Magna Entertainment Corp. chairman Frank Stronach told shareholders Tuesday he expects the company to reach consistent profitability within one to three years through continued development of the company's racetracks and new self-service betting machines he believes will become more popular than slot machines.
Stronach's comments were made before a full house at the company's annual shareholders meeting in Toronto, during which time MEC's first quarter earnings report was also discussed.
MEC in the first quarter had net income of $21.1 million, up from $12.6 million during last year's corresponding quarter. The first quarter is traditionally among the company's strongest because of its racing dates at Santa Anita Park and Gulfstream Park. In 2003, the company lost $121 million.
"Even though I'm not quite that happy with the financial results...there's a reason for it," Stronach said. "You got to imagine, MEC is a very young company. We inherited a lot of old racetracks. It takes a while to get them into shape. Some of them we even have to tear down and built totally new."
Stronach compared MEC to high-tech companies in the 1990s.
"For years they lost hundreds of millions of dollars and their shares traded like crazy and they never made a profit and never had any assets," Stronach said. "We are a high-tech company but we have great assets, we do make a profit -- we know it's not enough -- but we know where the problems lie and I'm very optimistic we can correct that."
MEC is placing great importance on the new self-service machines, which are supposed to have all the bells and whistles associated with slot machines.
"I told them to build me a machine that looks like a slot machine and sounds like a slot machine," Stronach explained.
The machines are placed in banks of 15, situated in a half-circle, with a large monitor that shows races and individual screens on each terminal. A hostess is on hand to cater to participants. Customers can either pick their own horses or they can be selected randomly with spinning reels like a slot machine.
"When those machines kick in and the new facilities are built," Stronach said, "people will really see we're going to be a great company."
In response to one shareholder's question, Stronach also said MEC in the next three years could try to buy out Churchill Downs Inc.
"I wouldn't rule that out completely," Stronach said. "It's a public company but it's not that closely held."
MEC chief executive officer Jim McAlpine also spoke on the company's vision of turning its racetracks into "multi-purpose entertainment venues." The company previously announced a deal to develop such a facility at Gulfstream Park, and McAlpine said an agreement has been reached with a developer for underutilized land at Santa Anita and Golden Gate Fields.
"In total, our core land holding exceeds 3,000 acres and many of these properties are nestled in major urban areas," McAlpine said. "If fully developed as currently envisioned, those three venues will introduce a total of 1.6 million square feet of high quality development to the markets in which they are located."
MEC had net revenues of $291.8 million in the first quarter, up from $270.1 million during last year's corresponding quarter. Earnings before interest, taxes, depreciation, and amortization increased from $31.8 million to $34.6 million.