By Hanah Cho
November 3, 2007
Then they stopped.
Today, many of those machines have little to do. The average one took in $74 a day after winnings in the July-September quarter, and that was before operating costs and state and local officials and others took a cut of more than 60 percent. It's a fraction of what neighboring slots parlors collected and is so little that the racetrack can't service the debt it took on to build the casino.
That is fueling concern among some Maryland lawmakers about the ability of money-losing Magna Entertainment Corp., the Toronto company that owns Laurel Park and Pimlico Race Course in Maryland along with Gulfstream, to run a slots operation at Laurel if slots are legalized during the General Assembly's special session.
For years, Magna officials and others in Maryland's horse racing industry have lobbied for slots to shore up declining racing attendance and revenue. But Magna's experience in Florida indicates that slots might not be a panacea.
"The one facility that they built on their own, Gulfstream, which is a very nice racetrack, has the lowest winning per day per machine ... in the country," House Speaker Michael E. Busch said in an interview. Magna has to show why it should be the one that gets the license, he said.
Magna officials have acknowledged missteps at Gulfstream. The company didn't start aggressively marketing its new gambling business until at least six months after the casino opened, and the facility did not contain the appropriate slots denominations or mix of machines, the company said.
In addition, construction at an adjacent mixed-used project, Village at Gulfstream Park, led many to think the slots were closed.
Magna says it is taking steps that will turn the business around, including hiring an executive with 25 years of experience in the gambling industry, scaling back the number of machines and changing slots offerings.
"First of all, Magna can be a good manager of casinos," said Steve Calabro, Magna's new vice president of gaming operations. "To judge it in the first six or eight months, it's unfair."
Gulfstream became the first racetrack in South Florida to open a casino, starting with 516 slot machines in November 2006. Two other tracks within several miles of the Hallandale Beach track entered the market later, Mardi Gras Racetrack & Gaming Center, also in Hallandale Beach, in December and Isle Casino & Racing in Pompano Beach in April.
Gulfstream also faced competition from the Seminole Indians, who operate several nearby casinos.
Gambling analysts had expected the three "racinos" to produce more than $500 a day per machine, an estimate Magna's Calabro called unrealistic. The actual number from the three facilities has hovered at about $155, according to figures from Florida Division of Pari-Mutuel Wagering.
Some experts say the racinos were hampered by regulations that prohibited automated teller machines and check cashing at the facilities, restrictions that ended in July. Unlike Indian casinos, racetrack operators pay taxes on slots revenues.
Of the three racinos, Gulfstream has fared worst.
From its opening in November through February, South Florida's peak tourist season, Gulfstream generated an average of $326 a day per machine. By June, after Gulfstream added 700 machines, the daily take had fallen to an average of $70.
"They reconfigured the first-floor simulcast room and added 700 machines thinking, 'If you build it, they will come,'" said David Roberts, director of Florida Division of Pari-Mutuel Wagering. "All it did was draw people from the [second] floor to the first floor."
In contrast, Mardi Gras generated $169 per machine a day on 1,156 machines in June. Each machine at Isle Casino took in $179 a day during the same period with 1,500 machines.
Gulfstream's revenue has continued to slip compared with that of its competitors. In the three months that ended in September, it generated $74 per machine a day, while Mardi Gras and Isle Casino took in $167 and $214 respectively
"The folks in Florida have decided what the better property is, and they're voting with their dollars," said F. Douglas Reed, director of the University of Arizona's Race Track Industry Program. "It's harder for Magna to win them back."
Joe Fath, who covers the gambling industry at T. Rowe Price, said Gulfstream's slots woes could be attributed to Magna's inexperience with casinos.
"The perspective of most people is you build these racinos and put slot machines and they'll just generate money," Fath said. "You have to have a product and good service."
Calabro said Gulfstream is solving its problems, including not having 1-cent and 2-cent slot machines or a variety of machines.
"We're going to make sure while it's smaller, it'll have the same selection and same feel as a Las Vegas or Atlantic City," Calabro said.
Gulfstream is reconfiguring the first-floor gambling space into a horse race and simulcast lounge, reducing the number of slot machines and adding video poker machines, Calabro said.
Gulfstream's declining slots business has taken a significant financial toll on Magna. The company is operating with continuing losses and has more than $500 million in debt, raising doubts about its ability to stay in business, according to an audit by Ernst & Young.
Magna said yesterday that Gulfstream lost $4.2 million in the third quarter because of higher marketing and operating costs for its slots operation.
Magna Chairman Frank Stronach said yesterday that the worries of some Maryland lawmakers are unfounded.
"I have absolutely no worries that MEC will be a great company, so we have no problem to handle things financially, " Stronach said.
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