CEO Says MEC Must First Improve Balance Sheet

Magna Entertainment Corp. must establish a stronger balance sheet before it considers expansion or the acquisition of other racing and gaming properties, said Thomas Hodgson, the newly appointed chief executive officer of the company.

Hodgson's appointment was announced March 8, the day voters in Broward County, Fla., approved a referendum to allow slot machines at MEC-owned Gulfstream Park. On March 10, Hodgson and other MEC officials participated in a teleconference with analysts and the media to discuss recent developments.

Hodgson, who spent the last six months on the board of directors of MI Developments, parent company of MEC, said MEC has an "impressive" portfolio but one that needs financial improvement. He said MEC, which has registered losses the last several years, expects to lose money again in 2005.

Hodgson painted the following first-quarter picture for 2005: Gulfstream, currently operating with temporary facilities, will produce $10 million less in revenue than in the first quarter of 2003; Bay Meadows, no longer operated by MEC, won't produce the $5 million in provided for the bottom line last year; European operations will cost the company about $5 million; a shift in dates at Golden Gate Fields will mean $5 million less; and business at Laurel Park and Santa Anita Park since the first of the year has suffered because of poor weather.

In other areas, Hodgson said MEC is working to better align its HorseRacing TV, which he called a "drag" on earnings, more closely with XpressBet, the company's account wagering service. MEC also is focusing on costs at its head office in Toronto, Canada.

Hodgson predicted a "small loss" for the first quarter of this year, but he also said: "Getting to cash flow break-even and sustainable profitability is a two-year exercise." He said MEC must put itself on a "different financial projectory" before it can consider expansion.

"At the moment, adding tracks is not part of the game plan," Hodgson said.

MEC currently owns or operates 12 tracks in the United States and the Magna Racino in Austria. It currently is rebuilding Gulfstream, and plans to install gaming machines at Remington Park in Oklahoma this year, and The Meadows in Pennsylvania next year.

Jim McAlpine, who had served as CEO at MEC for the past 4 1/2 years and will remain on the executive team, said he's confident the company will be successful in years to come. When asked about a possible bid by MEC for the New York Racing Association franchise, McAlpine, too, mentioned the need for financial improvement.

McAlpine also touched on the South Florida situation, whereby Gulfstream was approved for slots but neighboring Calder Race Course in Miami-Dade County failed to win approval for gaming. Churchill Downs Inc. owns Calder.

CDI and MEC are rival racetrack companies but they continue to work together on projects. In addition, both have seats on Friends of New York Racing, an advocacy group.

McAlpine said it's in the best interest of Florida racing to have slot machines in Miami-Dade because of the impact racetrack gaming would have on the redevelopment of the Thoroughbred industry. Calder currently races about eight months a year, and Gulfstream about four.

"It's in our best terms of reaching out to members of the coalition to find a way that permits this process to continue," McAlpine said of the slots push in South Florida. "This is not the time for any of us to be a hog. It's time for us to find a solution so this moves forward in a positive way."

MEC officials couldn't discuss details on Gulfstream slots because the regulations, number of machines, and revenue to racing must be decided by the state legislature. The enabling bill must be passed by May 6.

MEC officials also said the Gulfstream redevelopment remains within cost projections. The company spent $47 million on the project in 2004, and still expects to spend a total of $145 million to build a new grandstand/clubhouse facility.

In response to a question about Dixon Downs, a new racetrack planned for Northern California, Hodgson indicated MEC is open to taking on a partner. McAlpine called Dixon Downs a "potentially long-term strategic asset" should dates become available in Northern California.