WHAT NEXT FOR MAGNA?
By Ray Paulick
While Thursday’s Chapter 11 bankruptcy filing by Magna Entertainment (MEC) leaves a multitude of unanswered questions about the future of the racetracks the Frank Stronach-controlled company owns, there was a positive reaction from the investment community concerning MI Developments — another Stronach company spun off from the auto parts mothership Magna International – which is the majority shareholder in MEC.
Shortly after news of the bankruptcy filing was released in the afternoon, the share price of MI Developments (MIM) shot upward, jumping over $1 from 3.50 to 4.55 on heavy trading. Thursday’s closing price remained relatively steady after the market opened Friday morning.
Nevertheless, MIM is far off its 52-week high of 30.26. Like many stocks, it began a steep descent in mid-September when the global financial crisis first hit, but MIM has underperformed against the markets. Institutional shareholders Greenlight Capital and Farallon Capital Management have protested moves by the company to keep Magna Entertainment out of bankruptcy by extending loan deadlines and infusing cash into the company’s operational budget. Its principals have not publicly weighed in on the bankruptcy filing.
It’s too early to tell how MIM’s move to bid on some of the Magna racetrack properties (Golden Gate Fields, Gulfstream Park and the surrounding shopping mall, Palm Meadows training Center, Lone Star Park, and AmTote) will play out. The "stalking horse bid" of $195 million includes $44 million in cash, $15 million in an assumed capital lease, and $136 million in existing debt) may be topped by other interested parties. The other properties, including Santa Anita Park, Pimlico and Laurel, Thistledown, Remington Park have purportedly been on the market for some time now, but there have been complaints from shareholders and some interested outside parties that Stronach and his key executives have not been earnest in their efforts to sell.
Who might be interested in some of the properties that Stronach bought in Magna’s name in a buying frenzy from 1998-2002? Halsey Minor, the internet entrepreneur who previously attempted to buy Hialeah Park from John Brunetti and offered to pucrhase one of the loans MIM extended to Magna Entertainment, could still be a player. So might Churchill Downs, the publicly traded company that has little debt and a strong balance sheet. However, Churchill already exited the California market in 2005 when it sold Hollywood Park to a real estate development company, so it’s questionable whether or not it would have any interest in Santa Anita or Golden Gate. There have been reports in Florida that Churchill-owned Calder race course could be the site of either a baseball stadium or convention center at some point, although that seems less likely now that the track is being converted to a racetrack/slots casino. So its interest in Gulfstream Park is in doubt.
It is not inconceivable that some wealthy individuals involved in owning racehorses – among them Dubai’s Sheikh Mohammed — could step forward to make a bid, either individually or in partnership, particularly on Santa Anita, which many see as a critical lifeline for horse racing in California. It’s expected that Hollywood Park will be closed for development in the next few years, as it is owned by the same company that shut down Bay Meadows with the intention of developing it (though development of the property is said to be at a standstill).
In the meantime, there have been assurances that all of the Magna tracks will continue to operate, just as United Airlines planes continued to fly after that company filed for bankruptcy protection in 2002. In the case of United, there were serious cuts made in operations and employee benefits. The company emerged from bankruptcy a little more than three years after originally filing.
And Stronach has not indicated that he wants to get out of the business of owning and operating racetracks. He may do everything within his power to retain the tracks under one of the Magna umbrellas.
“The fact that MEC’s day-to-day operations will continue uninterrupted throughout the Chapter 11 process is good news to industry participants, including thousands of horsemen and employees, as well as customers," said Alex Waldrop, president and CEO of the National Thoroughbred Racing Association.
Magna and its tracks remain members of the NTRA, though it isn’t known if or when their $400,000 in annual dues (which are billed quarterly) will be paid. The NTRA went through a similar situation when the New York Racing Association filed for Chapter 11 bankruptcy protection in 2006. NTRA senior vice president Keith Chamblin said NYRA made good on all of its dues when it emerged from bankruptcy.
Greg Avioli, president and CEO of the Breeders’ Cup, said the filing by Magna should have no bearing on plans to return to Santa Anita this fall with the two-day championships, which are being hosted by the Oak Tree Racing Association. Oak Tree, which hosted the 2008 championships, leases the facility and staff from Santa Anita for its fall meeting.
“Our agreement is with Oak Tree, so at this time based on the information available to us, we fully expect to have the event there,” Avioli said. In the meantime, the Breeders’ Cup has retained the same bankruptcy counsel used when NYRA’s looming bankruptcy threatened the 2005 Breeders’ Cup at Belmont Park. It is expected that Churchill Downs would serve as a potential backup site if developments threaten Santa Anita or Oak Tree.
Perhaps Avioli’s key phrase is "based on the information available." No one really knows how this bankruptcy will proceed at this stage — not even Stronach.. We’ll learn more when the legal proceedings begin.
Copyright © 2009, The Paulick Report
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Tags: alex waldrop, Breeders' Cup, Greg Avioli, keith chamblin, magna bankrupt, magna bankruptcy, Magna Entertainment, mec, mec bankruptcy, meca bankruptcy, mi developments, mim, National Thoroughbred Racing Association, New York Racing Association, NTRA, nyra, nyra bankruptcy, oak tree racing association, Paulick Report, Ray Paulick, stronach bankruptcy
March 6th, 2009 at 2:08 pm
By the way, there’s a big ol’ flat piece of ground off Midway Rd. and Old Frankfort where we could haul our goosenecks into and race horses…..
March 6th, 2009 at 6:02 pm
Wouldn’t the better question be, “What’s next for Santa Anita, Golden Gate, yada-yadah?”
I wouldn’t give a flying fig re: Magna….still want to know if Mr. S get’s to keep his palaces.
March 6th, 2009 at 6:50 pm
Thistledown has been on the market for an extended period of time and the complaint has been that MEC never demonstrated much interest in selling the property it slammed a “for sale” sign into. And who wants a track that - under the keen stewardship of MEC - has gone from a solid nine months of racing to 91 dates this year? The sales price should be a buck, because a new owner will have to invest millions of dollars to have any chance of rejuvenating Thoroughbred racing in northeast Ohio. The sport is so far down the pecking order at the daily newspaper that the columnist’s main beat is fishing tournaments and all his “coverage” is copying verbatim Thistledown press releases under his byline.
March 6th, 2009 at 6:51 pm
Either Halsey or the shieks will get Santa Anita for .half of what it is really worth as Stronach is 500 million in debt and will have trouble unloading his other racetracks.Gulfstream is a joke, and who would want a dump like Pimlico and Laurel is only viable if it gets slots..Best thing that could happen to racing is to get Stronach out. What he did to Gulfstream Park is an absolute disgrace
March 6th, 2009 at 11:49 pm
All the news tonight on local TV is about the Magna bankuptcy - although the local reporters – uninformed as ever – are mischaracterizing it as a function of recent economic trends rather that as what it is - a case of pure stupidity and mismanagement.
They – the reporters - say that we Marylanders may lose the Preakness and - at the same time - that it can’t possibly happen. Maryland would never let the Preakness go, they say. They’re quite sure of it.
But the local (Democrat) politicians don’t care - they don’t get it - they are blabbing about money better spent for Baltimore on all sorts of welfare. What – they say - about all the locals who won’t or can’t work? The local pols have no clue about what the Preakness means to racing (do they care?) and because they have no sense of history, they don’t understand what the Preakness means to Maryland or even to America. All they have to say is that Pimlico Race Track is a disreputable blot on an otherwise pristine neighborhood. Yeah, right. Have they seen the neighborhood around Pimlico?
In fact, Pimlico is the ONLY thing that makes its neighborhood worthwhile. Let Pimlico go - close Pimlico - and the neighborhood will surrender to the drug dealers and ACORN and the rest of the lunatics that run Maryland as most of the rest of Baltimore has already done..
I read the comment by Robert Bierman, above, about Pimlico being a dump and I know he’s technically correct. Pimlico hasn’t been cared for as it should have. At the same time, Pimlico is part of the great tradition of Thoroughbred horseracing that brings fans to the track and should be restored and preserved. One would have hoped that Magna was up to the task.
March 8th, 2009 at 6:36 pm
What happens to the stockholders? Do we get a bailout?
March 12th, 2009 at 7:10 am
Michael, no, you get your ass handed to you, as is only appropriate.
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