Magna to take complete ownership of Md. tracks

Canadian company agrees to buy remaining 49% of Pimlico, Laurel

September 25, 2007|By Hanah Cho | Hanah Cho,SUN REPORTER

The Canadian company that controls Maryland's major thoroughbred tracks agreed yesterday to buy the remaining interest in Pimlico Race Course and Laurel Park for $18.3 million, officially ending local stewardship of the state's storied jockey club.

Magna Entertainment Corp., a debt-laden company struggling to reverse its money-losing operations, exercised its option to acquire the outstanding 49 percent stake in the 264-year-old Maryland Jockey Club, the umbrella organization for the two racetracks and the training center in Bowie.

Magna purchased controlling interest in the Maryland tracks in 2002, along with rights to buy the remaining shares by November of this year.

Magna said the De Francis family's leadership role in managing the tracks would end after more than 20 years. But the family still stands to benefit financially if slot machines are legalized at Laurel Park and Pimlico, where the Preakness is held.

Maryland's tracks and related operations are a key contributor to Magna's financial health, contributing nearly 17 percent of the company's $697 million in racing and gambling revenue last year. But the state's horse racing industry has suffered as neighboring states have embraced slot machines and increased race purses.

Magna executives have lobbied lawmakers for slot machines at Pimlico and Laurel, and that push is expected to grow now that Gov. Martin O'Malley has indicated that he might pursue slots as one step toward closing a budget shortfall.

"While thoroughbred racing in Maryland is currently facing many difficult obstacles, we remain optimistic that with the assistance of other stakeholders, horse racing in the state can have a bright future," Frank Stronach, Magna's chairman and interim chief executive officer, said in a statement.

Joseph A. De Francis, chief executive of the Maryland Jockey Club, and his sister, Karin De Francis, an executive vice president, will give up day-to-day management of the tracks. Joseph De Francis, who also was an executive vice president of Magna, will remain a member of the company's board of directors. Other executives, including Lou Raffetto, the Jockey Club's president and chief operating officer, will remain, Magna said.

Some lawmakers said the departure of Joseph De Francis could help win approval for slots because some legislators have criticized him, saying he was focusing on personal profit instead of the racetracks' health.

Under a deal structured at the time of the initial acquisition, the De Francises and a group of former minority owners of the Jockey Club will benefit financially if slots are legalized in Maryland.

The De Francises, the minority-owners group and the Jockey Club formed a joint venture in 2002 to pursue business opportunities, including the possible development of gambling operations, according to documents filed with the Securities and Exchange Commission.

The agreement would give the De Francises and the minority-owner group 65 percent of the operation's profits from slots during the first five years, 50 percent for the next five years and 40 percent in the following decade, according to the SEC filings.

After the rejection of slots legislation in the General Assembly in recent years, O'Malley has renewed efforts to legalize slot machine gambling to help close a $1.7 billion budget shortfall.

The Maryland Jockey Club, founded in 1743, is one of the oldest names in sports. The Jockey Club holds the Preakness, the second leg of the Triple Crown, which begins each spring with the Kentucky Derby.

Frank J. De Francis and partners purchased Laurel in 1984 and Pimlico two years later. Joseph and Karin De Francis inherited the tracks when their father died in 1989.

"We've accomplished a tremendous amount," said Joseph De Francis, who said he will spend more time on raising horses. "On the other hand, there's a fairly high level of anxiety and concern about where Maryland racing is going. The last seven to eight years have been difficult because we have had to try to compete with both our hands tied behind our backs relative to Pennsylvania, Delaware and West Virginia who have had the benefit of having slots at their tracks."

Magna's purchase of the remaining stake in the Jockey Club did not surprise analysts, observers or the state's racing industry.

"Joe has not been involved in the day-to-day operations of the racetracks and stuff the horsemen have been involved in for some time," said Richard Hoffberger, president of Maryland Thoroughbred Horsemen's Association.

F. Douglas Reed, director of the University of Arizona's Race Track Industry Program, said the transfer of the Jockey Club's remaining shares is more like a formality because local ownership ended when Magna acquired its 51 percent stake.

"In my mind, from an operational, logistical and control issue, and the fact that the [buyout option] was written into it, it was done back then," Reed said.

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