- The Washington Times - Thursday, May 17, 2007

TORONTO — Frank Stronach, the Canadian millionaire and auto-parts magnate who owns Pimlico Race Course in Baltimore, likes to tout the conservative financial principles that gave Magna International’s books a cash balance that exceeds long-term debt by almost $1.4 billion.

But when it comes to the horse racing and entertainment company he controls, it’s a different story. Magna Entertainment’s debt is piling up as operating losses soar, and its finances are in such bad shape that its auditors question whether it can stay in operation.

And as the oddsmakers watch Pimlico and the 132nd running of the Preakness tomorrow, the longest shot could be whether the auto-parts manufacturer can let it ride at the track.

Mr. Stronach has almost dictatorlike control of the public companies because of the blocks of super-voting shares he holds in each. A review of their filings with the Securities and Exchange Commission also shows that he has not been bashful about transferring assets among his various companies to keep his bet on the future of horse racing alive.

He already controls Pimlico, where Kentucky Derby winner Street Sense will be trying to win the Preakness, and Gulfstream Park north of Miami, which was rebuilt last year to add a casino. Another one of his top tracks is Santa Anita Park in Arcadia, Calif., and he runs the Palm Meadows Training Center in Boynton Beach, Fla., which has stabling for about 800 horses.

Now he wants to add to his total of 10 tracks in the United States by joining with other bidders to win control of Belmont Park, home of the third leg of the Triple Crown, as well as the Aqueduct and Saratoga tracks in New York.

Magna is part of Empire Racing, a Saratoga Springs-based group that includes competitor Churchill Downs Inc. along with horse owners and breeders. Last year, Empire came in a close second in a lengthy evaluation of competitors for New York state’s thoroughbred racing franchise. Excelsior Racing Associates, a group headed by Las Vegas casino operator Steve Wynn and casino developer Richard Fields, came in first last year.

But a new process is under way led by New York Gov. Eliot Spitzer, a Democrat who took office Jan. 1. Mr. Spitzer and legislative leaders are expected to choose from among the four candidates, including the New York Racing Association, which has held the franchise since 1955. A selection is expected in the summer for the franchise, which expires Dec. 31.

Mr. Stronach, 74, arrived in Canada from war-torn Austria in 1954 with about $40 in his pocket. He started a tool-and-die business three years later and through a series of acquisitions his Aurora, Ontario-based Magna International has grown to $24 billion in sales last year in 23 countries and a current market capitalization of $8.9 billion.

Mr. Stronach referred to himself as a “king” at one shareholder meeting and was compared to Cuban dictator Fidel Castro at another during a shareholder revolt.

Mr. Stronach was viewed as the front-runner to buy Chrysler from DaimlerChrysler AG before he lost out to Cerberus Capital Management LLP this week. Mr. Lilley questions whether Mr. Stronach even told his board about Chrysler before he made the offer.

“He has a board of directors, but they’re there for his pleasure,” said Wayne Lilley, author of “Magna Cum Laude,” an unauthorized biography of Mr. Stronach. “They are just window dressing. He does what he wants.”

Magna did not return phone calls for comment

Mr. Stronach is chairman at Magna Entertainment, which was spun off from Magna International in 2000, and was its interim chief executive officer until February. Its most recent proxy statement shows that trusts he controls have 96 percent voting control of the company. He was paid nothing in 2006, but filings from previous years show that his compensation totaled close to $400 million over the last 10 years.

Mr. Stronach also is one of the top owners and breeders in thoroughbred racing. His Adena Spring Farms won the Eclipse Awards as breeder of the year for past three years. Among his top horses on the track were 2004 Horse of the Year Ghostzapper, 2000 Preakness winner Red Bullet, 2000 2-year-old male champion Macho Uno and 1998 Breeders’ Cup Classic winner Awesome Again.

The road to building what the company describes as North America’s No. 1 owner and operator of horse racetracks has been a bumpy one. Magna Entertainment reported net losses of $87.4 million in 2006, $105.3 million in 2005 and $95.6 million in 2004, and has an accumulated deficit of $393.8 million as of March 31, SEC filings show.

“Accordingly, the company’s ability to continue as a going concern is in substantial doubt and is dependent on the company generating cash flows that are adequate to sustain the operations of the business, renew or extend current financing arrangements and maintain its obligations with respect to secured and unsecured creditors, none of which is assured,” the company said in the filing.

Similar warnings have been made in previous filings.

One way the company has been able to stay in business has been through the sale of real estate and other assets to fund its capital needs and debt payments. For example, a subsidiary of Magna International last year paid $84.7 million to a subsidiary of the entertainment corporation for two golf courses in Oberwaltersdorf, Austria, and Aurora, Ontario.

Magna International spokeswoman Tracy Fuerst said the golf-course purchases were made because the courses are part of the auto=parts supplier’s complexes in Austria and near Toronto.

“It just made sense that we take them over,” she said.

According to its financial statements, Magna Entertainment owed its parent company, MI Developments Inc., $186.8 million as of March 31. MI Developments, spun off by Magna International in 2003, holds controlling interest in Magna Entertainment and has purchased some of its assets.

Last week, Magna Entertainment reported a net profit in the first quarter of $2.5 million, or 2 cents per share, mainly because of cost controls and slight revenue growth.

Its revenues grew 2 percent to $284.2 million, aided by gambling income from its Gulfstream Park casino in Florida. In addition to its simulcasting business and off-track betting shops, the company operates an online horse race wagering firm, XpressBet, and has a 50 percent stake in HorseRacing TV.

The company said it repaid $35.4 million worth of long-term debt in the first quarter.

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