By T. D. Thornton
A director of an independent accounting firm hired by the Arizona Racing Commission (AZRC) to audit the financials of Turf Paradise as part of the track's three-year permit application testified at a Thursday meeting that if $24 million in federal and state subsidies from the COVID-19 pandemic gets backed out of the equation, Turf Paradise has operated at a net loss for the past three years.
Sean Tanner, a certified public accountant who specializes in forensic accounting with Keegan Linscott & Associates, further told the AZRC that based upon projections supplied to the accounting firm by the track itself, Turf Paradise remains on a path to lose money for at least the next three years, too.
“When we look at that trend, there is some concern about the long-term viability of the business if it continues to operate as it is,” Tanner said. “A business cannot operate with recurring losses year after year after year. The business is actually projecting losses for 2025 and 2026, [so] that would be six years of recurring losses through the longest date for which we have projections.”
This new, on-the-record financial uncertainty surrounding Turf Paradise's ability to operate–when coupled with two decades of disagreements between the Arizona racing community, the commission, and controversial track owner Jerry Simms–led to the AZRC on July 11 to vote 2-1 to grant Turf Paradise its three-year racing permit, but only on conditional terms based upon a final report from the auditor that the commission deems acceptable, plus mandatory, ongoing reviews of the track's financials at one-year intervals.
Tanner said at the outset of his testimony that his firm's audit of Turf Paradise is not yet complete, but that he had a solid-enough idea of the track's financials to advise the commission of the preliminary findings.
Tanner was allowed by the commission to speak at length and in a straightforward, uninterrupted manner about the heretofore hazy financial state of Turf Paradise.
But when the accountant reached a point in his report where he wanted to make public the net worth of Simms, which is a mandatory part of the track's permit application, Simms abruptly interjected and told the commission he wouldn't consent to his personal finances being read into the record, a request to which the AZRC consented.
The interruption by Simms provided the type of drama that has come to be expected at AZRC meetings in recent years.
Simms and Arizona horsemen have had an acrimonious business relationship since Simms's family took over the track in 2000, and the seemingly never-ending squabbles have roiled in the courts and at commission meetings.
In just the past five years alone, an extraordinarily long pandemic closure, plus prolonged fights over off-track betting (OTB) privileges, simulcast signals and how the horsemen's purse money can be used have all been topics of heated debate.
Turf Paradise has also been plagued by safety issues and was under scrutiny from the Horseracing Integrity and Safety Act (HISA) Authority last year regarding extensive repairs needed to bring the main-track rail up to spec.
In 2023, Simms said he was finally going to walk away from what he termed a longtime money-losing business endeavor. But two mystery-shrouded sales of his 213-acre, 68-year-old Phoenix track purportedly fell through within months.
Thus, in 2024, Turf Paradise operated an abbreviated Jan. 29-May 4 meet. The track, which is the lone remaining commercial licensee in Arizona, is scheduled to conduct a more traditionally scheduled, 105-date meet starting this November that is expected to run through next May.
“From a financial perspective, Turf Paradise did reflect positive net income for 2021, 2022 and 2023,” Tanner testified. “However, that net income was really created or supplemented by incentive monies that Turf Paradise was able to obtain in association with various COVID relief programs.
“In total during those years, Turf Paradise received about $24 million between those various, different programs,” Tanner said. “Those monies are non-recurring, meaning that they're not an indicator of what one could expect on a go-forward basis for the business. When you back those dollars out, Turf Paradise showed net losses of $2.9 million in 2022, $3.4 million in 2023, and for the first three months of 2024, a loss of $1.4 million.”
Yet Tanner also pointed out that in addition to those non-recurring subsidies, Turf Paradise does project to have about $2.7 million in offsetting, non-recurring annual expenses coming off the books in the near future.
The chief expense that Tanner said could be on the verge of going away is about $2 million per year that Turf Paradise has recently spent on litigation that involves a nearly 15-year feud between brothers Jerry and Ron Simms over control of the track.
“That litigation is now in appellate court and awaiting a judgment,” Tanner said. “So management does expect those expenses to be discontinued, or very much so limited, on a go-forward basis.”
Another $700,000 that soon could be off the track's books is that annual amount in HISA assessments that is anticipated to transfer over to being the state's financial obligation.
As for the near term, Tanner said it's a positive that Turf Paradise has $2.4 million banked for operational expenses for the upcoming November season.
“Our concerns about a November race [meet] are limited based on those results,” Tanner said. “But our concerns about long-term viability would have to be addressed through restructuring efforts that management and ownership would carry out to turn around the operating losses that continued for the last 3 1/2 years and look like they're going to continue through year-end and are projected to continue in 2025 and 2026.”
There's one other important aspect to consider in the Turf Paradise equation, Tanner underscored: whenever Turf Paradise has looked like it's in trouble financially, Simms has stepped up to write checks to keep the track afloat.
“Mr. Simms has historically provided loans to Turf Paradise when needed,” Tanner said.
But, the accountant continued, Simms “could choose not to. And if the company continued to lose money and didn't have enough cash in the bank, then really, that would be an operational concern, and a concern about the ability of the business to continue.”
Tanner then reminded the AZRC that as part of the application process, the net worth of majority owners has to be disclosed. “Am I okay to talk about that?” he asked the commission.
That's when Simms, who had been silent up until that point, interrupted.
“No, no! This is Jerry Simms,” he said via telephone link to the meeting. “And there's an awful lot of people on this [public meeting videoconference]. And I would strongly ask you not to disclose my [finances]. But I have made [provisions] that I would make available money as the track needs it, and have done that for many years.”
Warned by AZRC chair Kandace French Contreras that he would later have his turn to speak, Simms was asked to stand down. But the auditor acceded to his request not to divulge the personal financial information contained in the application.
“I didn't want him to say that, and then I can't unring the bell,” Simms said by way of apology for speaking out of turn.
Eventually, after Tanner concluded his report, Simms began his rebuttal by pointing out to the commission that Turf Paradise is hardly unique among American racetracks in terms of facing financial woes. He noted that even high-profile tracks are routinely in the news for not being able to operate without significant subsidies.
Simms then explained that his growth strategy at Turf Paradise is based on opening up more OTB locations, from which he said Turf Paradise derives 80% of its business.
“Those are like retail stores. We need to grow the OTB system, and we are,” Simms said.
“And as far as the business, I seed it,” Simms said. “You know, when it needs money, I write checks. I'm going to protect my investment, and I'm going to write checks. When the company needs money, as the auditor said, we didn't put a rosy future out there. Our projections are very realistic. It could get better, by more OTBs and other things, but the numbers are what the numbers are, and I have continued to feed it, and will continue. I don't think anybody in Arizona racing needs to be worried.”
Simms continued: “The auditor mentioned restructuring. I don't know what he means. Restructuring has a bad sound to me. I've never, in 24 years [since owning Turf Paradise], needed restructuring. And in my entire business career–I'm 78–I never had a loss. I never had a restructuring. I never had any kind of negative things occur. And this will continue to be financially strong [even if I have to keep] writing checks. That is what I have done and will continue to do. I make a commitment to this commission and to people in this industry, the horsemen, and to the state, that I will continue to do that. So that's as clear as I can tell you.”
But AZRC chair French Contreras wanted additional clarity from Simms about whether those loans would be considered liabilities that Turf Paradise would have to pay back to Simms if he ever sold the track to someone else.
“Yes, yes they are,” Simms confirmed. “Upon a sale, I would be repaid.”
The commission then went into an executive session for 40 minutes to debate the issue of granting Turf Paradise a three-year permit.
When they reconvened, AZRC vice-chair Tracy Olson made a motion to table any action on the permit until the commission received the full accounting audit. The motion died for lack of a second.
French Contreras then motioned to approve the permit under the conditions stated earlier in this story. Commissioner Chuck Coolidge seconded and concurred in the voting with the chairwoman, while Olson voted no, stating, “only because I would like to see the financial statements.”
So the motion passed, with Simms later thanking the commission for the conditional permit.
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