Posts Tagged ‘Magna Entertainment’

In a complete surprise to most, Magna Entertainment boss Frank Stronach has announced he plans to keep the Pro-Ride surface at Santa Anita Park despite recent problems with draining the track that have caused numerous cancellations.

Stranger than the decision perhaps is the reason behind the decision. Throughout the bankruptcy process of Magna Entertainment, Stronach has insisted on maintaining ownership of Santa Anita through a different Magna company, MI Developments, despite unloading several other tracks recently. Yet he is saying he will not invest in a new surface until the industry changes its business model.

If he believes racing is broken and won’t do the things necessary to fix the situation at his own track (regardless of your feelings on synthetics, it’s clear there needs to be some sort of surface change at Santa Anita), why is he holding the Arcadia track and California racing industry hostage?

Read it at the Daily Bulletin

Then come back to the Paulick Report and let us know what you think

- Bradford Cummings

By Ray Paulick
Southern California-based trainer Bob Hess crystallized the often toxic debate over synthetic tracks as well as anyone I’ve talked with on the subject: “My horses are happy on it, and they’re lasting a lot longer,” said Hess, a 44-year-old, second generation horseman and a graduate of Stanford University. “My clients are getting more bang for their buck. But without gamblers, we are nothing: there are no purses and no owners. The reality is the gamblers hate this shit. They have no confidence in it. From what they tell me, it’s inconsistent and changes from track to track. Most gamblers tend to play speed, and if you play speed out here, you’re screwed.”

STATISTICS SUGGEST SYNTHETICS ARE SAFER
The criticism of the synthetic tracks by horsemen flies in the face of statistics showing they are safer than the dirt surfaces that preceded them, at least as far as fatalities are concerned. What hasn’t been proven or disproven in statistical research is the common belief by many trainers that horses are sustaining more hind end or soft-tissue injuries on synthetics than they were on dirt.

Attorneys for Magna Entertainment have struck a deal in U.S.  bankruptcy court with unsecured creditors that will allow Frank Stronach to maintain control of Santa Anita Park, Gulfstream Park and Golden Gate Fields and the account wagering company Xpressbet.com and the Amtote totalizator company, Reuters and Bloomberg have reported.

After you’ve read the stories,feel free to return to the Paulick Report and comment on this latest development regarding Stronach and his affiliated companies. — Ray Paulick

According to the Baltimore Sun, a Delaware bankruptcy judge on Tuesday agreed to postpone Magna Entertainment Corp’s sale of two horse racing tracks in Maryland and rejected a bid by the former track owners to lock up slot machine gambling rights at one site.

Click here for the Baltimore Sun article

Then come back to the Paulick Report and let us know what you think.

By Ray Paulick
Perhaps it’s more hope than optimism, but the second annual poll of Paulick Report readers looking ahead to the new year suggests a belief that the Thoroughbred industry may have better days ahead—or at least may have hit bottom in 2009.

When we first asked readers in late 2008 if the new year was going to be better, worse or about the same as the year just ending for the Thoroughbred industry, the pessimism was palpable, and well-founded. Only 24% of those responding thought 2009 would be a “better” year than 2008, while 52% said it would be a “worse” year. Twenty-four percent thought it would be “about the same.”

The pessimists were right, at least concerning the economics of the industry. As calendar pages were flipped from December 2008 to January 2009, there were multiple crises: the Breeders’ Cup was in turmoil over its cash reserves and governance issues; the late-season breeding stock sales were in free-fall to the point many in-foal mares brought prices that didn’t even cover the stud fees their breeders owed; pari-mutuel handle had declined significantly; Magna Entertainment, the largest racetrack ownership company, was in deep trouble and filed for bankruptcy in March.

Some but not all of the racing industry’s problems were related to the general economic crisis, a situation that may have stabilized somewhat over the past few months.

So when we asked the same forward-looking question of Paulick Report readers last week, there was a tepid increase in optimism but, perhaps just as important, a more sizeable decrease in pessimism. The percentage of respondents who said 2010 would be “better” than 2009 rose from 24% to 30%, while the percentage who felt the upcoming year would be “worse” fell from 52% to 39%. Thirty-one percent believe 2010 will be “about the same” as 2009.

There remain significant challenges: breeders selling yearlings in 2010 are going into a soft market with horses produced from record-level stud fees in 2008. Some banks are moving out of equine lending and calling in credit lines. On the racing side, there has been no resolution concerning the ownership of Magna’s biggest racetracks, Santa Anita Park, Gulfstream Park and the Maryland Jockey Club. The New York Racing Association has said it may run out of money before summer.

Not all the news in 2009 was bad. Bloodstock markets were down generally, though many breeders were braced for worse results than they experienced. November’s weanling market, in particular, was stronger than expected, and international investment played a key role.

The game’s resilience and appeal were never more evident than in 2009, when 3-year-old filly Rachel Alexandra and 5-year-old Zenyatta turned in performances for the ages. When we no longer have horses that stir our emotions, then, perhaps, all hope has ended. Fortunately, that isn’t the case.

Paulick’s Predictions: My view of the upcoming year is that we will see further retraction in mares bred, in the number of races offered in North America, and in total pari-mutuel handle. (Year-end betting figures for 2009, expected to be announced tomorrow or Thursday, are likely to show a 10% decrease from  2008, the second consecutive annual decline of $1 billion. Declines in 2010 will be much smaller.)

As the economy slowly improves and investment markets continue to rebound, the prospects for additional money coming into 2-year-old and yearling sales are much better. Ownership issues of the Magna tracks will be resolved (it is likely Frank Stronach will manage to retain control of Santa Anita Park and Gulfstream Park), and the long-delayed VLT issue at Aqueduct will finally be determined. Texas will edge closer to expanded gaming, but Kentucky’s Republican politicians will continue to keep their heads in the sand, setting up explosive and expensive re-election campaigns in the fall.

That’s not all good news, but it’s not all bad, either, especially looking back on the year that just ended.

Copyright © 2010, The Paulick Report

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By Ray Paulick
Ten years ago many of the grand poobahs of American racing gathered in Tucson, Ariz., for the University of Arizona Racetrack Industry Program’s 25th annual Symposium on Racing. There was great anticipation of the event, in large part to get an update on the fledgling National Thoroughbred Racing Association’s efforts to organize a “league office” and provide national leadership for an industry that had none in areas like marketing and television. The NTRA had commenced operations a year earlier, in 1998.

There’s something about this game that brings out the knockers (no, Tiger, not that kind), and the NTRA was under intense criticism at the outset in many different quarters from people who thought a) their chief executives didn’t know enough about horse racing; b) they were paid too much money; c) the “Go Baby Go” catchphrase developed by New York advertising agency Merkley Newman Harty was mindless; d) their first-year marketing campaign featuring Lori Petty (aka “Tank Girl”) was horrible; and e) horse racing’s television ratings and the economics of the industry weren’t getting any better and the NTRA had already been in a business a whole year!

Oh, for the good old days!

Pari-mutuel handle in North America during the NTRA’s first year in 1998 hit an all-time record, of $13.8 billion, and it increased for the next five years, peaking at $15.9 billion in 2003. At the end of 2009, total handle in North America will be less than what was generated in 1998.

In 1999, when chief executive Tim Smith delivered a state of the NTRA address at the Symposium on Racing he spoke about increased television exposure, including a new series, NTRA Champions on Fox, and additional programming on the ESPN family of companies that would bring the total number of hours of televised racing on network and cable (excluding TVG) to 137, an increase in 40% over two years.

Nearly $30 million was spent on national and local advertising using NTRA-branded material in 1999. Inserts promoting major racing events were placed in Sports Illustrated and USA Today. There were NTRA “fan guides,” racetrack customer service training coordinated by NTRA, new events like the NTRA All-Star Jockeys Challenge, in-depth market research and increased lobbying in Washington, D.C.

Thoroughbred racing, for a brief period, was playing offense, an unfamiliar strategy for this industry. Sure, a few years earlier, the Thoroughbred Racing Associations of North America (a trade association of tracks, not to be confused with the NTRA) hired an outsider, sports marketing executive Brian McGrath, to come in and play the role of “commissioner,” but his tenure was over almost as soon as it began.

Why is it this industry so often says it needs outside expertise, then bludgeons whoever is brought in under that guise because “he doesn’t understand racing”?

Today, while its top executives are back at the Arizona Symposium on Racing, all the NTRA can do is play defense, a glorified game of whack-a-mole. There’s no talk about growing the sport and its business anymore but of how to stop the bleeding. Racehorse injuries and fatalities here. Tote credibility problems there. Threats from Washington, D.C.  There is no such thing as NTRA marketing or television anymore. The organization’s skeleton staff in Kentucky and New York is stretched to the bone, and its budget has been continuously reduced, now standing at about $10 million, a fraction of what it was 10 years ago.

What happened?

The organization’s fate was sealed when Frank Stronach, not long after he started buying racetracks, declared he didn’t need the NTRA for his Magna Entertainment to succeed (how’s that working out?). Stronach petulantly threatened to drop out of the NTRA and joined with other short-sighted track-owning malcontents that forced NTRA executives to spend most of their energy keeping the coalition from crumbling. That’s not a formula for success.

Any chance of building the NTRA into some semblance of a “league office” finally ended when the Breeders’ Cup, which signed a joint operating agreement with the NTRA in 2001, ended its relationship five years later.

I’m not even sure why we have an NTRA any more. Its area of interest almost completely overlaps with the aforementioned TRA, with the lone exception of lobbying federal politicians to maintain tax breaks for horse owners (something, incidentally, the racetrack organization TRA should care about, since it needs horse owners to race at their tracks).

At that 1999 Arizona racing symposium, Smith introduced the NTRA’s second-year ad campaign, one that featured the actor Rip Torn talking to chunks of turf and statues of jockeys like a crazy person. Torn hasn’t had the best of times since then (witness his two arrests for suspicion of drunk driving), and neither has the original Go Baby Go girl, Lori Petty (she had some driving problems, too).

But both Torn and Petty have survived the ups and downs of life, something I can relate to as well. I’m not sure we’ll be saying the same thing of the NTRA, which could be Gone Baby Gone before we know it.

Copyright © 2009, The Paulick Report

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By Ray Paulick
UPDATED (EIGHTH AND NINTH PARAGRAPH)
There are a lot of things Frank Stronach does that I don’t like, most of them involving the structure of his public companies and how he has run Magna Entertainment into bankruptcy and many of the company’s racetracks into the ground. But when word got out that Stronach was buying multiple Grade 1 winner Einstein from the Midnight Cry Stable of William Gallion and Shirley Cunningham, the two attorneys convicted of wire fraud and conspiracy for pilfering millions of dollars from a class-action lawsuit settlement, I could only applaud the move. When I later read that Stronach said he would retain Helen Pitts as trainer of the Brazilian-bred 7-year-old, well, I started getting this warm and fuzzy feeling about ol’ Frank.The sale of Einstein probably wasn’t an easy one, but it was in the best interests of racing to get the horse as far away from the two convicted and jailed felons as soon as possible, especially since he is racing in Sunday’s $1-million Pacific Classic at Del Mar. The sale apparently had to be approved by a judge and the attorney for the plaintiffs in a civil lawsuit filed by the people Gallion and Cunningham represented in the class-action case involving the diet drug fen phen.

Complicating matters is the fact Einstein is not a young horse, is a son of the unsuccessful and unfashionable Buckaroo stallion Spend a Buck, a front-running Kentucky Derby who may be best remembered for skipping the Preakness to go after a big bonus in New Jersey. Einstein is expected to be a very difficult sell at stud to commercial breeders. Stronach, with a huge broodmare band, is perfectly positioned to support Einstein in a way that few if any other stallion farms could, and he figures to give Einstein every chance possible to succeed as a stallion.

Let’s put it this way. I’ll bet Stronach didn’t have to climb over any other major Kentucky stallion farm owners to buy the horse.

Price of the transaction was not disclosed; the horse was appraised by two bloodstock agents, who apparently testified in a recent court hearing concerning the sale of Einstein. There were no media members present during the hearing, and no one involved in the hearing would provide details. So it’s anyone’s guess as to the appraised value of Einstein or what Stronach ultimately paid.

Given the current uncertainty in the bloodstock market, and the recent news that the North American foal crop is expected to decline 20% from 2008 to 2010, it’s not an easy time to sell any new stallion, much less one that lacks commercial appeal. Valuations that once ran as high as a multiple of 350-to-400 times the first-year stud fee are non-existent today, except perhaps for a farm like Sheikh Mohammed’s deep-pocketed Darley. If Einstein entered stud with a $7,500 or $10,000 stud fee, my best guess is that his estimated sale price would be in the $1.8 million-$2 million range.

Einstein, a winner of 11 of 27 starts and just over $2.7 million, has won seven stakes, none before his 4-year-old season, when he captured the Grade 1 Gulfstream Park Breeders’ Cup Stakes. He won the Gulfstream Park Turf Stakes and Woodford Reserve Turf Classic at 6 and this year’s Santa Anita Handicap along with a repeat of the Woodford Reserve Turf Classic at 7 to round out his current Grade 1 resume.

UPDATED: The fact he won the Santa Anita Handicap on that track’s Pro Ride synthetic surface makes Einstein an interesting possibility for the $5 million Breeders’ Cup Classic. According to Dora Delgado, senior vice president of nominations and on-site operations for hte Breeders’ Cup, Einstein could be made fully eligibleto the Breeders’ Cup through the Horses of Racing Age nomination at a cost of $200,000. Along with $150,000 in entry and starting fees for the Classic, the total would be $350,000, far less than the previous supplementary fee for the Classic, which would cost $750,000, or 15% of the purse. The Horses of Racing Age nominations began in 2006 and was reduced last December from $250,000 to $200,000 for the offspring of unnominated stallions and from $150,000 to $100,000 for the offpsring of stallions nominated to the Breeders’ Cup, according to Delgado.

The $2.7 million winner’s share of the Classic, minus the Horses of Racing Age, entry and starting fees, would probably be equal to or in excess of what Stronach paid for Einstein. Another possibility this fall would be the Japan Cup Dirt, a $2.8 million race run clockwise at Hanshin race course whose winner’s share is about $1.4 million. Then, of course, if Stronach chose to keep Einstein in training next year at 8, he would be a serious contender for the $10 million Dubai World Cup.

If he opts to retire Einstein to his Adena Springs Farm in 2010, it would be similar to when Stronach stood the two-time Santa Anita Handicap winner that he campaigned, Milwaukee Brew, following his 6-year-old season. A son of Wild Again, Milwaukee Brew, who like Einstein was unraced at 2 and a long-fused runner, stood for $15,000 his first season. He has since moved to Adena Springs South in Florida and ranks fourth among third-crop sires nationally. He’s been a bigger success producing solid runners than sale ring candidates. Milwaukee Brew’s 2009 fee was $7,500.

By purchasing Einstein for eventual retirement to Adena Springs, Stronach will be adding to the stallion pool a horse who has proven himself on dirt, turf and synthetic tracks over a distance of ground. The lack of commercial appeal he is likely to have should be good news for breeders who are more interested in producing a racehorse than a sales horse from a moderate stud fee.

Stronach’s purchase of Einstein could, in a few years, have him looking like a genius.Brilliant, I say.

Copyright © 2009, The Paulick Report

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“He is one of the five most influential people in Los Angeles,” Minor said of Burkle. “He’s an extraordinary investor with a sterling reputation, and he’s plugged in to the Hollywood crowd, something racing could use.

“After we submitted our offer I sent an email to MID asking if we could talk with this major casino company,” Minor continued. “I don’t want to name them, but they are extremely profitable and were interested.” Minor said he got an answer saying the offer would not be presented to the MID board because of the new issue involving a casino company.

“It’s so irrational,” Minor said. “They don’t even have a reason. They’re violating their duty, which is to get the maximum amount of money. When these guys are holding me back from doing that, when I have the strongest offer, it’s unconscionable. I’ve pursued this for a long time and spent a lot of money, but there is a limit as to how far someone will go to try and buy a business.”

Minor also accused Magna’s interim chief executive officer, Greg Rayburn (who served as chief restructuring officer for WorldCom during what then was the largest bankruptcy in U.S. history), of having a duel role as an adviser to MI Developments, giving him an “utter and complete conflict of interest.”

Because numbers at Magna tracks are “falling off the cliff,” Minor said, the company’s earnings before interest, taxes, depreciation and amortization (EBIDTA) has “absolutely nosedived.” He said Santa Anita’s EBITDA will have gone from $22 million to $8 million next year. As a result, he said, the track properties have dramatically fallen in value. “There are sub-$100-million bids for Santa Anita,” Minor said. Stronach paid $126 million for the Arcadia, Calif., track in 1998.

“The bids (for some Magna tracks) will be so bad that MID is going to have to credit bid, use their $400 million in debt to go in and buy back the assets, so the track will come back into the same parent company that bankrupted them in the first place,” he said. “That will trigger (investment fund) Greenlight and others to have a conniption because MID will not just lend the money but own the assets outright. There are bidders, but there’s no one to say ‘I will pay more.’

“I told (MID chief executive) Dennis Mills last year Magna was going bankrupt, and he said I was completely wrong, didn’t know what I was talking about, was a bomb thrower. I told Frank (Stronach) that if he went forward with the 363 process (stalking horse bid) and the unsecured creditors got nothing, they would sue him corporately and personally. I’ve told him the money will be tied up in escrow as litigation drags on for years, and said I believe from the work I’ve done that he will lose. The banks will get paid, the unsecureds will get paid, and what’s left will come to him after two years.

“All I’ve asked is, ‘Can I put something together with each of the parties that prevents going down the path of two years of litigation?’ But the basic answer is ‘no.’

“I said a year ago I wanted to prevent an ugly, destructive bankruptcy. We are about to see one hell of a an ugly and destructive bankruptcy. Who knows where these assets will end up? We won’t even know when they are sold who the beneficiary is.

Minor said he is stunned that Stronach is considered a front-runner to acquire the German automobile company Opel from General Motors.

Copyright © 2009, The Paulick Report

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