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Chris Gardner/AP
Pimlico race track

Horse Racing Giant Magna Files for Bankruptcy, Looks for Buyers

March 05, 2009 06:00 PM
by Denis Cummings
Magna Entertainment, operator of racetracks such as Pimlico, Santa Anita and Gulfstream Park, has filed for Chapter 11 bankruptcy.

Magna Files for Bankruptcy

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Magna Entertainment Corp., the biggest operator of racetracks in North America, filed for protection under Chapter 11 of the U.S. Bankruptcy Code Thursday. The Ontario-based company is seeking the same recognition in Canada.

Magna Entertainment, formed in 1999 when it was spun off from auto parts company Magna International Inc., took on large amounts of debt buying and developing tracks even as the profitability of racetracks declined. Since 2006, the company’s financial statements have carried a warning that “its future as a going concern is in substantial doubt,” according to The Globe and Mail.

The economic downturn has led to declining revenues for the horse racing industry. “Wagering on U.S. horse races fell 11.6 percent in February from the same month a year earlier, according to Equibase Co. … Betting on U.S. races totaled $999.8 million last month, down from $1.131 billion in February 2008, Equibase said this week,” reports Bloomberg.

“MEC has previously pursued numerous out-of-court restructuring alternatives,” said chairman and CEP Frank Stronach in a news release announcing the bankruptcy, “but has been unable to complete a comprehensive restructuring to date due, in part, to the current economic recession, severe downturn in the U.S. real estate market and global credit crisis.”

Magna said that it has arranged a six-month debtor-in-possession financing agreement for $62.5 million with subsidiary MI Developments Inc. It will “continue to operate the business uninterrupted” as it proceeds through the bankruptcy process, according to Stronach.

Analysis: Potential buyers

There are rumors that Magna may be purchased by Churchill Downs Inc., with whom it operates horse racing television channel HRTV. The operator of Churchill Downs and three other racetracks, Churchill Downs Inc. recently reported that its 2008 net revenue improved over 2007 despite the economic downturn.

It “has a strong balance sheet with only $36 million in long-term debt—compared to total assets of $609 million—and could likely receive a line of credit despite the economy’s problems,” reports Matt Hegarty of the Daily Racing Form.

Another candidate to buy part of Magna’s holdings is Internet entrepreneur Halsey Minor, who has been trying to buy Hialeah Park Race Track outside of Miami. Minor had proposed buying Magna Entertainment’s debt from Magna International, but was rejected.

Reference: Horse Racing Guide

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