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Government Could Take Over El Comandante

If bondholders and track owners can’t agree, administration may have to step in; El Comandante owners looking to develop a racino


December 12, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

If the bondholders of El Comandante Race Track and the track’s operator El Comandante Management Co. LLC (ECMC) can’t resolve their financial problems, then the local government must intervene to avoid any further complications, said local Horse Racing Industry Administrator Julio Alvarez.

In order to avoid closing the track, Alvarez suggested the government, which regulates the local horse racing industry, could become a co-administrator of the racetrack should ECMC file for bankruptcy, or it could buy El Comandante Capital Corp. bonds from the bondholders.

"El Comandante is important for Puerto Rico’s economic development because it generates some $230 million in betting, of which $35 million a year goes to the government for education," Alvarez said. "The racetrack also employs close to 10,000 people who otherwise would have difficulty finding work because of their level of academic preparation."

Those 10,000 employees don’t include the people working on the farms where the thoroughbreds are bred and raised.

Last month, a group of bondholders (who own a $35 million stake in El Comandante Capital Corp. bonds) said they were willing to sell their notes at market value plus interest because they hadn’t received interest payments on the debt for the past 18 months.

Problems have arisen because not all bondholders are willing to sell at market price. There are close to $53 million bonds in circulation from an original $60 million bond issue, a portion of which the bond issuers have repurchased.

Economic Development & Commerce Secretary Ramon Cantero Frau publicly said the government had no intention of taking over El Comandante. He agreed, however, the government is in favor of the continued operation of El Comandante Race Track because of the number of jobs the track creates.

ECMC wants to develop a racino

El Comandante has faced serious financial difficulties since 1994, when the online lotto system was installed and the gaming reform helped increase slot machine revenue in hotel casinos.

ECMC also has said they believe El Comandante’s 257 acres 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 tourism attraction, including slot machines.

"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, vice president of ECMC.

The local government is opposed to the idea. "Slot machine gambling and horse racing at El Comandante, in my opinion, are incompatible," said Cantero Frau.

Alvarez says if slots were to be installed at El Comandante, the management company would have to attend public hearings on the matter and most businesses would oppose it.

Problems in local racing are similar to those stateside. El Comandante frets about declining on-track business, competition from other forms of gambling, and too much governmental regulation. Attendance at most U.S. racetracks has been declining for decades, leaving busted, empty tracks across America. Sales throughout the thoroughbred breeding industry are faltering and more than 30 states face a budget crisis.

Racing enthusiasts and track financiers say a solution is racinos, tracks that have slot machines or video gambling terminals.

Racinos have opened in six states--Delaware, Iowa, Louisiana, New Mexico, Rhode Island, and West Virigina--since 1999. New York’s Aqueduct Racetrack has permission to add up to 4,000 video terminals, while Maryland and Pennsylvania are reviewing legislation that would allow racinos, which account for much of the recent increase in betting on thoroughbred races, up 12% since 1999, to an estimated $15.3 billion this year.

"Puerto Rico is different from any of the States that have slots at their racetracks because they don’t have casinos there," said Alvarez.

Meanwhile, Cantero Frau says most racetracks in the States only open for six months out of the year because of climate conditions, unlike El Comandante, which operates on a year-round basis.

But fans, breeders, and track owners love the idea: Racetracks install slots, generally thousands at a time, on-site. Racing fans, presumably between races, spend a few dollars on the slots. The income made by the track, after sizeable payouts to the state and the lottery system, is funneled back in the form of bigger purses for each race. The difference between a racino-funded purse and one without slot money can be as much as $175,000.

Bigger purses mean bigger paydays, attracting owners with better-performing horses and creating more competitive races.

Preliminary studies show 2,000 slots would provide the income necessary to double horsemen’s and women’s purses to $50 million and support a showcase of entertainment acts.

ECMC is simulcasting

As reported in CARIBBEAN BUSINESS (June 7, 2001), ECMC sought approval to implement a simulcast racing program to complement the racetrack’s live racing product, which was proposed as an efficient enhancement for profitability.

ECMC’s argument was that annual horse racing betting on the island has decreased $40 million in the past six years to $247 million in 2000. As a result of the drop in betting, horsemen’s and women’s purses, which go to breeders and horse owners, also declined, causing many horse owners to abandon the sport. Horsemen’s and women’s purses are distributed to jockeys, trainers, stable-area employees, and people working on thoroughbred farms.

The local Racing Board approved simulcast races at El Comandante.

In 2001, horse-racing wagers at El Comandante reached $230 million. Simulcasting appears to have had a slight impact on profitability. It was implemented in fall of 2001 and the track is expected to close (Dec. 31) at $232 million for 2002.

"If ECMC and its subsidiary Equus Gaming L.P. would concentrate business efforts on just running El Comandante rather than trying to expand their product to other countries in Central and South America, then their profits [here] wouldn’t be as bad," Alvarez said.

In 1995, ECMC and its affiliates were spun off as a separate company--Equus Gaming L.P.--also controlled by the Wilson family, but no longer part of Interstate General Co. Equus Gaming has been expanding El Comandante races to Colombia, Panama, and the Dominican Republic via inter-track simulcasting. The company also is looking to enter the state of Virginia. 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.

"Equus’ deal in Panama has gone bad and they are no longer co-owners of that racetrack; the same thing is happening in Colombia," Alvarez said. "With what El Comandante is making in wagers, they wouldn’t have gotten into this financial mess."

This Caribbean Business article appears courtesy of Casiano Communications.
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