Posted: 7:10 pm Thu, March 4, 2010
By Liz Farmer
Daily Record Business Writer
When the parent of Maryland’s thoroughbred racetracks filed for bankruptcy and announced it would sell its Maryland properties, it sent a wave of uncertainty, fear and frustration though the state’s horse racing community.
Exactly one year later, some say it’s gotten messier.
Since it filed for bankruptcy on March 5, 2009, Ontario-based Magna Entertainment Corp. placed Laurel Park, Pimlico Race Course and Bowie Training Center on the auction block, took them off last spring, then put them up back up for auction again last fall.
The company has delayed its Maryland assets auction three times in the last two months, with the latest reschedule — March 25 — adding to the feeling of instability.
It’s been a hand-wringing wait for those on the sidelines.
“The most problematic thing here is the uncertainty,” said Cricket Goodall, executive director of the Maryland Horse Breeders Association. “You’re thinking it’s going to happen, and it doesn’t. Basically the fate of an industry is in the hands of these people … Every time they set the date, we hope.”
And it hasn’t been a very coordinated show to watch, said Tim Rice, a racing industry analyst with Rice Voelker LLC in Louisiana.
“There’s no question it would have been absolutely impossible for anyone to screw this up more than they’ve screwed it up,” he said.
Most surprising blunder
Rice said Magna’s failure to file a licensing fee with its slots application more than a year ago has been its most surprising blunder. Before Magna filed for bankruptcy, subsidiary Laurel Racing Association said it would apply for a license to operate slots at Laurel Park, but the state tossed out the application because it did not include the $28.5 million licensing fee.
The company, which has lost more than $800 million since it bought Maryland’s tracks, said then it didn’t include the fee because it was not clear if the state would give the money back if Magna was not awarded the license.
“That was probably the one that really sent me for a loop,” Rice said. “I just couldn’t believe they would pass up that opportunity.”
The license for Anne Arundel County was instead awarded to Baltimore-based developer David Cordish, who plans to build a slots casino near Arundel Mills.
Then after flip-flopping on whether to auction its Maryland properties, Magna said last fall it would select a stalking horse bid, an initial bid chosen by the company that competing groups can bid against. But in the winter, the company said it could not reach an agreement and would continue the auction process without a stalking horse. Then in January, the company asked for an auction delay because it said it was trying to work out a deal with an initial bidder after all.
“When the bankruptcy started a year ago, I was cautiously optimistic that in a relatively short time Magna would come out of the bankruptcy, modify the business operations and be in a position to move forward and improve racing, grow racing and develop a plan that’s going to transcend for years to come,” said Tom Chuckas, president of the Maryland Jockey Club, the Magna subsidiary that operates the Maryland properties and is the entity technically on the auction block. “Unfortunately, sitting here today, there’s been a lot of nuances that have delayed or modified that.”
The auction sideshow
And now there’s the auction sideshow — a campaign by supporters of slots at Laurel to fight Cordish’s planned casino development just up the road. The Jockey Club has launched a petition drive to put approval of Cordish’s casino on the ballot this fall. Approximately 30,000 signatures have been filed, and roughly half have been approved.
More than 18,000 valid signatures are required to force a referendum, and Cordish has filed a lawsuit challenging the petition drive.
And through it all, the fate of Laurel and Pimlico remains a question mark, with Magna requesting more auction delays — this time without giving a reason. But points of view differ on how closely related the sideshow is to the main one.
Joseph De Francis, who sold the tracks to Magna in 2002 and is now bidding to regain them, called the dispute over slots in Anne Arundel County a “totally separate yet parallel track” to the auction process. He said because Cordish is a bidder for the tracks too, he has a hand in both pots.
“I think Cordish is pulling out all the stops,” De Francis said. “I sincerely believe that if that license ends up at the mall, Laurel has no future as a racetrack.”
Chuckas said he had not been told why Magna has been delaying the auction.
Jonathan Cordish, vice president of The Cordish Cos., said the auction and the petition dispute are directly connected. He said in an e-mail that Magna’s delays “make it clear” the auction is being run solely for the benefit of its parent, MI Developments.
Contrary to state interests
This is contrary to the state and industry’s interests, he said, and the result has been further damage to the value of the assets.
“The Jockey Club has deliberately misled the public and the horse racing industry to ensure that MID will not lose the very assets they ruined,” Cordish said. “It was clear as each auction approached that we would be the high bidder and not MID or one of its cronies, so they have been delayed again and again. As a result, the Preakness will continue to be an embarrassment to the horse racing industry and our state.”
Frank Stronach, the founder of MID and chairman of Magna, and other executives were not available to comment for this story.
The fight in Anne Arundel County is further delaying the opening of what is expected to be the state’s largest slots site, which was stalled last year by slow zoning approval. Other slots sites across the state have also met snags, and the first full opening is expected this fall in Cecil County, while a slots parlor in a temporary facility may open at Ocean Downs Racetrack near Ocean City this summer.
The whole picture is a far cry from the $86 million in state revenue that was originally projected for 2009, when legislators passed the slots referendum package in November 2007 that was approved by voters a year later. Goodall said the wait has been hard on breeders, and the length of time Maryland’s tracks have sat on the auction block has made it worse.
‘You feel so vulnerable’
“You feel so vulnerable I guess because you don’t really have a role,” said Goodall, of the breeders’ association. “You’re just watching it play out.”
She added that the uncertainty around the tracks and around the future of gaming in Maryland has caused some breeders to either cut down on the number of horses they breed here or to breed out of state. At last count, she said, Maryland’s incentive fund to breed and race in Maryland was $4 million — Pennsylvania’s is about $25 million. (A small percentage of Maryland’s slots revenue is slated to help boost Maryland’s incentive fund.)
“Horses have been siphoned off the farms here and are going to Pennsylvania,” Goodall said. “People who used to breed 50 mares, it’s now a dozen.”
Meanwhile, the state’s main concern throughout the auction process has been — and still is — keeping the coveted Preakness Stakes — the second leg of the Triple Crown and Maryland racing’s biggest moneymaker. The state has several attorneys on the case filing motions, responses and appearing at hearings for anything that may concern Maryland’s right to the race.
“We wish this matter had been resolved by now; but our goal is the same,” Gov. Martin O’Malley said through a spokeswoman. “To make sure that the winner of the auction makes a binding commitment to the state of Maryland not to move the Preakness.”
The first time Magna put Maryland’s properties on the auction block, a panic ensued with legislators passing a last-minute bill that allowed the state to seize Magna’s Maryland properties — including “intangible property related to the Preakness Stakes” — via eminent domain. The second time around, Magna included a provision requiring prospective bidders to keep the race in Maryland.
O’Malley said based on his conversations with the debtors, he believes Maryland’s tracks will have a new owner by the time the Preakness is run on May 15 this year.
Chuckas still optimistic
Chuckas said he was still optimistic that the tracks’ future would be resolved soon. While it’s been harder on the Jockey Club to operate this past year in an uncertain environment, he said he was “surprised” at how morale has stayed up.
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