Maybe Stronach should seek advice from Penn National’s Carlino

August 14, 2007 7:21 AM
by

share

It was up the down staircase in Maryland last week.

Frank Stronach, as upset as the public has ever seen him over the underperformance of Magna Entertainment in general and his Maryland Jockey Club meetings at Pimlico and Laurel in particular, exploded, promising "drastic action."

While Stronach’s Magna Entertainment was licking its Maryland wounds in public, the nation’s most enterprising and aggressive gaming operation, Penn National Gaming, moved into the state, extending its ever-widening horizon by buying Rosecroft Raceway, the pretty harness track located just off the Beltway across the Potomac from the nation’s capital.

Rosecroft is a unique operation. It has been wholly owned in recent years by the horsemen who race there, and their group, Cloverleaf Standardbred Owners Association, met and approved the sale to Penn National last Thursday. No price was mentioned, but the announcement of the sale did say the transaction was not contingent on Maryland getting slots.

That, of course, has been a raging issue in the Maryland legislature for four years now. The president of the Senate, Thomas V. Mike Miller Jr., wants slots and has fought hard for them. The Speaker of the House, Michael Busch, has blocked him at every turn. A new governor, Martin O’Malley, has made it clear he wants them, and chances seem bright that 2008 could see the impasse broken.

The question now is not so much "Will they come?" but "Who will get them?" Given Busch’s staunch opposition and strength, it is not certain it will be the state’s racetracks. He is not a fan, and there are others, of course, standing in line, including a huge complex planned along the Potomac, not far from Rosecroft.

Maryland racing is old, established and historic. It also is threatened, and it is not impossible, although it would be unpopular, if the Preakness were moved elsewhere. Magna has said that won’t happen, but Stronach is an unhappy man right now, and he is a man of impulses.

As for Penn National, it is probably the foremost success story in American gaming today. Its progress, from the opening of Penn National Racetrack near Harrisburg, PA 35 years ago this month, to its 19 racing and gaming operations around America today has been the work of its leader, Peter M. Carlino, a seer and a doer on a grand scale.

He introduced telephone account wagering in 1983, opened his first off-track betting operation in 1991 (Penn National now has 11), became a publicly traded company in 1994, and then, in 1997, Carlino bought Charles Town Race Course in neighboring West Virginia.

He began slots operations there later that year, bought Pocono Downs harness track and sold it to Mohegan Sun, acquired 50% interest in Freehold Raceway in New Jersey, then began buying riverboats and casinos in Mississippi, Louisiana, Illinois, and Colorado.

By 2003 Penn National revenues shot past $1 billion, and the company has been named one of the 100 fastest growing in America five years in a row by Fortune magazine.

In 2004 Carlino bought little Bangor Raceway in Maine from Shawn Scott of Las Vegas and points east, opened a slots operation there, and now is building a hotel. The slots are roaring.

Two years ago he bought Argosy Gaming, revenues surpassed $2 billion, and Forbes named Penn National one of the best managed companies in America.

This year Penn bought its 18th property, Black Gold casino at Zia Park in New Mexico, and now its 19th, Rosecroft. In June it announced it had agreed to be acquired by Fortress Investment Group and Centerbridge Partners, but it is almost certain Peter Carlino will continue running the show. His track record is the best in America.

As for Magna, Frank Stronach for the first time admitted things have gone very wrong. "We are extremely disappointed with the second quarter results," he said. (Magna lost more than $23.4 million in the quarter, and lost $288.3 million between 2004 and 2006). "We recognize that immediate and drastic action is required, and we have commissioned a strategic review of the company."

Where that leads is anyone’s guess. Magna has had six chief executive officers since 2000, with the sixth, Michael Neuman, leaving in June. Last week former CEO Dennis Mills resigned as a director and vice chairman of the board.

A suggestion for Mr. Stronach: Sit down with Peter Carlino, Frank, and get a little guidance from him.