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Magna asks court to bar '02 slots deal

By Hanah Cho

October 29, 2009

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The bankrupt owner of Laurel Park and Pimlico Race Course wants to terminate a profit-sharing agreement to split any potential slots proceeds with the tracks' former owners, including Joseph De Francis, before the two racetracks go on the auction block early next year.

Although the tracks' owner, Magna Entertainment Corp., was disqualified in its bid to bring slot machine gambling to Laurel Park, the state license to operate a casino in Anne Arundel County could be up for grabs. The only recognized bidder, the Baltimore-based Cordish Cos., has run into problems obtaining zoning approval for a proposed 4,750-machine slots facility near Arundel Mills mall.

Members of the Maryland commission that approves slots licenses indicated recently that they might be forced to reject the Cordish bid if the Anne Arundel County Council does not act to resolve the zoning matter. The commissioners set a Dec. 17 deadline for a solution of the issue.

Meanwhile, Pimlico is not a designated site for slots in Baltimore.

In a motion filed last week, Magna asked a federal bankruptcy judge to reject the deal that it negotiated with De Francis and other former owners in 2002 when they sold their controlling interest in the Maryland Jockey Club, the umbrella organization for the two tracks.

Magna, a Canadian firm that filed for Chapter 11 bankruptcy protection in March, received court approval earlier this month to sell the Maryland tracks and the Preakness Stakes at auction Jan. 8.

De Francis said in a brief interview late Wednesday that he and other former owners "intend to oppose the filing vigorously."

"We think it's dead wrong, and there isn't too much to say besides that," said De Francis, whose father, Frank J. De Francis, and partners purchased Laurel Park in 1984 and Pimlico two years later.

Joseph and his sister, Karin, inherited the tracks when their father died in 1989 and sold their remaining interest to Magna in 2007.

Magna's attorney argued in court papers that the slots profit-sharing deal could hinder the sale of Laurel Park.

Even though Laurel Park's bid for a slots license was tossed out because Magna failed to submit the required licensing fee, its lawyers said a future owner of the Maryland tracks could apply for a slots license. That opportunity to reap projected slots revenues could significantly increase the amount a prospective buyer might be willing to bid, while the existence of the profit-sharing agreement could lower potential bids.

The restriction imposed by the 2002 deal on any new owner "places a considerable cloud over the amount that prospective purchasers may be willing to attribute to such [an alternative gambling] revenue stream," Magna said in court papers.

It is in the best interest of Magna to terminate the deal and "remove this perceived risk and to provide clarity in connection with the auction process."

Under the agreement reached at the time of Magna's acquisition of the Laurel track in 2002, Joseph De Francis, his sister, Karin, and others would receive 65 percent of pre-tax slots profit during the first five years, 50 percent for the next five years and 40 percent in the following decade. Twenty years after the debut of slots, Magna would keep everything.

The potential for Joseph De Francis to profit from any gambling operation in Maryland had been a sticking point for some legislators as debate over the legalization of slots raged on for years before voters approved them in a referendum in November 2008. The state law authorizing slots in Maryland gives operators a 33 percent share of slots proceeds, among the lowest in the nation.

Since its slots bid was rejected, Laurel's owner has waged a legal battle to get it reinstated. That effort stalled after Maryland's highest court ruled that Magna does not have a case until a license is awarded, and then it must take its protest to the state contracting board.

The Anne Arundel County Council is scheduled to consider two proposals Dec. 7. One would rezone the mall area and allow the Cordish plan to move forward if the company also wins a state slots license, but another would put the casino in an industrial area south of Route 32, which includes Laurel Park. Cordish has no interest in that area.

Gov. Martin O'Malley has said repeatedly that he would prefer to have slots at horse tracks, where patrons already are allowed to gamble. He has publicly urged the County Council to act - either for or against the mall project - saying that the slots program needs to move forward.

John Franzone, chairman of the Maryland Horse Racing Commission, said Wednesday that he's not sure whether the profit-sharing deal is relevant anymore, since the state has prescribed a certain share of slots proceeds for operators.

"To me, that's just another sideshow to this whole exercise, because in my mind, in order for the [Maryland] racing program to be successful, we need to have slots come back to Laurel," Franzone said. "The whole genesis of this thing was slots and racetracks."

Meanwhile, potential bidders for the Maryland tracks have until Nov. 2 to submit bid proposals to Magna, with the requirement that buyers keep the Preakness Stakes, middle leg of racing's Triple Crown, in Maryland.

Magna will submit to the court a lead bid for the two tracks Nov. 9.

Two Maryland developers, David S. Cordish and Carl Verstandig, have reiterated their interest in bidding on the tracks and the Preakness.

A Magna attorney said during a hearing this month that De Francis and other former owners also were interested in bidding. However, De Francis was more circumspect when asked in a previous interview of his interest in buying back the tracks. He said he and other former owners submitted several proposals to Magna to recapitalize the Maryland tracks.

Baltimore Sun reporter Laura Smitherman contributed to this article.