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Tuesday, December 05, 2006

Wall Street Jumping In

- Business is booming at the new racinos that have recently opened in New York, Pennsylvania, and Florida. And that's great news for the racinos, the state coffers, and horsemen, anyway. Perhaps not so for the former owners of the over $8 million "won" by the racino at Mohegan Sun at Pocono Downs in its first two weeks of operation, on a staggering sum of more than $80 million wagered! Philly Park is set to unveil their slots by the end of the month. Construction is feverishly underway at Penn National, where the grandstand has been demolished, and the patrons can watch the thoroughbreds only by way of closed-circuit television in a nearby steel-girder building that is slated to become a warehouse. [AP] (And I still can't believe that these places are going to be open 24/7 throughout the state.)

Gulfstream has a mere 516 machines and a 1 A.M. curfew (3 AM on weekends), but business has been brisk enough to bring about an 18% increase in purses which will apply for the entire 2007 meet, and the first arrest for prostitution.

Casinos are big money to be sure, and where there's big bucks, Wall Street will follow. Not surprisingly, casino companies are currently in play. The Wall Street Journal reported yesterday that Morgan Stanley has established a $2.5 billion investment fund with casinos as the target. (Though the article reports that they changed the name of the venture from Morgan Stanley Gaming Cos. Holding to Ventura Holdings. Seems that Wall Street types are sensitive about being too closely linked to gambling, or at least with that which doesn't involved buying and selling stocks. That's not really gambling, right?) NYC asset management firm Oaktree Capital Management is a part-owner of the Meadows Racetrack and Casino in Pennsylvania. Two private equity firms have an offer on the table to buy Harrah's, the casino giant which owns Pennsylvania's Chester Downs harness track and the 24/7 racino which is slated to open in January. Now there are reports that Penn National is teaming with giant hedge fund DE Shaw, along with Lehman Brothers and Wachovia Bank, to make a Harrah's bid of their own.

And that racino that is allegedly going to be built someday at the Big A by MGM Mirage? Investor Kirk Kerkorian owns 56% of that company, and he's looking for more. Just one week after he ended his quest to remake General Motors and sold his remaining stock in a single block of 28 million shares, Kerkorian has made a tender offer to buy 15 million more shares of MGM Mirage, which would give him a stake of 61%. I guess he thinks that casinos are a better bet than American motor vehicles and who can blame him? Whoever ends up with the NY franchise is going to be partnering not strictly with a gaming company, but with one of the most powerful names on Wall Street, and a man who cares about little more than the bottom line.

And you think the idea of giant casino companies becoming involved in racetrack ownership is scary? At least they've made their money on gambling, and could be considered to be at least somewhat simpatico. Once the Morgan Stanleys of the world become more involved in owning profitable racinos that are propping up unprofitable racetracks, all bets on the future of the sport are off.

1 Comment:

t said...

In NorCal we've got a little first hand experience with wall street's involvement in racing. A subsidiary of Morgan Stanley bought Bay Meadows in the 90s as a real estate play. It changed hands some and a group funded by UBS owned for a while. Ultimately the closed the training track, developed the land and now the worldwide headquarters of Franklin Templeton sits there. Along with a Whole Foods and a Fucking Starbucks.

Who owns Bay Meadows now? A hedge fund in Connecticuit, also as a real estate play. They found it works so well, they bought Hollywood park, too. But, if slots come a long in Cali (unlikely in the near term) they could make even more than the huge returns on developing the land.