Minority interest in tracks sold Leucadia deal completed; De Francis, who retains control, lauds purchase


A New York investment company with family ties to Maryland's major thoroughbred racetracks purchased a minority interest in the tracks yesterday, bringing a new face to the state's beleaguered racing industry.

The white knight purchase by Leucadia National Corp. ends for now the financial uncertainty and managerial conflict that has marked the ownership of the tracks for the past decade.

At the same time, however, the arrival of bottom-line-oriented investors is bound to raise concerns that there will be pressure to consolidate operations or take other steps to boost profits. Leucadia is known for squeezing value out of underperforming companies.

If so, Leucadia's role will be purely advisory. Majority owner Joe De Francis retains control of the corporation through his ownership of most of its voting stock. Leucadia acquired 50 percent of the non-voting shares of Laurel Park and 47 percent of Pimlico Race Course.

"I think it's a very good thing. It means that for the first time ever we now have a partner who wants to work with us for the benefit of Maryland racing," De Francis said yesterday.

De Francis worked behind the scenes to find a buyer for the shares, which were held by the estate of Jack Kent Cooke, the late owner of the Washington Redskins. Among Leucadia's executives is Zalman Jacobs, son of Martin Jacobs, a co-owner and treasurer of the Maryland Jockey Club.

Leucadia, a low-profile, publicly traded New York investment company, made the investment through a wholly owned subsidiary created for the deal called LUK-Flats, LLC. No price was revealed, although sources said the Cooke estate had sought as much as $15 million for the shares.

Speculation in and around the industry was that the shares, which hold no promise of dividends, would have value only to the extent that the buyer believed that the state will someday legalize video gambling, or slot, machines at the tracks, something De Francis is seeking.

If slots are legalized -- a policy that Gov. Parris N. Glendening opposes -- it would almost certainly prove a windfall for the track owners.

Luis Medeiros, managing director of Leucadia, said the potential of slot machines coming to the tracks was only one of several scenarios the firm considered in making its investment.

"We have no idea whether they [slots] are coming or not. We just hope that public policy makers will recognize the value of racing to the state and provide it with the tools to remain competitive," Medeiros said.

Leucadia's investment was a straight-forward purchase with no provision for later acquisition of control or sale back to De Francis, Medeiros said.

Although he considers himself a racing fan, Medeiros anticipates playing no role in management.

"We think the management has done a tremendous job of managing the tracks under difficult conditions," Medeiros said.

He said the company was attracted to the "underlying asset value" of the Maryland Jockey Club, chiefly its real estate holdings and the Preakness.

"Whether it's industry growth or asset-value recapture, we expect a return on the investment," he said.

Leucadia's top executives last month notified shareholders that the company, which has more than $2 billion in market capitalization, was having a hard time finding new investments and may liquidate itself.

In that event, LUK-Flats could be resold, spun off or retained temporarily by a liquidation trustee.

Medeiros declined to comment on what would happen to the investment if the company chose to liquidate.

De Francis has operated the tracks since the death of his father, Frank, in 1989. His relationship with his father's partners, brothers John and Robert Manfuso, was combative, and in 1994 the two sides agreed to a "Russian roulette" arrangement through which one could buy out the other.

De Francis bought out the Manfusos for $8.2 million, and Cooke acquired his interest by loaning De Francis the money to make the deal.

In exchange, Cooke received an option to purchase 100 acres of land near Laurel Park, where, at one time, he wanted to build a football stadium.

In the face of local opposition, Cooke instead decided to construct the team's stadium near Landover.

De Francis failed to repay the Cooke loan on time and in 1996 signed an agreement acknowledging that fact and converting the document into a demand loan that Cooke's organization could call at any time. Cooke died in April 1997.

A spokesman for his estate did not respond to requests for comment.

"You could not describe a better partner," De Francis said of Leucadia.

Pub Date: 6/12/98

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