Building Blocks - by Dan Liebman

It was a casual introduction, nearly 25 years ago now, at the Fasig-Tipton Kentucky November breeding stock sale. Remember his name, the man said, because you are going to hear a lot from him. We’ve all heard that before; only this time it was true—we have heard a lot from Frank Stronach in the ensuing years.

Some people, such as Stronach, are builders. He built Magna International into a leading global supplier of auto parts. Then, in the mid-1980s, fueled by a passion for the horse and the sport of horse racing, he began building a breeding and racing operation that became Adena Springs and Stronach Stables. The past five years in a row, Adena Springs has been named the Eclipse Award-winning breeder. Stronach has picked up four statues earned as leading owner as well.

With so much success breeding and racing horses, only a builder such as Stronach could sell the land upon which his Thoroughbreds were foaled and raised in Kentucky (he also owns farms in Canada and Florida) and construct a new farm from the ground up. But he did just that, selling one farm near Versailles and building a new Adena Springs near Paris.

Stronach had dreams of more than just breeding and racing horses. He envisioned turning racetracks into entertainment centers, where customers would not only wager on the races, but also see a movie, shop at a mall, and eat a nice meal. So he began buying racetracks.

In less than a year, starting in December 1998, Stronach-controlled Magna Entertainment Corp. (MEC) bought five tracks, including Santa Anita Park and Gulfstream Park, for more than $330 million. He was not just buying racetracks but the valuable real estate upon which they sit.

Other tracks would be purchased in the ensuing years, as would a tote company and the land upon which was built the Palm Meadows training facility in Florida.

But something else was being built along the way—a huge pile of debt. That debt led MEC to what seemed inevitable for many months: a bankruptcy filing. On March 5, MEC filed for Chapter 11 protection, the day a huge note was coming due. Losses have totaled roughly $300 million over the past three years.

The largest secured creditor of MEC is MI Developments (MID), the real estate subsidiary of Magna International that has loans to MEC totaling $372 million. MID, controlled by Stronach, will continue to loan funds to MEC to continue operations and will also purchase Gulfstream, Lone Star Park, and Golden Gate.

Other tracks, such as Santa Anita, Laurel and Pimilco, Remington Park, and Thistledown, will continue to operate as debts are paid and assets are sold. Each of those tracks may be sold.

MEC’s problems are exacerbated by numerous factors, among them the global economic crisis. Hard hit is the automobile industry, which has dramatically affected Magna International. The company reported fourth-quarter losses of $148 million.

This is not a good time to be selling a racetrack, or most other properties for that matter. Real estate values are considerably lower than when MEC purchased, within a few months of each other in 2002, a majority interest in the Maryland Jockey Club tracks of Pimlico and Laurel for $117.5 million and Lone Star Park for $100 million.

It is doubtful any track purchased by MEC can be sold for a price close to what the company originally purchased it for, because in addition to depressed real estate prices, wagering continues to decline nationally, falling 6.76% in January and February after dropping 20.3% in December.

Shareholders of MID are obviously not pleased with losses associated with helping finance the dreams and passions of company founder Frank Stronach. But dreams and passions are important, and we cannot fault Stronach for his strong belief and faith in our industry.

11 Comments

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TouchStone Farms

Mr. Stronach's dreams are based on sound business experience, and I believe that once the current economic downturn has reversed as they all do yes.... all! His business interests will once again flourish as will our industry. We need to make necessary changes and I would begin with the political landscape that in part is non-representative of a signature Kentucky industry that in large part pays their salaries. The VLTS at our racetracks would be a huge step towards the renewal of the thoroughbred industry, creating level playing fields with surrounding states and potential vast improvements in overall State budgets through taxation. If current State political representatives cannot see this they don't deserve the jobs they hold and prosper from and should be removed by vote at the first opportunity!

The Kentucky work force that is attributed to the Thoroughbred industry is not to be trifled with and those representatives that seemingly have their heads in very dark places should remove them before they find themselves in the unemployment line.    

10 Mar 2009 12:29 PM
Eric J. Hamelback, Adena Springs

I, along with all associated employees of Adena Springs, would like to thank Dan for his article.  It is refreshing to have someone write about the passion that drives Frank in this industry which he loves.  Frank alone took a stand, and has committed himself to make this industry better for the horsemen who make their living in racing, and for the fans.  Many people can make different judgments about what they think, Frank has done in this industry, but no one should question the commitment and passion Frank has for the horse, and to the people who make their living in this wonderful world we call racing.

10 Mar 2009 4:00 PM
Karen in Indiana

I've read articles on other web sites that have said how foolish Mr. Stronach was in envisioning entertainment centers which would include a racetrack. It was stated that gamblers supported tracks and that the focus should be on gambling. I don't agree with that. One has only to look at the development in Dubai to see that Mr. Stronach had a very progressive vision. Horse racing can't have it both ways - there are many voices saying that there needs to be outreach bringing in new fans at the same time wanting to limit those fans to gamblers. What Mr. Stronach was doing is diversifying which would draw a much larger crowd and expose many more people to racing than would have been otherwise. Men could watch races while their wives are happy shopping, restaurants would cater to racing fans & non-fans alike, other entertainment options would make the track area an attraction in its own right. I do sincerely hope that Mr. Stronach will continue to pursue that vision and make it an eventual success, he's earned it.

10 Mar 2009 4:19 PM
CRob87

I don't doubt Mr. Stronachs passion.  

Although, and even with the number of awards that he's won, I still do seem to find myself questioning his Intention.

If he really believed in this so called Vision, then why didn't he just start by purchasing 1 track and completing that Vision with it entirely, while learning whether it would work or not, before purchasing all of the other tracks that he did ???

Because to me, Dan's article makes it sound like Mr. Stronach was interested in Real Estate more so than Racing.

10 Mar 2009 7:16 PM
panama canal

MID has just filed saying that Golden Gate would be closed following zoning changes.  Commercial development of that land will never occur.  It is possible that it could be rezoned for public access park land, nothing more.

Now that Northern California racing has been thoroughly decimated by this filing, perhaps the only white knight in California will raise its head-Indian casinos-and save the industry.

If not, only an elongated fair meet will exist, and thousands of jobs lost.

The only winner in this shameful degradation of California racing is TVG and its rebate division, YOUBET.  Now that TVG is owned by the worst possible party, I can close my eyes and see the entire industry shrinking by 75% over the next 15 years.

It was fun while it lasted, and a shame to sit idly by while the fiddler played, and the fiddlers name was the Indian casinos in California no ponying up their fair share and expanded gaming not being approved in Kentucky.

10 Mar 2009 7:43 PM
Saint9

Stronach has a passion for racing and he sank a fortune into it. Magna was in trouble long before the economy crashed because Stronach never learned from failure (the Gulfstream renovation for example), he just kept doing the same thing, hoping for a different result.

A hero and a villain. I hope not a villain in the end.

10 Mar 2009 11:35 PM
Doug Wofford from Maryland

Why am I not surprised he failed.

Nobody owns horse racing.

The Game has swallowed others.

But I am surprised as to  why  he didn't listen to Horseplayers?

We're now at home with our PC's and TV's, not the grandstand.

Stronach was not the standard bearer for those  ideas, instead he wanted shopping malls as my ex-wife.

He was wrong, occasionally she also.

Mr. Stronach, visionary of horse  racing, aim your business at what is good about the sport.

Try  broadcasting HD close-ups of the race. Supply better handicapping data. Report insights that affect the outcome of a race, more interviews etc. Offer cash rebates. Push internet wagering in all States.

It's still the greatest game, To see our aforethoughts play out with horse and rider furiously engaged, in the outcome our wallet.

This is the sports terra firma.

If I were to advise you, I'd say;

"Listen, provide, and they will come."

11 Mar 2009 3:58 AM
Little Guy

Question for Eric @ Adena Springs. If Mr Stronach had the commitment to the people of horse racing as you suggest, why didn't he rebuild the dorms at Santa Anita as he promised when he bought the property?

Mr Stronach can blame the economy if he wishes, but MEC was in trouble long ago. The financial decisions show that Mr Stronach had one main interest. The real estate that the tracks sat on. Unfortunately for racing, MEC overextended itself when it could have done so much for racing. Too bad.........

11 Mar 2009 6:54 PM
noholme

i was a fervent supporter of frank stronach early on, but i changed when he became irrational. really, the (massive) straw which broke the camel's back was the tearing down/reconstruction project at gulfstream, which turned into a disaster in so many ways and eventually threw the company into bankruptcy. there were other irrational decisions along the way: the $100m racino in austria with 22 racing days a year and a 100 vlts not even owned by magna; millions spent pursuing another racetrack in california at a time when it could barely support existing facilities; the tens of millions spent on a training track in florida and so on and so forth. magna international and finally magna development shareholders rebelled and even the race lovers among us who wanted magna entertainment, the racetrack company, to succeed could not see any sense in what stronach was doing. he was acting irrationally and arrogantly. when shareholders questioned his judgement, he told them to get lost. and now we will reap the whirlwind from his irrationality. he might be a wonderful guy, the world's best breeder and a wiz in the car parts business, but he made a mess of running this racetrack company and the entire industry will be paying for his blunders for years to come.

11 Mar 2009 8:35 PM
FourCats

I think Frank Stronach has a lot of passion for horse racing, but the sport is simply not financially viable in this country anymore in its current form.  But no one really wants to admit it.  The declining fan base can no longer support the number of racetracks, horses and races that we have.  Everyone with a stake in the industry is either losing money or just getting by.  That includes the racetracks, the owners, the trainers, the jockeys and the fans.  What is really needed is a reality check by the industry (and the states).  Look at the money coming in through wagering on a regular basis and calculate how many racetracks and horses can be supported by that number (and be profitable).  At a rough guess, I would say that only 5-10 racetracks nationwide can really be supported.  And maybe 1/5 to 1/4 of the horses that we have now.  Of course, even if the participants were willing to restructure horse racing, many states would block it because they would lose tax revenue.

13 Mar 2009 2:32 AM
Robfrom BMore

Unfortunately, I knew this day for Magna would come. My humble opinion is that Frank Stronach is a great horse breeder and a horrible visionary and businessman of the racetracks. I am being kind considering what others I heard say about him. Frank seemed to be more interested in buying many racetracks than buying one or two and doing well with them. Frank was not too bright with his buying Pimlico/Laurel and then promising the DeFrancis Family 65% of any slot revenues for the first five years. What type of business deal is that? After Funny Cide won the 03 Preakness, Frank told NBC he would make Pimlico a world class facility. Six years later, it is still the worst racetrack in the country. Stronach is an embarrassment. He spent over $2 million dollars here in Maryland in the fall of 2008 for T.V. advertisements and then when it became time in early February 2009 to put down his money he could not. Frank's team fired great horse people like, Lou Rafetto in Maryland and Stronach's team had the nerve to let great race call announcer, Vic Stauffer, go from Gulfstream and he let Vic go by Email! Other Stronach flops were trying to monopolize T.V. betting on Horse Racing. Cut out TVG from Churchill, Arlington, Fair Grounds, Santa Anita. His cutting out TVG allowed his company to even have less handle on key meets like Churchill. I really hope that a first class organization like Churchill Downs will take over Pimlico/Laurel like they wanted to in 2002. My hope is that a new Pimlico Race Course will be built near the Harbor in Downtown Baltimore so we can continue to have the Preakness here.

13 Mar 2009 10:13 AM

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