February 11, 2009
Legalizing slot machines was supposed to save Maryland horse tracks, help Maryland schools and keep the Preakness in Baltimore. That it might fail on all counts, in a kind of grotesque trifecta, is probably what everybody involved with it deserves.
Austrian-Canadian racetrack tycoon Frank Stronach couldn't even file a viable bid for the slots license he so badly wanted. Slots were the only hope for Stronach's Magna Entertainment, which has lost $600 million since 2002.
But the corporate owner of Laurel Park and Pimlico, after spending millions lobbying for slots, failed to pay $28.5 million in bidding fees by last week's deadline, implausibly claiming it was worried about zoning approval.
Given reports that it has hired bankruptcy lawyers, one has to wonder whether Magna could even come up with the dough. Its statement, the day after the deadline, that it "has arranged" for funding that "will be placed in an escrow account at a Maryland bank" does not have the ring of silver on the counter.
The logical move would be to find a partner to put up the earnest money. But, as The Baltimore Sun reported Sunday, Magna told industry officials as recently as two weeks ago that it didn't have an operating partner lined up. Magna officials did not call me back.
Would you go into business with Stronach, the guy who doesn't even make money at tracks where he has slots?
Joe De Francis did, and he's probably still wondering why. He could have sold Pimlico and Laurel Park to Churchill Downs Inc., the profitable operator of the Kentucky Derby, but took a richer offer from Magna that both have probably been regretting ever since.
The $29 million that Magna paid De Francis and his sister, Karin, obscured fine print that showed De Francis and his partners would get 65 percent of any slots profits over the first five years of the operation, half for the next five years and 40 percent for another decade. (De Francis personally would get 11.74 percent for the first five years.)
Magna, which needs a bigger slots payoff to lift it from financial trouble, has been trying to renegotiate the terms at least since last year. Pro-slots legislators weren't especially happy either, since the deal allowed opponents to paint slots bills as De Francis welfare.
De Francis has been quoted as saying he would forgo slots profits if it helped get licenses for tracks and aided racing. "Sure, absolutely," he told The Washington Post in 2007.
But even if he meant it, his partners probably aren't so magnanimous. The Magna-linked slots pool, called Maryland Ventures, includes former owners of Laurel Park as well as Leucadia National, a New York conglomerate that would get the biggest rake-off besides Magna.
It's fair to assume last week's deadline was preceded by a staredown that had Magna pleading for new terms and Maryland Ventures daring Magna to withhold its bid. Through a spokesman, De Francis said he was unavailable. Leucadia didn't return my call, but the company can't be thrilled that millions in potential revenue just went up in smoke.
The strongest slots bid came from Baltimore developer David Cordish, whose proposed site at Arundel Mills mall would kill Laurel Park by drawing off what remaining bettors it has. (The site is "not only the best location in the county, but one of the best in the United States from a revenue generation perspective," Cordish says via e-mail.)
Nor is Pimlico safe. Everybody thought Magna would score a slots license for Laurel, which would legally bind it to keep the Preakness, second tiara in horse racing's Triple Crown, in Baltimore. Laurel was even written into the slots referendum; still, the Laurel bid looks dead.
We persuaded ourselves to approve slots because they supposedly would revive Maryland racing and get more money for schools. But we didn't want slots operators making too much, so we allowed one of the smallest takes in the country. We didn't want Maryland Ventures or Magna having it too easy, so we made a show of seeking competing bids.
Now that bids have fizzled and Cordish's surprise offer is the best thing on the table, the only sure outcome will be the social pathologies and taxpayer expense of expanded legalized gambling.
Magna's stock has been hitting now lows since its slots-bid antics, closing yesterday at 57 cents. I'd rate the politicians who brought us this deal at about the same level.
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