International investment bank Dresdner Kleinwort Wasserstein initiated coverage of Magna Entertainment last week and promptly told investors to sell. In a June 19 report, analyst Ryan Worst criticized the Canadian racing conglomerate for overpaying on most of its racetrack properties, failing to build and maintain consistent quality throughout its racing network, and compromising the future of its tracks emphasizing acquisitions over improving what Magna already owns."A continued decline in wagering at lower quality venues throughout the industry could impact several MEC tracks and the deteriorating operations at the high quality Gulfstream Park do not provide us with confidence in the developing company's management," Worst wrote. Magna executives said they thought Worst's report was unfair on several points and were disappointed that they didn't have the opportunity to discuss them before the report was released."I think Ryan has a pretty good knowledge of the industry, but not a particularly strong knowledge of MEC," said Graham Orr, Magna Entertainment's chief financial officer who spoke with Worst for an hour and half June 21. "Ryan and others feel we have paid excessively for our tracks does not consider that many of the tracks have an excess amount of prime real estate associated with them. If you back out that excess real estate, the prices have been, we feel, quite fair."Worst's report was released several days after a Daily Racing Form article raised many of the same criticisms. The Form noted that of seven Magna racetracks that have publicly available financial histories, only three were profitable around the time they were acquired.Racing officials and analysts also told the Form they were concerned that the poor financial performances of Magna's tracks will drain cash and threaten company projects now and in the future.Orr bristled at the suggestion that Magna tracks are doing poorly, particularly at criticisms of this year's Gulfstream Park meet, which experienced a 12.7% decline in total handle, a 17.3% decrease in on-track handle, and a 7.5% decline in field size for comparable days between 2001 and 2002. Orr said Gulfstream's earnings increased despite a loss of available stalls when Hialeah Park closed and the aftermath of Sept. 11, which included a 15% drop in South Florida tourism."We have a difference of opinion," Orr said. "We have acquired some tracks for more than the race dates they present. Some of that relates to distribution and expanding opportunities for off-track betting or the probability for slot operations. We are not buying dogs."Worst noted that Magna has benefited from its XpressBet account wagering service in California, but added that future opportunities are limited. XpressBet dominates the first quarter with racing from Magna's Santa Anita Park, Golden Gate Fields, and Gulfstream Park, then suffers the rest of the year when the premier racing content shifts to tracks affiliated with the TV Games Network and Youbet.com."Our sources indicate that XpressBet's shares of the California account wagering market had started to slip even during the Santa Anita meet, to about 15% during the first few weeks of Hollywood Park," Worst wrote. "We believe this declining share clearly indicates XpressBet's shortcomings and does not bode well for the future of MEC's in-home stragegy."Andrew Gaughn, Magna's vice president of new media initiatives, said XpressBet has exceeded all the company projections. Magna expected to sign up 10,000 subscribers and has 11,000."We are on a run rate that will exceed the target of $29 million in handle for the year," Gaughn said. "We are profitable and we are making money."