Slots flip

November 20, 2005

Up in Pennsylvania, Magna Entertainment Corp. - part-owner of Maryland's Pimlico and Laurel racetracks - just made a killing on slots. How's that? Remember that slots have been approved in Pennsylvania but the parlors won't open until next year. Nevertheless, Magna's lucrative deal went down like this:

In 2001, it acquired a western Pennsylvania harness racing track for $53 million.

Last year, that track, called The Meadows, became one of six Pennsylvania tracks virtually guaranteed a state license to eventually operate as many as 5,500 machines.

Last week, Magna sold The Meadows to two Las Vegas executives and an investment firm for $225 million, contingent on slots coming there.

That's something like $172 million in profit for Magna long before anyone drops any money into any slot machines at The Meadows. And here's the kicker: The state of Pennsylvania is charging slots licensees only $50 million for their franchises - which, in the case of this harness track, the free market just valued at many more times that.

Think of the difference between Pennsylvania's license fee and the much higher market price of The Meadows' license - which is consistent with the large sums that slots licenses have brought on the open market around the country - as a gift to Magna from the people of Pennsylvania.

Back in Maryland, ask whether Magna would do the same thing here, grab a low-priced slots license from the state as an entitlement to save racing and then quickly flip it - fleeing right away with perhaps hundreds of millions of dollars.

Marylanders should pay close attention to Pennsylvania's rush to slots, beset from the start with questionable, if not corrupt, deals. They also should ask whether Magna wants a slots license or two to save horse racing or to flip them for a quick buck.

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