Magna Says Tracks Won’t Get Upgrades Without Slots

Baltimore Sun
By Bill Ordine
May 4, 2005

The Canada-based owners of Pimlico Race Course and Laurel Park sent a message south yesterday: Without slots, there will be no more money for Maryland's two thoroughbred tracks.

Executives for Magna Entertainment -- the Aurora, Ontario, corporation with more than $200 million in losses over the past three years -- said the money spent so far at Laurel for track refurbishment and at Pimlico for more minor improvements would be the last until there was some additional "alternative revenue," an apparent reference to slots income.

"We're weighing very carefully what's happened in Maryland, and we could, frankly, stop investing any significant sums at this stage because we've done the most important piece, which was to get the racing assets of Laurel fixed up," Jim McAlpine, vice chairman for corporate development, said during a conference call to discuss the company's first quarter, which saw a $4.1 million loss.

"Obviously, if we have other sources of revenue there, we can get more aggressive in terms of improving the back side of Laurel and also in terms of moving forward with some upgrades to Pimlico," McAlpine said, "But we aren't going to do a great deal of that in the absence of alternative revenue."

When Magna agreed to buy the tracks in July 2002, company officials said horse racing was their primary business, not slot machines. Still, they said they would welcome slots.

The next month, Magna chief Frank Stronach said his company, which owns tracks in the United States, Canada and Europe, would begin rebuilding Pimlico immediately after the 2003 Preakness -- with or without slots. The auto parts tycoon later said Magna would also rebuild Laurel Park, regardless of slots.

Slots bill fails again

For the third straight year, Maryland legislators failed to deliver to Gov. Robert L. Ehrlich Jr. the type of slots bill that he and other proponents contend would help save the state's racing industry and fund education. Some opponents have argued that legalizing slot machine gambling would create more problems than it solves. Proposals have included placing machines at racetracks and other sites.

Company executives also said they were considering several options for funding current operations and to take advantage of future opportunities. Magna hopes to build a slots casino at a harness track it owns near Pittsburgh. While not specifying Pimlico or Laurel, officials said options for raising cash included the sale of real estate and other assets.

A Maryland Racing Commission member, Terry Saxon, has said that he is part of a group that is looking into the feasibility of making an offer to buy the two tracks.

"We want to take a look at the financial data and perhaps a few weeks after the Preakness, make an offer," said Saxon, who runs a driving range and golf school near Ocean City. Saxon declined to give details about his group.

Magna has spent about $38 million on the two tracks since it purchased controlling interest in the Maryland Jockey Club in 2002, according to company officials. About $20 million of that was spent redoing the dirt and turf racing surfaces at Laurel, according to Jim Gagliano, a Magna Entertainment executive in Maryland. Among the more visible improvements at Pimlico have been dining room upgrades, landscaping and a brick-column perimeter fence.

Straight talk

Still, the news that the cash flow from Magna Entertainment will slow to a trickle was received poorly in Maryland.

"Nobody knows what their plans are for Maryland. They need to start talking straight to everyone," said Alan Foreman, attorney for the Maryland Thoroughbred Horsemen's Association.

"Frank Stronach said he didn't need slots to do the kind of improvements that need to be done here," Foreman added. "Now they're saying, 'We can't make improvements without slots.' There's a disconnect there."

Foreman did say that Magna and Maryland will not be able to compete with tracks in Delaware, West Virginia, Pennsylvania and New York without additional revenue from slots. And, he said, Magna should have conceded that when it bought the tracks nearly three years ago.

The Ehrlich administration said the most-recent development was the consequence of the slots logjam in Annapolis.

"It's saddening news, but not surprising, as this is the result of inaction," said Ehrlich spokeswoman Shareese DeLeaver. "The governor has for years warned of dire consequences and ramifications of not passing a slots bill, and today those warnings came to fruition."

Del. Peter Franchot, a Montgomery County Democrat and slots opponent, said Magna Entertainment's latest announcement unmasked what he characterized as the real reason for pushing slots -- to benefit a national gaming company.

"Originally, it was slots for tots, meaning education," Franchot said. "Then it was slots for docs, to pay for medical malpractice insurance." Other advertised purposes were the environment, property tax relief and higher education, he said.

"Now we've bottomed out in this painful exercise, which is to help the gambling industry by Governor Ehrlich," Franchot said.

Del. Curtis S. Anderson, a Baltimore Democrat and slots opponent, called the Magna announcement an "empty" threat.

"That seems to be a ridiculous statement for a corporation that wants to make money. Apparently, they want to make money off the backs of Maryland citizens as opposed to improving their product like most businesses do," Anderson said. "They've got a valuable product there. All they have to do is build it up."

Officials with the administration of Mayor Martin O'Malley declined to comment.

A long wish list

Gagliano, who oversees operations for Magna at the two Maryland tracks, said the wish list for Laurel and especially for Pimlico is a long one.

"It's everything really, whether it's amenities for customer service, improvements to the grounds, improvement of the structures. ... You can start anywhere, they're older facilities," Gagliano said.

Magna Entertainment will finish this year in the red, according to W. Thomas Hodgson, the company's president and chief executive officer. The first-quarter losses were attributed to lower revenues from two tracks in California, including Santa Anita, which was hurt by bad weather, and at Florida's Gulfstream Park, where operations have been disrupted as a new track goes up.

The company "hopes to achieve sustainable operational profitability in 2007," Hodgson said.