California horse track affirmed at junk as Fitch cites sport's decline

The Del Mar Race Track Authority in San Diego County, California, which was downgraded to junk amid stay-at-home orders in early 2020, had its BB-minus rating and negative outlook affirmed by Fitch Ratings on a poor outlook for the racing industry.

The rating on its $37.1 million of series 2015 revenue bonds was originally lowered to BB-minus from BBB-minus in April 2020.

“The rating affirmation reflects the elevated vulnerability of Del Mar Race Track Authority's operating profile, which is impacted by the accelerated decline in the California horse racing industry,” Fitch analysts wrote.

Del Mar Thoroughbred Club

The Del Mar Racetrack, founded in 1937, is located on the San Diego County fairgrounds in Del Mar, 20 miles north of San Diego. Current track facilities include nine sky rooms and 16 luxury suites, eight restaurants, 41 bars and a large infield area, Fitch said.

The authority was formed in 1990, initially to replace the grandstand at the race track. It's a joint powers board composed of the 22nd District Agricultural Association and the state Race Track Leasing Commission.

The association oversees the track and the annual San Diego County Fair on the fairgrounds where the track is.

Fitch analysts said it’s unlikely that horse-racing operations will be self-supporting after 2025 given the sport's decline in popularity, with concession revenues stemming from the San Diego County Fair serving as the sole source of revenues covering the bonds, thus calling into question the continued financial viability of the facility. The Count Fair was canceled in 2020 and operated in a diminished form in 2021 because of the pandemic. It usually contributes 20% to 30% of concession revenues.

Racehorse deaths at the Santa Anita racetrack in Los Angeles County were also cited by Fitch as a reason for the decline in fan popularity. The track lost 19 horses in 2021 and 20 horses in 2020 from racing or training injuries and other causes, according to the Pasadena Star News. It stirred a controversy when it lost 37 horses in 2019 prompting animal rights activists to redouble efforts to ban the sport, according to the newspaper.

The negative outlook “also incorporates heightened event risk from a state ballot referendum that has the potential to materially affect Del Mar Race Track Authority's ongoing financial sustainability by legalizing mobile sports betting,” Fitch said. Though a different referendum may provide financial support to the horse racing industry, Fitch said, the race track remains exposed to longer-term trends of declining revenues.

Horse racing also faces increasing competition from other proliferating formsforms of legal gambling.

The financial responsibility for ongoing projects including the renovation of an existing satellite wagering building into a multi-purpose entertainment venue and water treatment plant have been transferred to the District Agricultural Association.

The debt structure is strong, Fitch said, with 100% fixed-rate debt that fully amortizes by 2038 with a flat debt service profile of $3.2 million annually. No debt may be issued senior to the 2015 bonds and a debt service reserve fund is fully cash-funded at maximum annual debt service.