The wrong partner for Maryland racing

Our view: Penn National is about slots, not horse tracks

May 10, 2010

Maryland's horse industry had reason to worry when the sale of the Maryland Jockey Club — and with it the Laurel Park and Pimlico race tracks — was short-circuited so that MID, a new arm of Frank Stronach's Magna empire, could buy the properties from the bankrupt Magna Entertainment Corp. The pledges of a new vision for making horse racing viable rang hollow after the first incarnation of Magna failed to make good on the same promises. The announcement today that Penn National Gaming is entering a joint venture with MID to run the jockey club shouldn't come as much comfort; although Penn National started nearly 40 years ago as a thoroughbred track outside of Harrisburg, Pa., the company is now all about slots and table games, with horse racing a distinct afterthought.

Penn National operates more than a dozen casinos in the U.S. and Canada and is hugely profitable — even in a bad economy, profits were only down slightly, to $36 million, in the first quarter of this year, on gross revenues of nearly $600 million. The company doesn't say how much of that comes from slots, table games, hotels, restaurants and other activities and how much comes from horse racing, but it's a good bet that the slot machine cart is well in front of the horse.

Penn National describes itself as a company that "owns and operates casino gaming, horse racing and off-track wagering facilities with a focus on slot machine entertainment." Indeed, its announcement of first-quarter results included the words "horse" and "racing" only in the boilerplate explanation of the company at the end; they didn't factor into Penn National's plans for growth and didn't rank among the factors that could positively or negatively impact its short-term financial prospects.

In its news release today explaining the joint venture, Penn National's CEO talks a good game about the company's interest in acquiring a stake in the Preakness and working to "continue delivering a high-quality racing experience" at Pimlico and Laurel. But the statement also says the company will be working "to pursue other opportunities, including the potential for gaming, to maximize the overall value of the business." Given the company's strategy of growth through expansion of its slots and table games business, not horse racing, it's fair to wonder just how much effort Penn National intends to put into making Pimlico and Laurel more viable and how much it intends to expend on the Maryland Jockey Club's long-shot bid at a slots license.

It is not impossible that slots could eventually come to Laurel — Anne Arundel County voters could overturn the zoning allowing slots at Arundel Mills; the state slots commission could strip the Cordish Cos. of its license to operate a slots parlor there; it could rebid the license and award it to the jockey club; and the Arundel council could pass a new zoning law allowing slots at the track. But that's a lot of ifs.

Further complicating matters, Penn National already has a license to operate a slots parlor in Cecil County (in fact, it makes the company's list of its significant new revenue prospects), and Maryland law forbids one company from holding two slots licenses. Even if the legal structure of the new joint venture somehow allowed Penn National to get around that clause, it would certainly run counter to the spirit of a law enacted to limit the influence any one company would have over the state's slots program.

There was no doubt that MID needed help to make good on its promises to revive Maryland's horse racing industry. But horsemen should be skeptical about whether Penn National is the right partner, or if it's just another entity looking to cash in on Maryland slots.

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