William Bayne Jr. is a longtime horseplayer and horse owner who lost more than $2 million he invested in Frank Stronach's now bankrupt Magna Entertainment (MEC). After a United States bankruptcy court judge recently approved a settlement plan transferring the assets of MEC to another Stronach-run company–MI Developments–but giving zero to MEC shareholders, Bayne decided not to go gently into that good night.
Along with other shareholders who held about 10% of MEC's common stock, Bayne is waging a legal war to overturn the ruling by bankruptcy judge Mary Walrath on the grounds that the company's assets were undervalued by its financial adviser and that Stronach, despite public statements to the contrary, never intended to sell some of the tracks in MEC's portfolio.
“We're fighting this tooth and nail,” Bayne told the Paulick Report. “At the end of the day, if we prove massive fraud, I hope they go to jail. We feel criminal activity has taken place. Hopefully justice will be served.”
Bayne, 45, owns the Crystal City Sports Pub in Arlington, Va. (Sports Illustrated has ranked it among the top 20 sports bars in America), along with a nearby “gentleman's club” called Crystal City Restaurant. He said he bought his first racehorse, a claimer at the old Shenandoah Downs, 30 years ago as a teenager, and has studied all facets of the racing industry, including the emergence of expanded gaming at racetracks. A one-time member of the board of directors of EDAC Technologies, Bayne said he sought a board seat at MEC after deciding to invest in the company.
“I knew the industry very well and knew the assets very well,” Bayne said. “Gaming was coming online and today more tracks have slots than don't, and the trend is to expand further. Gulfstream Park is going to be a home run, the prototype for other tracks. I love the fact Stronach got HRTV and Xpressbet.
“I was hoping to get a board seat on the this company, because I don't think there's a board member in the United States who knows this industry better, from the perspective of a gambler, a breeder and an owner. Maybe I'm crazy, but that's how I feel.”
Bayne said he was told by Stronach and Dennis Mills, then vice chairman of MEC and current CEO of MI Developments, he would be given a board seat. “They BS-ed me,” Bayne said. “You have to try and pick people who understand what they are doing and acting in the best interests of the shareholder, not the best interest of Frank. But Frank put people on the board that did what he wanted him to do.”
Mills told the Paulick Report there were discussions about nominating Bayne to be put up for election as an MEC board member. “Before we knew it, Magna Entertainment went into Chapter 11,” Mills said, “and the whole issue became moot. I had had more than one discussion with Bill, and he is an avid horse enthusiast. He runs a very successful sports pub and is high energy, with lots of enthusiasm.”
While Bayne may be upset about not getting a seat on the board, the basis of his legal action attempting to overturn the bankruptcy court decision is on the appraised value of the various properties owned by MEC and turned over to MI Developments as part of the plan. While Judge Walrath generally agreed with Magna's financial adviser Miller Buckfire on the appraisals, and said MI Developments is contributing $700 million to secure them—as a secured creditor whose $450 million loans to MEC were not paid back and through payments to a number of MEC's unsecured creditors—Bayne and the other shareholders contend the assets are worth at least twice that much.
Among those assets are:
-Gulfstream Park, which Miller Buckfire's managing director Marc Puntus said was worth $75 million. The suit filed by the appellants (Bayne and other shareholders) claims the track was never offered for sale though 46 confidentiality agreements were signed and three opening bids were received in an auction process that never was completed. According to the suit, the appraisal ignored the improvements to the property that include a casino and upscale shopping mall, a 30% increase in year-to-year revenue in slots revenue, and the 15% tax break on slot machines Gulfstream will get through legislative relief beginning this year.
-Santa Anita Park was appraised by Puntus at $137.5 million, though Walrath accepted the real estate appraisal of $203 million. Appellants presented evidence that two separate outside entities had made offers of $300 million for the property but that it was not for sale despite 62 confidentiality agreements and 13 opening bids and two second-round bids.
-Golden Gate Fields was given an enterprise value of $37.5 million by Miller Buckfire's Puntus, though Walrath accepted the real estate appraisal of $65 million. Appellants said it was never offered for sale despite 37 confidentiality agreements and two opening bids.
-The Maryland Jockey Club tracks (Laurel and Pimlico) were appraised by Puntus at $30 million despite the passage of slot machine legislation that will benefit Maryland purses and provide an annual subsidy to the tracks. Walrath said the tracks were worth $40 million, based on a 2009 real estate appraisal. Appellants said 44 confidentiality agreements, five opening bids and six second-round bids were executed though the auction was postponed five times and eventually withdrawn completely.
-Portland Meadows was appraised at $2.6 million by Puntus and $5.7 million in a real estate appraisal. Appellants said there were eight confidentiality agreements, three opening bids and two second-round bids.
-Amtote had 45 confidentiality agreements signed, five opening bids and four second-round bids but was never offered for sale, according to the appellants. Walrath said Amtote was worth $12.5 million.
-XpressBet had 47 confidentiality agreements signed, seven opening bids and four second-round bids and likewise was never offered for sale. Walrath said it was worth $40 million (and Magna's share in HRTV, $6.6 million).
“We feel Miller Buckfire and some of those people lied under oath in their testimony,” Bayne said of the bankruptcy proceedings. “I feel there has been a massive fraud here with the intent of not selling the assets, and with the valuation of those assets.”
Bayne contends that Miller Buckfire purposely low-balled the appraised value of some of the assets in order for MI Developments to benefit from the failure of MEC, a related company. He also said a deposition of Michael Neuman, one of the revolving-door CEO's hired by Stronach to run MEC in 2007, indicated Stronach never intended to sell most of the tracks despite public assurances to do so. “He said Frank lied to shareholders,” Bayne said of Neuman's deposition, which is sealed from the public. “He said there was a buyer for Santa Anita that could have paid off all the debt.”
Bayne and the other shareholders lost their appeal when Walrath approved the bankruptcy plan. “It's clear (these assets) do not even approach the $700 million in value being given by MID under the plan,” Walrath said. “I mean, it's—it's well in excess of—hundreds of millions of dollars in excess of what the value of these assets are. It's also significant to the court that these operations are, for the most part, not break even or only minimally above the break-even point. They are not assets that are generating millions of dollars and significant efforts have been made to make them profitable. … So contrary to what the shareholders are suggesting, I don't think MID is getting any trophies here …”
Walrath's order to move forward with the bankruptcy plan will be appealed, Bayne said.
“We want a fair day in court,” Bayne said. “We've got an independent company to value those assets. Miller Buckfire was hired by Magna. If the judge doesn't believe what the assets are worth, put them at auction and we'll see what they are worth. Let Stronach bid in the forum of an open auction, and not lie to the public or lie to the judge. They tried to say in court no one would put up the money and no one was qualified. That's BS.”
Mills, the CEO of MI Developments, said there was a “vast number of people that had access to the data rooms of Magna Entertainment and examined every asset. The Miller Buckfire people tabled a detailed report. There were many expressions of interest. They appeared in the court and dealt with that very issue. Equity holders made that point in the court. It's all on the public record.”
As for Bayne's charge that criminal activity and fraud may have transpired, Mills said: “I won't dignify those comments. This was a totally public process with a federal judge, with independent advisers to MEC and independent advisers to the creditors' committee.
Part of the bankruptcy order protects directors and officers of the company from being sued by shareholders, so their only option if they want to recover any money from their original investment is to try and overturn Walrath's order or settle out of court with MI Developments.
“We're not going away, Frank,” Bayne warned. “They never thought the shareholders would come and fight them. There are a few of us willing to do that. We'll be spending hundreds of thousands of dollars fighting them. We are sick of Frank Stronch trying to bully everybody.”
Copyright © 2010, Ray Paulick
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