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The Race Is On: ECMC Struggling To Outrun Creditors, Seeks To Reposition El Comandante In Competitive Gaming Market


June 7, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

El Comandante Management Co. (ECMC) wants the island’s only thoroughbred racetrack to be known as more than just a horseracing facility. The management company wants El Comandante Race Track in Canovanas to become a gaming entertainment business.

"The horseracing fans of Puerto Rico are losing interest in the poor racing program at El Comandante with more than half of the races having fewer than six horses and with too much time spent between races," said Gerald Wiemann, president and COO of ECMC.

Annual horseracing wagers on the island have decreased $40 million in the last six years to $247 million in 2000. As a result of the fall in betting, horsemen’s purses [which go to breeders and horse owners] have also declined causing many horse owners to abandon the sport. The horsemen’s purse account has dropped from $31 million in 1994 to $25 million in 2000. Horsemen’s purses are distributed to jockeys, trainers, stable-area employees, and people working on the farms where the thoroughbreds are bred and raised.

ECMC is aware that the island’s racing program can’t be turned around immediately because of the limited number of horses available to run and the lack of owners willing to invest in new horses, whether native bred or imported.

It is also concerned about the lasting negative impact El Comandante’s financial distress could have on the island’s horseracing industry.

For those reasons, ECMC wants to implement a simulcast racing program to complement the racetrack’s live racing product, which would be more efficient and profitable than the present program.

The proposed plan calls for the broadcast of nine to 12 simulcast races--imported primarily from New York and Florida--on Thursdays, when there is no live racing in Puerto Rico and six simulcast races during the racetrack’s live racing program (three simulcast races before the live races and three simulcast races interspersed with the live racing program).

El Comandante’s live racing program takes place every Monday, Wednesday, Friday, Sunday, and holidays.

At the moment, local racing fans are given a menu of one race (which normally lasts two minutes), every half-hour. If the proposed simulcast racing program is approved, then racing fans will have the chance to bet every 15 minutes.

The local Racing Board will hear that argument on June 14.

In Nov. 2000, the Racing Board did approve simulcast races at El Comandante, but, on one condition–that the races be broadcast after the complete live racing program concluded at 6 p.m.

"With that crippling condition we were forced to simulcast poorer quality races from the western part of the U.S.," said Wiemann.

ECMC says it prefers to broadcast races from New York and Florida, where many Puerto Ricans are involved in racing either professionally or as fans.

The Racing Board’s decision also resulted in additional television expenses for El Comandante as well as overtime and lighting costs to keep the facility open until 9 p.m.

Wiemann claimed that 40% of the island’s 640 Off-Track Betting (OTB) agencies closed after the live racing program because the tellers, who are independent contractors, didn’t want to stay open until late.

By interspersing simulcast races with the live racing program at El Comandante, OTB agencies would open from 12:30 p.m. to 6:30 p.m. Last year, the island’s betting agencies received $22 million in commissions for an average of $30,000 per agency.

"We are losing a large share of the market," Fuentes said.

Last year, El Comandante fell 82 days behind in paying excise taxes to the government. To date, the racetrack does not have the cash to meet interest and principal payments on its outstanding first mortgage notes, unless the proposed simulcast program is implemented, says ECMC.

For the first quarter of 2001, revenues at El Comandante were less than operating expenses.

"These first mortgage notes require an interest payment of $3.4 million on June 14 and Dec. 14 each year," Wiemann noted. "Further, a principal repayment of $10 million is required by Dec. 14 of this year. Unless there is an immediate and substantial increase in the revenue of El Comandante, it will not meet the interest and principal payments due on its first mortgage notes."

Even as they exist now, simulcast races at El Comandante are helping to boost the bottom line. In the first quarter of this year, they produced over $1.2 million a month in wagering and over $100,000 in net cash flow to both the horsemen and the racetrack.

ECMC and the Horsemen’s Association estimate that additional wagers from this new simulcast races program will generate between $80 million and $100 million of betting per year.

"There can be no successful financial restructuring of the racetrack debt without a $6 million increase in net cash flow generated by the new simulcast and live program," Wiemann said. "Three months of simulcast races after the live racing program helped produced nearly $60,000 per day."

ECMC believes the new simulcast program will produce in excess of $250,000 per day in additional betting. The 12 simulcast races during El Comandante’s off day (Thursdays) should produce another $500,000 in wagering.

The bottom line would be a $7 million to $9 million increase each for the horsemen and El Comandante, up from $25 million and $247 million, respectively, in 2000. The OTB agencies’ income would also increase between $7 million and $9 million from $22 million in 2000. The government’s take in tax revenue would jump from $28 million to between $36 million and $39 million.

The horseracing industry in Puerto Rico, directly and indirectly through its betting agencies, farm operations, stable area employees, racetrack employees, and supply companies employ between 8,000 and 10,000 people.

Long term, ECMC believes El Comandante’s lot could be improved if the company were able to tap government incentives, including tax credits under the Tourism Incentives Act, to reposition the facility as a tourist attraction. "Purses could be doubled if we could turn the currently underutilized building and land into a major entertainment center where both locals and tourists could listen to live bands and enjoy slot machine gambling," said Alejandro Fuentes Fernandez, executive vice president of ECMC.

Preliminary studies show that 2,000 slot machines would provide the income necessary to raise horsemen’s purses to $50 million and support a showcase of entertainment acts. El Comandante has faced serious financial difficulties since 1994, with the installation of an online lotto system and the gaming reform that helped increase slot machine revenue.

Interstate General Co., a public company controlled by the Wilson family, acquired El Comandante in 1989 from San Juan Racing Associates. The purchase price was over $68 million and betting at the racetrack at that time was nearly $110 million a year.

In 1995, the racetrack company and its affiliates were spun off in a separate company–Equus Gaming L.P. also controlled by the Wilson family, but no longer part of Interstate General Co. Equus Gaming Co. is expanding El Comandante races to Colombia, Panama, and the Dominican Republic via inter-track simulcasting. The management of Equus undertook this expansion program to make El Comandante a base for Puerto Rico to export its races via simulcast to other Caribbean countries.

This Caribbean Business article appears courtesy of Casiano Communications.
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