By Bruce Schreiner
The Associated Press

LOUISVILLE - In a late surge, Churchill Downs Inc. went from also-ran to front-runner for a bankrupt New Orleans track that offers it a coveted foothold into winter racing and expanded gambling.

Churchill passed racehorse owner Mike Pegram in a spirited competition for Fair Grounds Race Course. The Louisville-based company reached a $47 million agreement announced Wednesday to purchase the track.

Pegram, an Arizona businessman who won the 1998 Kentucky Derby and Preakness Stakes as the owner of Real Quiet, thought he had a deal last month to make him majority owner of the Fair Grounds.

But the bankruptcy reorganization remained open, and Churchill "saw an opportunity to reinsert ourselves" with an updated offer, Michael Miller, Churchill's chief financial officer, said Thursday.

"Bankruptcy is a very, very fluid process, and the process is never complete until the court deems it to be complete," he said.

Churchill's deal still requires approval from a bankruptcy judge.

If approved, Churchill's newest acquisition would plug a nettlesome gap in its racing schedule that has been a drag on first-quarter earnings.

None of Churchill's current six tracks runs the entire winter. This year, Churchill lost $11.7 million in the first three months.

The Fair Grounds' upcoming meet, its 133rd, runs from Thanksgiving Day into late March. The historic track is home to the Louisiana Derby, a Grade II prep race for the Kentucky Derby.

Jeffrey Thomison, an industry analyst with Hilliard Lyons in Louisville, said the deal looms as "an excellent strategic development" for Churchill, partly from the potential first-quarter income boost.

Churchill shares were up 21 cents, at $36.07, in afternoon trading on the Nasdaq Stock Market.

Thomison said the track's slide into bankruptcy was "a little misleading" and shouldn't be cause for concern. He said the Fair Grounds is "generally considered a good quality track in a good market."

The deal also would fulfill another of Churchill's long-sought goals - access to expanded gaming opportunities.

"It's a really good entree for us into that business," Miller said.

The Fair Grounds now has video poker machines, and Louisiana law permits installation of several hundred video slot machines. Churchill wants to build a facility on the track grounds for video slot players, Miller said, but first would have to gain approval from local officials.

In Kentucky, the horse racing industry has failed to persuade state lawmakers to allow expanded gambling at tracks. Miller said that campaign "is ongoing and probably will be ongoing until it happens."

Meanwhile, Thomison said he wasn't concerned by Churchill's debt load, but said it was something that warrants tracking. The company reported $146 million in long-term debt in its June 30 balance sheet, he said.

Churchill also is in the midst of a $121 million renovation of its flagship track, Churchill Downs, home of the Kentucky Derby.

Miller said that Churchill plans to spend $90 million on the Fair Grounds, including the purchase and improvements.