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Pimlico, Santa Anita Tracks Owner Files Chapter 11

The thoroughbred business has been facing more than its share of problems for several years, long before The Recession/Depression hit North America and the rest of the globe. Around North America, racetracks have looked to casinos or slot machines and video poker machines as a method of supplementing income sufficiently to keep their tracks operating. Magna Entertainment, the largest owner of race tracks in North America, has been deploying this strategy in as many of its race tracks as it could to make up for dwindling crowds and diminishing revenue at almost all of its venues.

Faced with a $40 million loan payment due yesterday, Magna filed for bankruptcy protection. Magna incurred a staggering net loss of $294.1 million last year and $638 million since 2002. Not large by money center bank standards, but unfathomable by racetracks standards.

Magna's efforts to legalize slots in Maryland appeared to bear fruit as the Maryland General Assembly passed legislation approving slots at both Pimlico and Laurel in an effort to keep Pimlico open and the Preakness in Maryland. However, Laurel's bid for a license was denied last year because Magna had not paid a mandatory licensing fee. Magna has appealed but in the meantime it still had no slots revenue. It is believed that Magna has quietly had both Pimlico and Laurel up for sale for quite some time now. Any sale of Pimlico will be complicated by a Maryland law that gives the state the right to purchase the track upon matching any offer Magna receives.

All of Magna's tracks, including both Santa Anita, which will host this year's Breeders Cup, and Pimlico, are now on the auction block. Any sale must be approved by the bankruptcy court. The filing should not affect current operations as Magna is asking for approval of a $62.5 million loan from its controlling shareholder MI Developments. That loan will be collateralized by all of Magna's tracks other than Pimlico, Laurel and Santa Anita. It will include Magna's interests in joint ventures with Churchill Downs the cable racing channel HRTV and TrackNet Media Group, which buys and sells signals for off-track betting. All of the collateral will be put up for auction. For the right price, even Santa Anita, Pimlico or Laurel could be had.

This is yet another cautionary tale of the dangers of debt and the excesses of the last few years. Frank Stronach, the Canadian auto parts magnate who controls Magna, decided to become the largest race track owner in North America and wasn't going to let anything stop him. He believed blindly in an opportunity that proved to elusive. He thought that casinos or slots would bail out every casino he bought, so it wouldn't really matter what price he paid. He got into bidding wars with Churchill Downs or in some cases made premptorily high bids to eliminate Churchill Downs before a bidding war could break out. In either case, the result was the same. He overpaid for tracks and either casinos or slots were not approved, or as in Maryland, licensing was delayed or denied, or the revenue generated from the casinos and slots simply proved not to be enough to service that enormous debt. As of yesterday and as listed on the bankruptcy petition, Magna Entertainment's assets were $1.05 billion and its liabilites were $959 million.
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Full post as published by Sports Biz on March 06, 2009 (boomark / email).