Restructuring Magna Entertainment for a Strong Future

Magna Entertainment (MECQ) is the largest owner of Horse racetracks in America.  It also owns a wagering platform, XpressBet, Casino properties connected to its tracks and other horse racing related entities.  Currently, the firm is operating under Chapter 11 bankruptcy.  It’s founder and Chairman, Frank Stronach has promised aggressive action to fix its problems.

 The horse racing industry, like many businesses, has suffered during this tough economic downturn.  Firms with excessive debt have experienced extreme difficulties, Magna is no exception.  The company had gone through an ambitious buying spree from 1999 through 2002.  During this time period it purchased Golden Gate Fields (Albany, CA), Gulfstream Park (Hallandale Beach, CA), Thistledown (North Randall, OH), Portland Meadows (Portland, OR), Santa Anita Park (Arcadia, CA), Laurel Park (Laurel, MD), and Pimlico (Baltimore, MD) where the Preakness is held.  Recently the firm sold Lone Star Park (Grand Prairie, TX) and Remington Park (Oklahoma City, OK) to the Chickasaw Nation.  Now it appears, with its bankruptcy filing, the rest of these properties are on the auction block.

 Laurel Park and Pimlico are expected to be auctioned off sometime in January 2010.  Included in the package is also the Bowie Training Center in Baltimore, MD.  Presently there are a number of bids for these prized facilities including from Penn Central Gaming.  Penn Central owns a number of racetrack facilities, racinos and casinos around the country.  What price these tracks fetch will help reduce Magna’s debt load.  More needs to be done.

 Magna should preserve its crown jewel, Gulfstream Park, in order to continue to be a viable and eventually prosperous entity.  Additionally, it should maintain its Palm Meadows Training Center in Palm Beach County, Florida.  Gulfstream is a wonderful property with additional development opportunities and a Casino.  This should be the base upon which the revitalization of Magna can be built.

 Santa Anita Park in Arcadia, California is one of the most beautiful racetracks in North America.  It should also be preserved as part of the Magna entity when it emerges from bankruptcy.  With both Gulfstream and Santa Anita remaining in the company’s portfolio it will be well on its way toward creating strong growth and income for its shareholders.

 Additional properties that should be preserved under a newly reformulated Magna Entertainment would be:

• San Luis Rey Downs (San Diego, CA)—a thoroughbred training center.
• XpressBet—its online wagering platform.
• Steufex TM—a straw based bedding product with facilities in Austria and North Carolina.

All of these entities will add value to the company’s core assets, Gulfstream and Santa Anita.

 All other racetracks should go on the auction block with the proceeds used to retire debt.  Any other excess land should also be sold off as real estate conditions improve.  It should make an aggressive move now to sell off all of its off-track betting (OTB) facilities connected to its tracks.  The online experience is rapidly gaining popularity and unless an OTB has the appeal and appearance of a race-book like they have in Las Vegas, NV.  The company should also dump its investments in other subsidiaries in a timely and profitable manner.

 Magna Entertainment runs excellent operations in an efficient and profitable manner.  They just got caught in the economic downdraft coupled with a decline in interest in horse racing.  Add to that the tremendous debt load the company took on and the seeds of failure were sown.  The entity can remain a vital operation by holding onto its prized possessions, Gulfstream Park and Santa Anita Park.  With the prescriptions above Magna can have a prosperous future.