Magna Entertainment Corp. had increased revenue in 2002 but the continued expansion of its roster of racetracks along with the costs of launching Xpressbet and Horse Racing TV resulted in losses of $14.3 million in 2002.
The biggest hit to Magna's profitability in 2002 came from the acquistions of Lone Star Park and the Maryland Jockey Club, which was completed during the fourth quarter. While earnings for the quarter was $106.8 million, which was up slightly from the fourth quarter of 2001, earnings before interest, taxes, depreciation, and amortization (EBITDA) was negative $32.8 million. Adding an impairment charge of $14.7 million for Remington Park and Great Lakes Downs, Magna's losses totaled $24.3 million for the quarter.
Last year, Magna lost $5 million during the fourth quarter.
For the year, Magna generated revenue of $549 million, which was up from $519 million in '01. However, EBITDAearnings fell to $553,000 from $51.7 million. This resulted in the company suffering net losses of $14.3 million on the year after turning a $13.5 million profit in '01.
During a conference call with investors Friday, Magna chief executive officer Jim McAlpine attributed the losses to the company's plan "to acquire a sufficient number of racetracks to anchor a racing and betting channel." He said the acquisitions of Lone Star and the MJC, as well as the pending purchase of Flamboro Downs, puts Magna on course to reach its goal.
"These three businesses generated an EBITDA of approximately $22 million in 2002," McAlpine said. "Our goal is to improve these results, as well as those at our other business units, going forward."
With the addition of Flamboro Downs, Magna would own 41 off-track betting outlets throughout the country. McAlpine said the company hopes to brand between 50 and 75 off-track betting sites across the country that would be "high-energy sports bars and entertainment facilities."
Xpressbet and Xpressbet.com dominated account wagering in California during the first two quarters but its handle dropped sharply during the second half of the year when few of the company's tracks conducted live racing. McAlpine said the acquisition of the Maryland Jockey Club tracks and Lone Star will help balance the company's performance.
Horse Racing TV, Magna' digital cable channel, launched in July and is currently only offered through cable systems in San Diego and Pittsburgh. Negotiations are underway to expand its distribution, McAlpine said.
"While our costs this year moved ahead of our revenue," McAlpine explained to investors. "These are important strategic building blocks towards profitability."
Stock in Magna was trading for $5.05 a share Friday afternoon, which was up 6.3% on the day.