A bid to save tracks, race

O'Malley to seek Preakness under eminent domain

General Assembly 2009

April 08, 2009|By Gadi Dechter | Gadi Dechter,gadi.dechter@baltsun.com

Gov. Martin O'Malley plans to introduce emergency legislation Wednesday that would give the state authority to acquire Maryland's bankrupt horse racing tracks and the Preakness through eminent domain, officials confirmed.

However, legal experts say the bankruptcy filing by the tracks' owner could prevent the state from exercising that power.

Debate on the bill, which has the backing of the General Assembly's presiding officers, could begin as soon as Thursday afternoon in a joint hearing of Senate and House of Delegates lawmakers.

The last-minute legislation was prompted in part, O'Malley aides said, by reports last week that a Pikesville developer was interested in razing Pimlico Race Course - where the Preakness began in 1873 - and turning the Northwest Baltimore property into a shopping center.

The bill is designed to "expand the tools available to the state to ensure that the Preakness remains in Maryland," said Shaun Adamec, an O'Malley spokesman. He emphasized that condemnation would be a tool of last resort. "The bill is a way to protect the options available to the state," he said.

The legislation is the latest attempt by the state to establish control over the fate of the Preakness in the wake of bankruptcy filings by the tracks' Canadian owner in early March. Both the state and city have filed formal objections in U.S. Bankruptcy Court over Magna Entertainment Corp.'s proposal to auction all of its assets, including Pimlico and Laurel Park, and the state's largest single-day sporting event: the second jewel of the Triple Crown.

Maryland has a law on the books giving it the right to purchase the Preakness if it is offered for sale, but bankruptcy experts have cast doubt on whether a federal judge would respect the so-called right of first refusal.

Bankruptcy also poses a formidable challenge to eminent domain, because the state's right to condemn assets in the name of public interest are automatically halted when a debtor has federal bankruptcy protection.

"There is an automatic stay" of any condemnation during bankruptcy, said E. Stephen Derby, a retired federal bankruptcy judge affiliated with the Baltimore court. "The state would have to get relief from the automatic stay."

The timing of Maryland's proposed law "would be a factor" in the judge's decision on whether to lift the stay, Derby said. He said courts tend to frown on parties to a bankruptcy that attempt to "come in and improve their position" by asserting rights created without approval of a court.

"If the state were a private lender who tried to get a lien after the case were filed, that would not be permitted," Derby said.

The attempt to invoke eminent domain in the case of a beloved and endangered sports franchise is, like the Preakness, a part of Maryland history.

On March 30, 1984, in a bid to prevent the Baltimore Colts football team from skipping town, the General Assembly gave the city the authority to take sports franchises by eminent domain.

The city immediately filed a petition to condemn the Colts - but it was rejected by a federal judge because the team and its property had absconded to Indianapolis the day before.

If the federal court were to allow Maryland to assert its right of condemnation over Magna's assets, the state would have to pay fair market value for the assets, which is why O'Malley's proposed legislation also gives the Maryland Economic Development Corp. the right to issue bonds to cover acquisition costs.

In a court filing Sunday with the U.S. Bankruptcy Court in Delaware, Magna listed the net book value of Pimlico Race Course as $17.7 million: $7 million for the land and $10.7 million for the track's facility.

The net value of Laurel Park was listed at $42.4 million, according to court documents. The land was valued at $7.1 million and the track's building at $35.3 million.

The court documents do not estimate a value for the Preakness, but the annual race is a major money-maker that attracts more than 100,000 revelers and supports Maryland's faltering thoroughbred industry for the rest of the year.

John B. Franzone, chairman of the Maryland Racing Commission, welcomed O'Malley's proposed legislation.

"I think the governor is taking all the right steps to ensure that horse racing remains viable in the state of Maryland," he said. "Obviously, the problem here is that he is not in ultimate control. ... Certainly federal law seems supreme here."

Despite the limited time left in this legislative session, Senate Majority Leader Edward J. Kasemeyer said lawmakers would have time to pass a bill, though he said they would have to address potential criticism about spending state dollars for this purpose in a recession.

"It can be done," said the Democrat, who represents Baltimore and Howard counties. "Time is not the issue."

Meanwhile, the Pikesville developer who provoked the legislative activity with his plans to redevelop the track into a shopping center said Monday that he's in partnership talks with two racetrack operators interested in keeping the Preakness at Pimlico.

Carl Verstandig, president and chief executive officer of America's Realty in Pikesville, said one operator is interested in Magna's entire racetrack portfolio, while the second wants only the Maryland tracks.

Verstandig declined to reveal the operators' identities.

He said his preference would be to buy the excess land around both tracks and redevelop only those areas into retail centers.

"They want to maintain racing at both facilities, from what I'm told, and upgrade and keep the Preakness," he said. "I'm very much for keeping the Preakness."

Baltimore Sun reporters Hanah Cho and Laura Smitherman contributed to this article.

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