By T.D. Thornton
Colonial Downs has not hosted a Thoroughbred meet since 2013 because a complex tangle of disagreement and distrust has soured the partnership between the Virginia Horsemen's Benevolent and Protective Association and Jacobs Entertainment, Inc., the owner of the state's only commercial horse track.
Last autumn, acrimony over simulcast rights resulted in the closure of Virginia's off-track betting network, and last week Colonial pulled the plug on its advance deposit wagering platform. Over the winter, politicians had cobbled together compromise legislation to give the industry some tools to grow revenues. But because the two sides couldn't present a unified front, the bill that is now awaiting passage doesn't contain everything the two warring factions initially wanted.
Listening to the VHBPA and Colonial officials detail the collapse of their working relationship is evocative of a long-squabbling couple who have finally agreed to divorce, but are still bitterly at odds over what will be best for the children. The kids, in this case, represent the future of Thoroughbred racing in Virginia.
“The historical pain each has caused the other is part and parcel of the problem,” said Bernie Hettel, executive director of the Virginia Racing Commission. “Most people won't realize it, but we haven't been sitting on our hands here [at the VRC]. I have hosted at least 25 meetings between both parties in trying to come to an agreement. There have been a whole lot of talks and a whole lot of man-hours put in with practically no good result.”
The dispute, boiled down to its most basic element, is racing's oft-argued quantity-vs.-quality dilemma: The horsemen would like a several-month summer meet at Colonial with a daily purse structure around $200,000, similar to what had been the standard in Virginia for the past decade. The track's owner, Jeffrey Jacobs, has publicly stated that times have changed, and this approach represents nothing more than a subsidy for low-quality racing. Colonial now wants to consolidate purse money and dates into one or two blockbuster racing festivals, with the goal of luring elite horses and lowering operating costs.
“They want us to use all of our money for four to six days of racing,” said Frank Petramalo Jr., executive director of the VHBPA. “That does nothing for the Virginia horse industry. We're still hoping they will come around to the view that it makes sense to have a mix of high-end racing and blue-collar, or bread-and-butter, racing.”
On that last point, Stan Guidroz, who is based at Colonial as a regional vice president for Jacobs Entertainment, said he actually agrees with the VHBPA.
“We support high-end racing. We support bread-and-butter racing. There is room for both,” Guidroz said. “What we disagree on is the mix, how much of each we should have.”
A unique result of the fallout has been the creation of a non-profit alliance between Virginia's Thoroughbred, Standardbred and steeplechase racing entities, which could lead to the resurrection of flat racing at several equestrian estates. The horsemen would have more control over where and when they race, but are currently without what was once an $80 million flow of simulcast revenue to fully fund those initiatives.
Understanding where Virginia goes from here requires a look back to 2014, when Colonial and the VHBPA were locked in a stalemate over the scheduling of the summer meet. Eventually, the VRC got fed up enough to impose a carbon-copy of the 2013 season (25 dates) upon both parties. But no contract was ever inked, the meet was abandoned, and each side blamed the other.
According to Guidroz, the lack of a contract caused other HBPA groups nationwide to deny their simulcast signals to Colonial as a show of solidarity.
“That began the money grab, the squeeze on revenues,” Guidroz said. “And it just perpetuated from there.”
Last fall, Colonial announced it was on the brink of contracting with a new horsemen's group that emerged seemingly out of nowhere, the Old Dominion Thoroughbred Horsemen's Association. But Hettel said Old Dominion could not produce a membership roster, so the VRC refused to recognize it.
“Old Dominion was a total sham,” said Petramalo. “Its president was a PR guy from Florida who was a good friend of Jeff Jacobs.”
On Oct. 13, 2014, Jacobs surrendered Colonial's racing license and announced that he would close the track's eight OTBs by Nov. 1.
“There was no reason to maintain our license, because at that point it became a license to lose money,” Guidroz said. “Cutting off the signals basically starved the operation of revenues. That was a major breach in the relationship. Not that refusing to race wasn't enough; cutting off the revenue to keep things going so we could live and fight for another day to work through a solution, that became a much bigger issue.”
Petramalo said Colonial's claims that the track has not been profitable are exaggerated.
“Colonial Downs, on paper, has lost money for the past 10 years,” Petramalo said. “But on a cash-flow basis it hasn't. If you look at what accountants call EBITDA [earnings before interest, taxes, depreciation, and amortization], Colonial Downs has been positive for the past 10 years, averaging EBITDA of anywhere from $1 to $1.5 million dollars. So it hasn't cost them anything to run the racetrack. They just don't show the big profits that they would like to show.”
Still, despite their differences, over the winter both the VHBPA and Colonial had their legislative sponsors draft racing-related bills that shared common goals. Among them were a reallocation of account wagering revenues and a proposal for historical-race gaming. A new category of operational license that would switch Colonial from an “unlimited” licensee to a “significant infrastructure” venue was proposed, capping racing dates at 50 while still allowing Colonial to operate its OTB network.
The legislation also included a backup plan whereby a non-profit horsemen's group could run live and simulcast wagering in the event that Colonial didn't come back into the fold as a licensee. So the VHBPA, Virginia Thoroughbred Association, Virginia Harness Horse Association, and the Virginia Gold Cup formed the Virginia Equine Alliance and found three possible locations for race meets:
1) Oak Ridge Estate, as described by Petramalo, is a 4,200 acre equine-themed center that last held racing a decade ago but now hosts concerts and other large events. He said the property owners are “very interested in getting back into the racing business.” The site has a harness track and a steeplechase course; a separate flat course needs overseeding but would be ready by 2016.
2) Great Meadow annually draws some 75,000 fans for the storied Virginia Gold Cup on the first Saturday in May, and about half that amount for an autumn steeplechase meet. “We hope to be able to expand to be able to have more flat racing [in terms of summer dates] at Great Meadow,” Petramalo said.
3) Morven Park is an equestrian center that Petramalo said hosted steeplechase and limited flat racing until three years ago. Part of the property was slated to be turned into athletic fields, but “apparently, they're having second thoughts,” Petramalo said. “They've just taken down the rails, but the turf course is magnificent, and it's beautiful for flat racing.”
Even after scouting sites for potential new flat meets, Petramalo said that the VHBPA remained open to the idea of creating an in-state circuit that included Colonial.
While all of this was unfolding, Guidroz said he reached out to Petramalo at the start of 2015 and said, “We now have to work together from here and start to rebuild the system in Virginia. The past is the past. Let's find a racing schedule that we can agree on. It's not going to be something that we're all happy with, but let's just go into the session and try to pass legislation that would allow us to grow revenues.”
A compromise version of the two bills was hammered out, but the historical racing part wasn't destined to pass, so it was stripped out. By February the two sides were back to negotiating a 2015 racing schedule. One new twist was the possibility that Colonial would lease the track to the horsemen. But talks quickly broke down over money.
“To make a long story short, we could not reach an agreement on a rental price,” Petramalo said. “In our view, Colonial wanted much, much more than was justified by the business.”
Guidroz disagreed: “We're not shy about the fact that it's more expensive to open Colonial Downs than it is Oak Ridge. But we felt there was enough money in the system for them to do it. It wouldn't provide them enough to do everything else they wanted to do around the state, but they would have a major-league track, control of it, and they could prioritize that over what they wanted to do in other regions of the state.”
By March, the lease deal was off the table and negotiations had devolved back to the stalemate of a year ago. With Colonial positioning itself as the “significant infrastructure” licensee, the two parties were again sparring over the scope and extent of the racing season. Not wanting to jeopardize the pending legislation and desperate to reopen the simulcast revenue stream, Colonial proposed running one weekend of racing in 2015.
“Let's just run the Virginia Derby,” Guidroz said he told Petramalo. “Two days, both high-end and bread-and-butter. We'll get a mix of horses, just to find a place that we can agree. We'll apply for a license, and you'll be the majority horsemen's group.”
The VHBPA rejected the offer. Negotiations between the VHBPA and Colonial ceased.
“With that, I reported to Jeff and said I cannot find a way to apply for a license,” Guidroz said. “We weren't trying to solve all the problems. We were just trying to find a place where we could start from.”
On Apr. 7, Colonial shut EZ Horseplay, citing a fear that the track would essentially be operating its advance deposit wagering network for the sole benefit of the non-profit horsemen's alliance (if and when Senate Bill 1097 passes, it contains a provision for a funds reallocation if Colonial isn't a licensee). Two days later, at a VRC meeting, it was revealed that Colonial had withheld $419,351 in EZ Horseplay revenue from the VHBPA over the last five months, claiming the since there was no contract in place, it didn't have to pay.
“We're done with that phase in Colonial Downs history,” Guidroz said. “We want to move on. They want to go their way, we want to go our way. The commission and the general assembly have given them the tools to do what they want to do. We want the same consideration. We want to put on a high-end program at Colonial. We need funds to do that. We need a horsemen's group to do that. And we stand ready and willing to do that, looking for a solution.”
Petramalo said “we still haven't given up on Colonial Downs.” But he admitted that pursuing race meets elsewhere in Virginia will be difficult because “for the time being we've got kind of a hole in our budget.”
Guidroz said he had a phone conversation with a VRC official last week and floated the radical idea of applying for a license to run a one- or two-day meet but leaving the part about the contract with a recognized horsemen's group blank.
“And whoever shows up, shows up,” Guidroz said, adding he knows that's not the “right, professional thing to do.” He said Colonial would prefer to work within the rules rather than subvert them. “But the reality right now is that there is no path to acquire a license.”
Without a license held by some entity somewhere in the state, practically no funds are being generated to move either party's plans forward (Colonial, the OTBs, and EZ Horseplay are all dark, but a trickle of source market fees is coming in from TVG, TwinSpires and Xpressbet).
For Jacobs Entertainment, pulling up stakes and walking away from Virginia doesn't appear to be an option.
“Selling right now is not something we're interested in doing,” Guidroz said. “We think we can race again at Colonial Downs. We're a marginal profit-loss business when we're racing. But between 2014 and '15, when this bloodbath started, that's when we started losing money.”
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