President, CEO Magna EntertainmentI have been asked to provide a brief commentary on Magna Entertainment Corp.'s ("MEC") plans for Advance Deposit Wagering (ADW) in California.Regrettably there seems to be a lot of misunderstanding in our industry regarding MEC, our vision and goals and our strategy for achieving our goals. Space does not permit to address all the issues that I might like. Before addressing account wagering specifically I would like to provide some background concerning our Company, our vision and our progress to date.When Frank Stronach approached me to join MEC he convinced me that the horse racing industry has enormous potential if we get the fundamentals right.Frank's vision simply put was to turn MEC's racetrack investments into a major multimedia entertainment and wagering business as a means of preserving live racing. While others talk about their commitment to live racing, MEC has committed significant resources to the ownership of racetracks across America. In fact, over the last three years MEC has invested approximately $650 million in racetracks, facility improvements and infrastructure for account wagering, Internet and satellite distribution of racing signals.I came into this business fifteen months ago with an unbiased view. My early observation was that our industry has some major problems such as too much regulation and serious fragmentation of stakeholder groups. It seemed that many in the industry also had forgotten the very reason they were in business to begin with, namely to satisfy the needs of customers and thereby to grow the customer base. I have known Frank Stronach for nearly twenty-six years. We worked together during the late 70's and 80's growing the business of Magna International Inc. Frank and his various management teams have grown Magna International from the one-man operation he established in 1956 to a multinational company with sales in excess of $11 billion. Today, Magna International Inc. is the most diversified supplier of automotive assemblies and systems to the world's major automakers. Magna employs almost 65,000 people working in 168 manufacturing divisions, and 32 product development and engineering centers in 18 countries. My job today as President and CEO is to lead MEC to achieve its evolving strategic goals and to realize MEC's vision. At the same time it is my responsibility to ensure that MEC provides an appropriate return to its shareholders. To do this I must ensure our management team balances the needs of our racetrack stakeholders, namely horse owners, breeders and workers with other industry interests and the needs of our investors. Together our track managers and horse owners must put on a great show for customers. And if we get the rest of the fundamentals right I believe we can build MEC into a great success story just like Magna International.MEC eagerly awaits the introduction of ADW in California. It will allow us to further develop a significant element of our business strategy.To understand account wagering it is necessary to address the following: Interactive Wagering Platforms/Technology and Know How; Content; Competition and Customers.
Interactive Wagering Platforms/Technology and Know How:Today there are two principle platforms for account wagering – the telephone and the Internet. In the future, interactive television supported by digital cable and satellite will be the third major platform for interactive account wagering. However, full deployment of interactive services on digital cable is still some years away. In the meantime, the major role for television in account wagering will be to support telephone and Internet platforms by providing quality pictures and wagering information to horse racing and wagering customers.MEC has demonstrated capability in each of these areas.Telephone/Internet:
MEC acquired Call-a-Bet in April 2001. This system, which has been operating since 1983, not only accepts telephone wagers but also manages all customer and hub administration for the online wagering system facilitated by You.Bet/MEC Pennsylvania. Through these businesses, MEC has transacted wagering of more than $132 million in 2001. Today our Pennsylvania account wagering operations serve more than 27,000 active account holders.MEC rebranded its account wagering operation as XpressBet‰ (1-866-88Xpress) and launched our own on-line Internet platform XpressBet.com effective January 2002.Television:
MEC has also invested in and evaluated various systems to broadcast its live racing product to its customers. Regrettably one of our investments in this area, which was acquired at the same time as Call-a-Bet was not properly structured from a business standpoint and was subsequently closed. But we have other successful experiences that we plan to build on. MEC currently produces a show at The Meadows' racetrack in Pittsburgh, Pennsylvania that is broadcast 12 hours daily to nearly 650,000 homes in Western Pennsylvania. The program features 7 to 8 race cards per day. Additionally, six hours of this program is broadcast via DBS satellite weekly to approximately 12 million U.S. homes through DirecTV on Thursday and Friday afternoons. The company also produces "Santa Anita Live", a one-hour broadcast available to 3 million cable homes throughout the Los Angeles area on FOX Sports Net 2 each day that Santa Anita runs a live meet. The program is also available via DirecTV. MEC currently has a proposal before FOX Sports Net 2 to significantly increase its daily broadcast of live racing year round throughout the Los Angeles cable market.MEC, together with partners, is developing a private network subscription satellite racing service comprised of multiple horseracing channels. Two of the channels will be produced by one which will be focused on California racing and the other will broadcast racing from MEC tracks combined with racing from XpressBet content partner tracks. The channels will feature a high level of races to be broadcast on a daily basis. We intend to provide XpressBet customers who exceed certain wagering levels with either discounted or complimentary platform hardware. All content will also be available through video streaming via XpressBet.com.Continued...