02/28/2006 12:00AM

Magna losses topped $100 million in 2005


Magna Entertainment Corp., the country's largest racetrack owner and operator, reported $106.3 million in losses for 2005, the company announced Monday evening, bringing its losses over the past three years to $320.3 million.

Revenues for the year were $624.6 million, down 11.1 percent compared with restated revenues of $702.5 million in 2004. The 2004 revenues were restated from $731.6 million so as not to include money from the sale of Flamboro Downs in Canada and a management subsidiary, Maryland-Virginia Racing Circuit, Magna reported. Both were sold in 2005.

In a conference call with financial analysts on Tuesday, Magna officials downplayed the losses and concentrated on the company's plan to install slot machines at Gulfstream Park in Florida and its pending sale of The Meadows harness track in Pennsylvania. The sale of The Meadows is expected to shore up the company's balance sheet as early as the second quarter this year, and Magna expects to begin taking bets on the slot machines sometime this summer.

Magna reached an agreement to sell The Meadows for $225 million in cash in November, a little more than one year after the Pennsylvania legislature passed a law legalizing slot machines but limiting the machines to 14 sites in the state, including The Meadows and seven other racetracks. The sale is contingent on The Meadows receiving a license for slot machines from Pennsylvania regulators.

Magna bought The Meadows, its account-wagering operation, and its five offtrack betting parlors in 2000 for $53 million. Company officials have said that the proceeds from the sale will go toward reducing Magna's long-term debt, which stood at $306 million at the end of 2005.

According to financial statements that were released on Monday, Magna had interest expense of $35.1 million in 2005, up 62.1 percent compared with interest expense of $21.7 million in 2004. The company owes $113.5 million to its parent company, MI Developments, in a loan that has an annual rate of 10.5 percent.

Magna borrowed money from its parent to finance the reconstruction of Gulfstream Park in Florida. The project has cost Magna $171 million so far, and Thomas Hodgson, Magna's chief executive officer, said the company planned to spend another $60 million to $65 million to prepare the facility for the installation of 1,500 slot machines this year. The majority of the machines will be installed in existing areas on the new grandstand's first and second floors, and Magna will expand the second floor by 11,000 square feet to accommodate additional machines, Hodgson said.

In a referendum last year, Magna and three other parimutuel facilities won monopoly rights to operate slot machines in Florida. In December, the state legislature granted each site 1,500 machines. Regulators are expected to award licenses to the sites in the second quarter of this year.

Hodgson said that Magna officials were disappointed that legislators did not allow the sites to operate more machines, and disappointed with the legislation's tax rate of 50 percent on gaming revenues. The revenues are intended to go to education.

"We were disappointed not to be granted 3,000 machines per site," Hodgson said, referring to the four sites in the legislation. "We are hopeful the number of machines will be increased in future years as it becomes clear that market demand exceeds supply and that the state is not maximizing its revenue for education."

In another development, Magna officials said they had formed a new subsidiary that would include Magna's domestic account-wagering operation XpressBet, the horse racing television channel HRTV, a European account-wagering operation called MagnaBet, and the company's 30 percent stake in AmTote, a bet-processing company. The new subsidiary will be called PariMax and will be headed by Joe De Francis, the chief executive officer of the Maryland Jockey Club, which is owned by Magna. De Francis said that PariMax would focus on delivering Magna's racing content to foreign countries.

XpressBet, HRTV, and the AmTote stake generated $31.1 million in revenue in 2005, according to financial statements, and had a loss before interest, taxes, depreciation, and amortization of $4.3 million. Magna's European operations, which include a racino in Austria and MagnaBet, had revenues of $12.8 million in 2005 and a loss of $19.5 million before interest, taxes, depreciation, and amortization.

Hodgson reiterated that Magna has no intention of selling its marquee tracks, which he listed as Gulfstream, Santa Anita, Laurel Park, Pimlico Race Course, Lone Star Park, and Golden Gate Fields.