Brenda Ahearn/the Gazette
Holiday Romance finishes first in Race 4 at Laurel Park.
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The people who race and breed horses in Maryland are nervous. The legislators in Annapolis who believe losing the historic Preakness Stakes would be a nightmare, economically and politically, are moving to protect their interests. While Magna Entertainment, the Canadian company that owns Laurel Park, Pimlico and the Bowie Training Center, works to reorganize in U.S. Bankruptcy Court and sell off its assets, it is safe to say that when it comes to the future of horse racing in Maryland, nobody knows anything.
For years, the issue of whether the state would legalize slot machines to aid the ailing racing industry monopolized conversation in Annapolis and in the racing community. The legalization of slots through ballot referendum last November, however, has become just another layer of complexity in an ever-changing web of legal wrangling over the future of the sport in the state.
"Maybe I'm completely out of the loop, but I don't know what's going to happen with the tracks or Preakness or live racing," said Cricket Goodall, executive director of the Maryland Horse Breeders' Association. "It's a complicated issue."
Politicians feel the same way and are trying to take action. On March 27, numerous creditors and government officials filed objections in the bankruptcy court in Delaware, complaining about the lack of transparency in how Magna plans to disperse its assets, which, along with the Maryland tracks, include the major racing centers Santa Anita Park in California and Gulfstream Park in Florida.
The state of Maryland also filed an objection, on similar grounds, arguing that the bankruptcy process, as laid out by Magna, ignores Maryland's legal rights to keep the Preakness Stakes in Maryland.
State laws currently are in place to protect the Preakness but are largely predicated on the assumption that the state has a racetrack operator. Maryland's annotated code states that the Preakness "may be transferred to another track in the state only as a result of a disaster or emergency."
If the operator were to move the race out of state, the Maryland Racing Commission could revoke racing days awarded at Laurel Park and Pimlico and trigger a prohibitive parimutuel tax hit.
If the Preakness is somehow sold independently of the tracks, the state has the legal right to buy the race for any amount being accepted by the owner from another bidder. If Magna, however, sold the race and then went out of business and stopped racing at Laurel and Pimlico, the state would have no entity to punish.
Gregory Cross, an attorney with Venable LLP, which is representing the state, wants the bankruptcy court to forbid MI Developments from bidding on Magna assets because as primary lender to Magna it should not be allowed to credit bid.
"They're not allowed to credit bid amounts loaned to other debtors in an auction of a company that owns the Preakness Stakes," Cross said.
Moreover, Cross wants the court to recognize the state's statutory right to buy the Preakness Stakes. The court is scheduled to hear the objections today.
The state recognizes its interests in the Preakness are both economic and intrinsic. The second leg of the Triple Crown, entering its 134th year, has been run without a break at the Baltimore track Pimlico since 1909 and regularly draws more than 100,000 fans. The Maryland Department of Business and Economic Development estimated the economic impact of the Preakness and related events at about $24 million in 2007. The event generated an estimated $1.4 million in state and local taxes that year.
The Preakness has been called Maryland's yearly Super Bowl.
Complicating matters for the state is an objection filed in the bankruptcy court by PNC Bank, which loans money to the Maryland tracks — unlike the other Magna tracks, which are largely secured by MI Developments, the parent company.
Magna wants to accept bids on its properties — including the Maryland tracks — up until July 7, but PNC, as spelled out in its objection, would like the sale to take place before the Preakness is run May 16 so creditors can obtain a higher purchase price "since the bulk of the revenues that Pimlico Race Course generates results from the Preakness race itself."
Magna representatives could not be reached for comment for this story.
PNC told the court it believes the Preakness Stakes is separate, as an entity, from Pimlico and should be sold that way, which, if so, could lead to a possible out-of-state move of the race.
Maryland State Sen. President Thomas V. Mike Miller Jr. has expressed deep concern about such a move. On March 17, Miller suggested that Maryland could build a track to house the race should Magna try to sell it out of state. He described the idea as a "last resort," in a Gazette story, and also said he would be open to holding a special session of the General Assembly to figure out how to keep the race in Maryland.
Maryland Racing Commission Chairman John Franzone said the best way to secure the Preakness would be for deep-pocketed interests in the state to step up and buy it in the bankruptcy proceeding. Franzone mentioned Baltimore Orioles owner Peter Angelos, whom he huddled with recently along with Gov. Martin O'Malley and Miller. Franzone also mentioned Baltimore developer David S. Cordish, whose company announced its intention to bid for Laurel Park, Pimlico Race Course and the Preakness Stakes, and has placed a bid to secure a license to operate slot machines at Arundel Mills.
"We have expressed strong interest in trying for the bid," Joseph Weinberg, a principal at Cordish, said Thursday.
Former tracks owner Joe De Francis, who sold majority interest to Magna in 2002 and completed the sale last year, also has not ruled out trying to buy back Laurel and Pimlico.
"The state is looking at its options, whether it will be able to preserve its right to the Preakness in Bankruptcy Court," Franzone said. "I'm not sure how you create that law to create the absolute protection of the Preakness. I think it would be very difficult. The governor is totally committed to keeping the Preakness and thoroughbred racing as a prominent industry in the state of Maryland. Everybody is keyed up and charged to make sure that we have a positive outcome."
Asked what that outcome will be, however, and Franzone has no answer. "I wouldn't want to guess that. It's like a football game," he said. "I think I'm going to win the game but not foretell every play that goes down."
Who winds up bidding on Laurel, Pimlico and the Preakness may come down to the fate of slots at Laurel Park.
Before filing for bankruptcy, Magna, through a subsidiary called the Laurel Racing Association, planned to bid on the right to install 4,750 slot machines at the track. It was disqualified, however, after failing to include a $28.5 million license fee required with its application submission. Even after Magna placed the fee money in an escrow account, the state-sanctioned Maryland Video Lottery Facility Location Committee voted 7-0 to disqualify the company's bid.
The ruling was upheld in Anne Arundel Circuit Court, and now the Laurel Racing Association is appealing the decision to the state Court of Special Appeals, although it has petitioned the state's highest court, the Court of Appeals, to hear the case immediately.
The LRA contends that language in the request for proposal for slots bidders did not guarantee a refund of the license fee to losing prospective bidders, said Alan Rifkin, an attorney who represents Laurel. That case is pending. A Laurel Park with slots, however, likely would appear far more attractive to potential bidders.
While the multiple scenarios play out, the people who do the serious work of putting on the racing show every day watch and wait. Magna, since filing for bankruptcy, has continued to operate its tracks, but horsemen worry that they are going to wake up to find the gates shuttered.
"Nobody really knows," said trainer Lori Testerman, who is stabled at Laurel Park. "All we can do is keep on training, and keep on entering and keep on running."
Veteran trainer Eddie Gaudet agreed. "Right now, it's such a goddamn mess. If we lose racing in Maryland, what's going to happen to all the people? The grooms, the exercise riders, the tellers, security? They'll all be on the unemployment list," Gaudet said. "It's sad; it really is."
Staff Writer Lindsey Robbins contributed to this report.
