By PHILLIP BANTZ
The Keene Sentinel: February 22, 2009
State gambling regulators were so concerned with the financial situation of the Hinsdale Greyhound Racing Association that they planned to deny its operating license for this year and asked it to begin closing down.
The company went bankrupt before that could happen and hundreds of bettors with an estimated half a million dollars in their accounts were left wondering where their money went.
N.H. Racing and Charitable Gaming Commission Chairman Timothy J. Connors said the decision to withhold the pari-mutuel license was influenced by a N.H. Attorney General’s investigation into the track’s finances and business practices.
“We got a note or letter or something from the attorney general’s office saying they didn’t think at that point that the track would be suitable for licensing in the coming year,” Connors said. “So we had a meeting and asked for a wind-down plan.”
Gaming commission Director Paul M. Kelley sent an e-mail Nov. 7 to the track’s president and chief executive Joseph E. Sullivan 3rd asking that the track begin a “wind-down plan” that included making sure all of its bettors with wagering accounts be paid in full.
The track filed for Chapter 7 bankruptcy Dec. 15, leaving more than 500 betting accounts in jeopardy.
Sullivan was and still is in the middle of a $2.1 million land deal with Wal-Mart, and the gaming commission figured he would use earnings from the sale as a cash infusion for the track, then reapply for a pari-mutuel license in 2010, according to Connors.
“That’s what they were going to fall back on. The big thing was Wal-Mart,” he said. “They felt all along that that was going to close sooner than it has.”
Permitting requirements delayed the project, but Sullivan has said the land deal should be finalized by mid-year.
In November 2007, Sullivan formed Hinsdale Real Estate LLC with Carl B. Thomas, of Spofford-based Thomas Construction Corp., and sold the track’s property and buildings to the holding company for $3.3 million.
Thomas also took over two of the track’s mortgages totaling $2.1 million.
The deal allowed Thomas to secure a $1 million loan through the holding company and pump the money into the track, which was denied a loan because of its shaky financial situation.
During its final year of business, Hinsdale brought in $5.9 million in revenue, a decline of $2.8 million from the previous year.
Gaming commission Deputy Director Sudhir K. Naik said the track was trying to survive by borrowing money, which raised a red flag.
“If you’re running a business, the rule is to generate cash from primary operations, not financing activities,” he said. “In my mind, it’s not very healthy for a business to continue raising cash from financing activities.”
A former high-ranking employee of the track, who asked to remain anonymous, said the company was struggling for years before it finally went under.
“We were literally bleeding money and I was doing everything I could to keep the company’s head above water,” he said.
“We closed some of the bars and shut down portions of the building and let some employees go. I can remember times where an employee would be caught with a soda or burger that belonged to the track and they’d be fired on the spot. I thought at the time that it was on principle, but clearly those principles didn’t go to the top.”
Sullivan borrowed a total of $650,000 from the track while he was its CEO and said his salary last year was $225,000. He declined to say where the money he borrowed went.
The attorney general’s investigation that spurred gaming commissioners to ask the track to begin closing its doors launched in August 2007. The investigation came in the wake of a gaming commission ordered independent audit that raised concerns about the track’s ability to stay afloat.
“We ended up with an incomplete investigation when they filed for bankruptcy and there was nothing finally determined,” Associate Attorney General Ann M. Rice said. “The only action we could have taken was to make a recommendation to the pari-mutuel commission as to whether the licensee is fit to conduct racing in New Hampshire.”
The gaming commission asked the attorney general to open a new investigation into the track when it became clear that the track had insufficient funds to fully reimburse more than 500 bettors.
Gaming commissioners have accused Sullivan of promising to repay bettors during several private meetings before the bankruptcy filing. Sullivan has denied ever making such a promise.
The former track employee said he disapproves of Sullivan’s handling of the bankruptcy, because bettors were left in the cold.
“We’re talking about people I know, people I talked to, people I helped out and people whose money I processed. It just went into somebody’s pocket,” he said. “Knowing what the land is worth over there and the kind of holdings the company had, I never would have guessed in my wildest dreams that people would not get paid.”
The track’s bankruptcy attorney said Sullivan decided against warning the bettors because he wanted to pay his employees, and that wouldn’t have happened if bettors withdrew their accounts. Sullivan said during a creditors meeting in January that betting accounts were commingled with the track’s general funds and used to pay operating expenses.
Rice said the attorney general’s investigation into the track’s handling of the bankruptcy remains active, but declined to comment on its findings so far or provide a timeline for when the inquiry will be finished.
The gaming commission was worried about the track’s finances more than a year before it collapsed, which is why commissioners decided to impose a number of conditions on the company before granting it a pari-mutuel license for 2008.
One of the conditions would have required the track to maintain a reserve account that contained at least 70 percent of its bettors’ wagering funds. The condition was later dropped.
“The only reason I can think of is that that rule didn’t become effective until January of 2009. We could recommend it, but we couldn’t enforce it,” Connors said. “We had to do some public hearings on it and work with the attorney general on the wording of it. We didn’t have the correct verbiage in it and we had to go through the Legislature and attorney general to get the wording right.”
State law required all greyhound and horse racing tracks to return bettors’ money within five days of closing their accounts, but did not specify that the tracks maintain a reserve account to ensure this happens.
The state’s two remaining greyhound tracks, The Lodge at Belmont and Seabrook Greyhound, and its only harness racing track, Rockingham Park, have until March 1 to comply with an amended law that went into effect soon after the Hinsdale track went bankrupt.
The law now requires tracks to maintain reserve accounts to ensure bettors are not left holding the bag in the event of bankruptcy or closure.