De Francis slots stake is a focus of debate

Potential profit for CEO of 2 tracks clouds issue

`He generates intense feelings'

November 27, 2003|By Ed Waldman | Ed Waldman,SUN STAFF

To hear Joseph A. De Francis tell it, the fight to put slot machines at thoroughbred tracks is all about the future of racing in Maryland, including the Preakness Stakes.

But others - including House of Delegates Speaker Michael E. Busch - say the fight is about preventing De Francis and his former partners from reaping a windfall. De Francis, who is chief executive of Laurel Park and Pimlico Race Course, could make millions of dollars if Maryland permits slots at his tracks, thanks to an agreement signed last year when his family sold them to a Canadian conglomerate.

Busch said that would amount to "unjust enrichment."

"I've always believed that," said the Anne Arundel County Democrat, who this year blocked legislation supported by the governor and passed by the Senate that would have permitted slot machines only at tracks.

Busch has supported alternatives, such as locating slot machines at state-run facilities, which would, he says, maximize the state's take in the new venture. He has said a portion of the revenue could be used to boost purses at the tracks, which the racing industry has insisted for years it needs to keep from losing horses to tracks in adjoining states that have slot machines.

In a recent interview, De Francis cautioned against placing slots only at state-run facilities. "If slots came to those locations and not to the tracks, that would be the worst case for us," he said. "That would really make it very difficult for us to continue to survive."

Alan Foreman, general counsel of the Maryland Thoroughbred Horsemen's Association, said that while his organization supports slot machines at all the state's racetracks it would "seriously consider" a deal in which slot revenue from off-track facilities is used to supplement purses.

"If the state is committed to the health of the industry by providing monies to supplement purses, we would support that," he said. "If that means locating gaming, in addition to racetracks, at sites other than racetracks, but a portion of those revenues is going to go to the racing industry, I don't know why we wouldn't support that.

"What I would want to guard against is putting facilities in that compete with the racetracks."

Foreman said that Maryland racing needs between $70 million and $100 million per year on top of its existing purses, money paid to the owners of top-finishing horses, to remain competitive in the Mid-Atlantic region - and nationally. Now Pimlico and Laurel pay out about $40 million in purses for their 220 racing dates.

Gov. Robert L. Ehrlich Jr., responding to Busch's concerns, recently said that he could support a plan that permits slot machines at a mix of on and off-track facilities and limits gambling licenses to one per company, which could force Magna Entertainment Corp., the Ontario, Canada-based owners of the tracks, to choose between Pimlico and Laurel.

But De Francis said that may not be enough to preserve the tracks and the Preakness. It would, he said, be "very difficult" to keep Pimlico viable if it was decided that Laurel was a better location for slots.

"You have to be able to attract customers," he said. "And if customers can go to a number of facilities around the state of Maryland and be able to consume a wide variety of gambling products that they can't consume at Pimlico, then why are customers going to go to Pimlico?"

The issue got even more complicated this week when the chairman of the Maryland Stadium Authority - an Ehrlich appointee - suggested a state-built track and slots emporium near Camden Yards.

Much of the acrimony in the debate over slots has focused on the perception that De Francis will cash in if they are authorized at his tracks.

As part of last year's deal to sell 51 percent of the Maryland Jockey Club to Magna, De Francis and the Jockey Club's former minority owners get to keep 65 percent of the pretax earnings from slot machines at the tracks for their first five years of operations, with De Francis getting 11.74 percent. De Francis' percentage drops to 9.03 percent after five years and 7.23 percent after 10 years. The payments would stop after slots had been at the tracks for 20 years.

Among the former partners who would also benefit: a New York conglomerate called Leucadia National Corp. and Joseph J. Grano Jr., the chairman of Wall Street's UBS Wealth Management USA, formerly UBS PaineWebber Inc. Also, the estate of the late Redskins owner Jack Kent Cooke, who had made a loan to the track's former owners, is due $6 million if slots are legalized by 2006.

Estimating how much Magna, De Francis or any former minority partners would get is impossible until the General Assembly decides how revenue would be distributed if slots are permitted.

"If slots come to Maryland, whether or not I personally realize any profit - and if you want to quote me put the word profit in quotes - is a very, very uncertain issue," De Francis said.

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