Tuesday, March 23, 2010

To Zorn's chagrin, Stronach to retain Laurel, Pimlico with sale to bankrupt Magna's parent company

Steve Zorn, managing partner of Castle Village Farm and a blogger on The Business of Racing, reports at his blog and on Facebook that lawyers for Frank Stronach's Magna Entertainment Corp. are in bankruptcy court today, presenting a revised reorganization plan that will (again) cancel an auction of Maryland's racetracks that was set for Thursday, leaving Stronach and MEC in charge of Maryland racing. Zorn says that's "bad news" both for racing in Maryland, and nationwide.

The Baltimore Sun has confirmed that the auction is off.

Zorn earlier had voiced concerns that Stronach and Magna would again find a way to stave off the auction of its majority ownership in Laurel Park and Pimlico. His breaking of the news that the auction is off to some degree contradicts reporting earlier today by The Blood-Horse that MEC had reached a settlement with the DeFrancis family, former owners of the tracks, on the family's future rights to potential slot revenues at the tracks, "apparently (clearing) the way for an auction of the tracks on Thursday."

Or not. Perhaps with the DeFrancis issue out of the way, Stronach and MEC have successfully argued that their position is sufficiently strengthened, permitting MEC's continued ownership of the tracks.

The Blood-Horse cited the Baltimore Sun as reporting that the deal between MEC and the DeFrancis family could pay Joseph DeFrancis and his sister Karin $8 million from MEC and $4 million from the Maryland Jockey Club to settle their claim to future slot revenues. It also was reported that the DeFrancis siblings could receive 15 to 25 percent of the proceeds of the auction if the total sale price is more than $39 million. (Ontario-based MEC paid $117.5 million for just 51 percent of Pimlico and 58 percent of Laurel in 2002, and another $18.3 million to acquire an additional 20 percent of each track in 2007.) But the newspaper reported that the DeFrancis siblings would only receive $1 million if the tracks wound up being purchased by MEC's parent company MI Developments, outside the auction process -- exactly what appears to be happening.

Now the Associated Press reports that MI Developments will pay $89 million to settle a lawsuit filed by a committee of Magna's unsecured creditors, $13 million to cover secured claims of PNC Bank, about $6 million to the holders of unsecured claims against the Maryland Jockey Club, and $5 million to "the former owners of Laurel Park and Pimlico."

The DeFrancis family was reportedly among the half-dozen or so potential bidders in the now-canceled auction. Others mentioned include the Cordish Cos., Penn National Gaming Inc., and Blow Horn Equity LLC, a Pennsylvania-based horse breeder and racing consultant backed by private equity.

The Sun's Web site story says that "plans to sell the track had raised concern about the future of ... racing in Maryland and the fate of the Preakness, the second leg of horse racing's Triple Crown." But clearly leaving the tracks in the hands of Stronach's people hasn't exactly allayed all concerns. After all, how much faith can be instilled in the Maryland racing community and its fan base by leaving in charge the company that went bankrupt in the first place? That's better than giving someone else a shot?

After all, the once-lengthy list of MEC-managed racing-industry properties includes such notable investments ditched or gone wrong as:

  • The ill-fated, once-famed Bay Meadows Racetrack in San Mateo, Calif., now sold and bulldozed for a redevelopment plan that has stalled to nothing, leaving piles of rubble in its place.
  • Great Lakes Downs in Michigan; closed by Magna in November 2007 and sold to the Little River Band of the Ottawa Indians for redevelopment as a casino.
  • Remington Park in Oklahoma; sold for a reported $70 million profit to the Chickasaw Nation in a deal that is yet to close.
  • Thistledown Racecourse in Ohio; sold for a reported $75 million profit in September to Harrah's Entertainment, another deal yet to close.
  • And, Lone Star Park in Grand Prairie, Texas, bought for $100 million and reportedly being sold to the Chickasaws for just $27 million, yet another deal not yet competed because the Delaware bankruptcy judge delayed the sale in light of a competing bid from Penn National Gaming.

Yes, Magna still manages the likes of Santa Anita, Gulfstream Park, and Golden Gate Fields. It also owns HRTV and XpressBet.com. But the firm's list of scratches and also-ran finishes certainly rivals, if not exceeds, its record for racing biz wins. So it isn't surprising that some, perhaps many, industry insiders like Steve Zorn would rather wager on a new shooter -- or maybe an old veteran like the DeFrancis family -- in the race toward Maryland's horse racing future.

It isn't that racing's faithful don't want to see Frank Stronach and MEC succeed in managing racetracks. It's just that they've reviewed the past-performances and don't see much reason to bet on them.

1 comment:

  1. Thanks for the plug, Glenn. And, yes, I did have the story before the AP, Blood-Horse or Thoroughbred Times, though I certainly wasn't happy to have it. Can't understand why the minority shareholders in Stronach's MI Developments continue to roll over and let him use their money to pay for his dreams of empire. Perhaps this time, as the MI press release suggests, he promised to sell off a lot of the real estate.

    And Stronach's lawyers flat-out lied to prospective bidders late yesterday, saying the auction was still on, when they must have known it wasn't. The whole sorry scheme caused those bidders to spend considerable time, effort and money preparing their bids for an auction that was never going to happen.

    Maybe the bankruptcy court will still have the courage to look at what happened.


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