December 13, 2010MEMORANDUMTo: The Review BoardFrom: Dean MacomberRe: The Efficacy of a Race Track as a Tourism GeneratorI have contended that a race course (road course track such as thatproposed by Global Gaming in Wellington) is qualitatively andquantitatively different than a NASCAR track in terms of generating visitors:pure race fans (local, regional, and/or “tourists”), gamers who might alsobe race fans, and race fans that might also be gamers. I will accept thecontention at face value that a full blown NASCAR track such as DoverDowns and Kansas Speedway has the ability to draw visitation among theserace, gaming, and tourism market segments. Dover Downs is an examplethat I believe supports this generalized contention. Harrah’s and othersurveys/information provided by Global Gaming support this contention aswell.However, I would point out that in reviewing Global’s response to theBoard’s and consultants questions, the preponderance of their responsessupport NASCAR racing as synergistic with gaming but are less specific andpersuasive as to whether they apply to smaller race course visitationpatterns as well.I do not believe they do. Anecdotally, for example, I have heard that theFormula 1 Grand Prix races when held at Casino de Montreal and morerecently at Singapore/Marina Bay Sands did not bring either casino anygreat benefit because of the interruption these races caused for theirnormal visitor and player base; that race attendees seemed to spend mostof their time watching the race then going home; and whatever benefit that
remained was not overcome by any great increase in gaming visitationquantity or quality. The same kinds of discussions occurred when theBoard was considering the casino at the Kansas Speedway in WyandotteCounty, I understand.Even so, I want to evaluate the likelihood of Global Gaming’s forecast thattheir track could secure a “large event” that has the potential to generate50,000 to 100,000 visitors. If I am reading their analysis correctly, I believethey are forecasting 100,000 annual visitors to the track, of which one “BigEvent” is projected to generate 50,000 visitors, and a multitude of small tomedium events attracting more like 500 to 1000 visitors per event dayaccounting for the remaining 50,000 visitors.Evaluating the “Big Event” first, Global Gaming lists discussions with theIndy Racing League (IRL), Grand Am, and the LeMans Series. I reviewed theschedule of these race series for 2011. All six races in the LeMans series arescheduled for Europe in 2011. The cost of holding one race in the U.S. tothe racers would, I believe, be prohibitive. That leaves the IRL and GrandAm as two remaining major road racing events referenced.With regard to the IRL, they are proposing to hold 16 races in 2011according to their website. The location of the season finale has not beendecided, leaving 15 races to discuss. Three of the races are outside theUnited States, implyingt 12 races will be held in the U.S. Six of theremaining races are held on NASCAR/Indianapolis like ovals, not what isbeing planned by Global Gaming. That leaves six road races. Three of theseare city ‘street’ races. I have no knowledge whether Global Gaming has thecapability to pull one of these race dates away from a city, but most citiessponsor such races to bring visitation. If they were unable to do so, thatleaves three actual road races of the sort Global Gaming is proposing ‘upfor bid.’ Each of these three road races are already at reasonably wellestablished race courses that might fight vigorously if someone tried totake them away.With regard to the Grand-Am schedule, there are 12 races planned, one ofwhich is in Canada. They are all races that take place on purpose built,dedicated road courses. As before, however, almost all are at well
established tracks that might be expected to fight to keep the races theyhave.So, even if all of the IRL and LeMans races were candidates to be the “BigEvent” Global Gaming alludes to, this means they are vying for 28 races, 16IRL and 12 Grand-Am. More likely, however, only three road course racesin the IRL series are directly comparable to what Global is proposingmeaning the number of Big Event road races that Global could compete tosecure might be from as few as 15 races.In reviewing the inventory of tracks around the U.S. I found a website thatindicated there are 71 road course tracks in the U.S., 27 temporary roadcourses (e.g., presumably city ‘street’ and airport type race courses) for atotal of 98 road courses and temporary race tracks. As a side note, thereare 60 oval race tracks, some of which have road courses as well. Focusingstrictly on the road courses, however, we need to subtract the 15 racesalready held at one of these tracks, leaving 56 tracks along with GlobalGaming’s track fighting for 15 to 28 races.Bottom line, 50 percent of Global Gaming’s visitor projections for the racecourse appear are predicated on securing a “Big Event.” Intuitively, itseems that prying a race away from an existing race venue may be difficultand, even if that could be done, there may be substantial competitionamong the other existing race courses for any race that becomes available.While the above discussion is speculative, if Global Gaming were able topresent a signed contract with a major race series capable of attracting50,000 to 100,000 visitors, that would be one thing. However, they havenot done so. Thus, the portion of Global Gaming’s forecast visitor countthat is predicated on a “Big Event” needs to be interpreted accordingly andin lieu of the above information.With respect to the smaller races, an Internet survey reveals that there is aroad course and drag strip race track already in existence and in operationin Topeka, i.e., Heartland Park (website: http://www.hpt.com). Theyadmit to it having a checkered history financially, but the track was boughtby new investors and renovated and upgraded relatively recently. I have
not seen the course nor spoken to anyone who operates it, but its websitewould indicate that it currently does not draw any “Big (road course)Events,” appears to be more actively used for its drag strip than its roadcourse except for allegedly holding SCCA runoffs which would be a mediumsized event. The rest of the events there are club events and track rentals.Their website indicates they are running events for 2011. Presumably, theGlobal track would have to compete with Heartland Park for the small andmedium sized racing events in the region. In other words, there already is aracetrack in existence and operation that serves the greater Kansas City andeast-central Kansas market area.Lest there be no mistake, I am a race course fan at a club and “Big Race”level. I understand the cost of owning and running a race car. It hasbecome a sport of the rich (who hire shops to build their race cars, bringthem to the track, do the repair and maintenance so the owner can justshow up and “drive”) as well as for the “Average Joe” who runs lessexpensive classes and does the work himself on a fairly tight budget. At theclub/weekend racer level it is a niche sport more for the racers than for anyhuge race fan following. Global’s acknowledgement that such races attracton average 500 race fans per race is testimony to this. Note that at even500 to 1,000 race fans per race, the 50,000 remaining visitor count implies50 to 100 races a year. Given the winter seasonality of central Kansas, thismay be aggressive.To be fair, the Equine/Event Center proposed by Peninsula has some of thesame ‘capture’ issues: i.e., can it attract the number of events forecast byCrossroads? Two things I can say to this issue: first, it appears that equineand agricultural events are in greater number than race events and moreembedded in the culture and lifestyle of the I-35 corridor and the mid-western states. Second, if equine and agricultural events cannot beattracted, then the complex can still be used for entertainment, festivals,and meeting/convention activity.In all, I still hold my contention that while any non-gaming activity that canattract incremental visitors to Kansas and/or Sumner County is a goodthing, I still believe that the Equine/Event/Entertainment complex is a moreeffective tool when compared to a road race course.
December 13, 2010MEMORANDUMTo: The Review BoardFrom: Dean MacomberRe: Further Observations on Equestrian CentersWhen I began the consulting arrangement with the State of Kansas, I had only limitedexperience with Equestrian Centers. To build my own knowledge base, I did have anextensive interview with Bill Purcell, the Associate General Manager of the EquestrianCenter at the South Point Hotel and Casino in Las Vegas. He was blunt in hisassessments (here paraphrased): “The center is not a profit center, per se, as a stand-alone entity. We have tweaked it so that it just about breaks even based upon stallrentals, feed and other equine services provided, plus revenue from our use of thecenter for non-equine entertainment and other events (e.g., the circus). The owner,Michael Gaughn, made it clear that the role of the Center is to fill hotel rooms.”During our tour and discussion, Bill pointed out that many of the equestrian events haveno admission charge and for most that do South Point does not get a share of it. He didfeel that the Center generated casino players but he admitted he could not produce anyreal numbers to back up his claim because there is always too much “noise” in thegaming results whenever they hold an event.His guiding metric for equine events is how many stalls they rent over a given period.Currently they have a run rate of about 20,000 stall rentals per year. Ostensibly, thereare about 4.3 ‘humans’ that come with every stall that is rented, meaning that the pureequestrian events attract between 80,000 and 86,000 visitors per year. Assuming theystay approximately 3 to 4 days per event, this translates into roughly 250,000 to 300,000visitor-days per year, a non-trivial sum of people. Note that Mr. Gaughn does not allowanyone to sleep onsite in their trucks, trailers, or RV’s; rather, they send the RV’ersdown the road to an independent RV operator. They do not allow dogs either, anotheraccompaniment to people who bring their horses to equestrian events. All of this isdone to support their primary goal, filling hotel rooms.They do use the center for entertainment and other events (e.g., circus, dirt-orientedauto/truck/ motorcycle activities). However, the Center was originally conceived as anequine-centric facility because when it was built Mr. Gaughn also owned/operated theGold Coast Hotel and Casino in Las Vegas that had a large, purpose-built, multi-useevent center designed to cater to entertainment and other non-equine events. Mr.
Gaughn did not want to compete against himself. Having later sold his portfolio ofproperties to Boyd Gaming, joining them, and then leaving with South Point being partof his severance “package,” Mr. Gaughn only owns and operates the South Point Hoteland Casino at the present time.Bill Purcell indicated that the South Point Equine Center could have been moreentertainment, festival, and non-equine friendly if it were designed from the start forthat purpose. For example, he indicated the cross beams over the arena can onlysupport 50 tons. When they get entertainers and other non-equine events (some ofwhich use speaker systems that weigh 200 or so tons!), they have to stage the speakersfrom the ground up. If the Center was going to cater to more Entertainment usage, theywould have designed the cross beams to support the extra weight. The same thing withthe seats: now they are plastic. Bill Purcell indicated they could be upgraded to ‘betterplastic’ in the stands or even perhaps upholstered on the floor area (to be removedwhen an equine event was being held).This points to my observation and general conclusion: I believe that the PeninsulaEquine Event Center is a valid amenity and a more effective use of assets than the racetrack proposed by Global because: • it is larger than Global’s entertainment facility; • it can be used for Equine, entertainment, and MICE (meetings, incentive events, conventions, and exhibitions); and • if properly designed from the start, management will have the flexibility to use the facility for casino-driven events, visitor/tourism entertainment events, MICE events, AND/OR equine/agricultural events … a triple use.I am a little bit confused why there are concerns raised regarding profitability of such acenter. Entertainment and multi-use centers typically do not operate at a profit. Theyoperate at a breakeven level or as a loss leader, the cost of which is considered by mostmanagers/owners to be a marketing tool. Both Global’s and Peninsula’s pro forma showtheir respective Entertainment Departments operating at a loss in 2016, about -$500,000 for Global (-25% margin) and about -$500,000 for Peninsula (-8% margin).Peninsula’s pro forma also shows that 39% of its entertainment revenue ofapproximately $7,000,000 in revenue will be comped. Global does not show comprevenue but as a reference point, their P&L shows approximately $2,000,000 inentertainment revenue. I assume these departments are where the revenues andexpenses of their respective entertainment centers are reported.With respect to the tourism aspect, it is discussed in my other Memorandum regardingGlobal’s racetrack. Note that Global did not submit any feasibility study for the racetrack and has only crudely defended their forecast visitation with fragmented responsesto interrogatories from the KLGFRB. And, for Peninsula, I would point to the Crossroadsstudy, a more contemplative and better argued defense, and the reasonableness of it.
Dan Houston seemed to think the Crossroads study was a bit aggressive relative to hisunderstanding of performance at other comparable I-35/Midwest facilities. Crossroadsrebutted that in a follow-up report.When comparing a racetrack against an Equestrian Center, I believe the EquestrianCenter is the better tourism draw, particularly when coupled with a larger hotel forPeninsula (300 rooms vs. 80 to 100 rooms for Global).