01/06/2010 12:00AM

Sale of Maryland tracks delayed


An auction of Pimlico Race Course and Laurel Park scheduled for Friday has been postponed to Jan. 21 after the tracks' parent company, Magna Entertainment Corp., asked a Delaware bankruptcy judge for more time to come to terms with potential bidders for the two Maryland tracks.

Judge Mary Walrath agreed to postpone the auction at a hearing on Tuesday, when she also ruled that Magna could choose to void a side agreement that would have allowed the former owners of Laurel and Pimlico to share in any revenues from casino-style gambling at either of the two tracks. The side agreement, struck in 2002 when Magna bought majority shares in the tracks, would have depressed the value of the tracks at auction because it entitled the former owners, including Joe and Karin De Francis, to as much as 50 percent of the profits annually from slot machines if the tracks were to receive a gambling license.

Joe De Francis said on Wednesday that the group would consider appealing the judge's decision, but he also said that he "wasn't surprised" by the ruling.

"Bankruptcy courts tend to bend over backwards to allow companies to get out from under any pre-petition contracts that may have an impact on the ability of the company to market its assets," De Francis said. In addition, De Francis claimed that Magna would need to compensate the group for selling the properties unencumbered by the contract, and that his group would work with Magna to determine the amount of the compensation.

Six entities have submitted bids for the two tracks, according to officials involved in Magna's bankruptcy, including the De Francis family, and all six bidders have said that they intend to pursue slot-machine gambling at Laurel despite the state's rejection of an earlier license application by Magna. The company was disqualified from the licensing process early in 2009 when it failed to include a $27.5 million fee with its application, as required by the state's gambling authority. Magna filed for bankruptcy shortly thereafter.

Though Maryland voters approved casino-style gambling at five locations in November 2008, various projects to build casinos have been held up by the political maneuvering that commonly accompanies the slots-licensing process in states that have authorized limited casino licenses. In Anne Arundel County, where Laurel is located, the county commission on Dec. 21 gave zoning approval to the Cordish Cos. to build a casino at a nearby mall after a 10-month delay, but opponents of the project, including anti-gambling groups, Magna, and, presumably, whichever entity wins the bids for the tracks, have vowed to fight the approval. Only one gambling license is allowed for Anne Arundel County under the referendum passed by voters.

The Cordish Cos. has acknowledged that it is one of the bidders for Pimlico and Laurel, along with the De Francis family, Penn National Gaming Inc., and Blow Horn Equity Group, which is headed by Jeff Seder, the owner of a racehorse consulting company. Magna has declined to identify the other two bidders, though MI Developments, its parent company and largest creditor, is widely believed to have submitted a bid. In statements accompanying documents filed with the SEC earlier this year, MI Developments said it intended to bid on all the properties Magna planned to auction off in 2010.

Brian Rosen, the lead attorney for Magna, said the company hopes to reach a stalking-horse deal with the lead bidder for the Maryland tracks this week. The agreement will form the basis for the auction on Jan. 21, and will be distributed to the other bidders for review. He would not identify the lead bidder, but De Francis said it was "definitely" not his family's bid.

Language will also be inserted into the deal that gives the state of Maryland the right to sue any company that cancels or moves Pimlico's Preakness Stakes, the second leg of the Triple Crown, to satisfy concerns raised by Maryland legislators, Rosen said. All bidders will have to agree to the language in order to buy the tracks, according to Rosen.

The rulings on Tuesday came five days before Magna is scheduled to appear back in court to defend the ability of MI Developments to use credit in any bids for Magna's properties. Magna owes MI Developments $435 million, and both companies are controlled by Magna's chairman, Frank Stronach. Magna's creditors' committee filed a lawsuit in 2009 seeking to block any use of credit in bids by MI Developments, in an effort to ensure that Magna receives cash for its properties.

Magna, which filed for bankruptcy last March, is attempting to sell its properties at auction in order to pay down hundreds of millions of dollars in debt. The company has already reached agreements to sell Remington Park in Oklahoma and the operating assets of Lone Star Park in Texas for a total of approximately $130 million, but needs to raise possibly $200 million or more in sales proceeds - or a debt swap with MI Developments - to successfully restructure, according to officials involved in the bankruptcy planning.

Magna is scheduled to take bids on its remaining properties, including Santa Anita Park in Southern California, Golden Gate Fields in Northern California, and Gulfstream Park in Florida, on Feb. 10. An auction for the properties is scheduled to take place on Feb. 25, but most of the dates associated with the bankruptcy have been pushed back for various reasons, and it's likely that the outcome of the Jan. 11 hearing will have an effect on the scheduling.