Ray Paulick<br>Editor-in-Chief

Ray Paulick

Taking Care of Business

This is supposed to be the time of year when the racing world starts talking Saratoga and Del Mar, and the search begins for the hot 2-year-olds who look like they could be Triple Crown prospects 10 months from now.

But so far, the big news in mid-July is coming out of boardrooms and executive suites, not starting gates.

Frank Stronach fired the first shot July 13 when it was announced that one of his Magna companies, the one formed last September as a real estate concern, was buying another, the one created in 2000 to own and operate racetracks. Another major story broke later in the week when the National Thoroughbred Racing Association and New York Racing Association announced on July 18 that NTRA commissioner Tim Smith may leave that position to become president of NYRA.

Magna Entertainment Corp., the racetrack operator, is a public company Stronach wants to take private. MI Developments, a Stronach family-controlled company that owns real estate from all Magna companies, owns the majority of shares in MEC and will attempt to buy all remaining shares by offering a combination of cash and its own stock.

Reason given for taking MEC private is access to more capital than it can get currently to finance major development projects ongoing at Gulfstream Park and planned for Santa Anita.

When Stronach began to buy racetracks in 1998 with his $126-million purchase of Santa Anita, it raised concerns among shareholders of Magna International, a massive auto parts manufacturer and the parent company of all the other Magna spinoffs. As a result, Stronach formed Magna Ventures in 1999 as the racetrack company, then went public the following year with Magna Entertainment.

Apparently to appease Magna International shareholders who worried that too much of the company's capital would support Stronach's racetrack investments, a spending limit of $250 million in cash and $300 million in stock was put in place when MEC was formed March 10, 2000.

Three-and-a-half years later, when MI Developments was created, analysts indicated the new company gave MEC a loophole in its agreement to limit the amount of money it received from Magna International. If that was the case, MEC's thirst for more cash may exceed MI Development's bankroll.

So now Stronach's racetrack company is heading full circle--back to the privately held entity it was in 1999. The share prices of MEC have languished for some time. Either the investment community didn't like the corporate structure that gave Stronach complete control of MEC, or it was not impressed by his vision.

Tim Smith likes a challenge, and there may be no bigger one than that facing NYRA. There is a lot more to the job than righting a ship that is badly adrift in the wake of a federal indictment last year.

Financially troubled NYRA faces possible extinction in 2007 -- when its franchise to operate racetracks in New York comes to an end.

Renewal of the franchise may not be enough. The disadvantageous circumstances under which the organization has had to operate must be changed if NYRA (or some other company) is expected to put on this country's finest racing, as it traditionally has.

The landscape is changing dramatically, given the recent approval of slot machines at Pennsylvania racetracks and other locations. No company can be expected to remain viable, healthy, and competitive under the current racing law in New York. The New York legislature and executive branch, which like to keep racing under their thumb as much as possible, must somehow be convinced to give the industry a break.

In his role as NTRA commissioner, Smith has proven to be extremely effective as a consensus and coalition builder. But he's no miracle worker. If he goes to New York, he'll need help in Albany to make NYRA healthy once again.