Despite reaching no agreement for a "stalking horse" bidder, Magna Entertainment will move ahead with its auction of Pimlico, Laurel and the Bowie Training Center on Feb. 23.  No "stalking horse" means no low bidder to establish a floor for bids, meaning the assets could end up going for a mere pittance: similar to how the Atlantic City Tropicana ended up being sold for $200 million to the Carl Icahn group in bankruptcy auction last year. 

Of course, there's been all sorts of speculation that the price will reflect the bidders' projection for possible gaming revenue in the future: a prospect that would appear remote right now.  Even if the anti-Arundel Mills people get their referendum legally established, even if they then win it, and even if they win some future lawsuit that blocks the project, the Arundel site license would be re-bid with no guarantee that Laurel would end up with gaming.  Pimlico could possibly end up with slots too, in a scenario that involves re-writing the statute that currently defines the Baltimore location: another remote prospect. 

I wasn't surprised to hear last week that the opponents of Cordish's Live! casino at Maryland's Arundel Mills Mall submitted the required number of signatures last week to move forward on a local referendum to overturn the zoning approval.  Funded by the Magna-affiliated Maryland Jockey Club, of course they would get signatures still hoping for a switch to Laurel racetracks. 

But, of course, there may be some problems with the signatures and Cordish intends to challenge the process legally.  Certainly makes sense given the substantial investment it has in the project already - and long-term interest in the property:

Joseph Weinberg, a managing partner at the Cordish Cos., said that there are "massive irregularities" in the petition drive. "Upon review, we are confident the referendum will be struck down as both legally invalid and lacking in the requisite valid signatures," Weinberg said.

So who knows at this point whether the referendum will actually come off, based on the coming legal investigation and what may happen consequently.  Of course, the anti-Cordish crowd already has a history that lacks some credibility: for months we heard that they were going to sue if zoning was approved based on some homeowners covenants of people living near the mall.   And they used that threat at every opportunity to try to block zoning, to try to block license approval and lost.  So far, at least, I know of no suit that has been filed along these lines, suggesting that it was basically a failed bluff the whole time.  Maybe some people thought they had a real case, only to find out that they didn't really have one.

So, what does the episode tell us, thus far in the process (a process that is far from complete)?  Here are two key points:

• gaming opponents and NIMBY-types can be shrill and misguided in their rhetoric, but still make a significant impact- gaming companies need to confront this opposition early and with all available resources
• in a closed gaming market like Maryland's, competition for limited site licenses will lead to collusion between gaming opponents and gaming interests in local situations such as Anne Arundel

From the Bloodhorse:

A Delaware bankruptcy judge Jan. 5 agreed to postpone Magna Entertainment Corp.'s sale of two horse racing tracks in Maryland and rejected a bid by the former track owners to lock up slot machine gambling rights at one site. Magna attorney Brian Rosen told Judge Mary Walrath that an auction of the assets of the Maryland Jockey Club, including Laurel Park and Pimlico Race Course, was being postponed from Jan. 8 to Jan. 21. The postponement came after attorneys for Maryland argued in a court filing Monday that Magna has not complied with an agreement promising that all bidders for the Maryland assets would be required to keep the Preakness Stakes (gr. I) at Pimlico, the second horse race in the Triple Crown, in Maryland.

 Apparently, Magna's potential bidders haven't formally agreed to keep the Preakness in Maryland to the state's satisfaction yet, and the state's attorneys are concerned.  As well, the Francis failed in its bid to gain any proceeds on any eventual gaming revenues from Pimlico or Laurel.

The last point stemmed from the 2002 profit-sharing deal that the DeFrancis family (via Maryland Jockey Club) and Magna made over future gaming.  Now, that's basically moot with Cordish's Maryland Live! casino project fully approved and moving forward in Anne Arundel. 

That deal never made much sense to me from Magna's financial perspective, and it intertwined gaming and Maryland horse racing from that point to some Marylanders.  That didn't help the cause of a successful gaming launch in the state, as the racing industry spiraled downwards between 2002 and 2009.    

Meanwhile, the Jockey Club is behind the rear-guard, petition effort to get a referendum up to block the Cordish casino in Anne Arundel County.  Right now, I think the prospect of that project stopping is remote.  

In Maryland and neighboring states, casino gaming and horse racing are intimately connected.  Many of the new gaming sites in the mid-Atlantic are actually racetracks that were retro-fitted with gaming, such as Delaware Park (Wilmington, DE) or Charles Town Races and Slots.  Or, gaming revenues are specifically directed to horse racing, such as for purse enhancement or track maintenance, as in Maryland, Delaware and Pennsylvania. 

That's understandable vie the gambling connection, though it also props up the fortunes of the regional racing industry: Delaware and Pennsylvania purses are almost entirely based on gaming revenues at this point.  Or, in other words, gaming subsidizes mid-Atlantic horse racing, just as the federal government subsidizes farmers around the country to grow or not grow certain crops.     

Today's news that there are actually six bidders for Magna's Maryland tracks & facilities (Pimlico, Laurel, et. al.) is good news for the racing industry, though its implications for long-term independence as a recreational activity remains unclear.  There's apparently enough interest in the bankruptcy auction, with accordant fire sale prices, for the sites to maintain Maryland racing. In all likelihood, this means the preservation of the Preakness Stakes at Pimlico in Baltimore.  Maryland's political leadership is probably smiling today -- maybe not so much concerned with the controversial use of eminent domain to buy the tracks, as the legislature enabled last April. 

And, whilst Laurel may yet end up with gaming according to current Maryland statute, there's a strong possibility that it won't.  So Cordish, Peter Angelos, and the DeFrancis family may yet wind up with fading, deteriorating tracks with no strong possibility of gaming (though a cash infusion when gaming begins in Maryland).  The auction is scheduled for  January 6-- supposedly (!) the Anne Arundel County Council will vote on Arundel Mills zoning on Dec. 21: will there be as many serious bidders if the council approves Cordish's proposal? 

Cordish's interest certainly looks like a hedge against a nay vote in the council, though Baltimore-based Cordish may have a sincere, hometown interest in the Preakness & Maryland racing.  If Cordish's Arundel Mills Live! casino does receive its zoning approval, then we'll see how many bidders actually go through to the auction in a serious way - that is with competitive bids actually designed to win the auction.  If not, the auction will be more about gaming prospects than racing: for the prospect of an open Arundel gaming site could very well be the entire attraction here, not so much the prospect of preserving Maryland's historic horse racing industry and culture.          

2009 will be partially remembered in Maryland gaming for a confounding cycle.  Every couple months, we seem to have the same thing in Maryland: a showdown in Annapolis when the Anne Arundel County Council meets to (perhaps) vote on a zoning bill for the Cordish Company's Arundel Mills - Live! - casino.  Perhaps -- because the bill has been pulled a number of times already before a vote and there's certainly plenty possibility that this could happen again.  But, maybe this time, we will actually have a vote, with the Location Commission on record giving tacit approval to the plan.  In fact, the Location Commission will also vote tomorrow on the Cordish plan, but has already given an unofficial approval: no drama there. 

Yet, there's a competing plan on the agenda as well & anything could happen with one councilperson recently recusing himself from the vote.  Undecideds still hold sway, apparently. The good news is that no one seems especially concerned by the all-but-promised homeowners' lawsuit if the council approves the voting, so that's good news for actually developing this casino if/when zoning is accomplished.  That will depend on various courts issuing injunctions to stop development: a questionable prospect. 

In listening to various points made by the opposition, I've been struck by something I've heard repeatedly: that the Arundel Mills casino shouldn't have be approved, because referendum voters expected slots at Laurel Racetrack.  In today's Baltimore Sun article, we read it again:

And many had expected that Laurel Park would house the slot machines that would revitalize the faltering horse racing operation there.

This argument is spurious: there was never any guarantee of that, it was never in the legislation, nor did any supporter ever suggest it was automatic.  And, anyone following Magna's deteriorating finances in 2008 (perhaps...Anne Arundel residents?) would realize that even if Magna came up with a viable bid (which it didn't), competition for the license was a strong possibility, a desirable possibility.  This is a disingenuous argument put forth by the NIMBY opponents. 

With Cordish's plan judged to be sound, its finances clearly solid, Maryland voters really deserve this casino-- with its golden location.  That secures maximum revenue for the state's educational system, the racing industry and a great boost to the regional economy. 

(Full disclosure: I've officially supported the Cordish plan in my capacity as a consultant with the Maryland Gaming Association).  

Good news on a lot of fronts for Maryland: Magna Entertainment has agreed to require bidders for its Maryland racetracks to keep the Preakness in the state, according to www.bloodhorse.com.  This takes a significant issue off the table for concerned pols like Gov. Martin O'Malley, secures for Marylanders their horseracing legacy and supports Maryland ownership of Pimlico and Laurel. 

An interested Maryland-based firm (such as the Cordish Company) will probably be more interested now and gain an upper hand.  This will hopefully preclude the state's coming in to exercise eminent domain and/or its dubious "first refusal" claim to screen potential buyers of the tracks. 

From a gaming perspective, of course its better to have the state as minimally involved in actual ownership of facilities as possible.  Hence, this creates a potential upside to the possibility that Cordish's Live! casino at Arundel Mills won't be built to local opposition and the Anne Arundel County Council's failure to grant it zoning approval.  If Arundel Mills goes down, Cordish could end up with a nifty racino at Laurel (where many expected gaming in the first place).

Magna has requested a Jan. 8, 2010 date for a bankruptcy auction of its Maryland assets (Pimlico, Laurel & the Bowie Training Center).   If the federal judge accepts this proposal, the A-A County Council & Location Commission will have gained about three months to vote thumbs up or down on the Arundel Mills proposal.  Of course, no action by then is probably as good as a nay vote, thus clearing the way for a Cordish play for Laurel and gaming there.  However, this also opens up Laurel to other potential gaming operators: making it more lucrative, thus helping out Magna.  Of course, Maryland's high tax rate and statutory limitations on gaming may preclude much other interest.

According to the Baltimore Sun, the Maryland Supreme Court basically just passed the buck on Magna Entertainment appeal to have its application for a 4,750 VLT operation at Laural racetrack.  In doing so, the court probably ended Magna's gaming hopes in Maryland and cleared a major legal obstacle for the Cordish Company's application for a casino adjacent to the Arundel Mills Mall.

The court just ruled that the state's Board of Contract Appeals is the proper venue for the appeal, not the Maryland Supreme Court.  But, according to the Sun, this board can not act until after the Location Commission awards the site licenses this fall:  

The Court of Appeals ruling on Monday forces Laurel Park to wait until the commission awards licenses before the track owners can mount another legal challenge against what they characterize as a flawed process. The court found that the state Board of Contract Appeals has jurisdiction in the matter, and that only a final decision from that body could be contested in court.

This is a big setback for Magna - no doubt.  Technically, the company's case is still open, but a scenario where the Location Commission awards a license and then the board rules for Magna seems rather unlikely.

Tip O'Neill supposedly declared that all politics was local. Nowhere do we see this more with regards to gaming in Maryland.   In Maryland,  local politics probably blocked gamng at the two best sites (Pimlico & Prince Georges County) and a complicated political process is currently delaying the potentially most lucrative casino.  Now, the statutory requirement that the casinos gain independent local zoning approval is causing all sorts of fun.     

I'm hoping that the process to develop Maryland's 4,750-VLT casino in Anne Arundel County won't turn into another Philadelphia story.  But, right now I'm not feeling particularly sanguine that it can be avoided.  Last night, the bill to approve zoning for the Cordish Company's proposed casino was withdrawn by the County Council, which is short a member after its chair was bumped up to the state Senate last month.  This means there will need to be a whole new bill drafted, vetted and opened up to public testimony - a process that will maybe (maybe!) begin in August or September.  That process will probably take at least a month or two, if we're lucky..... 

Meanwhile, anti-gaming forces are organizing and showing up -- some kids in tow -- to try and block the Arundel Mills casino.  At last night's hearing, there were lots of anti-gaming folks complete with stickers and uniform red shirts, but no parallel show of support from any grass roots pro-gaming folks, in stark contrast to a session in May.     

And, we still don't know who the new council member will be: a crucial choice given that the council is splt on the zoning bill at present.  Hopefully we'll know soon -- maybe as early as next week. 

Then, there's the continuing saga with regards to Magna Entertainment-- the bankrupt parent company of Laurel & Pimlico racetracks.  Now, one of Magna's hedge fund creditors has formally requested an investigator to look into Magna's financial relationship with MID (Magna's parent) and Magna CEO Frank Stronach's other  company -- he's also CEO of MID.  Meanwhile, we're still waiting to hear the Maryland Supreme Court's verdict on whether Magna's application was unfairly rejected by the Location Commission.  

So -  what's going to happen?  There's still a very real possibility that council will reject the Arundel Mills zoning, leaving Cordish with a choice to battle it out in court or invest gaming capital elsewhere.  As for Magna, if the company wins: possibly a new application or partnership and application for the Arundel site.  If it loses, its Cordish's bid or nothing & if Cordish doesn't get Arundel Mills zoning, then nothing -- meaning a re-bid process, perhaps...dragging this thing out much, much longer.

Sigh.  The deadline is looming for bids (July 1), and there are still no takers for Bader Field, according to the Press of Atlantic City.   Councilman Dennis Mason sums it up in a comment to Press reporter Michael Clark: "There's never any news...There's nothing out there."  According to the article, this isn't necessarily bad news for Mayor Lorenzo Langford, who may have other plans for the property that he's waiting to present -- though that's far from clear.

Obviously, the weak economy is a factor in the lack of gaming interest for the site, but this is also related to Atlantic City's especially dramatic decline.  Not all gaming destinations are so bereft of new development capital -- this seems to depend on circumstances. Just two weeks ago, Penn National announced that it was expanding its bid for a Kansas City-area casino, such that that project will now cost $564 million.  Not long ago, the company was looking to develop a parcel in AC: but has clearly shifted away. 

So far, Penn National has not upped its development proposal for Cecil County, Maryland-- currently at 500 VLTs, some 2,000 less than the maximum for that site.  However, the company apparently made some inquiries into Laurel Racetrack -- probably monitoring the ongoing zoning deliberations holding up Cordish's Arundel Mills bid and Magna Entertainment's efforts to legally overturn the Location Commission's rejection of its application.  Hopefully, (hopefully!) we'll have more clarity soon on both of those processes.

What's the point? The point is that Penn National -- with its supposed $1.5 billion of capital available - is carefully studying potential bid sites and not willing to plunk down the cash without a very good chance of success.  Thus far, Kansas made the cut whilst the company appears to be in a very different circumstance with regards to Atlantic City (and its current Maryland bid).

Magna Entertainment's attornies had their day in front of the Maryland Supreme Court today to argue why Magna's application for the VLT license at Laurel should be considered.  Basically, the argument boils down to the notion that Magna (Laurel Racing) should not be penalized for submitting its $28.5 million application fee a day late because there was ambiguity as to whether the fee would returned if the bid was unsuccessful.  From an AP report, via the Baltimore Sun:

Michael Berman, an attorney for Laurel Racing, argued before the Court of Appeals that Laurel Racing did not submit the license fee because the law did not adequately guarantee a refund if a state commission did not grant the license. He said the lack of clarity was a big concern, considering the amount of the fee.

The state's response is that Magna could have asked the question before the Feb. 2 deadline, but did not.  What matters-- according to the state assistant attorney general - is that Magna didn't put up the fee on time whilst other bidders did so.  From the article referenced above:

But Austin Schlick, an assistant attorney general, emphasized that the money is refundable and that Laurel Racing failed to raise its concern about whether the fee was refundable before a February deadline. Schlick said Laurel Racing mentioned "market reasons" for why it wasn't submitting the fee.

I do know that the Maryland Lottery did do outreach to potential bidders and accepted specific questions ahead of the deadline-- electronically & in person.  However, the ambiguous statute is a problem -- but the fact that it did not stop the other bids is a significant argument for the state.   Also, judges don't operate in isolation chambers and Magna's bankruptcy could easily enter into this judgment, even if it isn't directly applicable in a legal context.  Magna could pull this out for Laurel somehow, but superficially its not really in the state's interest to give a VLT license to a company in bankruptcy, especially when it is competing with a better-financed operation AND one with casino development experience (Cordish -- Hard Rock Tampa Bay & Hollywood in Florida).     

Later, the AP article also noted that "the national recession and a credit crunch" caused the disappointing and incomplete bids.  I don't disagree with that, but it is only a part of the story: many people gaming will also tell you that the state's 67% tax rate also impacted the bidding process.

I'm not too sure when the Supreme Court's decision will come down, but it may be just before or after a key Anne Arundel County Council meeting where Cordish's zoning permit may finally be voted up or down.  So, hopefully we'll have more clarity on the 4,750 VLT Anne Arundel  casino - one way or the other --   by mid-July.

Update 1: According to a late article by the Sun's Laura Smitherman, one judge "repeatedly asked if lawmakers discussed the issue, which isn't directly addressed in statute."  That actually sounds good for Magna...