Del Mar Race Track Authority’s debt rating downgraded over attendance, coronavirus concerns

The Del Mar Race Track Authority’s revenue bonds were downgraded to junk status this week over worries about not only declining fan support in California for horse racing but also the impact of the coronavirus on attendance.

Fitch Ratings, one of the big three debt rating agencies, lowered its rating on the authority’s $39.9 million in revenue bonds issued in 2015 from BBB minus to BB minus.

By lowering its rating one notch, Fitch dropped the debt from investment grade to more speculative non-investment grade.

The BB minus signals a higher risk of default if business or economic conditions continue to deteriorate over time. For now, however, the Race Track Authority has the flexibility to continue servicing the debt.

Efforts to reach the Del Mar Authority were unsuccessful. In its report, Fitch said “the declining nature of the California horse racing industry, as well as exposure to adverse events at other horse tracks, has led to reduced attendance and uncertainty in fan support, which has put pressure on racetrack revenues.”

In 2019, more than three dozen horses died at the Santa Anita Park. Del Mar fared better, losing two horses on the track during the fall season. Still, the uncertainty around California horse racing led some horse owners to race in other states, resulting in reduced field sizes, racing days, racetrack attendance and wagering revenue, according to Fitch.

Total attendance at Del Mar for the 2019 summer and fall seasons reached its lowest level since 1970, highlighting the general decline of the industry in California, Fitch reported.

“Racetracks also face increasing competition for wagerers, from both Internet gaming and regional casinos, which has driven a declining trend in the satellite wagering component of the Authority’s revenues,” the agency noted.

As a result of coronavirus lockdowns, the San Diego County Fair in June has been postponed. The fair typically generates 20 percent to 30 percent of its net food and beverage concession revenue for the authority.

While the horse racing meets in July and later in the year have not been canceled, it is likely that limitations on mass gatherings will persist, “further impairing race track attendance and financial metrics in 2020,” according to Fitch.

Del Mar maintains $12.5 million in combined cash and debt service reserves that could cover debt payments if there is a serious near-term dip in revenues from the coronavirus. The authority also could take steps to reduce costs.

“But the potential lasting effects of the pandemic in combination with quickened industry declines will leave future operations exposed,” said Fitch.

— Mike Freeman is a reporter for The San Diego Union-Tribune