03/15/2011 2:23PM

Penn National seeking out of Maryland agreement

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Penn National Gaming Inc. is seeking to unload its 49 percent stake in the Maryland Jockey Club, the owner of Pimlico Race Course and Laurel Park in Maryland, according to representatives of Penn National and its partner in the MJC, MI Developments.

Tom Chuckas, the president and chief operating officer of the MJC, confirmed on Tuesday that officials for Penn had approached MI Developments recently on how the company could unwind its position in the tracks. Penn bought the 49 percent stake in 2010 in the hopes of steering a casino license to Laurel, but those efforts have proven unsuccessful.

“It is my understanding that there is interest by Penn National in extracting themselves” from the partnership, Chuckas said on Tuesday morning in a conference call to discuss the track’s financial statements from 2008 and 2009. The unaudited statements showed that the two tracks lost a combined $26 million in 2008 and 2009.

The inquiry is an about-face for Penn National, which in late 2010 said it was committed to its investment. Since then, the Maryland tracks reached a deal with horsemen providing for 146 live racing dates, a schedule that Penn National officials opposed. In addition, Penn National won an auction in January to buy a harness track in Maryland, Rosecroft Raceway, out of bankruptcy. The company already operates a casino in the state, and has said that it will press for additional licenses in the state despite a current law that limits companies to one casino.

Eric Schippers, a spokesperson for Penn National, said on Tuesday afternoon that the company has started “exploring” the sale of its stake, but that nothing has been finalized.

“We think that those assets might be better served by single ownership,” Schippers said. “Looking to the future, we think that might be better given the complications we have all experienced and with all things considered.”

In the deal with the horsemen, Maryland Gov. Martin O’Malley vowed to press the legislature to pass a bill that would allow Laurel and Pimlico to use subsidies from casinos for operating expenses instead of capital expenditures, as required in a referendum passed by voters in 2008 allowing for casino gambling. Officials for the MJC, including Chuckas, were scheduled on Tuesday to appear before a state House committee to discuss the proposed legislation.

The MJC released the financial results for its tracks just prior to the hearing, after filing the documents with the state racing commission. Despite a law requiring the documents to be provided to the commission each year, the MJC had neglected to file the 2008 and 2009 results because of the bankruptcy of its parent company at the time, Magna Entertainment Corp. The tracks were taken over by MI Developments, Magna’s parent, as a result of Magna’s dissolution early in 2010.

According to the documents, Laurel and Pimlico combined lost slightly more than $14 million in 2009, with the brunt of the loss, $11.5 million, borne by Laurel. The 2009 combined results included $2.4 million in expenses incurred by the association in its unsuccessful drive to steer the lcasino icense to Laurel, and another $2.2 million in legal costs that were largely associated with the efforts.

Under the bill being considered by the legislature, the two tracks would likely reap approximately $3.6 million this year for operating costs through the subsidies. Horsemen have also promised to contribute $1.7 million for operating costs to the tracks, for a total of $5.3 million in additional revenue.

Chuckas said that the two tracks could become break-even propositions with the redirected subsidy money. He said the losses for the tracks in 2009 were inflated because of the expenses associated with the MJC’s efforts to stop the casino near Laurel and obtain a license for itself.
“Without some of those costs, and some further modifications we made, we think we can get to break-even this year,” Chuckas said.