05/06/2010 11:00PM

Penn National buys half stake in Maryland tracks


Casino giant Penn National Gaming Inc. has reached an agreement with MI Developments to buy half of Laurel Park and Pimlico Race Course in Maryland and to operate the tracks jointly, a deal that represents Penn National's latest bid to expand its slot-machine operations.

Although officials of Penn National did not return phone calls Friday, Dennis Mills, the vice chairman of MI Developments, said that Penn National paid $50 million for a 50 percent stake in both tracks. Under the deal, Penn National will concentrate on casino-type possibilities for the two tracks, while MI Developments will concentrate on developing excess real estate at the two properties, Mills said. Mills also said that both companies were committed to racing operations at the tracks as long as those operations were "sustainable, profitable."

"The key is that we are going to lean to each other's strengths," Mills said. "They've got strengths on the gaming side, and we've got strengths on the real-estate side."

The announcement of the deal comes 10 days after a U.S. bankruptcy judge in Delaware approved a reorganization plan for the former owner of the tracks, Magna Entertainment Corp. Under the plan, Laurel and Pimlico were transferred to MI Developments, Magna's largest creditor, along with a handful of Magna's other racing assets, including Santa Anita Park in Southern California and Gulfstream Park in Florida.

Penn National holds a license to operate a casino in Cecil County, Md., and although state law prohibits a company from holding more than one gambling license, the company is expected to pursue a way to sidestep or overturn the law as it participates in the aggressive effort already under way by Laurel and Pimlico to gain a casino license.

Last year, Magna's bid for the sole casino license approved for Anne Arundel County, where Laurel is located, was thrown out because the company did not include a $27.5 million licensing fee with its application. The company filed for bankruptcy shortly thereafter.

Since then, the state has awarded the Anne Arundel license to the Cordish Cos., and the county's zoning committee has approved the construction of the company's casino near the Arundel Mills shopping mall. However, Magna has funded a successful petition drive to overturn the zoning approvals and a referendum is now scheduled for the November ballot that will ask citizens to overturn the okays. Both Cordish and Magna have filed multiple lawsuits arising from the petition drive.

Penn National is one of the largest casino operators in the United States, with gambling properties in 14 states and one Canadian province. The company has already started construction on the Cecil County casino, and it expects the $100 million property to open in late 2010 with 1,500 slot machines.

The Penn National-MI Developments deal will cap a roller-coaster 12 months for the two Maryland properties. Just after filing for bankruptcy, Magna said that it would market the two tracks to interested buyers, but it dropped that plan in favor of an auction. Six bidders - including Penn National and the Cordish Cos. - submitted proposals to buy the tracks by a deadline late last year, but all of the proposals were thrown out in late March when Magna canceled the auction in favor of the asset-transfer plan.

The deal was announced on the same day that MI Developments released financial statements for its first-quarter results. For the quarter, net income was $15.1 million on revenue of $44.6 million. Last year during the first quarter, MI Developments lost $28.8 million on revenue of $197.1 million, but $152.9 million of the revenue figure was provided by Magna Entertainment and Magna's operations for the quarter also resulted in a $54.8 million loss.