by | 11.17.2010 | 12:46am

By Ray Paulick

The volume of paperwork in Magna Entertainment's chapter 11 bankruptcy filing last Thursday yielded some interesting details about the Frank Stronach-controlled company, its operations and creditors (tens of thousands of which were listed on more than 500 pages of documents). But pleadings from the company's attorneys in federal bankruptcy court in Wilmington, Del., for a loan of $62.5 million from parent company MI Developments (MIM) to continue operations were only partially approved by Judge Mary Walrath in Friday's first hearing when she okayed a smaller loan of just $13.3 million. Bondholders reportedly objected to the amount sought by Magna Entertainment (MEC) and questioned whether its parent company should be the lender.

Along those lines, on March 5, the day Magna Entertainment filed for bankruptcy, one of the largest institutional shareholders in MI Developments sent a letter to the Securities and Exchange Commission expressing concern about MI Developments' activities and warning of possible legal action against the real estate company's board of directors.

MI Developments and Magna Entertainment are all spinoffs from the auto parts giant, Magna International. All three companies are controlled by Frank Stronach.

Magna Entertainment's unaudited financial statements showed 2008 revenues from continuing operations of $593 million, with $413 million of that amount attributable to pari-mutuel wagering. The company said it has assets of $1.049 billion and liabilities of $959 million.  There are approximately $6.7 million in uncashed winning tickets and $16 million in horsemen's accounts at tracks included in the chapter 11 filing. In addition, Magna reported estimated cage holdings of $15.6 million at the company's casino properties.


“(Magna does not) believe that the funds in the Horsemen Accounts are property of their chapter 11 estates,” the filing said.  “Furthermore, the Debtors believe the commencement of these chapter 11 cases could itself negatively affect their customers and Horsemen's attitudes towards their races and create concerns about their ability to host such races. Accordingly, the Debtors must quickly assure their customers and Horsemen of their ability to fulfill their obligations under the prepetition obligations arising under the Customer Programs, and to maintain their existing customer base and preserve their goodwill on a going-forward basis by continuing these Customer Programs during the postpetition period.”

As of Feb. 4, 2009, Magna employs nearly 5,000 workers — 2,748 of them full time and 2,145 part time; 1,862 are represented by labor unions. The company said it is current on all payrolls, with the exception of $1.24 million earned but not paid on bonus compensation (and it said no individual is owed more than $10,950)

There are 38 employees at Magna Entertainment's Canadian headquarters that were paid $7.344 million in regular earnings and $2.5 million in bonuses in 2008 (an average per employee of $259,000 per year). Twenty-nine of those corporate workers have employment contracts.

Of the racetracks included in the filling:

Santa Anita Park employs the highest number of workers – 968 (829 of which are union members), with a 2008 payroll of $23.7 million (plus $330,000 in bonuses).

Gulfstream Park is next in the number of workers, with 864 employees (371 full time, 493 part time; none of them union members) and a 2008 payroll of $18.3 million (plus $150,000 in bonuses).

Maryland Jockey Club (Pimlico and Laurel) has 533 employees, 287 of which are union members. MJC's 2008 payroll was $19.4 million.

Remington Park in Oklahoma has 473 employees (394 full-time and 79 part-time; none are union members). In 2008, Remington's payroll was $11.7 million.

Golden Gate Fields near San Francisco has 414 employees (347 of which are union members). Golden Gate's 2008 payroll was $11.5 million, plus $115,000 in bonuses.

Thistledown near Cleveland has 109 employees (82 full-time, 27 part-time, 55 are union workers). The 2008 payroll was $4.5 million, with $13,000.


Hotchkis and Wiley Capital Management, a Los Angeles-based company which has stated previous concerns with the amount of money MI Developments has loaned or spent to keep Magna Entertainment afloat, filed a 13D letter with the SEC March 5, warning of possible legal action against the MI Developments board. Hotchkis and Wiley has invested more than $225 million in MI Developments in two separate funds, acquiring 5.3 million shares at an average price of $28.35 per share for one and 2.4 million shares at an average price of $31.77 for the other. Its holdings amount to roughly 17% of MI Developments' Class A shares. 

(MI Developments stock hit a 52-week low of 3.26 per share in the days before the Magna Entertainment bankruptcy filing; it opened today's trading at 4.69. Magna Entertainment shares opened at 11 cents a share, but factoring in last year's 1-for-20 reverse stock split, the actual value is less than a penny. Shares traded for as high as 10.00 per share in 2002, long before the 1-for-20 reverse split, which was done last year to keep prices over a dollar and in compliance with NASDAQ regulations.)

In its letter, Hotchkis and Wiley said they “continue to be concerned about MID's activities and, with other interested shareholders, have retained counsel to investigate whether claims should be asserted against the MID directors in connection with transactions with insiders to the detriment of the corporation. Such counsel recently sent a letter to the MID board of directors notifying them of such concerns, which may be deemed an attempt to influence the MID policies.”


Finally, the chapter 11 filings included a list of what Magna Entertainment attorneys said were the 50 largest creditors with unsecured claims. Many of those claims involve purse money held in horsemen accounts by racetrack paymasters. There was a significant “run” on that money last week in the days leading up to Magna's bankruptcy filing, with checks cut to various owners and trainers. Some horsemen contacted by the Paulick Report said the checks were accepted by their banks, but there is some question about whether or not they will be cleared with sufficient funds in Magna accounts as the legal proceedings move forward.

Here is the list, as reported in the Magna Entertainment filings:

 Bank of New York, as trustee 8.55% notes $127,345,313
 Bank of New York, as trustee 7.25% notes $76,193,229
 Maryland Thoroughbred Horsemen's Assn. Trade $3,820,500
 Aon Reed Stenhouse Inc. Insurance $3,682,756
 Florida Thoroughbred Owners and Breeders Assn.  Horsemen $2,157,327
Zurich North America Letter of Credit $1,937,472
RGS/St. Kitts Settlement $1.763.952
 Northern California Off Track Wagering Inc PRA Trade Payable $1,662,231
 State of California Treasurer Statutory Wagering Settlement $1,374,051
 Southern California Off Track Wagering Inc Statutory Settlement $1,194,623
 Magna International Related Party Transactions $845,892
 New York Racing Association Settlement $830,175
 McCasey Group Related Party Transactions $756,217
 Elite Turf Club 2, c/o Las Vegas Dissemination Settlement $695,411
 Oklahoma Tax Commission Gaming Tax $669,114
 The Leffler Agency Trade $637,487
 Red Rock Administrative Trade $617,561
 Royal River Racing (Lewiston Raceway) Settlement $605,791
 Aristocrat Technologies Inc. Slot Machine Purchases $551,153
Jerry Hollendorfer or George Todaro Horsemen


 Los Angeles County Tax Collector Property Tax $442,281
 Las Vegas Dissemination Settlement $430,036
 Juddmonte Farms Horsemen $424,961
 Southern Service Corp. Trade $377,728
 Aladema County Tax Collector Property Tax $367,691
 Ranger Construction South (Pompano Beach. FL) Trade $364,289
 California Thoroughbred Business League Settlement $336,275
 Leonard Powell Horsemen $329,411
 Jerry Hollendorfer Horsemen $307,846
 Gulf Greyhound (Santa Fe, Tx) Settlement $290,.675
 New York Racing Association Settlement $288,285
 Harrah's Louisiana Downs Settlement $274,900
 Oklahoma County Treasurer Property Tax $273,574
 Aware Digital (Hallandale, FL)  Trade $270,000
 Maryland Horse Breeders Assn. Trade $269,800
 Max International (Lancaster, PA) Trade $250,416
 OK Breeding Development (OHRC) Horsemen $246,969
 Fair Grounds Race Course Settlement $220,591
 Bob Baffert Horsemen $204,617
 Cecil N. Peacock Horsemen $200,547
 C.R. Cono, LLC Horsemen $197,723
 Churchill Downs Inc. Settlement $195,098
 Maryland Racing Commission Pari-mutuel Taxes $193,914
 Roberts Communications Network Utility-Phone $188,005
 Las Vegas Dissemination Settlement $185,260
 Tampa Bay Downs Settlement $185,081
 B. Wayne Hughes/Spendthrift Farm Horsemen $184,882
 Richard J. O'Neill Trust Horsemen $170,516
 Florida Power & Light Co. Utility – Electric $168,000
 Lathrop G. Hoffman Horsemen $166,788

Copyright © 2009, The Paulick Report

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