The March issue of The Equiery, featuring Tim Capps' unblinking, sobering assessment of Maryland racing after Magna Entertainment Corporation blew their bid for slots, had barely hit the streets for a few days when the news was announced that Magna had filed for bankruptcy, turning a sobering assessment into a grim prophecy: "The unthinkable has happened: no Thoroughbred track in the state will get slots, suggesting a gloomy future for those tracks, especially given Magna's likely terminal state."
The above headline, minus the word perhaps, was the title of a book written some years ago about the near-death struggles of the American steel industry, especially those of Bethehelm Steel, whose largest production facility during the company's heyday was, ironically, at Sparrows Point in eastern Baltimore County, a heartbeat from the city line and employer, at its peak, of more than 30,000 people.
|It couldn't go wrong, could it? Could it?
Four months later, it has gone wrong, terribly wrong. The high tax rate and license fees dampened investor enthusiasm for Maryland slots, leading to miserably skimpy proposals for each of the five sites established in the statute, and, of supreme importance to Maryland racing, the inability or unwillingness of Magna Entertainment Corporation, owners of Laurel and Pimlico, to pay the required license fee up front, which led to their application for slots at Laurel to be rejected. As we write, their first attempt to get that rejection overturned in a local district court has also been rejected, which they will, lacking other options, appeal.
Dumping copious amounts of jet fuel on the fire, of course, was the long-predicted bankruptcy filing of Magna Entertainment, which took place during the first week of March and throws race tracks and other Magna properties across America in the arms of a Delaware bankruptcy court and, eventually, a trustee who will try to raise as much money as possible through asset sales to pay off Magna's bottomless pit of debt. Without question, in the present depressed economic environment, Magna's debt far exceeds the value of those assets, which include race tracks in seven states, an account wagering company, a racing television network, a couple of training centers, and the venerable AmTote, the country's oldest supplier of wagering equipment to race tracks.
A bizarre twist is that the Magna development company, MID, which Magna chairman Frank Stronach has tried to use as a tool to prop up MEC since the debt load began to threaten the company's solvency a few years back, is apparently bidding on certain assets of MEC, though those don't include the Maryland tracks nor Santa Anita and Golden Gate in California.
To go through a voluntary Chapter 11 bankruptcy, which presumes business operations continue while the bankruptcy proceedings (including asset sales) go forward, a company has to arrange a loan to facilitate those on-going operations, and Magna's $62.5 million loan is being challenged by some creditors who clearly see that as a way to avoid liquidation and the resultant paydown of debt.
It is, in a massive understatement, a mess, and the outcome for Maryland racing is extremely cloudy. The most important asset the Maryland tracks own, and perhaps MEC owns, is the Preakness, and its future in the state has already brought about handwringing among state officials and many others who now understand that the wolf really is at the door.
There is no justification for keeping Laurel and Pimlico open for racing purposes without the Preakness. The tracks lose money even with it; contemplating life without it, for a prospective track operator's vantage point, is a non-starter. And, it is likely that the Preakness, even in challenging economic times, will draw interest from other track operators around the country if it becomes clear that the trustee would entertain separating it from the ownership of the tracks, which might happen for purely economic reasons (it is one asset with substantial economic value that is unencumbered by facility or location constraints).
Alternatively, it is unthinkable that the Preakness leaves its home base, and there will be lots of interested parties, including horse owners and breeders, who will want to take a look at the MJC's books and try to find the makings of a deal that will work economically. Problem is, if you lose money with the Preakness, how do pay anything for the assets Preakness included and still create a viable business structure?
One scenario would be that Maryland Thoroughbred racing ends up being confined to a short meet at Pimlico in the spring and perhaps another at Laurel in the fall, with year-round simulcasting and the Preakness intact.
That might be better than nothing, but not much. The breeding and racing world in Maryland, under that model, would become a desert outpost, barely on the racing industry's radar screen. The once proud tradition of horse racing and breeding in the state would be a thing for the history books, and the sport would be reduced to a Sparrows Point type of existence.
The wolf, sadly, has finally come.
© The Equiery 2010