Md. tracks on auction block

Owner of Pimlico and Laurel Park files for Chapter 11

future of preakness uncertain

March 06, 2009|By Hanah Cho | Hanah Cho,hanah.cho@baltsun.com

Magna Entertainment Corp., the troubled owner of Maryland's thoroughbred tracks, filed for bankruptcy protection yesterday and essentially put all of its racetracks up for sale, including Laurel Park and Pimlico Race Course, home of the Preakness Stakes.

Asked whether Magna would sell Pimlico, Laurel and California's storied Santa Anita Park, Magna Chairman and CEO Frank Stronach said in a brief telephone interview, "If the price is right."

The filing was expected after the company defaulted on a bank loan tied to Pimlico, Laurel and the Maryland Jockey Club while it also faced a $40 million loan payment due yesterday. Still, the looming auction process for Magna's assets heightens concerns about the future of thoroughbred racing in Maryland and about the Preakness, the second jewel of the Triple Crown and the state's biggest one-day sporting event.

Slot machine gambling was legalized in Maryland in large part to save the state's horse racing industry and raise prospects for keeping the Preakness in Baltimore. But Laurel Park's bid for slots was disqualified last month because Magna failed to pay a mandatory licensing fee. Magna has sued the state, and a judge's decision is expected soon.

Magna has lost $638 million since 2002, heavily burdened with debt payments as track attendance fell and newer casino and slots venues siphoned off much of its wagering revenue.

Some critics say that mismanagement and bad timing also played a part in Magna's financial struggles.

Stronach, among the top breeders and owners in thoroughbred racing, built his racing empire by buying up tracks at top prices and spending hundreds of millions of dollars on projects that did not meet expectations.

"It's an unfortunate and sad circumstance," said Timothy Capps, a former Maryland Jockey Club official who is now executive in residence at the University of Louisville's Equine Industry Program. "At least it's out there and we'll see how it unfolds. The marketplace will have its say."

Magna said that day-to-day operations at its tracks would continue while it seeks to sell assets and restructure. The company plans to borrow up to $62.5 million from its controlling shareholder, MI Developments, to fund its operations while under Chapter 11 bankruptcy protection. Magna also has agreed to a deal under which it would receive $44 million in cash by selling many of its properties to MID, including AmTote International Inc., the Hunt Valley-based company that pioneered electronic bet-processing systems, and the Gulfstream Park track in South Florida.

Magna will be required to hold a bankruptcy court auction for those assets, and other bidders could top MID, which also would cancel much of Magna's debt to it. That would make its bid worth $195 million.

The deal with MID does not include Pimlico, Laurel or Santa Anita, the storied track where movie stars once joined the masses to watch such champions as Seabiscuit, Affirmed and Spectacular Bid. Magna paid $126 million for Santa Anita in 1998 and invested millions more in restoring and improving the complex.

"Frank Stronach is convinced they are going to come through this, get the company restructured and move forward," said Rick Caruso, a Los Angeles developer who has a joint-venture deal with Magna to build a shopping mall adjacent to Santa Anita. "Nothing is changing from our end."

During the past several years, Magna survived on cash infusions from MID and Stronach, which drew scorn from MID's minority shareholders. They accused Stronach of using MID as Magna's banker of last resort and increased their pressure for MID to foreclose on Magna's loans.

Reached on his cell phone yesterday, Stronach said that filing for bankruptcy protection was a "very difficult decision."

"I personally thought that it would not have been necessary, but we had lot of MID shareholders, hedge funds, pushing it," he said.

Magna tried to eliminate debt by putting some of its racetracks and other properties up for sale, but slumping real estate and credit markets slowed progress.

Maryland horse racing interests were uncertain what the Chapter 11 filing would mean for them. Horsemen, breeders and state regulators said the filing was too fresh to predict how it would play out. The Preakness is scheduled to be run May 16.

Tom Chuckas, president and chief operating officer of the Maryland Jockey Club, said guests at Laurel and Pimlico should not see any interruption in service.

"I'm hopeful that the Chapter 11 restructuring will take the immediate pressure off the operations and at the end of the day, Magna and its subsidiaries will come out stronger and more financially viable."

Maryland law gives the state the option to buy the Preakness if it is offered for sale. In such a case, the state would have to match any accepted offer.

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