Magna Entertainment places Maryland tracks in stable

Jul 16, 2002 8:13 AM

Frank Stronach’s ravenous appetite for racetracks was evident again on Monday when his Magna Entertainment Corp. (MEIC) announced it had acquired a majority interest in the Maryland Jockey Club, operators of both Pimlico and Laurel Race Courses.

The rumor of the purchase, often denied, has been circulating for several months. Seen as a prominent discussion point in sale negotiations was the future of both Joe De Francis and his sister, Karin, whose late father, Frank De Francis revitalized Maryland horse racing after acquiring the properties. In the minds of many, however, the quality racing established by Frank De Francis diminished through the 90’s in the hands of his children.

The transaction, reflecting an enterprise value of $117.5 million of which $30.2 million is represented by debt, grants Magna Entertainment 51% equity and voting interest in The Maryland Jockey Club, owner of Pimlico, and a 51% voting and 58% equity interest in Laurel.

Transfer of majority interest in the tracks will require the approval of the Maryland Racing Commission whose chairman already is on record as opposing Magna Entertainment’s involvement because of an allegedly poor showing in the operation of Gulfstream Park in Florida after purchasing that property from Japanese interests.

In addition to the financial payments, Magna has agreed to permit Joe De Francis to continue to operate the tracks as president and CEO and Karin De Francis as executive vice president. Also, Joe will be proposed for election to the Magna Entertainment board of directors.

The acquisition is important to Magna’s national account wagering business called XpressBet. Currently, the company has nearly a dozen tracks in North America, from Gulfstream in Florida to Santa Anita in California, that participate in its simulcast system of home-betting. Adding two major mid-Atlantic states tracks will be considered a coup in its battle for wagering signals with its major rival, TVG.

Analyst adds SGMS

Jason Ader, chief gaming analyst for Bear Stearns, announced Monday that he has initiated coverage of Scientific Games Corp. (SGMS) with a "buy" rating.

Scientific Games Corp., formed by combining Autotote Inc., the country’s leading provider of totalizitor services to America’s pari-mutuel industry, and Scientific Games Holdings, the dominant company in the instant lottery ticket industry, was the result of efforts being made by Autotote CEO Lorne Weil.

In commenting on his rating, Ader noted "we believe SGMS has a highly visible stream of recurring revenue and numerous opportunities to grow the top line, while continuing to realize cost synergies across the merged company. We also believe the company has tremendous operating leverage in its business model and should enjoy a high level of incremental EBITDA (earnings before interest, taxes, depreciation, amortization) growth for every additional dollar of revenues."

He added that he believes investors, over the next three years, "could see earnings growth of 20%-25% annually."

Ader set a target price of $12 for the shares.

The rockets flared

The grand opening Saturday night of the Boomtown Casino & Hotel in Bossier City, La., was highlighted by the largest fireworks display ever in Louisiana. But, the Grucci fireworks display was one of many attractions that called attention to the region’s newest property.

The three-day festival included performances by Ronnie Milsap, The Drifters, the Coasters, B.B. Secrist, 8-Track and the Elvis impersonator Brandon Bennett.

Boomtown General Manager Dale Darrough called the festival, "a celebration of our $23.5 million investment in the community. The new look and branding of the casino and hotel reflects our belief, which we share with Pinnacle Entertainment, that this market has the potential to be one of the most dynamic casino gaming regions in the U.S."

Boomtown, formerly operated by Casino Magic, is now part of the Pinnacle Entertainment Inc. (PNK) operation.

Boats to stay dockside

Indiana riverboat customers will no longer have to wait for a cruise beginning in September when all 10 of the state’s licensees take advantage of new legislation that permits boats to remain dockside.

Argosy Gaming Corp. (AGY) executives announced over the weekend that they would file an application with the Indiana Gaming Commission to begin dockside gaming when that is permitted in September. Argosy, whose boat is the closest to the city of Cincinnati, Ohio, is the largest revenue producer and under the new law will be required to pay a 35% tax on revenues exceeding $150 million.

Eliminating the wait at the docks by customers because of the two-hour cruise times is expected to increase boat revenues by as much as 30%.

No Daley deal

A gaming license for the City of Chicago won’t happen in the immediate future because it would be too expensive. That’s the opinion of Chicago’s Mayor Daley.

The license, currently held by the controversial Emerald Group of investors, is expected to be made available to the highest bidder with some people expected to go as high as $1 billion.

That’s too much for the mayor. As much as he would like to see the city get the financial benefits a Chicago-located casino would bring, the mayor feels that trying to get it on would create a financial problem.

But, the mayor has to be given credit for thinking big.  He explained that for a Chicago casino to be really successful it would need to be bigger than the existing riverboats. He said the city would need 24,000 slot machines to make it go. "That’s the big money," he said.

Renovation in jeopardy

A tax dispute between Churchill Downs Inc. (CHDN) and the city of Louisville has placed the track’s second phase of a $100 million renovation project in jeopardy. Track officials said in light of action taken by the city it will now have to reevaluate the renovations.

The problem developed over the weekend when the track failed to develop an agreement with the unions representing the construction workers involved in the renovations. A deal finally was agreed upon on Monday but city officials said Churchill had failed to meet the agreement deadline.

The agreement would have had the city take title to the track property for the next 30 years with the track leasing the property for $1 a year. This would have saved the track about $7.5 million a year and would have offset the track’s $127 million expansion project.

PENN goes Hollywood?

Talks reportedly have been going on for more than a week but as of Monday there still was no word whether Penn National Gaming Inc. (PENN) and Hollywood Casino Corp. (HWD) were any closer to making a purchase/sale agreement.

In late June, Hollywood, suffering from internal strife, hired the brokerage firm of Goldman Sachs to develop some strategic alternatives. Soon, reports spread that several companies had responded by showing interest in the acquisition.

Among the companies believed to be looking at Hollywood, in addition to Penn National Gaming, were: Harrah’s Entertainment Inc. (HET), Aztar Corp. (AZR), Argosy Gaming Co. (AGY) and Ameristar Casinos Inc. (ASCA).

According to news reports, Penn National and Hollywood became more serious in their discussions and even mentioned a purchase price of $11 a share. That would have valued the deal at about $700 million since the acquirer would also have assumed Hollywood’s debt of $435 million.

The purchase by Penn National would be consistent with the company’s recent bent on acquiring gaming properties. After having been operated as a horse track company for many years, Penn National branched out first into off-track betting and then as a "racino" with the purchase of Charles Town racetrack in West Virginia. The track has an extensive casino floor with 2,000 slot machines.

Also recent purchases have placed five casinos in the company’s resume.

On Monday, Penn National shares closed at $16.20, an increase of $0.40 for the day. Hollywood Casino Corp. closed at $10.

The Insider

The Unkechaug Indian Tribe will defy N.Y. Gov. George Pataki and open a high-stakes bingo hall in Mastic, N.Y., claiming their rights as an independent nation. Pataki insists such an operation would be illegal.

Interlott Technologies Inc. (ILI) has received a 28-month contract extension to provide services to the Colorado Lottery Commission.

Scientific Games Corporation (SGMS) says it has been awarded a contract to supply instant lottery tickets to the Connecticut Lottery Commission. The contract has been valued at $3 million.

Paul-Son Gaming Corporation (PSON) has scheduled its annual shareholders meeting for Sept. 12.

Station Casinos Inc. (STN) has scheduled a conference call for Tuesday, July 23, at 10 a.m. PDT to discuss the company’s financial results for the period ended on June 30.

The Janus Fund has reduced its stake in Park Place Entertainment Corporation (PPE) to 14.5 million shares from the previously held 20.4 million.

Alliance Gaming Corp. (ALLY) said it expects to report earnings in the range of $1.03 to $1.05 per diluted share based on 47.5 million shares outstanding. A conference call will be held on Thursday, July 25, at 10 a.m. PDT.

Donald Trump, whose casinos holdings are in New Jersey and Indiana, reportedly has taken a 9.8% stake in Riviera Holdings Corp. (RIV).

Casino operators in the Biloxi, Miss., area have set up a program to help their employees develop a down payment for their new homes. The workers can set up a savings program whereby funds will be withheld from their paychecks. Then, their employers will match a percentage of what their employees save.

A Mega Millions lottery jackpot is expected to reach $165 million for a Tuesday, July 16, drawing. Nine states participate in the drawings.

MGM Grand Detroit Casino has an agreement to acquire the union headquarters of the International Brotherhood of Electrical Workers, Local 58. The property is adjacent to the 9.6 acre Michigan Executive Plaza that the company has chosen as a potential site for its permanent casino.