By DYLAN WAUGH
ANNAPOLIS (March 5, 2009)—Magna Entertainment Corp., owner of Laurel Park and Pimlico Race Course, filed for bankruptcy protection Thursday, raising more questions about the already-embattled Laurel Park slots bid.
The Canada-based company has defaulted on several loans, including one tied to subsidiaries Laurel Racing Association and the Maryland Jockey Club. Magna's stock is also scheduled to be delisted by the Toronto Stock Exchange on Apr. 1, and opened Thursday at 22 cents per share on the Nasdaq composite index.
"Simply put, MEC has far too much debt and interest expense," said Magna Chairman and CEO Frank Stronach, in a statement.
Despite the bankruptcy, Laurel Racing Association's bid to put 4,750 slot machines at Laurel Park is not necessarily derailed, although the bid must clear significant hurdles.
Laurel Racing Association's first challenge is to win a lawsuit attempting to reinstate its bid, which was tossed out by the state slots commission last month for failing to include $28.5 million in required licensing fees. The group seeks to strike down the initial licensing fee requirement, meaning it would only have to meet the state's Apr. 15 deadline to provide proof of financing for the construction and operation of the slot parlor.
If the bid is reinstated, there is still a slim chance it might find financing despite the bankruptcy.
"I don't think bankruptcy means it's the end of the road for putting slots at Laurel," said Jeffrey C. Hooke, a Bethesda-based gambling expert who predicted many companies might be interested in financing the proposal.
But Hooke was quick to qualify the odds of Laurel Park acquiring financing before the deadline as a "long shot."
"Things will be so confused and chaotic, I think they would need an extension," he said.
A representative of the Maryland Jockey Club, a subsidiary of Magna which operates Laurel Park and Pimlico, referred inquiries to Magna headquarters. Magna officials could not be reached on Wednesday or Thursday.
By restructuring debts and resolving some of its financial uncertainty, bankruptcy may provide more clarity for potential lenders.
"In a bankruptcy situation it might be even easier for Magna and the (Maryland) Jockey Club to finance the slot machine parlors," Hooke said.
Hooke has long promoted the idea of Magna taking on a "well-established partner" to help finance the Laurel Park bid. Under this arrangement, Hooke said, Magna might provide minor funding but most of the money would come from another source.
But even if Laurel Racing Association wins the lawsuit and finds a lender, Magna's bankruptcy might hurt the bid in its next step—competing with the 4,750-terminal Arundel Mills Mall proposal for the one Anne Arundel County slots license.
"The bankruptcy would certainly diminish their credibility in the eyes of the commission," Hooke said Thursday before the bankruptcy was official.
Laurel Racing Association submitted its bid just prior to the Feb. 2 deadline but said it withheld the licensing fees because it doubted the state's legal ability to refund the money to bidders who were rejected or failed to gain zoning approval.
In a Feb. 26 hearing in the Circuit Court for Anne Arundel County, a lawyer for the Laurel Racing Association called the bidding process "unconstitutional," claiming it did not provide a refund provision for failed bids.
The attorney, Alan Rifkin, declined to discuss the potential impact of Magna's financial woes on his client's bid.
"The matter is in litigation and I cannot comment beyond what was presented in court," Rifkin said in an email.
Rifkin said in court last week that the fates of horseracing "cultural icons" Laurel Park and Pimlico, home of the storied Preakness Stakes, are in jeopardy if the bid is not reconsidered.
The judge is expected to rule on the lawsuit within two weeks.
Magna announced day-to-day operations for its 10 racetracks will not be affected by the Chapter 11 filing and the company has sought emergency relief to pay its operating costs. It also reached a preliminary deal to sell some of its assets, not including Laurel Park and Pimlico, to MI Developments Inc., Magna's controlling shareholder.
Capital News Service contributed to this report.