Archive for the ‘Magna Entertainment’ Category

Halsey Minor thought he would be meeting with MI Developments (MID) chief executive officer Dennis Mills in Baltimore, Md., on Wednesday morning to discuss Minor’s proposed buyout of the company’s $100-million loan to Magna Entertainment (MECA), the financially beleaguered racetrack company that operates Santa Anita Park and Golden Gate Fields in California, Gulfstream Park in Florida, and Pimlico and Laurel Park in Maryland, among other facilities.

When Mills failed to show, Minor called him, only to discover that Mills was still at Magna’s corporate headquarters in Canada putting out a press release outlining new loans from MI Developments to Magna Entertainment, further extensions of existing loans, and a proposed reorganization that could put the racetrack company more firmly under the control of Frank Stronach. The proposed reorganization, subject to MI Developments shareholder approval, is “an egregious attempt to hijack shareholder value and will never pass,” Minor told the Paulick Report.

Minor, a technology entrepreneur who created CNET.com among other Internet companies, is a horse owner and breeder who has also expressed interest in buying and restoring the dormant Hialeah Park in South Florida.

“He stood me up to put out this press release?” Minor said of Mills. “It might have been good to have met with me before the press release, because we have a better offer, by far, that will be far more acceptable to MID shareholders.  It was a good faith attempt on my part to sit down with him and see if there was something we could do. Instead they put out this preposterous press release and he stands me up the day before Thanksgiving after I traveled all the way here to meet with him.

“I could have told Mills that what he put out, even though the stock is up a few pennies, has no chance of passing. There is a contingency (among MID shareholders) that is of the mind that says, ‘We’ll do anything to get rid of Frank,’ but this proposal doesn’t really fully get rid of him."

At least two institutional shareholders in MID, Farallon Capital Management and Greenlight Capital, have suggested possible legal action for breach of fiduciary responsibilty by MID’s board of directors over the MECA loans, one of them calling MECA a "financial sinkhole." A previous proposal to hand MECA over to Frank Stronach was voted down by MID shareholders earlier this year.

The proposal calls for a new loan from MID to MECA of $50 million to fund current operations and $75 million to pay for a possible slots license and temporary facility in Maryland, along with extensions of an existing bridge loan and of repayment deadline for another $100-million loan.

Minor insists that even if the proposal somehow gets shareholder approval, MECA will fail. “Frank doesn’t buy the stock until after the $295 million in convertible bonds are paid off,” he said. “If they are not paid, the company goes bankrupt. The slots deal in Maryland is terrible, and most of the big guys have said they are not even going to try to get the license. It’s only 33% (of revenue), versus close to 50% in Pennsylvania and Delaware. He has to spend $250 million to build his slots parlor, then give 60% of his profits to (Joe) DeFrancis (who sold his family’s interests in the Maryland tracks to Magna with a contingency for a share of any future slots revenue). So his own deal, which sucks all this money away from MID shareholders, would itself have a life of a year or two before it went under. This is Stronach’s way of saying, ‘I have this company (MID) hostage. If you want me to go away, you have to pay up.’

“The shareholders fully intend to have their day with Frank.”

Magna Entertainment (MECA) closed at $2.01 on Wednesday, up $.60, a gain of 42.8% on the day. MI Developments (MIM) gained $1.62 to close at $10.05, up 19.2%.

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Minor made an offer last month to buy Magna Entertainment’s debt obligation and went public Oct. 17 after failing to get a response from the MI Developments board.

The demands  from Einhorn come two weeks after a similar letter was written to the MI Developments board by a managing member of the Farallon Capital Management investment fund, threatening legal action and alleging breach of fiduciary responsibility.

Einhorn’s letter accuses the MI Developments board and CEO Dennis Mills of making “false and misleading” promises and says that ignoring Minor’s offer was a “clear violation of the board’s fiduciary duty and duty of care to its shareholders.”
 
The letter says MI Developments board members “continue to abandon ship,” and accuses Stronach of stacking the board with “cronies” and “childhood friends.”

Click here to read the Einhorn letter.

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By Ray Paulick

UPDATED TUESDAY EVENING:

 Stock prices soared Monday in Magna Entertainment, the racetrack company that operates Laurel Park and Pimlico in Maryland, where voters are deciding today on an amendment to allow 15,000 slot machines at five locations in the state.

The share price jumped by 92%, from $1.82 at the opening bell to $3.50 by the day’s close. Magna Entertainment, which also operates Santa Anita Park, Golden Gate Fields, Lone Star Park, and Gulfstream Park, among other tracks, trades on the NASDAQ under the symbol MECA. One-day trading was the heaviest that it’s been since Sept. 30, when the stock plummeted from $4.00 to $1.75. Earlier this year, Magna exercised a 20-for-1 reverse stock split to maintain its position on the NASDAQ.

UPDATE: Tuesday afternoon, Magna Entertainment sent out a press release saying the company "is not aware of any specific developments" connected with the sudden increase in share prices. MECA closed at $3.97 Tuesday afternoon, an increase of another $.47 (13.4%). 

Even with Monday’s gains, adjusted share prices are down 95% from what they were when MECA went public in 2000. The company is saddled with hundreds of millions of dollars of debt.

Polls indicate the Maryland constitutional amendment permitting slots will pass, though there is no guarantee that Magna Entertainment will be one of the operators of the slots parlors. Approximately 7% of revenue from the machines will subsidize horse racing purses, with 2.5% going to racetrack renewal.

When Magna Entertainment purchased the two Maryland Jockey Club tracks from the family of Joe and Karin De Francis, the agreement gave the former owners 18% of any future profits MECA earned from slot machines.

The company announced Monday that a previously announced deal fell through to sell excess property near Ocala, Fla., where company chairman Frank Stronach had once hoped to build a racetrack.

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Shares in Magna Entertainment (MECA), the debt-ridden racetrack operating company controlled by Frank Stronach, plunged by 56% in Tuesday’s trading on the NASDAQ exchange. Closing at $1.75 per share (down from $4.00) under extremely heavy trading (more than 30 times higher than the daily average), MECA was NASDAQ’s biggest percentage loser on a day when the Dow and NASDAQ each gained between 5%-6%. 

MECA stock has plummeted by 91% in the last 52 weeks, and its market capitalization has shriveled to less than $10 million.

Magna Entertainment has listed debt of $571 million. The company recently announced 30-day extensions on a loan maturity date from a Canadian bank and an $80-million bridge loan from its affiliated real estate company, MI Developments, that will be due Oct. 15 and Oct. 31, respectively, along with a $100-million payment due MI Developments Oct. 31. Major shareholders in MI Developments have fought extensions of the bridge loan and repayment. On Monday, John Barnett resigned from the board of MI Developments. The company’s CEO, John Simonetti, stepped down in August and was replaced by Dennis Mills, a longtime Stronach ally.

The current bank and credit crisis only heightens the gravity of Magna’s poor financial health.

Magna Entertainment operates, among other tracks, Santa Anita Park in Southern California, the site of the 2008 and ’09 Breeders’ Cup world championships. The Oak Tree Racing Association, a separate non-profit entity that leases the Santa Anita racetrack from Magna, is the organization with which Breeders’ Cup has contracted to host the championships. Any financial failings or potential bankruptcy by Magna Entertainment will not affect the Breeders’ Cup, according to Greg Avioli, president and CEO of Breeders’ Cup Ltd.

“Because of Oak Tree’s contractual structure, they are fully protected from any possible Magna bankruptcy in terms of their ability to operate the meet in their standard fashion,” Avioli said. “(Oak Tree Racing Association) is a separate legal entity. They have a lease on the facility, and that lease would be maintained.”

Avioli did say that the Breeders’ Cup developed contingency plans to move the championships to Hollywood Park, but not because of Magna’s financial situation. “We had contingencies in place in the event that there might be problems with the new track,” he said, in reference to the new Pro-Ride synthetic surface recently installed at Santa Anita. According to published reports, horsemen and jockeys generally seem satisfied that the new surface is safe and formful after one week of racing during the Oak Tree meeting.

The pending due dates on loans are not the only question marks concerning Magna Entertainment. A California judge ruled this week that a shopping mall development planned for a section of Santa Anita’s parking lot cannot go forward. In Maryland, where Magna owns Laurel and Pimlico racetracks, a referendum is coming up in November on slot machines.

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While Congress begins deliberations on the proposed economic bailout package that could cost taxpayers as much as $1 trillion, Thoroughbred owners and breeders are beginning to feel the effects of the turbulence on Wall Street and other world markets.

The financial markets meltdown came smack dab in the middle of the industry’s most important transactional event: the Keeneland September yearling sale. The sale began with a lowered price ceiling during opening select sessions that saw some resilience in the middle market, but, as many consignors feared, the bottom fell out after the first week. Most yearlings going through the ring in the latter part of the Keeneland sale will reflect economic losses to their owners once stud fees, mare investment  and boarding costs are taken into consideration.

In addition, many yearling-to-juvenile sale pinhookers from Florida depend on bank loans to fund at least a portion of their investment, and those loans or lines of credit from banks are evaporating in the current crisis that actually began last August with the sub-prime mortgage fiasco.

Loans of all kinds will be more difficult to acquire, one banker told the Paulick Report, whether it’s for pin-hooking, stallion and mare acquisitions, or real estate. “A wide range of people need bank financing to buy farms or mares,” he said. “Some people who didn’t start off thinking they wanted to borrow end up taking out loans just like any other business often does. Stallion deals are often supported by banks. No matter what you are borrowing money for, it’s harder now and it will cost more. Everything is going to be more difficult.”

The crisis could have a severe effect on the bloodstock markets at Fasig-Tipton and Keeneland in October and November, especially for mares in the $50,000 and under price range. It is expected the top end of the market, which is unlikely to establish any new records for high prices, will maintain some semblence of strength. The deadline to enter mares and weanlings in Keeneland’s massive November breeding stock sale preceded the financial market meltdown. What will be interesting to follow is the number of horses entered for Keeneland’s January sale of horses of all ages. Will breeders look ahead at cutting their losses on marginal mares and newly turned yearlings?

“Things that have some value in the real world, like real estate loans, have no value in the market,” one analyst said. “Assets that used to be like cash no longer are like cash.”

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By Ray Paulick

Best unintentionally funny line of the week came from John Brunetti, the owner of Hialeah Park. Discussing a conversation he had with Halsey Minor about the technology wizard’s interest in buying and reviving the shuttered South Florida racetrack, Brunetti was quoted in a trade publication as saying: “I have told him that in some ways I don’t think he understands this business.”

Does Brunetti think he understands this business? How could he? If he did, how did he let Doug Donn outsmart him on every move and get control of the best winter racing dates for Gulfstream Park? Why did state legislators and regulators turn their back on him? How did Calder crush Hialeah in head-to-head competition? Why did Brunetti raise take out to the point that he chased away any remaining horseplayers Hialeah had? Why has the track sat empty for more than seven years?

It’s a mortal lock that Hialeah will never reopen successfully with Brunetti as the owner and operator. I happen to think John Brunetti is a nice guy who loves racing, but I have zero confidence that he can revive Hialeah Park on his own (and I may be more optimistic than state officials or Florida horsemen).

Does Halsey Minor know everything there is to know about Thoroughbred racing? Of course not. But he comes to the game with passion, enthusiasm, capital and confidence that he can return Hialeah to some semblance of its past glory.

Brunetti isn’t the only industry veteran who thinks Minor may be nothing but a dreamer if he thinks he can revive horse racing as a sport. I’ve heard from a number of racetrack executives and horse owners who said they’ve heard it all before. But what is the alternative for Hialeah Park or operating tracks that are hanging on by a thread? Lobby to get slot machines, turn the facility over to a casino company and hope it will subsidize the money-losing portion of the business indefinitely?

Should Brunetti and others in the industry just blow off this opportunity that Minor presents to give horse racing in the Miami area one last chance to stand on its own as a sport?

I remember when Frank Stronach came into racetrack ownership and said he would try to make the sport more compelling and entertaining. In the beginning, Stronach said he had no interest in getting slot machines at his tracks. But Stronach became a victim of his ego, forcing in too many of his own bad ideas and forcing out too many executives who dared to disagree with him. He almost seemed obsessed with getting control of as many tracks as possible without having any idea what he was going to do with them all.

Gulfstream Park was the first Florida racetrack to get slot machines. Under Stronach’s vision, Gulfstream became the least successful slot machine operation in North America, based on the benchmark of dollars won per machine per day. Calder will be adding slots as early as 2009 after getting approval in a local referendum in January of this year. The rebuilt Gulfstream Park is more slots parlor and simulcast theater than it is a facility to host live racing. In short, it’s a disaster.

Calder, built to host hot-weather summer racing, has always struck me as a cold and impersonal track, but it’s never seemed colder or more impersonal than it is today. In a recent weekday visit there I stumbled across what seemed like no more than several hundred fans scattered throughout the first two floors (most of the third floor is closed).

Count on Churchill Downs management to pigeonhole those fans in as small an area as possible once the slot machines are installed and plugged in. Racing at Calder will become secondary, though its purses will be healthier than they are today because of the slot subsidies. But what will Churchill Downs management’s long-term vision be for racing at Calder?

Minor said he has no interest in bringing slot machines to Hialeah Park. The competition for slots players is intense, with the Seminole Native American tribe holding the market share advantage at their Hard Rock Casino in Hollywood, Fla. Minor wants to focus on the excitement of racing and the fact that it’s the only sport you can legally bet on. 

Racing needs people like Halsey Minor, and people in the industry should be doing everything possible to help him succeed.

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Investors haven’t been wild about Churchill Downs stock (CHDN), which closed at $46.45 Friday and hasn’t seen $50 a share since May 1. It’s 52-week high, $57.55, was achieved last December.

CEO Bob Evans and the TrackNet Media Group that was formed with Magna Entertainment to broker simulcast deals has refused to talk seriously with the Thoroughbred Horsemen’s Group, which is negotiating account wagering contracts with racetracks on behalf of local horsemen’s groups such as the Kentucky or Florida Horsemen’s Benevolent and Protective Associations. In fact, Churchill has filed anti-trust lawsuits against the organizations. Evans may be hoping that the longer he puts off dealing with the THG, the less resolve the horsemen will have to stick together in attempting to forge a better contract on account wagering.

That strategy doesn’t appear to be working. To the contrary, it looks more like Churchill Downs’ partner in TrackNet Media is bailing. Frank Stronach, the chairman and acting CEO of Magna Entertainment, sent out a press release a couple of weeks ago saying that Magna recognizes the THG as a beneficial national organization and is negotiating with THG.

SPEAKING OF WAGERING, hats off to Bloodhorse editor Dan Liebman for calling out the Jockey Club after it capitulated to Evans and to Churchill Downs’ biggest shareholder, Dick Duchossois, and decided to no longer provide the trade magazine with meet ending pari-mutuel handle figures. Churchill tracks under Evans and Duchossois have said that handle is no longer a meaningful statistic. Oh, really?

The decision by the Jockey Club to no longer provide this key economic indicator was disgraceful, but I wouldn’t hold out any hope the poobahs there will change their mind.

While CNET founder Halsey Minor continues his efforts to purchase Hialeah Park from current owner John Brunetti, he also has contacted financially troubled Magna Entertainment about the possible sale of Santa Anita Park near Los Angeles and the company’s two Maryland Jockey Club tracks, Pimlico and Laurel. But after speaking with Magna’s chief financial officer, Blake Tohana, Minor doesn’t think Magna is a serious seller, despite recent comments by company chairman Frank Stronach during a conference call to discuss second quarter financial results.

“I had the most baffling conversation in my life with a CFO, particularly one whose job depends on asset sales,” Minor said in an email to the Paulick Report, which he also copied to Tohana. “Basically, nothing is for sale. Maybe they have some time shares for you. (Tohana) said Frank misspoke when he said he was considering selling a majority interest in Santa Anita. Now it is back to a minority interest.

“You can only buy (the Maryland tracks) if you have a gaming license. (Tohana) did not specify what that meant or why it was important. …  This is despite the fact that Magna is not guaranteed any slot franchises in the current legislation, and they would need to post a $50-million bond which they don’t have to get one. At the very least if he had been on his toes he should have asked to borrow the money.

“You need to call him and hear this for yourself,” Minor suggested. “You would think you were talking to the CFO of Microsoft sitting on a pile of cash, given the attitude. Self-effacing, Blake is not. Not a good quality in a salesman. Without an investment bank, nothing sells if my experience is any guide.”

Minor said Tohana had no idea who he was when he called (“which is odd because I am the only person in America acquiring tracks right now and they claim they are selling them”) and eventually hung up on him. “I will go on record as saying these assets are going to be sold by banks,” Minor continued. “Banks don’t necessarily have good bedside manners, either, but they have good prices.”

Tohana responded to Minor with a terse email of his own, which he also copied to the Paulick Report, saying that Minor had “misrepresented” their telephone conversation. “Further, your manner of communicating to me via email and telephone was inconsiderate, rude and misinformed,” Tohana wrote. “In doing my job, I have always carried myself with dignity and professionalism. I think that view would be shared by anyone who has dealt with me during my career.”

Tohana went on to say that MEC has sold more than $400 million in assets “without investment bankers,” adding, “We will continue to pursue other asset sales and joint venture transactions as we have previously publicly disclosed. However, I do not have to take your personal insults just because you purport to have an interest in Santa Anita Park and the Maryland Jockey Club.”

Tohana also seemed irritated that Minor had called him to discuss the possible sale of the tracks during a family vacation, a comment that seemed to heighten Minor’s disdain for Magna’s CFO.

“I find interesting that you are on vacation at all and that you feel so offended I have bothered you on your vacation,” Minor wrote Tohana in a follow-up email. “My company is not imploding and yet I am fully engaged working to clean up some of your mess while here in Hawaii (on a vacation) with my family.

“Blake, you are condescending and that is no way to be with a company whose market value is less than many of our farms, whose massive debt is unserviceable and where you work in the service of the company that has literally blighted our industry.

“Enjoy your vacation, Blake, because when you get back things will only have gotten worse, not better, and you pissed off a potentially valuable ally royally. And if you haven’t noticed, you didn’t have many to start with.

“I believe results in life speak volumes, and I believe this applies equally to my career as it does to your company. Neither failure or success is an accident. A quick check would reveal that I have created billions in value, even exceeding your leader’s car parts business, while your outfit has not only destroyed massive amounts of shareholder value, but possibly the Thoroughbred business with it.”

When reached by the Paulick Report, Tohana said Minor was not “respectful” during their conversation. Tohana said he was fully aware of who Minor was when he received a call from him. “I had heard of the guy,” Tohana said, “but I wasn’t happy with some of the things he has said about our chairman (Stronach).”

Tohana has been Magna Entertainment’s CFO for more than five years, outlasting many of the executives who have come and gone in a revolving door atmosphere. He joined the company in July 2003 after serving in a number of executive positions at Fireworks Entertainment, a Toronto, Canada-based concern that produces and distributes television programs and movies.

“I’m quite a reasonable person,” Tohana told the Paulick Report. “I’m pretty straight up. Look, it’s not a secret (that we’ve had a great deal of executive turnover). This company hasn’t performed very well.”

Tohana insists Magna is “continuing to sell” some properties but said Stronach’s comments about possibly selling a majority interest in Santa Anita were “misreported.” He also said there remains the possibility that MI Developments, the real estate operating company that holds a controlling interest in Magna Entertainment, could be reorganized to relieve the debt-ridden racetrack company’s financial pressures. MI Developments recently extended by one month a bridge loan in excess of $100-million owed by Magna Entertainment and due at the end of August. Dennis Mills, a former member of Canada’s parliament and one-time vice chairman of Magna Entertainment, was recently named interim CEO of MI Developments following the departure of John Simonetti.

In the meantime, Minor continues to work on a business and operating plan for Hialeah. He has had a second meeting with Brunetti in Del Mar, Calif., and said Brunetti is working with his team on developing a business plan. “That’s a tremendous benefit,” Minor said, “and it shows that John really wants to help get Hialeah reopened.” Minor said the architects he would use to renovate Hialeah Park have inspected the long-shuttered track to get a better estimate of what the price tag would be to return it to its former condition.

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