Buying racetracks works for Quixote

Oct 19, 2004 1:36 AM

Faint heart ne’er won fair lady.

Miguel de Cervantes wrote that 400 years ago in his Don Quixote, and William Gilbert stole the saying 300 years later when he added the line, "Nothing venture, nothing win." But it was Shawn Scott of Las Vegas who gave it modern meaning with his bold borrowing from Vestin Mortgage here which enabled him to buy three racetracks in five years on pure speculation and make more than $150 million doing it.

That’s enough money to tempt all the virgins in the Virgin Islands, where Scott has a retreat, but the payoffs on his deals don’t stop with him. They also made huge sums for Boyd Gaming, which bought Delta Downs in Louisiana from Scott for $125 million in 2002 after he paid $10 million for it in 1999 and then got slots for it.

Vernon Downs, his second buy on the promise that slots were coming to New York, has been a bust for all concerned except Scott, but the final chapter has yet to be written.

Scott’s third acquisition, Bangor Raceway in Maine, paid off last week for Penn National Gaming of Pennsylvania, which gave Scott $51 million for the little track he bought for $1.5 million (and spent another $1.5 getting it slots) when it was granted a permanent license to operate in Maine. It still has to get a gaming license from Maine’s gaming control board, but that’s odds-on, and Penn National seems likely to recoup its $51 million in relatively short order. When Prairie Meadows in Iowa got slots in 1993, it took only 18 months to retire $87 million in debt.

Penn National also seems certain to reap monster rewards when slots become operational in Pennsylvania, where they now are legal, and last week it wrote a new chapter in the annals of gaming in North America.

Faced with a law that permits a slots operator to own only 100 percent of one racetrack, and no more than 33 percent of a second, Penn National made an easy decision. It is keeping its thoroughbred racetrack near the state capital of Harrisburg, but sold its harness track near Wilkes-Barre, which it bought for $47 million in November, 1996, on pure speculation that slots would come to Pennsylvania sooner or later.

Penn National sold The Downs at Pocono to the Mohegan Indians, who built and own the fabulously successful Mohegan Sun casino and entertainment complex in Connecticut.

For their $280 million the Mohegans get the harness track, its 400 acres of real estate, and its five off-track betting operations scattered across Pennsylvania. The track and the OTBs accounted for some 50 percent of Penn National revenue last year, but the $175 million Penn National is likely to net off the sale to the Mohegans will pay for Bangor and also pay down debt.

The Mohegans have big plans for Pocono. They will add an entertainment complex, not as elaborate as Mohegan Sun but state-of-the-art enough to draw new customers to the Poconos, already a resort area of renown in the East. It is the tribe’s first venture into a commercial enterprise outside of its home base in Connecticut, and in addition to the purchase price it will pay another $50 million for a slots license, the going rate in Pennsylvania.

Outside operators have ventured into Indian gaming all over the country, but few tribes have ventured into commercial gaming enterprises off reservation. The Sault Ste. Marie tribe of Chippewas did in Michigan, where they own a 90 percent stake in Detroit’s downtown Greektown Casino.

The Mohegan Tribal Gaming Authority, which is the Mohegans gambling arm, sees Pocono as a new revenue generator for the tribe and its future. Tribal chairman Mark F. Brown said the acquisition will bring not only cash flow, but "will provide for the next 13 generations."

We’re not sure why 13, but we know one thing for certain.

The 400-year-old literary premise that led Shawn Scott into racetrack speculation, and those who followed him down that risky path, may not have won fair a lady but, like Scott, they have won what fair ladies, and gambling operators, like most. Hard cash, by the barrel full.