Horse track owners vie for control

Indiana's two horse tracks could change hands as investors race to come up with the $250 million required to add thousands
of slot machines.

The steep cost of a state license combined with the potential of a lucrative payoff has stakeholders in Shelbyville-based
Indiana Downs and Anderson-based Hoosier Park jockeying for position.

On June 6, Carmel-based LHT Capital LLC–the minority owner of Indiana Downs led by local home builder Paul Estridge Jr.–filed
a proposal with the Indiana Horse Racing Commission to buy out its partners, South Bend-based Oliver Racing LLC and Chicago-based
Equine Investments LLC.

Oliver Racing rejected the $130.2 million deal just two days later, but negotiations between the two camps are still alive.

Meanwhile, 50 investors in Centaur Inc.–Hoosier Park's Indianapolis-based owner–are attempting to cash out. On June
7, Centaur filed an IHRC petition seeking to buy back the interests of many of the firm's original shareholders. Together,
the shareholders hold about half of Centaur, said Chairman Rod Ratcliff. Centaur would not disclose the financial value of
its stock buyback, which is still subject to regulatory approval.

"Right now, we're sorting the wheat from the chaff," said State Sen. Luke Kenley, R-Noblesville, who oversaw
much of the Legislature's slots debate. "We're finding out who really wanted to make the investment and understands
it's going to take some time to make a return, and who thought, 'Slot machines [with] no licensing fee? That's
an opportunity to print money.'"

The stakes are high, and not just for the players involved in the separate track deals. Indiana's General Assembly approved
up to 2,000 slots at each track because the state needs the $500 million in license fees to underwrite property tax rebates.
If Indiana Downs' or Hoosier Park's negotiations should fail, the state won't get the money and homeowners won't
get the relief checks they're expecting. Instead, they'll suffer average property tax increases of 24 percent.

"Hopefully, it's a good sign that these folks are getting their pencils out and trying to work things out now,"
Kenley said. "[But] obviously … there are all kinds of possibilities of what could happen."

Indiana Downs

Led by Estridge, LHT offered Oliver Racing and Equine Investments $60 million cash plus a $30 million subordinated note,
which would be worth $70.2 million in 2015. LHT additionally offered to shield the sellers from any taxes or fees related
to the transaction.

Estridge is president of Indianapolis-based custom-home builder The Estridge Cos. Anticipating success at the bargaining
table, he's assembled a whole team to redevelop Indiana Downs as a "racino," a racetrack with slot machines.
His team includes Indianapolis-based Browning Investments Inc. as lead developer; Greenwich, Conn.-based gambling financing
company Plainfield Direct Inc. for investment capital; Los Angeles-based Credit Suisse Securities LLC for debt financing;
and Las Vegas-based Innovation Capital LLC as investment banker and gambling consultant.

According to Estridge's June 6 offer letter, the Indiana Downs racino upgrade project would cost $480 million, including
$250 million for the license fee. Factor in the buyout costs and that leaves $140 million for redevelopment, or $40 million
more than the state requires as a minimum investment in facilities upgrades.

"While we have had our differences of opinion over some aspects of our project, I would hope that this substantial offer
will allow us to come together and reach an agreement," Estridge wrote.

But Oliver's reply made it clear a takeover by the Estridge group won't be easy.

"We have no interest in selling our membership interests or change in majority control," wrote Oliver Racing Managing
Member Ross Mangano in a June 8 letter to LHT. "Please cease your efforts as you, your lenders, investment advisors and
equity partner are creating confusion in our market and are negatively impacting Indiana Downs LLC in its efforts to operate
its business and secure financing for its slots operations."

Oliver Racing is attempting to convert Indiana Downs to a racino on the cheap, said Innovation Capital Managing Director
Matt Sodl. Sodl called Oliver's strategy "underfunded," but he declined to share more detail.

"Let's just say it's a 1950s approach to finance and project development. It's being devised by folks that
have no idea what they're doing," Sodl said. "You open up a half-assed product, you're going to lose customers,
and it's going to impact the financing and cash flows of the entity. And that ultimately goes right to value."

Oliver Racing's Mangano referred IBJ to Indiana Downs General Manager Jon Schuster for comment.

Schuster, who isn't involved in Oliver's negotiations with LHT, said Oliver Racing is still considering a wide spectrum
of scenarios for financing and redeveloping Indiana Downs as a racino. They range from erecting a temporary facility, which
would allow slots play quickly, to construction of a large permanent structure, which would require acquisition of nearby
land.

Oliver Racing is committed to Indiana Downs' success, Schuster said, and he promised the state will receive its slots
license payment on time. He didn't think the company had hired a developer or investment bank yet.

Estridge's buyout deal might not be dead, even though his initial offer was rejected. Sodl said LHT has already made
a counterproposal. He declined to share its terms. And Mangano's rejection letter suggests Oliver Racing is willing to
continue discussion of Estridge's vision for the track even if talks don't result in a transfer of majority control.

"I've just called Michael Browning and advised him if you were to bring this proposal as a board member of Indiana
Downs to the board, we would consider this proposal at that time for all of us," Mangano concluded his note.

Hoosier Park

The situation in Anderson is less complicated than in Shelbyville, because Centaur doesn't have to vie for control of
Hoosier Park. Centaur Chairman Ratcliff said the company's stock buyback plan germinated when a handful of the company's
original investors who are now in their 60s or 70s asked for the chance to sell as they contemplate retirement. Centaur was
obligated to present the same repurchase terms to all its shareholders, and the offer ballooned to include 50 investors.

To help it finance Hoosier Park's conversion into a racino, Ratcliff said, Centaur is considering bringing in a major
new equity investor. And Centaur is also fielding offers from investment bankers who want to provide debt financing. Ratcliff
declined to offer more detail about fund raising or the scope of his construction plans for the Hoosier Park project.

But Jeffrey Smith, Centaur's CEO of Horse Racing, noted that Hoosier Park isn't Centaur's only asset. Complicating
matters, the company now has operations in Colorado it wants to improve. Centaur is also attempting to build a racino northwest
of Pittsburgh.

Pennsylvania regulators haven't yet ruled whether to approve Centaur's proposal, but the company is one of only two
remaining applicants there under consideration.

To generate all the capital it needs for the three projects, as well as the exploration of potential new markets elsewhere,
Centaur is considering raising up to $900 million all at once.

"It's all part of the puzzle we're working on now, to put it all together," Smith said. "We can't
put a financing plan in place [for Hoosier Park] when, in a month from now, we need another $400 million. It's nothing
different than what any global operation goes through."

But the first payment for Hoosier Park's racino license is fast coming due. Ratcliff said Centaur is committed to meet
the state's Nov. 1 deadline.

"That payment will be made … no matter what," he said.

Special session?

Property tax rebates are riding on the outcome of Indiana Downs' and Hoosier Park's ownership shakeouts. But Kenley
isn't worried yet. He said the flurry of activity is a sign that all the players are working out their differences. Now
that everyone knows the price of the slots licenses, impatient investors who thought they were in line for a quick windfall
are moving on. Remaining will be those committed to making the two racinos viable businesses.

"It's not just a lay-down-easy deal now," Kenley said. "Instead of an oil well wildcat or gold mine, it's
more of a standard business deal. But it's still a viable transaction."

Indiana should be able to issue property tax rebate checks and avoid a special session of the General Assembly, Kenley said,
as long as at least one of the tracks makes its slots license payment.

Ed Feigenbaum, publisher of the newsletters Indiana Legislative Insight and Indiana Gaming Insight, said
negotiations could still go either way. The horse tracks' owners might fail to resolve their internal disputes. But it's
more likely they'll settle their differences and turn both sites into cash cows.

"The Legislature knew full well what they were getting into. They were the ones that set up, I hate to call it a house
of cards, but this structure," Feigenbaum said. "If it becomes a house of cards, they should not be surprised, nor
should they be surprised if this becomes a thriving venture."