MAGNA: HOW DID WE GET HERE?

by | 11.17.2010 | 12:46am

By Ray Paulick

(UPDATE: Magna Entertainment filed for Chapter 11 bankruptcy protection today. Click here for the company press release, with details on the filing.) 


What a long, strange trip it's been.


Hard to believe, but it's been just over 10 years since Frank Stronach dove head-first into racetrack ownership with his December 1998 purchase of Santa Anita Park. Or perhaps I should say he did so with his company's purchase of Santa Anita, since the 76-year-old Canadian auto parts magnate and Eclipse Award-winning owner and breeder has been careful not to spend too much of his own money on any of the racetrack ventures.


The strong-willed Stronach was hailed by many, including this writer, as a savior when he first rode into Southern California and purchased Santa Anita for $126 million. The historic racetrack was then owned by Meditrust, a real estate investment trust that had little to no interest in horse racing, and there were concerns about the sport's future at the “Great Race Place.”


Stronach had big plans: a new stable area; a gated community to replace the infield parking lot; a grand entrance hall of sorts where horses of all breeds would be in the spotlight and robust women in lederhosen would serve an endless supply of cold beer. “I have no plans to move the mountains,” he joked, in a reference to the San Gabriel Mountains that serve as one of American horse racing's most beautiful backdrops amidst concerns that he was going to change Santa Anita too much.


One of his biggest early supporters was the late Bob Lewis, a major horse owner and industry leader who had been going to the races at Santa Anita for decades. At a meeting Stronach conducted with horsemen who were worried that Santa Anita's traditions would be thrown out the window, Lewis stood up and said:“Frank, you and I have had our arguments on the track, but as an owner I want to thank you for your magnanimous willingness to go ahead with your plans for Santa Anita. You're going to be a breath of fresh air for this place.”


Stronach invested in some capital improvements, adding the new Frontrunners restaurant atop the grandstand and making Santa Anita's track apron more appealing for railbirds. But big plans for a new stable area and other improvements were put on hold while he turned attention to his growing appetite for additional acquisitions.


He purchased Gulfstream Park in July 1999 for $95 million from a Japanese company that, like Meditrust, wasn't interested in horse racing. Optimism abounded that racing in South Florida would improve. He also acquired land in Palm Beach County north of Gulfstream and built a state-of-the-art training center.


Then came deals to buy Golden Gate Fields along with the racing license for Bay Meadows in Northern California (though not the land on which the track was located); Thistledown in Ohio and Remington Park in Oklahoma; Portland Meadows in Oregon; Lone Star Park in Texas; and Laurel and Pimlico in Maryland. He also built Magna Racino, a racetrack/casino in his native Austria (since closed), and purchased plots of land for the possible development of a new track in Northern California and another in north central Florida. He started a racing cable network, HRTV, and an account-wagering company, Xpressbet. Once, when he disagreed with something I wrote in Bloodhorse magazine, he threatened to buy that publication – and he was serious.


There were rumors Stronach was set to purchase Suffolk Downs near Boston, Emerald Downs near Seattle, Monmouth Park in New Jersey, even Fairmount Park in Southern Illinois, among other tracks. In some ways, he looked like a kid in a candy store, and racetrack owners everywhere who were looking to unload their properties were hoping to catch his eye.


By now, Stronach's racetrack interests were part of Magna Entertainment (
MECA), a publicly traded spinoff of his Magna International (MGA) auto parts company that was formed in March 2000. A few years later, another Magna International spinoff, MI Developments (MIM), the real estate branch of the parent company, became the majority shareholder of Magna Entertainment after large shareholders in the auto parts concern protested that too much of their money was being invested in racetracks.


Stronach controlled the majority of the voting shares in all of the companies because of how they stock was structured into different classes. That allowed him to handpick board members and run the companies the way he saw fit. R.D. Hubbard, a very savvy businessman and racetrack owner who has had more than a few boardrowom battles of his own, told me very early on that only a fool would make a serious investment in a company that sells a majority of its stock in non-voting shares.


There was a constantly revolving door of top managers at Magna Entertainment and at many of the company's racetracks that made it nearly impossible to ascertain who was in charge. (Click
here for a partial roster of former Magna executives.) Some good people were brought in, but were never given the chance to manage without Stronach's hands-on supervision. Other hires were head scratchers, including the appointment of former jockey Chris McCarron as general manager of Santa Anita. Stronach even called me once to see if I was interested in running one of his racetracks, something in which I had no experience or interest. I politely declined.


Interestingly, this is not how Stronach ran Magna International or his hugely successful breeding and racing operation, Adena Springs, where management was stable for years.


Stronach himself seemed to be afflicted with attention deficit disorder, lurching from one idea or project to another. All the while Magna Entertainment was accumulating massive debt that now totals $600 million and losing hundreds of millions of dollars. “We're turning the corner,” he would say to increasingly skeptical analysts during conference calls to review financial results. Sometimes his focus bordered on the bizarre; witness his dive-off-the-deep-end launch of
Frank's Energy Drink, which now appears to be about as successful as his racetracks. Or his latest missive on how there should be changes in determining winners of Eclipse Awards, something Stronach wrote just days before Magna defaulted on the first of several debt obligations coming due this month.


In the early years, he seemed to love the limelight that came with owning racetracks. At a public forum at Gulfstream Park in 2001 that he used as a platform to publicize his views on the industry, Stronach said with glee, “I can't wait to tear this place down.” Sure enough he did, rebuilding what many thought was a perfectly good grandstand and spending hundreds of millions to create a racetrack (and now casino) that is widely detested. He made similar promises to tear down and rebuild Pimlico, which would have been applauded, but those plans never got off the drawing board. Of course, Magna's history in Maryland has been tainted by their recent folly in failing to file an adequate slot machine application for Laurel, after voters approved a statewide referendum last November. The company is now the laughingstock of the Free State.


Stronach also used his prominent position as owner of the nation's largest racing company to air his differences with the National Thoroughbred Racing Association and Breeders' Cup, calling for democratic elections to the organizations' boards of directors (while overlooking the fact that his own companies weren't democratic because of the different classes of voting and non-voting stock). His ideas did have merit, and he deserves credit for helping bring greater transparency to some racing organizations.


Stronach once told me that he would “create his own Breeders' Cup” because of differences he had with that organization. A couple of years later, he made good on that promise, creating the Sunshine Millions, an annual event at Gulfstream and Santa Anita that matches Florida-breds vs. California-breds.


The late Bob Lewis, his onetime supporter, began to publicly criticize Stronach's comments about the NTRA and other industry initiatives. “Frank got mad and stopped talking to me after that,” Lewis told me. Then, with his broad, trademark smile, Lewis added, “So, naturally, whenever he's at Santa Anita I go out of my way to reach out my hand and say hello to him.”


Clearly, Stronach can no longer be having fun as a racetrack owner. Though sources complain that he has surrounded himself with “yes” men at the corporate level — executives like Dennis Mills, CEO of MI Developments — he cannot help but hear the criticism that has come his way from racing fans, horsemen, state regulators, and shareholders in his various companies.


Magna Entertainment is teetering on the verge of bankruptcy, and institutional shareholders in MI Developments are threatening legal action if they feel that company's board of directors breaches its fiduciary responsibility by extending additional credit to Magna Entertainment. Though some of its tracks are performing moderately well in this desperate economy, it's too little too late, and the debt load is more than the company can absorb.


It's sad, really, when I think back to the energy (sans Frank's Energy Drink) and commitment Stronach brought to this endeavor 10 years ago. He had ideas – some good and many bad – that he felt could help reinvigorate racing. I have no doubt that his intentions were always to make Thoroughbred racing more appealing and successful. But his appetite for domination of the industry and his “my way or the highway” management style were a recipe for disaster. Several former Magna executives told me they tried to talk Stronach out of many bad decisions, but he seldom paid attention to them.


“You've got to listen, right?” Stronach said during a horsemen's meeting at Santa Anita in April 1999. Unfortunately, he failed to take his own advice over most of the last decade. Now he's paying the price, but so is the rest of the Thoroughbred industry. No one can be certain where those bad decisions will take us.

Copyright © 2009, The Paulick Report

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