De Francis declines to sell tracks

Major Ky. firm's offer for Pimlico, Laurel rejected

Control said sticking point

Prospect of slots in Maryland raises stakes for industry

Horse Racing

February 22, 2002|By Jon Morgan and Tom Keyser | Jon Morgan and Tom Keyser,SUN STAFF

A powerhouse in the thoroughbred racing industry, Churchill Downs Inc., recently attempted to buy Maryland's major tracks but was unable to strike a deal with their president, Joseph De Francis, who did not want to relinquish control of the tracks.

De Francis owns the controlling share of stock in both Laurel Park and Pimlico Race Course, known collectively as the Maryland Jockey Club. Pimlico, in Northwest Baltimore, is home to the Preakness Stakes, Maryland's biggest annual sporting event.

Talks between De Francis and Churchill president Thomas H. Meeker have occurred periodically over the years but grew more intense in December, only to falter, resume and falter again in recent weeks over the issue of control, according to sources familiar with negotiations.

De Francis, whose stewardship of the tracks has attracted widespread criticism, would not discuss specifics of the negotiations. But he said yesterday, "We have had discussions with Churchill Downs. Those discussions have not resulted in any transaction and are not ongoing."

Churchill, a publicly traded corporation based in Louisville, Ky., owns racing's premier event, the Kentucky Derby. It has bought a number of tracks in the past three years and says it is interested in buying more.

"We have said we are aggressively looking for acquisitions and other business arrangements in the thoroughbred industry that fit into our strategic plan," said a Churchill senior vice president, Karl F. Schmitt Jr.

"Beyond that, our policy is not to comment on potential acquisitions," Schmitt said.

De Francis said Churchill is one of "several substantial entities" that has shown interest in buying a stake in the tracks. "While we are honored that such expressions of interest have been made, no transactions have occurred," he said.

Another major player in racing, Magna Entertainment Corp. of Canada, also has made inquiries, sources said. Magna owner Frank Stronach did not respond yesterday to a request for comment but has publicly expressed interest in the Maryland tracks in the past.

De Francis has sought a buyer for the minority share of the tracks owned by LUK-Flats LLC, a subsidiary of Leucadia National Corp., a New York investment firm, according to sources. Leucadia emerged as a friendly investor in 1998, but relations between it and De Francis have soured.

Neither can sell the Leucadia shares without the permission of the other. Leucadia owns 39 percent of the voting shares of Laurel and 42 percent of Pimlico's, and about half of the non-voting shares of each.

Luis Medeiros, managing director of Leucadia International Corp. and vice president of LUK-Flats, declined to comment.

Looming large over any transaction is the prospect of slot machine gaming being legalized in Maryland - something that would greatly boost the value of the tracks. The Maryland Jockey Club has said it needs the revenue from electronic gambling devices to compete with tracks in neighboring states that use them to bolster operations.

Gov. Parris N. Glendening has blocked any legalization drive, but his term in office expires in January. Supporters of slots think they are gaining ground among lawmakers looking for new sources of revenue to plug the state's $1 billion budget shortfall.

The chairman of the Maryland Racing Commission, Lou Ulman, said he has heard rumors of offers being made for the tracks.

"Some new blood could be helpful," he said.

But he hesitated to assess the impact of a new owner until knowing its strategic vision, such as its commitment to year-round racing and track improvements.

Commission member Ellen O. Moyer, said, "I think it is a positive. Churchill Downs is one of the top and very respected racing syndicates.

"I think they understand the marketing, they understand the things that need to happen to rekindle pride. They understand you can't have major races and major things happening and have your infrastructure breaking down," said Moyer, who is also mayor of Annapolis.

Magna, based in Aurora, Ontario, owns California's Santa Anita Park and Bay Meadows, as well as Gulfstream Park in Florida and several other tracks.

Since 1999, Churchill has bought Calder Race Course in Miami, Hollywood Park in Los Angeles and Arlington Park near Chicago. Churchill announced last week a 2001 profit of $22 million, up 15.2 percent from the year before.

Jeffery Thomison, an analyst who follows Churchill for the Hilliard Lyons investment firm in Louisville, said a purchase of the Maryland Jockey Club would fit nicely into Churchill's strategy.

Churchill's debt is manageable, and its stock is trading at high levels, giving it an opportunity to raise money with a new issue, he said. The Maryland Jockey Club's schedule also would fill a gaping, January-to-March hole in the company's calendar, when it lacks live racing to offer fans betting on its racing telecasts.

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