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Racing to erase big losses at the track

A boon to state, but operators must strike balance between facilities and off-site wagering

The privatization of the Meadowlands Racetrack and Monmouth Park is being viewed by many as a boon for New Jersey by removing what had been millions of dollars in losses from the state’s balance sheet. But even under new operators, some racing insiders said the tracks are too dependent on off-track betting to be profitable on their…

The privatization of the Meadowlands Racetrack and Monmouth Park is being viewed by many as a boon for New Jersey by removing what had been millions of dollars in losses from the state’s balance sheet. But even under new operators, some racing insiders said the tracks are too dependent on off-track betting to be profitable on their own.

From 2008 to 2010, the New Jersey Sports and Exposition Authority — the owner of Meadowlands and Monmouth Park — suffered combined losses of between $15 million and $20 million each year for the operation of the two racing venues, according to spokesman John Samerjan. In 2010, the total loss was just shy of $17 million — $10.8 million at Meadowlands and about $6 million at Monmouth, he said.

With real estate executives Jeff Gural and Morris Bailey expected to take over as the new operators of Meadowlands Racetrack, in East Rutherford, and Monmouth Park, in Oceanport, “that loss goes away,” Samerjan said. “That’s a major positive for the state.”

In addition, the venues, as operated by Gural and Bailey, stand to bring in substantially more revenue than they currently do, Samerjan said. MetLife Stadium, for example, generates significantly more tax revenue for the state than the old stadium, because “it’s got more places for people to spend their money,” he said.

The state would receive 10 percent of profits from each off-track wagering facility, 10 percent of profits from Internet and phone wagering, and sales tax revenue, Gural said.

Sales taxes on goods and services bought by Gural would be a source of revenue for the state. While the sports authority currently collects taxes on tickets for events and parking, it doesn’t pay taxes on its purchases, including construction costs, according to Dennis R. Robinson, agency president and CEO.

Robinson said off-track wagering will be “a big part of the equation” for anyone operating the tracks.

“Off-track wagering has always been a big part of the future of racing, from an economic point of view,” Robinson said. “You create the product on-track, and you generate the revenue through the distribution system, whether it’s online account wagering or through the OTW network or simulcasting.”

A new grandstand at the Meadowlands would also generate excitement, according to Tom Luchento, president of the Standardbred Owners and Breeders Association of New Jersey, which represents the horsemen at the Meadowlands Racetrack.

“Whenever you put up something new, everybody comes — you want to see what it’s about,” Luchento said. A smaller grandstand filled with the same amount of people will heighten the level of excitement at the venue, he said: “People want to go where it’s busy.”

The new grandstand “is going to be much more efficient,” Gural said. With the current track, “you have people all over the place.” Luchento said with a smaller venue, “you’re cutting way down on your overhead,” saving millions of dollars a year.

At Monmouth Park, Bob Kulina, vice president and general manager at the track, noted the cross-marketing opportunities between Monmouth Park and the Resorts Casino, such as the casino’s sponsorship of the Haskell Invitational, the venue’s biggest race. Bailey is a co-owner of Resorts.

“We believe we can come up with a positive business model” for Monmouth Park by expanding the entertainment options available, Kulina said. The venue has hosted blues concerts and the Warped tour, among other events, but “we’re going to go out and compete for it more than we did in the past.”

Kulina declined to elaborate on the details of the entertainment plan for the track, saying it was still very preliminary, but “this winter is going to be a very busy time to plan what the site is going to look like.”

But the new operators and the horsemen will incur losses, at least initially, as a result of privatization. Kulina pointed out the financial difficulties of running the 65-year-old Monmouth Park. “There are a lot of costs — it’s a huge place,” he said. And while expanding entertainment is part of the plan to increase revenues at Monmouth Park, at present, only part of the track is currently suitable for hosting events. “If we’re going to dabble in entertainment and music, we need to improve our venue.”

Meadowlands Racetrack is expected to lose $12 million a year until the new grandstand opens in 2013, Luchento said. And since the number of racing days at the venue have been reduced by half, to increase purse sizes, “you cut down on your income, so it’s affected us severely,” said Luchento, whose group collects a percentage of the purse money at the track.

Gural, who plans to invest more than $90 million to build the new grandstand at the Meadowlands, as well as a new off-track wagering facility in Bayonne, said he expects about $40 million of that amount to be debt.

The cash flows from the track and the Bayonne facility — the latter is expected to make $5 million annually — during his first five years of operation will be used to pay down the debt and tax obligations, Gural said. He plans to pay down half of the debt within five years, and “hopefully, once we’ve paid off the first mortgage, we’ll be in a cash-positive position.” He said he expects to build the Bayonne facility within a year, and start construction on other off-track wagering facilities within 24 months after that.

As for Monmouth Park, “our intention is to make this profitable in three to five years,” said Kulina, who said two off-track wagering facilities are planned for the next 24 months, with the potential for five additional sites.

But off-track betting would ultimately hurt, not help, the racetracks, Luchento said. While the facilities help tracks initially, “in the long run, you cannibalize your product,” he said. “It takes away from your main product at the track.”

When asked if the racetracks would be profitable independent of the off-track wagering facilities, Gural said, “obviously, the question becomes how many customers of Bayonne would ordinarily be at the Meadowlands.” While “we would expect that some of those customers would clearly come from the Meadowlands,” some may come from Staten Island, N.Y. — where there are no longer any off-track betting sites — or other parts of New Jersey, he said.

“You have to look at it as a whole,” Kulina said, noting that off-track wagering helps increase purse sizes, which in turn encourages higher-grade horses to compete at the track. And “with a better (horse), you get better attendance, and with better attendance, you get better gaming revenues,” he said.

E-mail to: akitchenman@njbiz.com

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