Magna positions itself for Md. slots

Troubled company's moves fuel optimism on keeping Preakness

By Gadi Dechter | Sun reporter

May 14, 2008

A racehorse is exercised on a wet track at Pimlico Race Course. Entrants are beginning to arrive for the 131st running of the Preakness Stakes on Saturday. The track owner, Magna Entertainment, is taking steps to make itself eligible for slot-machine gambling. (Sun photo by Karl Merton Ferron / May 13, 2008)

One piece of Preakness tradition appears to be missing this year: the prediction that without a quick infusion of cash from slot machine gambling, the race could be Baltimore's last.

Days before the running of the second leg of the Triple Crown, Maryland stands closer than ever to legalizing slots. Magna Entertainment Corp., the Canadian company that owns the Pimlico and Laurel Park racetracks - and with them the Preakness - is signaling that it will weigh in to make sure voters approve a slots referendum in November.

Company officials are hinting that they will partner with an established gambling operator, a move that could assuage concerns about Magna's financial management; and Joseph A. De Francis, the former owner of the Maryland Jockey Club, said he's willing to renegotiate a profit-sharing deal some believe might hinder the company's chances of landing a slots license.

All that is making racing officials more optimistic about the Preakness' future than they have been in years.

"The Preakness is a Maryland tradition," said Scott P. Borgemenke, Magna's executive vice president for racing. "The Preakness is going to be here ... with or without the slots referendum."

Voters will decide in November whether to allow 15,000 "video lottery terminals" across the state, with a large part of the proceeds dedicated to propping up horse racing. The law that would implement the slots program prohibits establishing one-armed bandits at Pimlico, but it includes provisions designed to keep the Preakness in Baltimore.

Borgemenke's statement is a sign of support from a badly struggling company that has hinted in recent years that if the lawmakers failed to approve slots, the Preakness might be moved to another of the company's numerous racetracks.

With polls showing a strong majority of Maryland voters backing expanded gambling, racing analysts say Magna's prospects for a slots-funded bailout look good.

"I'm very optimistic about the referendum," said John B. Franzone, chairman of the Maryland Racing Commission. "I can't see people saying we're going to accept more school closings and accept higher taxes when we know we're losing all this money to bordering states" with track-side slots.

If the referendum passes, Borgemenke said, Magna plans to bid on the slots license designated for a narrow stretch of Anne Arundel County that includes Laurel Park. He said Magna was interested in finding "gaming partners" who could bolster its ability to successfully operate what would be a 4,750-machine slots emporium.

The law passed by the General Assembly in November says that if Magna wins a slots license at Laurel, it must keep running the Preakness in Baltimore or lose its share of $140 million in annual purse and racetrack improvement subsidies.

In an interview this week, Gov. Martin O'Malley, a pro-slots Democrat, said that Magna "certainly will have a strong bid" for the Laurel slots license. The licenses will be awarded by a seven-member panel, with three members picked by the governor and two apiece by Senate President Thomas V. Mike Miller and House Speaker Michael E. Busch, both of them Democrats.

Still, it's not a sure thing that Magna will get a slots license at Laurel.

Gambling-related ballot measures have tended to fail around the country in recent years, and anti-slots activists in Maryland have vowed to mount a vigorous grass-roots campaign.

"I feel strongly optimistic that we're going to prevail," said Aaron Meisner, leader of Stop-Slots Maryland, one of two major groups opposing a slots initiative.

Magna has not made a financial contribution to For Maryland, For Our Future, the ballot committee headed by Frederick W. Puddester that will lead the pro-slots effort. But this week, Borgemenke said Magna expects to take a more active role in Puddester's campaign and may support it financially.

"I think we'll be supportive of what they ask for," he said.

Puddester said he is "hopeful" that Magna will buy into the campaign and hinted at "high-profile events" at Pimlico Saturday related to the pro-slots initiative. He has scheduled a conference call today to discuss the campaign.

If the pro-slots side prevails in November, Magna's dire financial circumstances could work against its bid for a gambling license. Magna Entertainment has lost money since 2002, including $114 million last year, and has survived on cash infusions from Frank Stronach, the Canadian auto-parts magnate who founded the company.

"Magna has had numerous opportunities out there to run gaming operations and hasn't done a very good job of it," said Busch, a longtime slots opponent who nonetheless pushed the referendum bill through last year.

"Certainly, the state doesn't want to grant licenses to someone who fails," he said, because the state's education budget is the chief beneficiary of any slots revenues.

Jeffrey Hooke, a Bethesda-based investment consultant who analyzes gambling issues, said such concerns could be eased if Magna partnered with an established gambling operator such as MGM or Steve Wynn.

"I assume all those big players would want to get into this market," Hooke said. "And because of the way [Magna] is leveraged and some of the operating issues that they've had, they could use a partner with deep pockets."

One potential hurdle to attracting established gambling operators is a profit-sharing deal struck by Magna in 2002 with Pimlico and Laurel's former owners, led by De Francis. That deal would guarantee the former owners a majority of slots profits at Laurel during the decade after "alternative gaming operations" commence - and a smaller stake for the subsequent 10 years.

De Francis says he and his partners are "very open" to a "restructuring or retooling" of that agreement if it "might facilitate an experienced and well-financed gaming company ... entering the picture and strengthening Laurel's bid for Anne Arundel's license."

He said one option might be for the De Francis-led team to share its profits with the gambling partner.

Regardless of what happens with the referendum, Miller said yesterday that the state will not take chances with the Preakness. He said he lacked faith in Stronach's financial health and vowed that the General Assembly would not rely on the Canadian's commitment to the race.

"The Preakness is going to stay in Maryland, no matter what," Miller said, likening the prospect of losing the race to the still-lamented departure of the Baltimore Colts to Indianapolis in 1984. "Mr. Stronach is a fine man, but he's a Canadian. And he can keep what belongs to Canada, but we're going to keep what belongs to Maryland in Maryland."

gadi.dechter@baltsun.com