MEC Reports Loss; Has Deal to Sell Pennsylvania Operation

On the same day it reported a third-quarter loss of $34.5 million, Magna Entertainment Corp. announced it entered into a deal to sell its Pennsylvania operation--The Meadows harness track and a ring of off-track betting parlors in the western part of the state--to Millennium Gaming and Oaktree Capital Management for $225 million.

The third-quarter loss was down from $50.3 million in the third quarter of 2004. But for the first nine months of 2005, the net loss was $65.5 million, up from $54.6 million for the same period in 2004.

Revenue for the third quarter of this year was $83.1 million, down from $94.9 million for the same quarter in 2004. Nine-month revenue this year was $497.6 million, down from $570.8 million for the same period last year.

"The third quarter has traditionally been our least profitable quarter given the seasonality of our business, but we have been able to improve (earnings before interest, taxes, depreciation, and amortization) and reduce our net loss compared to the third quarter of 2004," MEC chief executive officer Thomas Hodgson said in a release. "These profit improvements reflect an improvement in both our continuing operations through cost reduction initiatives, as well as our discontinued operations where we realized a $9.8 million gain on the sale of Maryland-Virginia Racing Circuit. Furthermore, we continue to execute on our recapitalization plan by selling non-strategic assets and reducing debt. We also look forward to the opening of our new casino at Remington Park in Oklahoma City later this month."

The 2005 third-quarter results don't include Bay Meadows in Northern California and Multnomah Greyhound Park in Oregon, which were included in the financials for the third quarter of 2004. Those two leased facilities provided MEC with $50.4 million in revenue for the first nine months of 2004.

The sale of The Meadows, a year-round harness track, would give MEC more cash and follow through on its plan to seek out gaming partners. The Meadows is in line for a slot-machine license under Pennsylvania law.

According to a release, all outstanding shares of MEC Pennsylvania Racing and the two associations that have meets at the track--Mountain Laurel Racing and Washington Trotting Association--would be sold to Millennium Gaming and a fund managed by Oaktree Capital Management.

MEC would continue to manage racing operations at The Meadows for a minimum of five years.

"It was not an easy decision to sell The Meadows, but we concluded it was the right decision," Hodgson said during a Nov. 9 conference call on MEC earnings. "It really was a half-billion-dollar decision."

Hodgson said the company would have had to spend $200 million to rebuild the track, which opened in 1963, plus pay a $50-million fee to the state for the slots license. Instead, it opted to sell the operation for $225 million and use some of the revenue on other projects, such as the reconstruction of Gulfstream Park in South Florida.

Gulfstream also is in line for slots, and Florida Gov. Jeb Bush has called a special legislative session in December to discuss enabling legislation for gaming in Broward County. Hodgson said MEC envisions a casino operation at Gulfstream that "might be 100% MEC-owned."

The sale of The Meadows would close after the parties receive approval from the Pennsylvania Harness Racing Commission, and track receives its "category 1" slots license from the state gaming board. Hodgson said the purchaser would shell out the $50 million slots licensing fee.