The upcoming horse racing season in New Orleans is in peril after the owner of the Fair Grounds Race Course & Slots said it plans to give up its racing and gaming licenses following a failed effort to get state legislators to agree to a subsidy to replace lost revenue from slots.
William Carstanjen, the chief executive of Churchill Downs Inc., which has owned the historic track for the last two decades, told the Louisiana State Racing Commission and state legislators in a letter dated June 9 that the company plans to relinquish its license to operate the track and its other 13 off-track betting operations at the oversight board’s next meeting.
The racing commission’s executive director, Stephen Landry, said Tuesday that he’s seen the letter but the commissioners haven’t yet set a date for the meeting. He said they expect it will be held sometime within the next 30 days. He declined to comment further.
Horses and jockeys come out to the track during Thanksgiving Day at the Fair Grounds in New Orleans, Thursday, Nov. 23, 2023. (Photo by Sophia Germer, The Times-Picayune)
STAFF PHOTO BY SOPHIA GERMER
The stalemate leaves in doubt the upcoming season, which normally begins on Thanksgiving and runs through March. The Fair Grounds season is a critical part of the $2.5 billion Louisiana horse racing and breeding industry’s annual calendar, and includes the Louisiana Derby and the Risen Star Stakes, both high-purse races that are part of the “Road to the Kentucky Derby” series.
At issue is the loss of tens of millions of dollars in revenue by Churchill Downs after the Louisiana Supreme Court ruled in March that the company could not operate a type of slot machine — called Historic Horse Racing, or HHR — unless it got voter approval in each parish where the slots operate.
The court decision overturned a 2021 law that had allowed the HHR slots, which are based on anonymized previously run races, as an extension of horse race betting. The court ruled that HHRs are effectively another type of slot machine and require parish-by-parish permission under the state constitution.
The lawsuit had been brought by a group of truck stop owners whose video poker operations had been hit by the growth of HHR machines, which can pay out jackpots of up to $100,000, compared to a cap of $1,000 for video poker.
Churchill Downs representatives told the racing commission last month that the HHR ruling would mean the loss of half its Louisiana revenue and nearly three-quarters of its profits. They said they wouldn’t be able to run Fair Grounds and their other 13 off-track betting outlets profitably unless the revenue was replaced by a subsidy.
In the letter, a copy of which was obtained by The Advocate | The Times-Picayune, Carstanjen said that efforts to lobby for a state subsidy had made no progress.
“To date, our efforts to engage elected officials have not led to meaningful discussions and, confoundingly, CDI’s efforts have been met with a combination of reluctance, indifference, apathy and even opposition,” Carstanjen wrote to the racing commission.
The letter was copied to Gov. Jeff Landry, Senate President Cameron Henry, House Speaker Phillip DeVillier and Sen. Jimmy Harris, whose constituency includes the Fair Grounds.
Landry’s office didn’t respond to a request for a comment. Churchill Downs, in a statement Tuesday, reiterated the points Carstanjen made in his letter to the racing commission.
New rules
In addition to the financial hit Churchill Downs said it is taking because of the ruling on HHR slots, the state legislature this week passed two bills that Carstanjen said would further eat into the operator’s revenue in Louisiana.
The biggest concern is House Bill 540, which was passed by the House and Senate and awaits Landry’s signature. The bill allows truck stop operators to increase the number of poker machines at each site from 50 to 60, and licensed bars and restaurants to go from 3 to 4 machines.
Horses run past the new $1.5M tote board in the infield during training at the Fair Grounds Race Course & Slots in New Orleans, Tuesday, Nov. 15, 2022. The race season at the Fair Grounds starts Friday, Nov. 18. (Photo by Sophia Germer, NOLA.com, The Times-Picayune | The New Orleans Advocate)
Sophia Germer
HB540 aims to offset the loss of revenue to the horse racing industry from the shutdown of Churchill Downs’ HHR machines. For the first time, the new law sets aside a share of video poker revenue from sources other than track operators. That money will go directly to the horse racing industry in the form of higher purses.
Under the legislation, the first $22 million in tax revenue from the additional machines would boost winnings at the four horse racing tracks in Louisiana. Apart from the Fair Grounds, the others are Louisiana Downs in Shreveport-Bossier City, Delta Downs at Vinton in Calcasieu Parish, and Evangeline Downs in St. Landry Parish, just east of Opelousas.
Carstanjen said in the letter that the new legislation and lack of progress on the subsidy mean Churchill Downs “is left with no choice” but to “begin the next steps for voluntarily surrendering the racing license held by the Fair Grounds.” That would also mean it would have to surrender its gaming license, which is tied to its obligations to operate the horse race track, he added.
If Churchill Downs does relinquish its license, it is not clear what will happen to this year’s racing season, racing officials said.
The most likely scenario would be that the races would have to be moved from the Fair Grounds to one or more of the other race tracks, said one senior racing official, who wasn’t authorized to be quoted.
After Hurricane Katrina, when the Fair Grounds was flooded, the entire racing season was moved to Louisiana Downs and held under the Fair Grounds banner.
Record revenue, positive cash flow
While the high-stakes game of chicken threatens the future of racing at the historic track, at least for the time being, Senate President Henry, R-Metairie, said lawmakers balked at paying a public subsidy to a highly profitable private company, especially at a time when the state was making efforts to find money for teachers and to fill other gaps in the state budget.
“They came at the end of the session and wanted a subsidy from the state and we said we couldn’t do it because they’re a profitable business,” Henry said Monday.
“If they choose to close the track we’ll work through that, if they choose to sell it we’ll work through that as well,” Henry added.
Churchill Downs doesn’t report separate financial results for the Fair Grounds, but lawmakers and racing industry officials have pointed to the company’s record revenue of more than $2.7 billion and all-time-high profit of $427 million last year.
Horse racing on Thanksgiving Day at the New Orleans Fairgrounds on Thursday, November 28, 2024. (Photo by Chris Granger, The Times-Picayune)
STAFF PHOTO BY CHRIS GRANGER
The record pace continued in the first three months of this year and Louisiana racing officials noted that Churchill Downs accounts showed it reported net revenue of $44 million in Louisiana.
The company has not commented on whether it plans to sell the Fair Grounds if it pulls out of Louisiana. But it has strategically exited several horse racing markets in the U.S. over the past two decades, selling properties to focus more on gaming, online wagering, and marquee assets like the Kentucky Derby.
In some cases, this has resulted in racing ceasing at the tracks. For example, the sale of Arlington International Racecourse in Arlington Heights, Illinois in 2021 to the Chicago Bears organization for $198 million, prompted a strong backlash from Illinois horse racing stakeholders.
There likely would be similar efforts by the Louisiana horse racing industry to keep racing at Fair Grounds, which has zoning stipulations that would make redevelopment difficult, racing industry officials said.
“It would seem to me they would be better off having a license in good standing if they are looking to sell Fair Grounds,” the senior racing official said.
Speculation among Louisiana horse industry players has focused on Saints and Pelicans owner Gayle Benson as the most likely buyer if Churchill Downs seeks to sell Fair Grounds as a going concern. She and her late husband, Tom Benson, had talks eight years ago about buying the grounds, where there has been horse racing in some form since the 1830s.
Benson owns a horse breeding operation in Kentucky and has a deep interest in the industry, spokesman Greg Bensel said last month, after Churchill Downs’ initial threat. While he declined to comment on whether Benson would be interested in buying Fair Grounds, he noted that she has supported several other historic New Orleans-area enterprises and is “monitoring the situation.”
Henry said it is premature to discuss who might buy the track but said there are several groups that might be interested. He said the topic came up when he had lunch with Benson on June 3 in Baton Rouge.
“She loves the horse racing industry,” he said, declining to give specifics of their conversation.