Attorneys for Maryland are asking a federal judge to affirm the state's claim to the Preakness Stakes amid concern in Annapolis that current bankruptcy proceedings could invalidate a law designed to keep the historic horse race in Baltimore.
In filings Friday, lawyers for the state asked the U.S. Bankruptcy Court in Delaware to order the bankrupt Magna Entertainment Corp. - which is trying to sell its Maryland horse racing assets, including the Preakness - to comply with a Maryland law giving the state the right to match any accepted bid to buy the second leg of the Triple Crown.
Bankruptcy experts say judges sometimes invalidate so-called "right of first refusal" agreements on the rationale that they depress the market value of bankruptcy auctions and hurt creditors. Maryland's statute "is arguably nonenforceable in a bankruptcy proceeding," said Joel I. Sher, a Baltimore bankruptcy attorney. "There's a lot of case law that says bankruptcy courts can sell an asset notwithstanding rights of first refusals."
This month, Magna asked the Delaware court for permission to auction Laurel Park and Pimlico Race Course, where the Preakness has run on the third Saturday of May since 1909. If Magna's request for a "free and clear" auction is approved at a hearing scheduled for April 3, bids for the Maryland tracks would be due July 8 and winners approved Aug. 7.
In its filing, the state objected to Magna's auction proposal for not acknowledging the 1992 Maryland law giving the state the first option to buy the Preakness. The state is asking the court to ensure that Magna's auction "recognize and provide a mechanism for Maryland to exercise its statutory right."
Separately, attorneys for Baltimore City have also filed objections to Magna's proposed auction and are asking the court to demand more detail from Magna about the sale process. The city has "strong legal, pecuniary, and cultural interests in Pimlico and the Preakness," attorneys for the city argued.
Magna officials did not return a call for comment, but the company's chairman, Frank Stronach, has said he wants to preserve Maryland's horse racing legacy.
In an interview, Senate President Thomas V. Mike Miller said there was "obvious concern" among state leaders that the federal court would ignore the Maryland statute in favor of creditors' interests. As a safeguard, he said, "I'd be in favor of passing a law allowing the state to condemn the track and the Preakness," and then buy the assets.
Meanwhile, state officials are reaching out to potential investors in hopes of striking a public-private partnership that would keep the tracks operating and the Preakness running. "In the last week or so, I have spoken to a handful of serious buyers who have expressed interest in Magna's holdings," said Christian Johansson, the state's economic development secretary.
Despite fears in Annapolis and Baltimore that the state's largest single-day sporting event could go the way of the Baltimore Colts, some industry veterans said the Preakness was probably most valuable at Pimlico, so it would likely remain there even without state intervention.
Drawing more than 100,000 to Northwest Baltimore every year, the Preakness is so profitable that it supports Maryland's thoroughbred industry for the rest of the year, providing nearly all of Pimlico's income. The Preakness trademark is owned by Pimlico.
"I don't believe the land at Pimlico has a lot of value for alternative uses other than as a race track," said Joseph De Francis, former owner of Magna's Maryland assets, adding that the Preakness would be "more valuable in Baltimore" than out of state.
De Francis said the state's thoroughbred legacy could be more harmed if slots came to Arundel Mills mall, and, as a result, the buyer of nearby Laurel Park shut down the track and redeveloped the land.