Magna removes Maryland's thoroughbred racetracks and Preakness

Daily Record, The (Baltimore), May 4, 2009 by Liz Farmer

In a last-minute move, Magna Entertainment Corp. has taken Maryland's thoroughbred racetracks and the Preakness Stakes off the auction block, but city and state officials remain cautious about the future of those properties here.

Magna, which had included Laurel and Pimlico racetracks and the Preakness in its list of assets it wanted to auction, has removed those properties from its assets up for sale in its revised auction procedures proposal submitted late Friday afternoon.

The properties belong to the Maryland Jockey Club, which was the Magna asset removed from the auction proposal. The Bowie Training Center in Prince George's County is also no longer up for auction.

"We are still looking at our alternatives with respect to those assets, and it is unclear what value can be generated," said Magna's attorney, Brian S. Rosen of Weil, Gotshal & Manges LLP in New York. "Pimlico, with the Preakness, for 364 days a year it lives on that one day a year, and we're trying to see if there something else that can be done to those assets."

That includes looking at slots options and further discussions with the state, Rosen said.

Shaun Adamec, a spokesman for Gov. Martin O'Malley, said the development was "a potentially positive sign" and the governor is "prepared to work with Magna and all other potential buyers to reach an outcome that preserves the tradition and economic vitality" of horse racing in Maryland.

Magna is still open to selling the properties, Rosen said.

"We can enter into a purchase agreement at any time," he said. "We just don't necessarily have to sell them during the bankruptcy reorganization."

Lone Star Park in Texas, Remington Park in Oklahoma City and Santa Anita in Southern California are still included in the auction, which Magna has asked to take place later this summer in New York.

A hearing on those procedures is scheduled for Monday in the U.S. Bankruptcy Court of Delaware.

City Solicitor George Nilson called the change a "helpful development" for Baltimore.

"The situation for our tracks is somewhat more complicated than just selling assets and other real estate," he said, referring to the uncertain future the bankruptcy has created for Preakness.

As part of a reaction to the possibility that the coveted race, the second leg of the Triple Crown, could leave the state, O'Malley signed a law last month that allows Maryland to seize Pimlico Race Course by eminent domain. Baltimore city officials have also been exploring ways to save Pimlico and the Preakness, such as registering the track as a national historic landmark.

Magna responded to the state's action with a court filing that said the eminent domain law would have a "chilling effect" on Pimlico and would inhibit the sale process, although Rosen would not say if those moves were the cause of Magna's decision to remove the Maryland properties from the auction.

But Greg Cross, who is representing Maryland in the case, noted that the eminent domain law simply authorized the funding for Maryland to pay for the track if it were to seize it.

"It's nonsensical to say that enabling legislation to pay a fair market value for the property in anyway chilled the bid," he said.

Cross, of Venable LLP, was ambiguous about whether Maryland would continue with plans to submit a bid.

"We are going to continue to be active in protecting the state's interest in Preakness and horse racing in Maryland and we will actively pursue our interests," he said.

Magna, a Canadian-based gaming company, revised its auction proposal after parent MI Developments Inc. announced last month it was backing off as the stalking horse bidder for some of Magna's assets. A stalking horse bid is an initial bid on assets from a buyer of the debtor's choosing.

The stalking horse agreement, filed with Magna's Chapter 11 declaration on March 5, had MI Developments offering $195 million for Magna's interest in tracks in California, Florida and Texas and XpressBet, Magna's account wagering company.

But MI Developments said last month it was abandoning its initial offer in response to objections filed by creditors and potential bidders that questioned its close financial involvement.

Nine parties filed an objection to those originally proposed auction procedures, including the state of Maryland, PNC Bank and the City of Baltimore.

PNC Bank called for the sale to be expedited, claiming the Maryland Jockey Club properties would yield more value if they were sold before this year's Preakness.

The city and state's objections were proprietary, including the state's request that the court reaffirm its right of first refusal to Preakness.