Racetrack deal has side bet on added slots.

For two experienced gambling outfits. Bay Meadows Land Co. and Churchill Downs Inc. certainly hedged their bets on the sale of Hollywood Park.

The $260 million all-cash transaction announced last week allows Bay Meadows to begin planning the redevelopment of the 238-acre Inglewood parcel into a blend of homes, offices and shops to take place three years after the deal closes, expected to occur on or about Sept. 20.

"That process will begin as soon as it can," said Adam Alberti, a spokesman for Bay Meadows. "I don't know if we'll go out and start hiring architects just yet. That would happen after the closing."

At the same time, if Churchill Downs and other track owners can convince the California Legislature within three years to allow slot machines or video lottery terminals at race tracks, then the Louisville. Ky.-based company has the right to buy back Hollywood Park.

The odds are solidly in favor of redevelopment. Despite Bay Meadows" proclamations of wanting to preserve the racetrack by expanding its gambling operation, the company is focused on building.

In meetings with Inglewood public officials, Bay Meadows officials have already hinted that whether the racetrack becomes profitable or not, some level of development is likely.

During one meeting last week, Bay Meadows officials drew a rough sketch of the track and indicated an initial housing and retail project could be sited on Hollywood Park's practice track and stables, said Inglewood Councilman Ralph Franklin.

"It's a foregone conclusion," added the city's mayor, Roosevelt Dorn, who was also at the meeting. "'There will be some level of redevelopment. Whether it's the entire track or a portion of it depends on what state officials will allow when it comes to expanding gaming."

Terrence Fancher, president of Bay Meadows Land Co., said it's possible to develop Hollywood Park in parcels, as the firm is doing with the Bay Meadows track in San Mateo, but it's not preferable.

He said his company is well positioned to run Hollywood Park as a racetrack if it can expand gambling on the site--or if it can't, to go forward with a total redevelopment. Fancher is also executive managing director of real estate investment firm Stockbridge Capital Partners, which owns Bay Meadows.

"Certainly we have a strong presence in the racing business in California and we also have been involved in real estate development," he said.

Bill Thompson, a University of Nevada, Las Vegas professor and casino industry expert, said it's unlikely the state Legislature or California voters would allow an expansion of gambling at racetracks. Thompson pegged the odds at 20-1, especially since deep-pocket tribes with casinos would vigorously oppose any such measure.

"This group sees an economic development opportunity," he said of Bay Meadows. "The racetrack hasn't increased in value, if anything its business has been declining. The track is a loser but the land holds value."

David Carter, a USC professor of sports business and a principal at the Sports Business Group consultancy, said the price Bay Meadows is paying for Hollywood Park--80 percent above the $140 million Churchill Downs paid in 1999--reflects a real estate play.

"Horse racing as an industry has not seen an 80 percent improvement in terms of its value in the last six years." he said. "That speaks to the point that they must be looking at the long-term development potential of the track."

Horse racing in California was relatively healthy when Churchill Downs purchased Hollywood Park from a company now called Pinnacle Entertainment Inc., which operates a card club at the track.

Spikes in energy prices and workers' compensation insurance hadn't begun to squeeze profit margins, and casinos run by Native American tribes "weren't even a blip on the radar," Thomas H. Meeker, president and chief executive of Churchill Downs, said in making the announcement.

It wasn't until a year after Churchill Downs bought Hollywood Park that a California referendum approved by voters allowed tribes to build casinos on reservations. Today there are 60 casinos on reservations throughout the state and many more are planned. The landscape has completely changed for racetrack owners--and not for the better.

Racetracks in states that have allowed tracks to expand their gambling operations can offer bigger prize money and attract the top horses.

Meanwhile, a California referendum sponsored by track owners to add video lottery terminals was defeated at the ballot box last year. Since then, track owners have been negotiating with tribes on a compromise.

If a deal can be reached with the tribes and the Legislature, Alberti said Bay Meadows still wouldn't have overpaid for the property. "Increased gaming would justify (keeping racing)," he said.

"If it's not justified, then we'll look at development opportunities. Keep in mind the sales price was derived from a competitive bidding process that took into account development potential."