A reprieve for racing

Our view: O'Malley deserves credit for the deal he brokered between horsemen and track owners, but huge problems remain

December 27, 2010

Gov. Martin O'Malley may well have saved the Preakness by orchestrating a last-minute deal between Maryland's horsemen and the owners of the state's thoroughbred tracks to maintain a 146-day racing schedule next year. We've heard so many threats over the years that the second jewel of the Triple Crown might be at risk that it's hard to take them seriously, but after Tuesday's Racing Commission meeting demonstrated a deepening rift between the horsemen and the track owners, the danger seemed very real. The solution the governor came up with was a good one, in that it provides the track owners some assurance that they will break even on racing next year, and it requires an appropriate amount of sacrifice from the horsemen, not the egregious deal the track owners had been proffering.

Still, we should hold our applause. The governor's deal puts racing on life support for at least a year, but it doesn't change an obviously poisonous ownership structure for the tracks that imperils racing's long-term viability.

Fifty-one percent of the Maryland Jockey Club, which owns Pimlico and Laurel Park, is controlled by MI Developments, a sibling corporation to Magna Entertainment Corp., which failed over several years to create any kind of sustainable business model for racing other than hoping for slots. And when the chance to get slots came around, a bankrupt Magna flubbed the deal. That's where the other 49 percent of the ownership came in. MI Developments brought in Penn National, a huge gambling conglomerate that has long since made horse racing a footnote to its corporate history. Penn National brought the cash needed for a failed bid to stop slots at Arundel Mills Mall, but in return, it got veto power over any major decisions. MI Developments owner Frank Stronach may be willing to lose millions a year on Maryland horse racing, but Penn National, it became clear after the slots referendum, is not.

The track owners' final proposals for a racing schedule for next year showed that Mr. Stronach, with his soft spot for racing, isn't holding the reins. The first offer the owners made was for a 146-day racing schedule, but with the conditions that the horsemen would pay $1.7 million, would give up their revenue from simulcasting — the one real bargaining chip they have, given the economic value of the Preakness — and would support an increase in costs for bettors. And even with all that, the owners gave themselves the right to back out of the deal (and keep the cash) if at any point they dipped into unprofitability. As a backup, they offered 77 days of racing with no strings attached. Either way, it allowed them to reap the bonanza of the Preakness without committing to anything else.

Penn National Chief Executive Officer Peter M. Carlino told the racing commission that "our motives are sincere and our intentions are honorable," but their proposal leads one to conclude their motives are to squeeze as much cash as possible out of one more running of the Preakness, and that their intentions are to not let any sentiment about tradition or the people whose livelihoods depend on it get in the way.

Mr. O'Malley's deal, which would require the legislature to approve the use of money intended for racetrack capital improvements to cover operating expenses, buys time. But for what? Penn National's plan appears to be to lobby the legislature to propose a constitutional amendment that would allow a second Anne Arundel County slots license at Laurel, which has virtually no chance of succeeding. And Mr. Stronach has been promising for years to revitalize racing so it can stand on its own, with little to show for it. Given the obvious discord between Mr. Stronach and Penn National, it's hard to conceive that they would be able to agree on a plan to make racing self-sufficient, and if they did, it's even harder to believe they would follow through.

The racing commission had the power to reject the joint ownership between MI Developments and Penn National, but in order to approve the governor's racing schedule deal, it will have to approve the arrangement. Maryland does have the authority to seize the tracks and the Preakness through eminent domain, and that prospect was looking pretty good to many horsemen in the wake of Tuesday's racing commission meeting. But it's not a practical solution — it would be expensive and would tie the state up in litigation for months or years. Had Penn National not agreed to the racing days agreement, the governor might have gone that route, but don't bet on it now.

Governor O'Malley did exactly the right thing on Wednesday. He saved the Preakness and kept the horse racing industry alive — for this year. Beyond that, racing's future in Maryland has never been murkier.

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