Colonial Downs Holdings Inc., the Providence Forge-based company proposing to build a horse racing track in Dumfries on 85 acres of landfill, has been through some shaky times since its founding in 1996. But the company hopes Dumfries will be part of the solution to finding fiscal success.

The company, which includes a racetrack in New Kent County and four off-track wagering centers, reported a loss of $5.3 million for fiscal year 1998. Unless something unprecedented happens to bring it into the black, it will be reporting a loss again this year, according to analysts at Friedman, Billings, Ramsey, the investment banking firm based in Arlington that brought the company public in 1997.

Friedman, Billings's report on Colonial Downs last quarter didn't offer much support for the company: "We continue to believe that a sale or merger represents the best opportunity for shareholders to profit from this equity."

Friedman, Billings said it doesn't have enough information on the Dumfries plan to give a business opinion, but it does have its worries. "Seeing their financial status, we wonder how they're going to pay for it," said Mark Stimson, an analyst with the firm.

Jeffrey P. Jacobs, Colonial Downs chairman and chief executive, recently announced he would put up another $20 million in equity in the company, hoping to offset the loss. He owns about 30 percent of the company. The move amounts to Jacobs betting on his own horse.

Betting is key to Colonial's business, which only partly comes from a dirt and turf racetrack in New Kent County. The company's main source of income, however, is earned from its four off-track parlors throughout Virginia, where bets can be placed on races at Colonial Downs as well as on races simultaneously broadcast from other tracks.

These off-track wagering centers, set up in restaurant-type settings, are in Chesapeake, Richmond, Hampton and Brunswick. The centers cost less to build and maintain than an extensive racetrack. But before one can be built, it must pass a public referendum.

Prince William County is the only jurisdiction in Northern Virginia to have passed such a referendum. Since 1992, voters in five jurisdictions--including Loudoun County, Fairfax City and Falls Church--have shot down attempts by the horse-racing industry to build betting parlors. A 1996 attempt by Colonial Downs to get a referendum passed in Manassas Park also was voted down by city residents. Elsewhere in the state, off-track centers have been voted out of Roanoke, Martinsville and Fredericksburg.

"If McDonald's had to get a referendum each time they wanted to build, they wouldn't have a million restaurants," said Herb Jones, director of investor relations for Colonial Downs.

"When you're developing a business from nothing, you don't make money until the business is up and running," said Jerry Monahan, senior vice president at Colonial Downs. "This company is no different, and we haven't been able to fully develop Colonial Downs because of situations with referendums."

The company has only four off-track wagering centers now, but the economic model for the company is based on six wagering centers. "That's like running on 66 percent capacity," Jones said. Colonial Downs has tried to open other centers but has been voted out through the referendum process.

The company specifically is looking to expand into Northern Virginia and tap the market around the District. "When you're in business, your business will only grow and prosper according to how good your market is, and there is a very good market there," Monahan said. "But you have to go to a jurisdiction that wants you there."

Colonial Downs's four centers are profitable, and showed profits in the last quarter, according to the analysts' report. However, the report stated that attendence and betting continue to be below the analysts' expectations.

"We are sure to make money and a solid return to investors after we fully develop racing centers in the market," Monahan said. "That's where we feel we can max the company's profits."

Analysts agree on that point. "What they need is two additional [wagering centers] for more profitability," Stimson said.

"We're going to try for more [centers] during the next election," Jones said. "But if we're not invited to an area, then we're not going. There's some interest around the state, and we'll pursue what we think is beneficial to us."

The Colonial Downs track pulls in about $8 million to $12 million in revenue before paying purses, salaries and taxes, plus "trying to keep the lights on," according to Jones. "The profit margin is very slim."

The revenue from the parimutuel wagering at the track is not strong income for the company. If a person wagers $100, for example, $80 of that is paid out in winnings. The other $20 goes to Colonial Downs. That 20 percent is used to pay purses, taxes and the like.

But if the Dumfries track goes through, Colonial Downs estimates the wagering parlor will bring in about $60 million a year. The company will need zoning approval from the Dumfries Town Council and must apply for a license from the Virginia Racing Commission.

The company executives believe the track in Dumfries will tap the Northern Virginia market they have targeted. "Generally, we will get people from an hour away," Monahan said.

If plans for the Dumfries steeplechase track--much like the track used for the Gold Cup races in the Plains--go through, the company will spend $15 million to $20 million on construction and create about 200 jobs. In addition, it will pay about $1 million in state and local taxes. "We've been a great corporate citizen" in the areas they already occupy, Jones said.

CAPTION: The paddock and walking area of Colonial Downs's track is in New Kent County. The company is hoping to build another track in Dumfries.

CAPTION: Appealing Skier and Valid Expectations battle at the finish during the Virginia Is for Lovers Stakes.

CAPTION: Company officials think a Dumfries track would exceed the earnings of its track in New Kent County.