Magna Entertainment Co. announced "disappointing" second-quarter earnings Aug. 9 that included a $23.4-million loss during the financial period and outlined new initiatives to help reduce mounting debt that has haunted the racetrack operator.
Included in what MEC chairman Frank Stronach called "drastic action" are the planned shuttering of racing operations at the company’s Magna Racino facility in Austria and the halt of plans for racetrack development of Michigan Downs in Michigan and Dixon Downs in California.
"We are extremely disappointed with the second-quarter results. We recognize that immediate and drastic action is required, and we have commissioned a strategic review of the company," Stronach, who is also Magna Entertainment’s interim CEO, said in a news release.
Stronach said in the release the review would be led by a company headed by Tom Hodgson, who is one of several CEOs Magna Entertainment has employed since the company went public in 2000.
"MEC is a company with tremendous assets, including world-class racetracks and valuable real estate," Hodgson was quoted as saying in the release. "However, MEC has an inadequate level of EBITDA and remains burdened with far too much debt and interest expense."
Hodgson is a senior partner with Greenbrook Capital Partners, which is expected to make its first report to Magna Entertainment's board of directors in September.
The release noted that MEC will give up its Michigan racing license secured for Michigan Downs near Romulus, Mich., and sell its Dixon Downs property in northern California. Residents of Dixon, Calif., voted against a referendum in April that would have approved the area for a racetrack and other commercial uses.
"MEC remains very much committed to horse racing in the state of California, where it owns both Santa Anita Park near Los Angeles and Golden Gate Fields near San Francisco, and is in the process of installing new synthetic racing surfaces at both facilities," the release said. "However, MEC also believes that the operating and regulatory environment in California needs to be improved and will continue to work with other stakeholders to ensure the long-term viability of horse racing in the state.”
Magna Entertainment also plans to sell land it owns in Ocala, Fla., and Porter, N.Y. The release said all the land it plans to sell in the new initiative package carries a book value of $71 million.
The Ocala property, which consists of about 450 acres at the Interstate 75 and U.S. 27 interchange, was once targeted by Stronach for a racing/entertainment complex. The concept, which was announced by Stronach in 2002, faced many legal and legislative obstacles, including state-authorized pari-mutuel licensing rights held by Ocala Breeders' Sales Co., which operates an off-track simulcast wagering facility.
The Ocala and Porter lands were not included among other potential sale properties deemed "non-strategic" at MEC's annual shareholders meeting in May. That set of properties, which included the Dixon Downs land, among others, carried a market price between $400 million and $700 million, company officials estimated at the time.
MEC also announced Aug. 9 that Dennis Mills resigned from his position as director and vice chairman of the company, and that Ron Charles has been appointed to the board of directors. Charles is currently executive director, MEC California Operations, which includes Santa Anita Park.
It is expected that the initiatives will be a hot topic in an Aug. 10 conference call with analysts to discuss second-quarter earnings.--Ryan Conley