a new revenue stream. He believes that he can rent out 200 slots to Woodbine, who have a $900 net per machine, and run at 85% capacity right now. He proposes that Woodbine, the OLG, and Fort Erie split the profits from those machines one third each. For Woodbine, it isn't a bad idea, because they get 20% of profits per machine, and this deal would increase their take on those machines. And for Fort Erie, this could generate a few million dollars each year, which can be used to negate their losses, and even pay back the government loan by the EDTC.
One flaw though. The machines are property of the OLG and not Fort Erie. This deal would have to be approved by both Woodbine and the OLG, and could impact all slot machine deals in the province. It might be easier for Fort Erie to give back machines to the OLG, and receive a bigger slice of the profits (30-40% instead of the 20% they split equally with the horsemen), but again, every other track in Ontario will ask for a similar deal, though Fort Erie has a unique case being the only other thoroughbred track while also being a border track as well.
Another thing that could hinder the deal is that Nordic would have to stick around through 2009 because the licensing process takes quite some time, and the new owners also need to have clean records, really clean records. Sources say that the government wants Nordic out altogether, if they have any say in the matter.
My prediction is the ORC will extend to February 28th, and that the EDTC deal will be quashed, but the government will give Nordic the $3.2 million to operate for 2009 on condition that they actively try to sell the track at a reasonable price, or more preferably, the OLG will give Fort Erie a special deal on slots where Fort Erie gets 30-40% of the profits.
See also Offer Made To Save Fort Erie Racetrack
Provinces Help Key To Fort Erie Track Deal
Fort Erie Plan Needs Ontario To Pony Up
Is the Fort Still Alive
Also, Fort Erie Gambles On Loan Plan
Track Owner Wants Down Payment By Monday
Fort Erie development group offers to buy racetrack