A shaky start for Columbus racetrack

The Running Aces Harness Park is off to a stumbling financial start.

Southwest Casino Corp. of Bloomington, a half-owner of the $62 million racing and card game facility in Anoka County, blamed start-up costs at Running Aces and the loss of a casino management contract for the lame financial results.

Running Aces, which opened in April, is jointly owned by Southwest and a West Virginia-based partner -- MTR Gaming.

Together they formed North Metro Harness Initiative, which built the track and owns Running Aces. North Metro is in default on a $41.7 million loan for construction and initial operations at Running Aces, according to a Southwest Casino filing this month with the Securities and Exchange Commission. North Metro is in negotiations to restructure terms and avoid foreclosure, the filing said.

Southwest Casino cautioned investors that it would take awhile to grow revenue from the harness racing track and card club, which is in Columbus in Anoka County. But regulatory filings and what looks like a financial crunch indicate serious issues.

Moreover, MTR Gaming has put its 50 percent interest up for sale along with other properties in a bid to pay down debt and focus on core casino and racing operations in the East. Southwest invested $8 million and MTR Gaming invested $12 million in North Metro/Running Aces.

"Under state law we had to run 50 days of live racing before we opened the card room [on June 30]," Southwest President Tom Fox said Monday.

"We had losses that were not unanticipated from harness racing without the card room. We had better-than-expected attendance, but it was an educational process for people to learn about betting. The take from the racing was less than expected. Minnesotans are conservative.

"Now we are operating the card room, It's been well received. We're still working on marketing to expand awareness. We're just getting off the ground. Next year it will be great to have harness racing and the card room at the same time."

Racing first, then cards

The Legislature required live racing first, at the behest of critics who charged that Southwest was really interested in operating an off-reservation casino. Under the law, Running Aces basically can do what Canterbury Downs does with live racing and card games.

Canterbury Park Holdings, the parent of Canterbury Downs racetrack in Shakopee, recently reported its first quarterly loss in eight years -- a sign of the economic times in horse racing. Canterbury, a public company whose major shareholders are the Sampson family, has generally improved operations at the once-foundering race track and card club.

Southwest this month reported a loss of $4.5 million on revenue of $7.6 million during the first six months of 2008 compared with a loss of $63,547 on revenue of $10.6 million during the first six months of 2007.

The bigger loss and revenue decline were blamed on Southwest's $2.4 million share of the loss at North Metro/Running Aces and a $3 million drop in revenue after Southwest lost a contract to manage Oklahoma Indian casino.

Southwest's stock, which has traded as high as $1.12 per share over the last year, closed Monday at 45 cents on the over-the-counter, or "pink sheet," market for securities that do not trade on listed exchanges.

To be sure, Running Aces' 25 poker tables and 25 casino games only opened on June 30. Southwest Casino CEO Jim Druck, 66, a onetime Twin Cities attorney and horseman who lives in Colorado, said in a prepared statement that Running Aces opened "on time and on budget" and that its casino operations in Colorado and a new management agreement in the Dominican Republic were preparing the company for a better future.

"We anticipated the losses at Running Aces, which were primarily due to pre-opening expenses, including hiring and training more than 500 employees, and the cost of completing the first live race meet before we were permitted to open the card room," he said in the second-quarter statement.

The filing also said that the North Metro/Running Aces venture likely will require additional equity investments to come into compliance with its lenders. Failing that, the organization faces default and a possible takeover by lenders.

Fox said the debt negotiations with Black Diamond "are ongoing."

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com