Archive for the ‘Maryland Jockey Club’ Category

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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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.

Copyright © 2008, The Paulick Report

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