Betting The Long Shot?

Magna Entertainment Corp. chairman Frank Stronach has risky, bold and costly ideas for its 14 race tracks.

July 21, 2002|By Jon Morgan | Jon Morgan,SUN STAFF

Maryland is about to become a laboratory in the greatest experiment in thoroughbred racing since pari-mutuel wagering debuted at the Kentucky Derby nearly a century ago.

The hypothesis, being tested by Magna Entertainment Corp., is that the sport can reclaim its glory by combining old-fashioned hospitality with the wizardry of the communication age.

Specifically, Magna, which agreed last week to buy Pimlico Race Course and Laurel Park, wants to convert its big tracks into "destination entertainment centers" that will draw fans with gourmet cafes, boutique shops and rock concerts. At the same time, it wants to beam its races worldwide via a self-contained network of "new media" that will let players bet from cell phones, laptops and televisions.

"It's very aggressive," said Jeff Rabin, an analyst with Dundee Securities in Toronto who follows Magna. "By definition, this is the `next big thing' in racing because nobody else is doing anything. This is an industry that has been sleeping for 30 years, since the invention of TV."

To prove its point, Magna has unflinchingly sunk more than $500 million into a sport whose popularity peaked in the 1940s. In less than four years it has bought 14 tracks, a telephone betting service, started its own Internet wagering system and is investing in an all-racing, all-the-time television network it hopes to have up and running this fall. It is also developing a track in Austria that could distribute American races to Europeans. The goal: creating a "global, media wagering platform."

It's bold. It's brash. It's costly. Will it work?

Marylanders will be among the first to find out. Magna's coast-to-coast buying binge appears to be nearing an end. The company says it would like to acquire a few more tracks, but there aren't many left to buy or places to build, and its money isn't limitless.

"What we've got here in North America is we've got one of the great sports products in the world in the form of live horse racing. We just don't do a great job of distributing it," said Magna president Jim McAlpine.

Churchill Downs Inc. of Louisville, Ky., the No. 2 player in the industry, is trying to achieve many of the same objectives, but with less expense. The company, which owns the Kentucky Derby, gave its namesake track the Camden Yards treatment a decade ago. It proved that fans will come if you keep the floors clean and the food hot. To keep them coming, Churchill recently announced a $130 million overhaul of its signature facility.

Churchill has also sought wider distribution of its races, but over other people's hardware. It has branded its race telecasts - whether originating in Louisville, Chicago or Florida - with its "twin spires" logo and makes a fortune selling them to other tracks and off-track-betting parlors, Internet betting sites and a start-up racing channel backed by the Fox network called TVG.

Magna prefers a do-it-yourself approach, and has been willing to out-bid Churchill for the tracks it needs to supply its own betting services.

"Magna has a great growth strategy and Churchill has a less risky one. In the long run, Magna may wind up the winner because they have paid more for the properties," said Adam Steinberg, an equity research analyst with CIBC World Markets in New York.

But there are risks incumbent in the plan. If the company has paid too much, as some analysts believe, it may run out of money and have to retrench, perhaps closing or selling off poorly performing tracks. And it is possible that racing's popularity - which has edged up in recent years but remains far down the list of the nation's favorite sports - simply won't grow enough.

"It's not exactly a growing demographic," Steinberg said of racing's depleted fan base.

Others in the industry worry that Magna's TV network will siphon business from TVG - which has wide backing in the industry - resulting in the failure of both.

"The odds of two national TV channels devoted to racing succeeding is like two golf channels. It's unlikely," said National Thoroughbred Racing Association Commissioner Tim Smith.

F. Douglas Reed, director of the University of Arizona's Track Industry Program, said Magna will probably stop buying tracks soon and settle down to run what it has.

"I am cautiously excited," Reed said. "A lot of places have tried many different things at tracks - concerts and car shows. It's certainly attracted more people to the tracks. I think there is an opportunity, if it is done right, for it to work."

Essential to the media strategy is owning enough race tracks to keep the simulcasts humming around the clock, year round. McAlpine predicts that Magna-owned tracks will conduct a total of 1,700 days of live racing next year, compared with 711 in 2000.

"We are trying to build a racing channel that can deliver a race every three to five minutes," he said.

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