MEC Banks on Profitability--and Slots--by 2007

Magna Entertainment Corp., which registered a $25-million decline in net income in the last year, expects to post a net loss for 2005 but is banking on profitability--and operation of slot machines in three states--by the end of 2007.

Company officials, during a May 3 teleconference to discuss first-quarter earnings, said MEC would continue with its plan to reduce operating costs, sell some assets, and seek partnerships in an effort to restructure its balance sheet. In terms of total capitalization, MEC had $568 million in equity and $528 million in long-term debt as of March 31.

The net loss for the first quarter of this year was $4.1 million, compared with net income of $21 million for the same period in 2004. The decline was attributed to soft business in California and Florida, as well as a shift in racing dates in California.

"We will incur a net loss for this year," said Thomas Hodgson, who recently took over as chief executive officer of MEC. "We're working hard to get gaming operations at Remington Park and The Meadows. We expect to have sustainable operational profitability in 2007."

Video gaming machines could be operational at Remington Park in Oklahoma in the fourth quarter of this year, officials said. The Meadows, a harness track in Pennsylvania, is awaiting regulatory approval for slots, so MEC has been reluctant to begin reconstruction of the Pittsburgh-area track.

"We're not going to proceed with the reconstruction until we have got all the slots regulations and approvals in place," said Hodgson, who noted The Meadows would have a new grandstand linked to a slots casino. "It doesn't really make sense to do one without the other. Frankly, there's no need to replace the grandstand (without the slots casino)."

MEC officials said it would take about nine months to reconstruct The Meadows, but they couldn't say when the project would begin. Slots could be operational by the end of 2006 or in early 2007 depending on the regulatory process.

Hodgson said the reconstruction of Gulfstream Park in South Florida is on schedule and should be completed before the 2006 meet begins the first week of January. Florida lawmakers are charged with having enabling legislation for slots on the books by July 1, and Hodgson said MEC is hopeful it will have "satisfactory legislation" in place.

In California, officials said the team headed by new track president Ron Charles is working on a plan to bolster business at Santa Anita Park, where business continues to decline. Jim McAlpine, who had served as CEO at MEC for the past 4 1/2 years and remains on the executive team, said maintaining and building a customer base in California is a challenge.

"We are delighted to have Ron Charles take on a leadership role," McAlpine said. "He has gotten together with management in California to develop what we think is a pretty comprehensive plan to rejuvenate business. It's a little difficult (to offer specifics). They're still in the process of analyzing what happened (during the 2005 spring meet)."

Detailed numbers from Santa Anita weren't released, but average daily on-track handle and attendance were down 8% and 9%, respectively. The meet was impacted by record rainfall.

McAlpine also said the company is nearing completion of its project at Laurel Park, where a new dirt track was put down and a new turf course will be planted in about a month. He said MEC would "stop investing significant sums" at Laurel and Pimlico Race Course until "other sources of revenue" are discovered.

Efforts by the racing industry to win approval for alternative gaming in Maryland have repeatedly failed.

MEC held its annual shareholders' meeting May 2 in Toronto. During the session, MEC chairman Frank Stronach said the company could generate more than $12 billion a year in revenue within 10 years with deregulation and a larger share of the gambling dollar, according to the Toronto Globe and Mail newspaper.