Racetracks discover that a Texan's love of horses, gambling don't mix

SELMA, Texas -- In Texas, horses have been a means of settlement and conquest, of livelihood and sport. Not until 1987, however, did horsemen overcome the state's Baptist preachers and persuade the Legislature to legalize betting on horse races.

Oil and real estate had collapsed. Texas was desperate for new industry and new tax revenue. Politicians, developers and horsemen had no doubt that racetracks in Texas, with a market of 17 million born riskaholics, would soon rank with those in Kentucky, California and New York.

But on a Friday night at Retama Park here, near San Antonio, the few patrons in the vast betting pavilions and towering grandstand glance around uneasily. Those with something to cheer about are too self-conscious to yell. Even with rows of snack stands and betting windows closed, lines are rare. It is like a September baseball game for a team in last place. Only two years after the first of three big Texas tracks finally opened, two have filed for bankruptcy and the other, Lone Star Park outside Dallas, has reorganized even before its first race. Having promised that horse racing would not lead to unrestrained gambling, Lone Star has already opened a Las Vegas-style pavilion for betting on races from across the country. The other tracks, Retama and Sam Houston Race Park in Houston, are lobbying to add casino card games. The stillbirth of Texas horse racing has several causes, but most of all, horsemen failed to understand that Texans want to gamble a lot more than they want to watch horses. And picking a lottery number, or playing slot machines at a casino across the Louisiana border, is easier than analyzing performance charts. "It's more complicated than going to Lake Charles, putting a quarter in the machine and pulling the handle," said Charles E. Hurwitz, the chairman of Maxxam Inc., an aluminum, lumber and real estate company that built the Houston course. The Texas tracks are only the most critical cases in a sick industry. In the decade since horsemen here won their great victory, the spread of casinos across the country has transformed gambling. Once the only venues where people could place bets legally, tracks have watched their attendance fall by 42 percent since 1987, and wagering on live races drop by 53 percent, as gamblers opt to lose their money in the constant action at casinos. "They had a monopoly on gambling, but they fell behind the times," said Richard Thalheimer, a University of Louisville business professor and a consultant to the racing industry. Seldom asking what patrons wanted, he said, tracks had the attitude, "Open the doors and they will come." Texas, like other states, is discovering that bettors will come to the track only if the track goes beyond live racing. In 1992, wagering nationwide on races broadcast from other tracks, called simulcasts, surpassed bets on live races, and in 1995 they were double the live total. In Texas, the biggest racing success so far is the simulcast pavilion at Lone Star, which is packed even on weekdays with bettors watching dozens of races with top horses at top tracks. Many racing executives, however, fear that simulcasting could kill live racing at all but those premier courses -- and none of them is in Texas. At Retama and Sam Houston -- where an annex for overflow from the grandstand has been converted into a simulcast pavilion, and part of the grandstand now is reserved for overflow from that -- even simulcasting is seen as too little to assure survival. They want card clubs and off-track betting parlors. "You've got to be allowed to compete, whether people like it or not," said Hurwitz, at his office in downtown Houston. Texas banned betting on horses in 1937, forcing several tracks out of business. Still, the horse culture persisted, making the state first in the nation in raising quarter horses and fourth in thoroughbreds. Many of Kentucky's leading horsemen, including Nelson Bunker Hunt and Will Farish, have been Texans. Alysheba, thoroughbred racing's top money-winner until Cigar this year, is owned by the Scharbauers of Midland, Texas, investors in the Lone Star track. In 1973, a horse owner from San Antonio, Joe Straus Jr., helped found the Texas Horse Racing Association and began lobbying. By the mid-1980s, with the state government, one of the few without an income tax, desperate for more revenue, the association looked like a winner. The horsemen, overconfident, then made a series of mistakes. First, advocates of a competing revenue source, a state lottery, offered the horsemen a deal: support a lottery, and 5 percent of the proceeds would go to racing purses, the prize money that tracks use to attract top horses. Sure that they could defeat a lottery, the horsemen said no. When racetrack betting was legalized in 1987, there was a catch. To satisfy doubts about the benefit to the state, Texas imposed a 5 percent tax on wagering, instead of the 1 percent common in other states. The tax was too high for tracks to obtain financing. In 1991, legislators finally backed down to 1 percent. But they also legalized a lottery, which now is the most successful in the nation, taking in $3 billion a year. Plans for tracks still languished for lack of financing. In Houston, Hurwitz stepped in, partly at the urging of the former Texas governor, John Connally, a member of Maxxam's board. "We felt we had managed more complicated things than that," Hurwitz said, perhaps alluding to Maxxam's battles with environmentalists over the company's plans to log ancient redwoods in Northern California. Hurwitz also hoped that a successful track would further his plans for a downtown hotel and casino in Houston. In June 1992, work began on an $84 million track with almost 10,000 television monitors, 500 betting windows and luxury suites with carved cherrywood paneling and pink granite floors. Maxxam invested an initial $9.1 million, and $5.6 million more after the track opened, and arranged the sale of $75 million in junk bonds. By then casinos were opening on Indian reservations and riverboats across the country, some nearby in Louisiana. The closest Louisiana riverboats say two-thirds of their customers come from Texas. Yet industry consultants signed off, and bond investors including Salomon Brothers for Sam Houston, and Prudential Insurance for Retama, signed on. Purses were set at $150,000 a day -- "comparable to Arlington Park in Chicago, which had been in existence since 1927," said David E. Hooper, director of the Texas Horsemen's Partnership. As Sam Houston's opening approached in April 1994, the only concern was overcrowding. The track charged $25 admission on opening night just for standing room on the bottom level. But too many people, whether they thought admission was always $25 or that the track was too swank, stayed away. Within days, wagering sank to barely half the projected $1.5 million a day. Purses were cut, then cut again, to as little as $35,000. In April 1995, the track filed for bankruptcy. Bondholders agreed to forgive half the track's debt in return for a one-third interest. Maxxam contributed $9.5 million more. But state officials, meanwhile, killed a casino bill, foiling Hurwitz's grander plans for Houston's downtown. Sam Houston halved its staff, to 300. Instead of trying to enforce luxury-suite dress codes and charge opera-house prices for snacks, the marketers offered free popcorn and iced tea in the simulcast pavilion. And there was a gimmick every night. On a recent Saturday, the sparse crowd watching quarter horses, whose short sprints are less popular than thoroughbred races, seemed to awaken only when the Miller Beer Girls trotted onto the track between races to lead the macarena. Aided by simulcast wagering, Sam Houston's thoroughbred purses are back up to about $70,000. The track emerged from bankruptcy a year ago, but executives won't predict when they will make a profit. Retama has even darker prospects. Joe Straus Jr. had wanted to fulfill his father's dream of racing the family's horses locally. "I had no interest in building a racetrack, but nobody else seemed to, either," he said. At $79 million, Retama cost almost as much as Sam Houston. But the San Antonio area is poorer and its population is only a third of Houston's. Seeing Houston's fate, Straus tried a cheaper, welcome y'all approach for his opening in April 1995. But betting, at $70 a person, was soon less than half what was expected. Purses were cut. The track closed before completing its 1995 season and cut back its plans for 1996. In March, Retama filed for bankruptcy protection, and new investors have bought up its bonds for about 20 cents on the dollar. If horse racing has a hope in Texas, it's next to a paper factory in Grand Prairie, a Dallas suburb. There, in the Post Time Pavilion at Lone Star Park, all 236 seats in the simulcast betting parlor, many with individual video monitors, were already taken on a weekday by 11:45 a.m. Hundreds of other bettors soon grabbed restaurant seats, milled about the betting windows or stood at pedestal tables. Dallas has the advantage of a population obsessed with sports, with a large contingent experienced at tracks in neighboring states - - Oaklawn Park in Hot Springs, Ark., Remington Park in Oklahoma City, and Louisiana Downs, in Bossier City, La. Competition for the Lone Star track's license was so vicious that drawn-out lawsuits among the applicants helped it become known as "Someday Downs." The winners spent more than $3 million on litigation and settlements, and then found they couldn't gain financing. In a reorganization achieved without a bankruptcy filing, new investors, chiefly the Crow real estate family, won control by putting up about $13 million. For once, Texas horse racing has outdistanced its boasts -- without a single horse crossing Lone Star's finish line probably until April. Simulcasting began in May, with betting expected to bring in $1.7 million a day. Instead, handicappers like Lee Washington, who works for a butchering company, are betting a total of $3 million a day. "First class," Washington said, looking up from under his Dallas Cowboys cap as he pondered the day's card at Belmont, in Long Island in New York. "Yessir. I used to go to Louisiana Downs. On a scale of 1 to 10, this is a 10 and Louisiana Downs is a 3." In Texas, however, the most serious gamblers remain at corporate headquarters, not the tracks. Hurwitz never plays the ponies race by race. Instead, he said, "I made one big bet."

Copyright 1996
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