For Maryland horse racing, the refrain stays the same in battle for survival
"Meet the new boss: Same as the old boss."
That cynical refrain from The Who's 1971 classic "Won't Get Fooled Again" sums up the latest development in Maryland horse racing. When the bankrupt Magna Entertainment Corp. canceled an auction of Laurel and Pimlico and instead transferred the tracks to MI Developments, the deal meant that they moved from one company controlled by Frank Stronach to another controlled by Frank Stronach.
Some of the potential bidders in the auction -- which had been scheduled for Thursday -- might have been viewed as white knights who could have helped the state's thoroughbred business. But because Magna Entertainment has been such a dysfunctional operation, because it was responsible for a disastrous decision that might have doomed Laurel Park by costing it a chance to install slot machines, only a wild-eyed optimist could hold high hopes for a Stronach regime under a different name.
The Magna-to-MID transaction is just the latest deal in a complex relationship between the two companies. After Stronach built his principal business, Magna International, into a worldwide auto-parts giant, he indulged his passion for horse racing by creating Magna Entertainment and buying some of the nation's most famous racetracks, including Santa Anita and Gulfstream Park. He overpaid for many properties (particularly the Maryland tracks) and spent lavishly to improve them (particularly when he built a new Gulfstream for more than $200 million). As a result, his company plunged deeply into debt.
For Stronach, this was no problem. He also controlled MI Developments -- the real-estate arm of his auto-parts company -- and was happy to let MID loan money to his racetrack operation. Less happy were the shareholders of MID, including a couple of major hedge funds who didn't share Stronach's enthusiasm for money-losing racetracks. A shareholders' suit accused Stronach of "looting" the company and "engaging in self-dealing transactions" to finance his horse-racing interests. In March 2009, Magna Entertainment filed for Chapter 11 bankruptcy protection, but anyone who expected the Stronach racing empire to be dismantled badly underestimated the chairman's tenacity.
Stronach held onto Gulfstream, Santa Anita and other prime enterprises by selling them to MI Developments. Magna got rid of some of lesser properties, and its original bankruptcy plan called for it to sell the Maryland tracks. At least two potential buyers -- David Cordish, chairman of the Baltimore-based Cordish Companies, and Jeff Seder, founder of Blow Horn Equity LLC -- said publicly this week that they were willing to make substantial bids for Laurel and Pimlico. But when Magna Entertainment was able to make the necessary agreements with its creditors, it was able to scrap the auction and keep Stronach in charge.
Seder examined the Maryland tracks' financial records in the course of preparing his bid for the auction and, he said, "It was pretty ugly. The guy [Stronach] was losing $5 to $7 million a year." And those losses came despite minimal expenditures on the track's deteriorating physical facilities. This grim financial picture underscores how much the Maryland tracks need revenue from slot machines.
Voters approved slots in a statewide referendum in 2008, and the language of the measure specified that one of the slot parlors be at a location in Anne Arundel County that everyone assumed would be Laurel Park. But on the day the Maryland Jockey Club's bid, accompanied by a $28.5 million check, was supposed to be delivered to the state slots commission, Magna's corporate headquarters in Canada decided not to post the money. At the same time, the Cordish Companies submitted what was widely regarded as a long-shot proposal for slots at the Arundel Mills shopping mall. It posted the requisite payment. The state slot commission had little choice but to disqualify Laurel and award the franchise to Arundel Mills.
If Magna had simply followed the rules of the bidding process, the Maryland racing industry would now be looking ahead to a steady stream of revenue that would boost purses and breeder awards. Instead, Stronach's company has tried to rectify its mistake by spending hundreds of thousands of dollars trying to force another referendum that would block the slots at Arundel Mills. The effort has prompted what is sure to be a protracted legal fight between the Maryland Jockey Club and the Cordish Companies, and it could delay the start of any slot-machine operations by more than a year. Because racing would receive substantial revenue from an Arundel Mills operation, the Baltimore Sun editorialized that the Maryland Jockey Club was "its own worst enemy" by waging this fight. That description would apply to a long list of Stronach's decisions and actions in the racing business.
At least the Stronach operation has tacitly acknowledged some of its mistakes. In its press release announcing it would take over the Maryland tracks, MI Developments said that a slot-machine operation "will be developed in combination with an experienced and financially secure co-venturer." It declared that it wanted "racing operations brought to a break-even status within three years."
In other words, after eight years of running the Maryland tracks, the Stronach organization sees a need to have competent people involved in its operations and to stop losing money. Well, that's progress.