Hollywood Park, Inc.
Hollywood Park, Inc.
1050 S. Prairie Ave.
Inglewood, California 90301
Fax: (310) 671-4460
Incorporated: 1981 as Hollywood Park Realty Enterprises, Inc.
Sales: $143.2 million (1996)
Stock Exchanges: NASDAQ
SICs: 7948 Racing, Including Track Operation; 7993 Coin Operated Amusement Devices
Hollywood Park, Inc. is a gaming, sports, and entertainment company that owns and operates card clubs, casinos, and thoroughbred tracks, including the famous Hollywood Park race track in Inglewood, a suburb of Los Angeles. For nearly half a century, Hollywood Park, and its precursor company, the Hollywood Turf Club, concentrated solely on running the Inglewood facility. But when attendance began declining in the early 1980s, Hollywood Park began to diversify, initially with card clubs and, in 1997, into full-service casinos with the acquisition of Boomtown, Inc.
Hollywood Turf Club
The Hollywood Turf Club was formed in 1938 with several legendary actors and Hollywood moviemakers among its original 600 shareholders, including Joan Blondell, Ronald Colman, Walt Disney, Bing Crosby, Sam Goldwyn, Darryl Zanuck, George Jessel, Ralph Bellamy, Wallace Beery, and Irene Dunne. Al Jolson and Raoul Walsh were on the original board of directors and Jack L. Warner, of Warner Brothers, was the first chairman.
Hollywood Park quickly became known as The Track of the Lakes and Flowers because of its landscaped infield. After being used as a storage facility during World War II, the track reopened in 1945 and became one of the most popular tracks in the world, leading all U.S. tracks in attendance from 1950 to 1959. The original Hollywood Park Turf Club incorporated as Hollywood Park Realty Enterprises, Inc. in 1981, with Hollywood Park Operating Co. managing the track as a paired-share with the real estate enterprise.
By 1984, revenues had reached $64.7 million, with net income of $8.3 million. During this stretch run, Hollywood Park was dominated by Marjorie L. Everett, whose father had owned two small horse tracks in the Chicago area. After her father died, Everett sold the tracks to Charles Bludhorn, then chief executive of Gulf & Western Industries. She continued to manage the race tracks until Bludhorn swapped them for a 10 percent stake in Hollywood Park. With Bludhorn’s backing, Everett was named chief executive at Hollywood Park in 1972.
Everett’s acknowledged strength lay in cultivating friends in high places, including Ronald Reagan, then governor of California, and actors Cary Grant and John Forsythe, whom she added to the board of directors. The grand dame of horse racing also had a grand design for Hollywood Park that included buying the 300-acre Los Alamitos harness-racing complex in Cypress, California, in 1984 for $58 million. Hollywood Park also spent another $40 million in 1984 to create luxury boxes at Hollywood Park, where attendance had started to suffer. Both investments proved disastrous.
Less than two years later, in 1986, Hollywood Park revenues had climbed to nearly $74 million, but net income had fallen to $3.5 million. In the 1987 annual report, Everett blamed the problems on heavy traffic in the Los Angeles area, but as California Business later noted, “there were signs that the trouble lay deeper than a freeway on-ramp.”
For one, the magazine reported, the empty luxury boxes had become the butt of Hollywood jokes. Hollywood Park also bulldozed a popular golf course at the Los Alamitos track, which angered local residents. When the company applied to the City of Cypress for a zoning change to build condominiums, the plan was “enthusiastically rejected.”
In 1989, the deteriorating financial condition had become so serious that a headline in Business Week magazine asked, “Is Hollywood Park on the way to the glue factory?” The article noted that attendance at the famous track, although it still attracted Hollywood celebrities, had fallen sharply since the introduction of off-track betting and a California state lottery. As a result, Hollywood Park lost $16 million between 1987 and 1989, a $98 million loan from Wells Fargo Bank was coming due, and its stock was at a six-year low. A deal to sell the Los Alamitos track also fell through in early 1989.
But the more immediate challenge facing Everett was a takeover bid by Thomas W. Gamel, the wealthy owner of a Denver-based tractor-trailer manufacturing firm, who had started buying up Hollywood Park stock in 1987 and then held a 5.6 percent share.
Gamel accused the iron-willed Everett, who owned nearly 15 percent of Hollywood Park herself, of “running a first-class track into the ground.” In a proposal considered heresy by many, Gamel recommended converting the 10,000-seat Hollywood Park grandstand into an off-track betting facility and selling the rest of the 340 acres for residential and commercial development, raising as much as $150 million to be distributed to stockholders. That, said Robert Forgnone, a Hollywood Park lawyer, was “like suggesting that General Motors give up the manufacture of automobiles.”
Gamel, who had resigned as a director at the crosstown Santa Anita racetrack to pursue Hollywood Park, threatened a proxy fight if Everett failed to act on his plan and sued to obtain a list of shareholders. However, in a deal engineered by oil and real estate billionaire Marvin Davis, a Hollywood Park board member, Gamel yielded in exchange for a seat on the board. He also agreed not to acquire any more stock in Hollywood Park. That fall, Hollywood Park eased its financial woes by selling the Los Alamitos track for $54 million, $4 million less than it had paid.
By early 1990, another challenge was brewing, this time from Davis himself. Forbes reported that Davis, with the support of television hitmakers and fellow board members Merv Griffin and Aaron Spelling, had “taken the reins” from Everett. Forbes also speculated that Davis wanted to take the company private. Then, just as suddenly, Davis announced that he was resigning from the board of directors. The Los Angeles Business Journal reported that Everett, described as the “doyenne of the California horsy set,” had mustered her forces and rebuffed Davis’s bid to become chairman. In a letter to the board, Davis said he had “reluctantly concluded that I am unable to devote the time required to my duties as a director of Hollywood Park.”
R. D. Hubbard
The final, and successful challenge, to Everett’s control of Hollywood Park came in 1991 from Randall Dee Hubbard. Hubbard, known in the business world as R. D. Hubbard, became a salesman for a Wichita glass-installation company in 1959, rose to president nine years later, and eventually turned the firm into the largest autoglass replacement business in the United States. In 1978, Hubbard formed his own specialty glass manufacturer, AFG Industries, Inc., by buying and merging two failing businesses. In 1980, Hubbard bought into two horse breeding operations, Crystal Springs Farms in Lexington, Kentucky, and Frontera Farms in Sunland Park, New Mexico. In 1988, he and a partner bought Ruidoso Downs, a small horse track in New Mexico, where he introduced simulcasting— beaming closed-circuit telecasts of the races to other tracks to stimulate betting.
In the fall of 1990, Hubbard announced that he had acquired nearly 10 percent of Hollywood Park’s stock, which was then languishing at about $20 a share. He also announced that he would seek the ouster of all current board members and filed a lawsuit alleging that Everett had made false claims to the SEC.
Outside the lawsuit, Hubbard also accused Everett of taking company equipment for personal use. Everett admitted having several televisions and a generator belonging to Hollywood Park, but claimed that it was an oversight that she had not been billed for them. Everett countersued, alleging that Hubbard was illegally manipulating Hollywood Park stock. The tension was so great that two board members, actor John Forsythe and Harry Ornest, a Beverly Hills financier in the Hubbard camp, got into a fist fight in one of the luxury boxes during a race.
In the closing days of 1990, Hubbard started a “consent solicitation,” a type of mini-proxy fight in which large shareholders are asked to support a non-board member’s plan. Early in 1991, Hollywood Park announced that Hubbard had failed to received consent from shareholders representing a majority of the company’s shares, but only by the narrowest of margins. Everett, realizing that Hubbard would win a full proxy fight, announced that Steven A. Wynn, then chairman of the Mirage Casino in Los Vegas, would join the board of directors at the annual meeting in February and succeed her as chairman and chief executive officer.
Actually, the announcement was a sham to keep Everett in control. As California Business later explained: “... Wynn himself was never enthused about getting involved. Sources close to him say he was doing a favor for (former board member) Davis and (financier David) Batchelder, and that he saw an outside chance to make some money on a quick corporate restructuring. Besides, his role wouldn’t be so tough: He’d simply buy some stock, make some noise and scare Hubbard away. Everett would still be involved, day-to-day.”
Hollywood Park’s strategic plan is to diversity its gaming, sports and entertainment businesses through the development, acquisition, ownership and/or operation of casinos, race tracks and other gaming, sports and entertainment attractions.
In the end, however, it was Everett who was derailed. Wynn, under pressure from his board of directors at the Mirage, backed out of the agreement. Everett was forced to negotiate with Hubbard, who demanded that she resign from the board. In April, Hubbard was named chief executive officer, backed by an expanded board of directors that included 11 new members and six holdovers from the Everett regime.
Of his plans for Hollywood Park, Hubbard announced, “Once we get this squared away, we’ll be looking to sell some non-core real estate to raise capital for improvements on the track. But the biggest improvement won’t cost so much. We’re going to concentrate on raising the quality of service that people see when they come out to the (track)... Hollywood Park, like all horse racing, has a strong client base. We need to win back its trust and approval.”
Hollywood Park spent $20 million that year to spruce up the track. The payoff was immediate: Hollywood Park earned $1.6 million in 1991, its first profit in five years. The financial results were even better in 1992, with earnings of $5.4 million, despite rioting in central Los Angeles that broke out on the track’s opening day. Hollywood Park was forced to close for a week, including the profitable weekend of the Kentucky Derby, costing the track an estimated $35 million in parimutuel betting. The lingering effects of the riots held down attendance throughout the race season, despite full-page newspaper ads pointing out that Inglewood escaped relatively unscathed.
Regardless, in mid-1992 Hubbard announced plans for a $100 million expansion at Hollywood Park, including a 14,000-seat music center, renovated recreational facilities, including an 18-hole putting course and a two-deck driving range for golfers, and a retail and gambling complex. A key component of the expansion was converting the Cary Grant Pavilion, an off-track betting facility, into a “card club” with an upscale restaurant and legalized gambling. Inglewood also announced that it would build a police substation at the track.
Hollywood Park also dropped its status as a “paired share,” with one company operating the race track and another owning the real estate, in 1992, and reorganized as a single entity, Hollywood Park, Inc.
The Hollywood Park Casino opened in July 1994. Under then-existing California law, publicly traded companies were prohibited from operating card clubs, so while Hollywood Park owned the facility, the club was managed by Pacific Casino Management Inc. Hollywood Park and Santa Anita Companies, another race track operator, lobbied California lawmakers to change the law, and in 1995, a measure passed that allowed Hollywood Park to manage the card club. However, along with the bill was a three-year ban on card club referendums that effectively halted expansion until 1999, although Hollywood Park was allowed to proceed with construction of a card club in Compton that had already been approved by the voters.
In 1995, Everett launched a last-ditch effort to regain control of Hollywood Park. In filings with the Delaware Chancery Court, she questioned the company’s purchase of Sunflower Racing, which operated the Woodlands, a thoroughbred and greyhound racetrack in Kansas City, Kansas. Hubbard, who then owned 60 percent of Sunflower, convinced his board of directors to buy the company in 1994 for $20 million, with the expectation that Kansas would approve casino-style gambling. But that never happened and poor attendance at the Woodlands, hurt by the opening of riverboat gambling in Missouri, dragged down Hollywood Park’s financial results.
Everett also questioned a 1991 venture in which Hubbard and Hollywood Park each invested $243,000 in Midpointe Racing Inc., and agreed to finance the start-up company’s application to build a race track in Texas. When Texas denied the application, approving a proposal from the Lone Star Jockey Club instead, Hollywood Park wrote off its entire $703,000 investment. Hubbard, however, maintained his personal share of Midpointe Racing, which later merged with the Lone Star Jockey Club. Finally, Everett challenged Hollywood Park’s payment of $139,000 for “company use” of a jet owned by R. D. Hubbard Enterprises, Inc.
Although Everett’s attempt to regain control of Hollywood Park fizzled, several of her concerns continued to plague the company.
In 1995, Hollywood Park had to fend off several shareholder suits alleging that executives inflated revenue and earnings projections to enable the company to acquire Turf Paradise, a thoroughbred track in Phoenix it bought for $34 million in stock in 1994, six months after acquiring Sunflower Racing. Then early in 1996, Sunflower Racing shut down the Woodlands track and filed for reorganization; Hollywood Park was forced to write off its entire $11.4 million investment. That fall, Hubbard’s loudest critic on the board of directors, John Brunetti, also chief executive officer at Hialeah in Florida, quit the board in disgust. Brunetti told the Los Angeles Times: ”I’ve tried to understand Mr. Hubbard’s strategy, but all I see is a series of initiatives that go nowhere.” Hollywood Park ended 1996 with a loss of $4.2 million on revenues that had fallen 15 percent in two years.
Despite the financial problems, Hollywood Park opened its second card club, the Crystal Park Hotel and Casino in Compton, California, in the fall of 1996.
California law continued to prohibit publicly traded companies from operating card clubs, except in conjunction with a race track, so Hollywood Park, an 88 percent owner of Crystal Park, leased actual operations of the club to Compton Entertainment Inc. Hollywood Park had a five-year option to purchase the gaming license from Compton Entertainment. Likewise, Compton Entertainment held an option to buy the hotel and casino if the California legislature failed to change the law before Hollywood Park’s option expired.
As 1996 came to a close, Hubbard also announced perhaps his biggest gamble ever. Hollywood Park, whose efforts to use card clubs as an entree to full-fledged casino gambling had so far failed, agreed to buy Boomtown Inc., which owned and operated Western-themed casinos in Las Vegas, Reno, and Biloxi, Mississippi, and a riverboat casino in New Orleans, for $188 million—$58.5 million in stock plus the assumption of nearly $130 million in debt. The merger, which cleared its last regulatory hurdle in mid-1997, was expected to more than double Hollywood Park revenues to an estimated $330 million.
In its annual report for 1996, Hollywood Park, a company that consisted solely of a single thoroughbred track for most of its history, described itself as a “gaming, sports and entertainment company” whose strategic plan was to “pursue opportunities in the gaming business.” Significantly, casinos were first in a list of the company’s interests.
Hollywood Park Operating Company; Hollywood Park Casino; Turf Paradise, Inc.; Sunflower Racing, Inc.; HP/Compton, Inc.
Bancroft, Thomas, “Long Shot,” Forbes, August 3, 1992, p. 57.
Cornel, Laura, “Marvin Davis’ New Wager,” Forbes, February 19, 1990, p. 14.
Deady, Tim, “New Casino Plans Put on Hold,” Los Angeles Business Journal, April 14, 1995, p. 1.
Grover, Ronald, “A Fast Mover Among Fast Horses,” Business Week, July 20, 1992, p. 84.
Kerwin, Kathleen, “Is Hollywood Park on the Way to the Glue Factory?” Business Week, May 29, 1989, p. 36.
Moshavi, Sharon, “If You Can’t Beat ’Em ...” Forbes, May 9, 1994, p. 58.
Mullen, Liz, and Tim Deady, “Hollywood Park Buffeted by Financial Loss, Layoffs, Lawsuits,” Los Angeles Business Journal, October 24, 1994, p. 1.
Mulligan, Thomas S., “Management of Track Challenged by Everett,” Los Angeles Times, October 7, 1995, p. Dl.
____, “Hollywood Park Goes for a Piece of the Action,” Los Angeles Times, March 21, 1996, p. Dl.
Mulligan, Thomas S., and George White, “Hollywood Park Plans $100-Million Renovation,” Los Angeles Times, June 12, 1992,p.A1.
Peltz, James, “Hollywood Park Raises Its Bet on Gaming Ventures,” Los Angeles Times, October 25, 1996, p. D1.
Walsh, James, “A Bloody Day at the Races,” California Business, April 1991, p. 21.