Stronach Acquires Pimlico

The tentacles of Frank Stronach’s far-reaching horse racing combine have extended into Maryland, where Magna Entertainment’s majority purchase of Pimlico and another track gives the Canadian-based company control of the Preakness, the middle jewel in the Triple Crown.

Stronach, one of a dwindling number of industry leaders still bullish about live racing, has been rapidly buying tracks since his first purchase, Santa Anita in December 1998. The addition of Pimlico and the Preakness will give the Austrian-born industrialist more leverage in a sport that he long has felt has been crippled by misdirection.

Stronach’s purchase of Pimlico and its sister track, Laurel Park, was announced Monday in Baltimore, where officials of Magna and the De Francis family spelled out a $117.5-million deal that was months in the making. For a 51% interest in Pimlico and 58% of Laurel, Magna is paying $50.6 million in cash, plus $18.4 million to Joe De Francis and his sister Karin for an option to buy them out in four years. Should that happen, the De Francises would receive an additional $18.3 million. Magna is also assuming the two tracks’ $30.2 million in debt. Included in the deal are three off-track betting parlors and a training facility at a closed racetrack in Bowie, Md.

The De Francises, who assumed control of Pimlico and Laurel after their father, Frank De Francis, died in 1989, have shopped the tracks before, coming close to accepting an R.D. Hubbard-led deal on behalf of Hollywood Park several years ago and more recently resisting overtures from Churchill Downs.

Churchill Downs, which now owns Hollywood Park and four other tracks, has been out-maneuvered by Stronach in bidding for Santa Anita, Gulfstream Park and Pimlico. Instead of owning the first two races in the Triple Crown--the Kentucky Derby and the Preakness--Churchill, through its membership in Triple Crown Productions, is now a partner of Stronach’s, which could result in an uneasy alliance.

“This should make it fun,” said Jim McAlpine, Magna’s chief executive officer. “There should be some interesting board meetings. But we all have a common interest--the growth of racing--and if we work together, we should all prosper.”

The last race in the Triple Crown, the Belmont Stakes, is run at Belmont Park, which is operated by the New York Racing Assn. Tom Meeker, chief executive officer of Churchill Downs, couldn’t be reached for comment, but Barry Schwartz, chairman of the NYRA, said:

“The [television and sponsorship] contracts for the Triple Crown are in place, and the ground rules have been set. I wouldn’t think [Stronach] would want to upset what we have. We have no fears.”

Schwartz said that the Triple Crown is happy with the multi-year contracts it has with NBC and Visa USA, the sponsor of a $5-million bonus that would be paid if a horse swept the races.

Although the Preakness drew a crowd of 101,138 this year, second highest in its history, and the TV ratings were the highest in 12 years, the race is considered the ugly duckling of the Triple Crown. Pimlico, which opened in 1870 and, after Saratoga in upstate New York, is the second oldest track in the country, has become an eyesore, long overdue for renovations, and its neglected barn area is shabby and ramshackle.

McAlpine said that there were no plans to move the Preakness, which had its 127th running this year, to another track. Stronach is unpredictable and daring, but it would be unlikely that he could move the Preakness even if he wanted to. The state legislature has the right of first refusal to the race if it were to be sold and moved out of Maryland.

The addition of more than 200 racing dates in Maryland gives Magna almost 1,800 racing dates at its 14 tracks. Already, Magna tracks account for about one-third of the national betting on thoroughbreds. But Stronach’s off-track betting arm--and a promised racing TV network which, McAlpine said, will be unveiled later this year--need a quality year-round menu to succeed. Early in the year, Magna has the high-profile programs at Santa Anita and Gulfstream, but when they close off-track betting--including that by telephone and Internet--drops off.

Magna Entertainment’s stock, which has a 52-week high of $10.25, was off 6% Monday, closing at $6.05.

The 69-year-old Stronach has first-hand knowledge of Pimlico. He won the 2000 Preakness with Red Bullet.

“This is an important milestone in our strategic program of growing Magna Entertainment’s racing operations throughout North America,” Stronach said in a statement Monday. “We are excited about the future prospects of Maryland racing and look forward to working closely with the De Francis family.”

Along the way, the De Francises had taken on several partners. Frank De Francis led a group that bought Laurel for $16 million in 1984. Two years later, De Francis bought Pimlico for $30 million. In recent years, minority partners sought to sell their interest, but possible sales of the tracks were stymied because the De Francis children wanted to retain their management roles. Monday’s announcement said that Joe De Francis would remain chief executive officer and his sister would stay on as executive vice president.

Competing with nearby states whose racetracks have prospered because of revenues from legalized slot-machine gambling, De Francis has been unsuccessful in getting slots approved in Maryland. Other than the Preakness, Pimlico struggles, offering a second-rate stakes program and little in the way of customer amenities. Without the Preakness, it has been said, the track would not show a profit. Average daily attendance, which includes the bettors who attend the satellite facility at the track closed to live racing, is less than 8,000.

“Regarding the possibility of slots in Maryland, I gave up handicapping politicians a long time ago,” Magna’s McAlpine said. “Whether there are slots or not was not a significant issue in our going ahead with the deal. We liked the fact that the Preakness and Maryland racing are important symbols of our industry.”

Stronach has been criticized by shareholders and industry leaders for paying too much for racetrack properties, and there are those who say that he overspent in Maryland.

“They spent a lot of money for what they got,” said Schwartz of the NYRA. “Those properties have no value, other than the Preakness. Maryland just doesn’t have the greatest racing anymore.”