Finally, we have a good use for Pimlico Racetrack during the long, long off-season: snow dump.  I wonder if Magna can capitalize on this, just a little - to drive up bids in that coming bankruptcy auction?

Imagine - in coming Februarys, there will be eager slots players and hundreds of people gainfully employed at Pimlico, instead of snow piles!  Oh wait...

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.          

The US Supreme Court delayed Chrysler's sale of Fiat today.  Why does this matter for Maryland?  It shows how powerful bondholders are in bankruptcy transactions.  Basically, three Indiana pension funds with Chrysler bonds (secured debt) sued and for now have won their case that they are due higher compensation.

There are potential parallels here between the Chrysler and Magna bankruptcies.  The Obama administration wants the Chrysler-Fiat sale deal to go through to restore Chrysler to viability ASAP (at least a trim version of the old Chrysler) for its larger goal of economic recovery.  In Maryland, the O'Malley administration has been pressing to block Pimlico's sale for its larger goal of keeping the Preakness there.  But in the Chrysler case, the bondholders' interest overrode the federal government's priority.  Such could also be the case if/when Magna decides again to put Pimlico back up for sale over the state objections & despite what may happen to the Preakness.  

Today's Chrysler decision reminds us that in a bankruptcy, bondholders (i.e. the direct lenders to a corporation)  have lots of power. 

As predicted in this space three weeks ago, the crowds stayed away from Pimlico in droves for this year's Preakness.  The crowd was down approximately 31% from 2008 -- a huge drop.  Attendance was the worst for Preakness in 26 years.  The infield ban on BYOB had a lot to do with it: $1 beers sold on the infield from 8 to 11AM may have soused a few early goers, but didn't make up for the crowds.   The weather wasn't great-- but not terrible either -- overcast, but no real rain until after the race.

From the Baltimore Sun piece linked above, here's an interesting tidbit on how the alcohol ban negatively impacted the local economy in one aspect - by reducing the need for clean-up workers:

Still, fewer attendees at the track meant less trash, and less trash meant fewer low-wage workers needed to help clean up. Romiti said she turned away 100 temp-agency workers early Sunday because Pritchard didn't need them. The company used about 160 workers to finish the cleanup, compared with about 250 in years past. The workers earn $6.80 an hour, she said. The crews had finished cleaning by 8:30 a.m. Sunday; in past years, they would work well past noon to get the track facilities cleaned up, Romiti said.

The Great Recession probably had something to do with the sparse crowd too, though I think the alcohol ban was more significant.  Young revelers just blew it off this year and the actual racing excitement surrounding Mine That Bird and Rachel Alexandra wasn't enough.  Horse racing on its own simply doesn't create much excitement here in Maryland in its current state.  Preakness Day still does, but not for long if this happens next year.

Preakness or no Preakness, Pimlico would be much better off if it had gaming.  I heard the governor interviewed yesterday and basically his message is that the current process needs to play out first, and he's hopeful that will work with its revenue enhancement for the racing industry.  I understand his viewpoint and he does deserve credit for finally aligning the stars to bring gaming to Maryland after a 13 year debate.  But, will it be enough?

If Pimlico (or another Maryland track that may someday hold Preakness) can get gaming, then the racing industry will be much better off -- to preserve the jobs that it presently accounts for in the state (est. over 10,000 -- but I'm skeptical about that number).  A track with slots might actually bring in customers for more than one day a year.  And the enhanced revenue would take some the pressure of the state's racing industry to make up for annual losses in a one-day extravaganza. 

Meanwhile, will the low Preakness attendance impact the track's valuation for bankruptcy proceedings?  A scenario where bidders low ball the property based on this year's gate is entirely possible.  This could ironically help the cause of keeping the race in Maryland by cheapening the price the state may pay for the property via eminent domain -- if that happens.  A bargain basement price on Pimlico may make it slightly more acceptable to Maryland taxpayers, most of whom don't care much about saving horse racing in the state.     

The past week has been a significant one for Maryland gaming, on various fronts.  We still don't have much clarity on some major issues -- but we've waited this long, so what's a few more weeks, months, (not years).  Here's a rundown, with some key questions still out there:

- Magna won court approval for its bankruptcy plan to sell of various tracks after taking Pimlico & Laurel off the auction block.  Magna's attorney noted that the company will be selling of its more "marketable" assets like Santa Anita, while holding on the Maryland tracks and others.

• Will the bankruptcy judge eventually allow Magna to sell off the tracks over the state's objections?
• Conversely, could Magna re-build from the wreckage using the Maryland tracks as its new foundation?  (hard to imagine without the prospect of slots, but possible....)
• How much might Maryland taxpayers be on the hook for if the state acquires the track and runs it indefinitely?

- the Anne Arundel County Council voted again to delay its zoning decision for the Cordish Company's proposed casino at Arundel Mills Mall.  The zoning legislation is set to expire in a month, and there's s a good chance it won't be voted on before then. 

• Could the Council be stalling while Magna pursues its legal appeal against its Laurel racino application? 
• Are Arundel anti-gaming forces strong enough to defeat the bill? 

- Preakness sales remain weak, though at least the Kentucky Derby winner will run the race.  This is meaningful for Maryland racing and the future of Maryland gaming.   The Preakness' gate is important for propping up Pimlico's value, whether for an eventual bankruptcy auction or state acquisition via eminent domain.  Maryland officials are active participants in Magna's bankruptcy -- arguing against the company's prerogative to sell the race track to the highest bidder, even if that's a shopping mall developer.   

• Will a successful race day be enough to attract private bidders without any progress on slots at Pimlico or Laurel?
• How might the new ban on alcohol brought from outside impact the revenue via depressing the infield crowd?

Whew-- that noise you just heard coming from Canada was Magna's remaining managers sighing in relief on news that Mine That Bird will run in the 2009 Preakness.  So, the Triple Crown is still possible and all the drama that goes with it still in place and people outside racing will actually be interested and tune into Pimlico.  Without the Bird horse, Magna's fortunes would have suffered even more with the race already less lucrative than last year. 

On a side note, the Preakness coverages presents a good opportunity for NBC to actually report on the state of the horse racing industry.  Locally, most people are aware of Magna's troubles and Pimlico's dicey situation, but how much is this a national story?  How much do people around the US realize that Pimlico might very well lose the track, that the Triple Crown as everybody has known for many decades may change somewhat?  Perhaps an enterprising person at NBC will take the opportunity to report on the horse racing industry's travails, the gaming issue, etc.....

Late Friday, Magna dropped Pimlico and Laurel from its list of assets on sale as part of its bankruptcy proceedings.  However, the announcement also indicated that it will still consider "all alternatives with respect to the remaining assets."  (from the Minneapolis Star-Tribune).

This is, of course, good news for Maryland officials trying to keep the Preakness in Maryland & could have something to do with the still open case that Magna has in Maryland to re-open its bid for Laurel VLTs.  As well, Magna's lenders and bondholders may not like the move if the company can't come up with their money soon; the federal judge will take their views into account. 

Meanwhile, Magna has $510 million in debt and is losing more money daily. and its upcoming money-maker isn't looking great.  The Maryland Jockey Club reports that advance Preakness ticket sales are down 17% over last year.  The little-known Derby winner may not even run in the Preakness.  That would be a big blow for interest in this year's race, possibly translating into even less gate and bringing down the track's value.  The Preakness is the only reason that Pimlico may even fetch a decent price (from a private bidder or the state of Maryland).  The perception that it is no longer a must-do for the Kentucky Derby winner won't be good for the track's valuation.

None of the above makes me any less convinced that Pimlico's ultimate salvation is in slots.  Slots will bring the investment and interest and higher purses that Maryland racing so desperately needs.  I'm not sure that industry's current share of the slots revenue will suffice to keep it viable in coming years. It is a convoluted political and constitutional process to add VLTs to Pimlico, but the sooner it starts, the better.

 Update 5/4/09) : Mine That Bird will run the Preaknes...good news for Magna.

The state of Maryland will assume eminent domain rights to acquire the Pimlico racetrack.  Yesterday, Gov. Martin O'Malley signed the fast-tracked bill into law after it cleared the Assembly on the session's last day (April 13). 

So, what's clear is that Maryland taxpayers will soon a big, not-so-shiny, rather decrepit old racetrack in west Baltimore.  What's not so clear is what will happen to it from this point.  Will the state run it at a loss for years to come, to ensure that the Preakness never leaves?  Will the state auction it off to the first bidder who guarantees keeping the Preakness in Maryland in perpetuity?  

For fiscal expediency and political purposes, the latter option is much more sensible and desirable.  Potential investors, however, may be scarce unless there's some hope that the track will have slots some day.  Right now, that's not even in the official discussion....analysts like me don't count.  This could be a decision put off until after the 2010 election, when the gubernatorial election will be over with. 

But, I hope politics don't get in the way -- again -- with regards to Maryland gaming.  The sooner slots are on the table, the sooner Pimlico will be sold off and the sooner the Preakness will be guaranteed in Maryland without a long-term financial obligation for Maryland residents.    

Update 1:  Of course, assuming the rights to exercise eminent domain is not the same as actually acquiring the track via eminent domain.  An acceptable bidder may come along in the meantime -- this just gives the state the right to move in if a likely purchaser would steamroll the joint to build a shopping center, etc. and/or sell off the rights to the Preakness.  Moreover, Magna's federal bankruptcy proceedings (filed in Delaware) may make the entire action moot.  Then there's Magna's suit-in-progress to revive its bid for VLTs at Laurel: an unlikely, but still possible variable in all these proceedings.