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Preakness Covenant Ensures Race Will Stay In Maryland; Model for Others

When Maryland was faced, last year,  with the bankruptcy of Magna Entertainment, the owner of Pimlico Race Course and the Preakness Stakes it refused to sit back and await results like so many other state and municipal governments faced with the threat of losing local sports franchises.  The Maryland General Assembly swung into action passing legislation giving the state condemnation authority over all of Magna's Maryland assets, including the Preakness, which, when coupled with Maryland's existing right of first refusal over any transfer of Pimlico gave the state all the hammer it needed to secure an agreement with Pimlico's owner ensuring the Preakness Stakes will remain in Maryland forever.

Pimlico is about to get new owners in MI Developments (a Frank Stronach controlled entity and a successor to Magna) and Penn National Gaming, Inc.  As a condition of the state's waiver of its refusal rights, the state and MI Developments entered into an agreement known as the Preakness Covenant that the Preakness Stakes could never be moved from Maryland.  MI Developments agreed that the Preakness Covenant would be binding on its successors, any action in connection with the agreement could only be tried in Maryland courts and subject to Maryland law and that Maryland's remedy would be specific performance of the Covenant, blocking the removal of the race.

While Maryland had the advantage of a looming bankruptcy to goad the legislature into action, and the law required no cash outlay on the state's part, the idea of declaring the Preakness Stakes a state asset could be a useful model to a community determined not to lose a professional sports franchise which threatens to relocate.   The costs to the state and municipality may be greater than would be apparent in a condemnation proceeding for Pimlico or just the Preakness might have been but, remember Maryland never actually had to condemn anything.  It was the presence of the condemnation threat and the first refusal right which brought the new owner to the table and made the Preakness Covenant possible.  Imagine what might have happened in Seattle had such laws been in place when Clay Bennett showed up to take the Sonics to Oklahoma City.

In case you missed it, here's is today's Preakness victory by Lookin' At Lucky:

Full post as published by Sports Biz on May 16, 2010 (boomark / email).