Updated on 09/16/2011 7:48AM

Magna gets piece of Crown

Jim McCue/Maryland Jockey Club
Joe De Francis (above) of the Maryland Jockey Club and Magna's Jim McAlpine announce the sale of a majority interest in Pimlico and Laurel.

Magna Entertainment has reached a complex agreement to buy a majority interest in Laurel Park and Pimlico Race Course, officials from Magna and the Maryland Jockey Club, which operates the tracks, announced Monday.

The deal, which ended months of speculation and negotiations, will give Magna a 51 percent stake in Pimlico and a 58 percent stake in Laurel Park. It will also provide 220 live racing days and a Triple Crown track to Magna's growing empire. Pimlico annually hosts the Preakness Stakes, second leg of the Triple Crown and by far the biggest money-maker for the MJC.

"It's a great thrill for us to become part of the Triple Crown and the Preakness in particular," said Jim McAlpine, the chief executive officer of Magna.

Officials said they expected the deal to close this fall.

Under the deal, Magna, which already owns nine racetracks and has pending deals to buy two more, will pay $50.6 million for its interest in the two Maryland tracks. Also, Magna will pay $9.2 million each to Joe De Francis, the MJC's chairman and president, and his sister, Karin, an MJC executive vice president, for options to acquire their interests in the two tracks.

If Magna exercises the options, then the company will pay them an additional $18.3 million. The options will last for one year, beginning four years after the deal closes.

"I could not be more thrilled or excited" about taking on Magna as a partner, Joe De Francis said at a news conference Monday at Pimlico.

De Francis will remain responsible for all the "day-to-day operations" at the two tracks under a side agreement that De Francis said he reached with Magna. De Francis declined to offer details about the agreement. De Francis will also continue to serve as the MJC's director of Triple Crown Productions, a company co-owned by the MJC, Churchill Downs, and the New York Racing Association, the three tracks that hold the Triple Crown races.

Magna officials said they valued the two tracks at $117 million, a figure that includes $30.2 million in debt. McAlpine said the tracks generated $9 million in 2001 in earnings before interest, taxes, depreciation, and amortization. Last year, the MJC had total earnings of $1.5 million. Laurel had losses of $2.38 million while Pimlico had earnings of $3.88 million.

McAlpine said that Magna expected to make major renovations at the two Maryland tracks, but he declined to be specific. McAlpine said that he would identify a list of priorities with De Francis over the next several months.

Because of an additional layer of complexity to the deal, related to the structure of the general partnership that owns Laurel, Magna will be responsible for 79 percent of the profits or losses from Laurel, even though it has only a 58 percent equity interest in the track.

Aside from a small stake it is buying from Karin and Joe De Francis, Magna is buying the racetrack shares from Leucadia National Corp., a New York investment firm; Martin Jacobs, the MJC's general counsel; and the Laurel Guida Group, a partnership. None of those groups will own any part of the MJC after the close of the deal.

The former partners will remain involved with the MJC through a joint venture the groups have agreed to start that would push for slot machines in Maryland and share any profits from expanded gambling at Maryland tracks. De Francis and McAlpine declined to offer details about how the partnership would work and how any profits would be divided.

Leucadia bought a 47 percent stake in Pimlico and a 50 percent stake in Laurel in 1998, betting on the possibility that slot machines would be introduced at the tracks. Slots, though, have failed to gain support from legislators, and Leucadia has increasingly grown dissatisfied with the return on its investment.

Magna, which has plans to launch a television channel later this year to broadcast all of its racing signals, now has deals pending for four racetracks. Earlier this year, the company reached a deal to buy Lone Star Park for $99 million, and just last month it announced an agreement to buy Flamboro Downs in Ontario, Canada, for $47 million.

The Maryland tracks and Lone Star both have long-term contracts with Television Games Network, the live horse racing and wagering channel that would be a direct competitor to Magna's channel. The agreements prohibit the tracks from broadcasting their races into the home over any other system and bars many account-wagering services from offering betting on their signals.

McAlpine declined to comment on what Magna's plans are for the contracts. TVG officials also would not comment on the situation.

Magna's racing empire is by far the largest in the country. The company owns Santa Anita Park, Golden Gate Fields, and Bay Meadows Race Course in California; Gulfstream Park in Florida; Thistledown in Ohio; Remington Park in Oklahoma; Great Lakes Downs in Michigan; Ladbroke at the Meadows in Pennsylvania; and Multnomah Greyhound Park in Oregon. The company also operates Portland Meadows under a lease agreement.

Magna's stock fell 39 cents on Monday, or 6 percent, to $6.05. A series of large trades in the afternoon following the announcement contributed to the decline.