Troubled Golden Gate Fields Owner Hires Leading Bankruptcy Lawyers

By Richard Brenneman
Monday November 24, 2008 - 01:06:00 PM

Magna Entertainment, the endangered parent of Albany’s Golden Gate Fields, has hired a bankruptcy lawyer and is surviving on week-to-week loans. 

But even closure of the track and the subsequent loss of revenues wouldn’t hurt the city as badly as in past years, said Albany Mayor Robert Lieber. 

While track revenues contribute between 2 and 4 percent of the revenues of the city’s general fund, Albany’s Target store contributes an even greater percentage, he said. And while the city’s school district receives an even larger share, those revenues come from parcel tax revenues which are independent of track proceeds, Lieber said. 

Known on the stock tickers as MECA, the Magna Entertainment is a spinoff of Canadian Frank Stronach’s auto parts firm Magna International and is the nation’s largest owner and operating of horse racing tracks. 

In addition to the Albany track, Magna owns Santa Anita Park in Southern California, Portland Meadows in Oregon, Laurel Park and Pimlico in Maryland, Lone Star Park in Texas, Remington Park in Oklahoma, The Meadows in Pennsylvania, Gulfstream Park in Florida and the Magna Racino in Stronach’s native Austria. 

The company also owns an off-track betting system, and holds major interests in a television distribution system and a horse racing network as well as AmTote International, which provides number-crunching services for tracks. 

The entertainment spinoff, created at the demand of shareholders of the parent company because of its consistent losses, has fallen on hard times that reflect trends in the horse racing industry, which is slowly transforming from the Sport of Kings to plaything of paupers. 

In February, NASDAQ told the company to take action or it would delist the shares by summer since that had fallen below the market’s dollar-a-share minimum. 

Magna complied, and in early July announced a reverse stock split, with each new share formed from 20 shares of the old issue. By that time, prices of the older shares had dropped to as low as 41 cents. 

The newly consolidated shares continued to follow the decline of their predecessors, and by the close of the market Thursday were trading at $1.39, a fraction of their one-time high of $35.20 and once again approaching NASDAQ’s delisting price. 

The company did receive one bit of good news this month when Maryland voters approved a ballot measure that would allow installation of 15,000 slot machines at five still-undetermined locations in that state. But the Maryland election was the only glimmer of good news on Magna’s horizon, after a brief surge in stock prices before the election, shares resumed their steady descent. 

Magna’s efforts to use some of the land surrounding its tracks have also come up short, with voters in nearby Dixon dealing a fatal blow 19 months ago when they voted down MECA’s plan to build a high tech television-friendly track adjacent to the rural Sacramento Valley farm town that would have featured what Magna CEO Michael Neuman described as a “California fair type facility ... together with mixed use retail.”  

The company took a $5 million write-down on the Dixon site in their six-month financial report released in August. The property remains on the market. 

More bad new came this month, starting with Magna's Nov. 3 announcement that a deal to sell land it bought in 2002 as a site for a subsequently abandoned planned race track had fallen through after the buyer backed out of a $16.5 million deal. 

Two days later, MECA announced third quarter losses of $48.4 million, bring the year’s total losses through Sept. 30 to $116.1 million, compared to $70.8 million for the same period of 2007. 

One major source of losses was the discontinuation of the company’s Magna Racino operations—MECA’s first venture to combine tracks and slot machines. The company took a $29.2 million loss on the Racinos. 

“Although MEC has a strong asset base, we remain burdened with far too much debt and interest expense,” Stronach said in a statement released with the report. The only bright spot for Stronach’s California operations is an increasein revenues of $3.1 million from Golden Gate Fields—but only because of a 10-day expansion of the track’s racing schedule. Average daily revenues at the track actually declined slightly. 

That same report included the announcement that Magna “has engaged Miller Buckfire & Co., LLC ... to review and evaluate various strategic alternatives including additional asset sales, financing and balancing sheet restructuring opportunities.” 

In other words, Chapter 11 bankruptcy protection—the firm’s specialty. 

Even more bad news came Monday, when Magna announced it that it had only been able to obtain an 11-day extension of the company’s revolving credit line with the Bank of Montreal. 

Horse racing has fallen on hard times, and attendance at tracks has dwindled—another concern for Albany, which collects revenues from bets placed at the track itself but not from the far larger number of wagers off-track. 

As one solution to Magna’s declining revenues, Stronach’s company has partnered with Los Angeles mall developer Rick Caruso. 

A proposal to build one of Caruso’s “lifestyle centers” at Golden Gate was torpedoed by Albany voters, despite Caruso’s promises that the venture would bring at least $2 million a year of new revenues into city coffers. 

While the Albany plan foundered, the Santa Anita mall had been moving forward with what Caruso’s company calls “825,000 square feet of one-of-a-kind shopping, dining and community space” located in “24 acres of richly landscaped plazas.” 

According to Caruso’s web site, that opening is now slated for Fall 2010. 

But Lieber said that date is now in dispute, given a July ruling by Los Angeles Superior Court Judge James C. Chalfant. 

“Their whole EIR was thrown out,” he said, referring to the environmental impact report required by state law which must examine a whole spectrum of physical and cultural impacts arising from creation of major construction-related projects. 

Chalfant’s 59-page ruling was slightly narrower than an outright dismissal of the document. He found the EIR deficient on 11 specific grounds, including traffic mitigation and air quality, and ordered the Arcadia City Council to set aside its earlier approval of the document and recirculate a revised document that addresses the deficiencies he cited.