9 September 2009

Fort Erie 2010: Totally Dependent On A Government Handout

I went to the 9:30 Press Conference at the Holiday Inn this morning. At first when I heard about the PC I thought they must have a deal, but little that was being leaked out about it made me less optimistic.

In a nutshell, this is Fort Erie's position today as I know them:

The track generates around $8 million in slots revenue which is divided 50-50 between track and horsemen.

The track also generates around $8 million from betting revenues, again mostly split between track and horsemen.

There are other revenue streams for the track that come from food and beverage, etc.

Current owner Nordic Gaming is claiming that they lose around $3-4 million a year after subtracting the income stream from their total revenue stream. Therefore, I deduce that Nordic is claiming the track costs $11-$12 million a year to operate.

Of course, actual costs are almost always near impossible to get a true handle of especially since I'm not privy to looking at the real books, and maybe the Fort Erie Consortia wasn't privy to the "real" books either.

One other important thing is that Jim Thibert, Consortia CEO, states that there is no extra money that is available to get from slot revenues directly from the Fort Erie operation.

Doing quick math, since the horsemen plus track share is $8 million in total, and it represent 20% of the total profits, it must cost around $32 million to run the slots 365 days a year. Sounds very high, though there are 300 employees and electricity does cost some money.

All the above adds up to the fact that Fort Erie will not race next year unless it gets a government subsidy.

Apparently, those involved in the negotiations are optimistic. But we are talking unprecedented action that is required by the government. Which doesn't make too many people optimistic when one really thinks about it.

So why was the Press Conference called? My guess is to inform the horsemen of the current situation, and to get press to pressure the government to act quickly to get a deal done.

What is the Consortia asking for?

In a nutshell, $15 million from the government, or in other words, $7 million more than the track gets now from slots. Thibert doesn't care where the money inevitably comes from, but realizes that realistically it would come from the OLG's slot revenues at other locations.

The extra $7 million according to my math would be divided up this way: $2 million to the horsemen, $2-3 million to offset losses, and $2-3 million to pay to lease the joint.

Thibert did bring up a great example of the revenue sharing that occurs in the NFL over TV profits, and tied it nicely into the unfairness that Woodbine has a population of 4.5 million in their home market, while Fort Erie has probably less than one tenth of that if you don't include Buffalo.

According to Thibert's numbers, the $15 million guarantee will mean not losing the $300 million that he estimates Fort Erie Race Track generates into the Niagara region economy.

$6 million of the $15 million will be guaranteed to purses (which is around a $2 million increase for horsemen from what they get from slots now), which means at least 60 days a year at $100,000 a day in purses, but this doesn't included the money that comes from other income streams like betting , which is another $3.5-$4 million, which will likely bring dates up to 80-90 with slightly better purses than are available today. But knowing horsemen, I can see them demanding half of the $15 million....because that is what horsemen do:)

There are apparently nine other potential revenue streams discovered by the Consortia, but projections and details were not given out.

Thibert did admit that the $35 million deal had no shot even if the government gave them $35 million, because they wouldn't be able to maintain the track's losses every year, so they pulled out of the deal with Nordic 10 days early. Like I said when it happened, it had no shot because of this, but what really transpired is that Nordic was able to extort $2.3 million to keep the track alive in 2009. That was simple to have figured out the minute the deal was announced, and the reality is that the season was saved.

Two potential buyers were announce at the PC. Older gentlemen both, are said to have offers in to buy the track. It was also stated that they will lease the track to the Consortia if they buy it, and Nordic agreed to lease it to the Consortia if no one buys it.

This explains why the Consortia is asking for $15 million and not $12 or $13 million from the government. The leasing price must have been predetermined at around $2-3 million a year. If this is true, that puts a value on Fort Erie of between $15 to $25 million. Great for Nordic, because getting $2-3 million for a failing business a year is better than losing $3 million a year.

If the leasing price was what it is supposed to be (one dollar), there wouldn't be two other suitors for the place.

Will the government figure out that they are essentially giving Nordic around a $3 million dollar profit a year in one way or another if they go ahead with this? Could this be a deal breaker? Hopefully Ontario Finance Minister Dwight Duncan will be completely sympathetic to the cause and have some major pull over the now infamous OLG.

Apparently there was a meeting scheduled with former OLG chief Kelly McDougald that was supposed to happen September 6th, but for some reason, it was canceled:) Just kidding, the meeting took place in 2007.

I really hope the deal goes through. Though I'm not sure that the Consortia is qualified to run a track, or if they have the proper vision to do so, but they will be better than Nordic Gaming at it. Not nearly as good as if I called the shots, though. But that goes without saying:)

One other note, HBPA Sue Leslie attended the Press Conference via telephone. She said she was meeting with the ORC about racing dates, and did state that Nordic was applying for 78 dates......probably with quite a few ifs attached.

To read the proposal click here.


Anonymous said...

So in effect the finding of the consortium is that the thing really does lose money.

There are still plenty of ways the horsemen can keep their share of the slot $, but they all involve a much shorter season. How about this: Woodbine goes down to 3 days a week after Labour Day and FE runs a Northampton Fair kinda meet from Labour Day to Breeders Cup. Say, 30 days of racing in 9 weeks? The horsemen could probably make it happen if they wanted.

Cangamble said...

A shorter season will not be good for Fort Erie economically as workers who are here for a month or two won't do diddly to the bottom line and all it does is create short term employment which doesn't help too much.

The idea here isn't just to keep the track alive, but to keep the track's economy alive.

Besides, Woodbine isn't about to shorten diddly.

The Editor said...

Jim Thibert is either delusional or he's full of horse manure. If he racetrack continues to lose money, it should be closed.

bullring said...

I do not understand what is going on with this track.

There are 55 dinky doo harness racinos all over Ontario and they are not on the brink of closure every year.

What is going on with Fort Erie?

Anonymous said...

Shut It down.

Anonymous said...

Consortia had access to the books through the accounting firm that did the forensic audit.
One of the concepts is, Fort Erie would give some of its machines to Woodbine, which would make more money and could give some of that back to the Fort, where the betting is down. On a daily basis, the slots at woodbine earn way more than the Fort. Will the plan work? Who knows. Is Cangamble spot-on with its commentary? Who knows. Cangamble is a blogger, so take what you will from his comments. But if the Fort goes down, what will become of all the rumours Cangamble gets from a certain source at the border oval. We'd reveal the source and expose Cangamble, but traditional journalists don't do that. We'd rather go to jail -- and bet using the off-track betting machines.

Cangamble said...

There are no rumours in this particular post, but I have many sources for information.and rumours which usually turn out to be true.
Most locals and probably most just about any regular to this blog knows who I am.
As for how much the auditors discovered Fort Erie loses, who knows what that number is? It is my understanding that you have to sign a non disclosure and be interested in buying the joint to find out.
As for the idea to move some slots to Woodbine, I've addressed why it is something that makes little sense to Woodbine and the OLG in a previous post.
How about just selling the machines to Woodbine for say $15 million instead:)

bullring said...

What journalists are covering the demise of Fort Erie?

Not many.