Golden Gate Owner Sells Racetracks

By Richard Brenneman
Friday April 04, 2008

The company that owns Golden Gate Fields is splitting from its corporate parent, whose directors have been eager to strip their successful firm of its ties with the money-hemorrhaging gambling subsidiary. 

Magna International (MI) Development announced last week that it’s shedding its majority interest in Magna Entertainment Corporation (MEC), the darling of Frank Stronach, the auto parts magnate who chairs the boards of both firms. 

MEC shares had plunged over the last year from $4.50 Canadian to 34 cents Wednesday morning, though they rose a penny after news of the split spread. 

With attendance plummeting at race tracks, Magna Entertainment has been seeking with little success to add casinos—turning them into Magna Racinos—at its tracks across the country. 

In California, Magna has teamed with Los Angeles mall developer and Republican Party major donor Rick Caruso in its quest to add upscale shopping centers with housing above in vacant parking lots at Golden Gate Fields and Santa Anita. 

Plans stalled for the local mall after project foes won the swing seats on the Albany City Council. A ballot measure opposing the track won enough signatures for the ballot but never made it to the ballot because a successful court challenge found fault with the way public notice had been issued prior to the petition campaign. 

Caruso and Stronach are forging ahead with their Santa Anita project. 


Race track reorganization 

One positive sign for the racing company is that the scale of its losses has been diminishing, from 2005’s loss of $62.8 million to $38.1 million in 2006 and $18.8 million last year, according to the company’s filings with the Securities and Exchange Commission. 

According to the company’s annual report to the SEC, Golden Gate Fields took in $442.5 million in wagers last year, with revenues of $55.7 million. By contract, the Santa Anita wagering handle was just over $1 billion, earning revenues of $145.9 million. 

MI Development’s investors, led by Greenlight Capital of New York, had pushed for the spinoff of the racing arm of the real estate investment company, citing losses by Magna Entertainment for the six straight years, which had imposed what investors called an unfavorable debt burden on the parent corporation. 

Stronach, an Austrian citizen (and good friends with former Austrian citizen Arnold Schwarzenegger) lives in Canada, and he has fought repeated battles with his boards over his costly passion for the sport of kings. 

MI Development was itself created as a spinoff when investors in Magna International, Stronach’s highly profitable car parts business, grew frustrated with picking up his tab for his racing ventures. 

Magna Entertainment became the world’s largest single owner of racetracks, owning 12 tracks, 11 in North America and one in Austria at the end of last year. Four of the tracks had ceased operations, and the eight remaining tracks include three racing legends: Gulfstream Park in Florida and Laurel Park and Pimlico in Maryland. 

Under terms of the reorganization, the racing subsidiary would be sold to a legal entity designated by Stronach, and a limited partnership he heads would buy Magna Entertainment’s debt to its former parent, with Stronach and his investors throwing in $25 million of their own. 

In a statement, MI Development’s CEO John Simonetti said that internal dissension over the racing venture had sparked disagreements among board members for the past three years. 

“The reorganization proposal, which has expressions of support from both the Stronach Group and a majority of our public shareholders, appears to offer a new opportunity to reestablish a strong relationship with Magna International,” Simonetti said.  

Part of the reorganization includes the elimination of special stock categories that had given Stronach control over the votes of public investors. 

According to the MEC annual report, as of Dec. 31 the company had a working capital deficiency of $162.2 million, with $209.4 in debt coming due during 2008. The company has four tracks up for sale and has liquidated another proposed track in Dixon and a training track in San Diego County. 


Waves hits Albany 

“This is not surprising,” said Robert Cheasty, a former Albany mayor and environmentalist who was active in the fight against the Caruso mall at Golden Gate Fields. 

“This is just the latest example of the continuing financial meltdown of the racing industry which appears to have been accelerated by the real estate woes affecting the rest of the country,” Cheasty said. “I’m not surprised MI Developments would dump the tracks as they have proved to be exceedingly poor business investments.” 

“We expect the shock waves will hit the Albany shoreline as well,” he added.