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Magna Entertainment 10-K 2008

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K

(Mark One)

ý   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007.

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                          .

Commission File No. 000-30578

MAGNA ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of Incorporation or Organization)
337 Magna Drive
Aurora, Ontario, Canada

(Address of Principal Executive Offices)
  98-0208374
(I.R.S. Employer Identification No.)

L4G 7K1
(Zip Code)
     
Securities registered pursuant to Section 12(b) of the Act:
     
Title of each class
  Name of each exchange on which registered
Class A Subordinate Voting Stock   NASDAQ Global Market
     
Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "accelerated filer", and "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one). Large accelerated filer o Accelerated Filer ý Non-accelerated Filer o (Do not check if a smaller reporting company) o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No ý




As of June 30, 2007, the aggregate market value of the Class A Subordinate Voting Stock held by non-affiliates of the registrant was approximately $143,839,197 (based on the closing sale price of $2.92 per share of Class A Subordinate Voting Stock reported on The Nasdaq Global Market on June 30, 2007, the last day of the registrant's most recently completed second quarter). As of June 30, 2007, non-affiliates held no shares of Class B Stock. There is no active market for such stock.

The number of shares of Class A Subordinate Voting Stock of the registrant outstanding as of March 10, 2008 was 58,158,887.

The number of shares of Class B Stock of the registrant outstanding as of March 10, 2008 was 58,466,056.

Documents Incorporated by Reference

        Portions of the registrant's definitive proxy statement (our "Proxy Statement") to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the registrant's fiscal year end of December 31, 2007 are incorporated by reference in Parts II and III of this Annual Report to the extent stated herein. Except with respect to information specifically incorporated by reference in this Annual Report, the documents incorporated by reference are not deemed to be filed as part hereof.



INDEX

 
  Page
PART I   4
Item 1. Business   4
Item 1A. Risk Factors   35
Item 1B. Unresolved Staff Comments   51
Item 2. Properties   51
Item 3. Legal Proceedings   51
Item 4. Submission of Matters to a Vote of Security Holders   52

PART II

 

53
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   53
Item 6. Selected Financial Data   54
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations   57
Item 7A. Quantitative and Qualitative Disclosures about Market Risk   87
Item 8. Financial Statements and Supplementary Data   88
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   142
Item 9A. Controls and Procedures   142
Item 9B. Other Information   144

PART III

 

144
Item 10. Directors and Executive Officers of the Registrant   144
Item 11. Executive Compensation   144
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   144
Item 13. Certain Relationships and Related Transactions   144
Item 14. Principal Accountant Fees and Services   144

PART IV

 

145
Item 15. Exhibits and Financial Statement Schedules   145

SIGNATURES

 

146

EXHIBIT INDEX

 

147

3



Part I

Item 1. Business

Available Information

        We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K with the Securities and Exchange Commission ("SEC"). You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NW, Washington, DC 20549. You may obtain information on the hours of operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

        We maintain a website that contains information about us, none of which is incorporated by reference in, or shall be deemed included in, this Annual Report. It is accessible at www.magnaentertainment.com. Through our website, stockholders and the general public may access free of charge (other than any connection charges from internet service providers) our SEC filings, including this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to these reports, as soon as reasonably practicable after filing. Information contained in or otherwise accessed through our website does not form part of this Annual Report. Any reference to our website is an inactive textual reference only.

        In this Annual Report, when we use the terms "we", "us", "our", "MEC" and the "Company", we are referring to Magna Entertainment Corp., the Registrant, and its subsidiaries, unless the context otherwise requires. In this Annual Report, unless stated otherwise, all references to "$" are to U.S. dollars and all references to "Cdn. $" are to Canadian dollars.

Special Note Regarding Forward-Looking Information

        This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of applicable securities legislation, including Section 27A of the Securities Act, Section 21E of the Exchange Act and the Securities Act (Ontario). These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the Securities Act (Ontario). Please see "Management's Discussion and Analysis of Results of Operations and Financial Position — Forward-looking Statements" for commentary applicable to all forward-looking statements contained in this Annual Report.

Incorporation and Corporate Structure

        We were incorporated on March 4, 1999 under the laws of the State of Delaware as MI Venture Inc. Our certificate of incorporation was amended by a certificate of amendment on August 30, 1999 to reclassify our Common Stock into Class A Common Stock and to add a new class of stock designated as Class C Common Stock. Our certificate of incorporation was further amended on November 4, 1999 to change our name to MI Entertainment Corp., add share provisions for our Class A Subordinate Voting Stock and Class B Stock, and reclassify and subdivide our issued and outstanding Class C Common Stock into Class B Stock. Our certificate of incorporation was further amended on January 26, 2000 to change our name to Magna Entertainment Corp. Our certificate of incorporation was further amended on February 29, 2000 to broaden our corporate purpose, clarify the attributes of our Class A Subordinate Voting Stock and Class B Stock, and implement our Corporate Constitution. Subsequently, our certificate of incorporation was restated on March 1, 2000 to consolidate all prior amendments.

        Our registered office is located at 1209 Orange Street, Wilmington, Delaware, 19801 and our principal executive office is located at 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1.

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Our Business

        We own horse racetracks in California, Florida, Maryland, Texas, Oklahoma, Ohio, Oregon and Ebreichsdorf, Austria. In addition, we operated a racetrack in Michigan until November 2007 and, under a management agreement, operate a racetrack in Pennsylvania that we previously owned. Based on revenues, MEC is North America's number one owner and operator of horse racetracks, and is a leading supplier, via simulcasting, of live racing content to the growing inter-track, off-track and account wagering markets. We currently operate or manage seven thoroughbred racetracks, one standardbred (harness racing) racetrack and two racetracks that run both thoroughbred and quarterhorse meets, as well as the simulcast wagering venues at these tracks. Also, we previously managed the thoroughbred and standardbred meets at Magna Racino™, but now expect that a local operator will manage future meets at that facility. Three of the racetracks owned or operated by us (Gulfstream Park, Remington Park and Magna Racino™), include casino operations with alternative gaming machines. In addition, we operate off-track betting facilities, a United States national account wagering business known as XpressBet®, which permits customers to place wagers by telephone and over the Internet on horse races at over 100 North American racetracks and internationally on races in Australia, South Africa, Dubai, Germany, the United Kingdom and Hong Kong, and a European account wagering service known as MagnaBet™. Under a series of March 2007 agreements with Churchill Downs Incorporated ("Churchill Downs" or "CDI"), we own a 50% interest in a joint venture, TrackNet Media Group, LLC ("TrackNet Media"), the content management company formed for distribution of the full breadth of MEC's horse racing content. In addition to making horse racing content available for both MEC and CDI, it also makes such content available for third parties, including racetracks, off-track betting facilities, casinos and advance deposit wagering companies, and purchases horse racing content from third parties to be made available through CDI's and MEC's respective outlets. The TrackNet Media arrangement also involves the exchange by MEC and CDI of their respective horse racing signals such that Churchill Downs racing content is available for wagering through MEC-owned tracks and simulcast-wagering facilities and through our advance deposit wagering platform, XpressBet®, and our racing content is similarly available for wagering through CDI tracks and off-track betting facilities and through CDI-owned advance deposit wagering platforms. A separate joint venture with Churchill Downs also involves the ownership by MEC and CDI of equal (50%) shares in HorseRacing TV™ ("HRTV™"), a television network focused on horse racing that we initially launched on the Racetrack Television Network ("RTN"). HRTV™ is currently distributed to more than 15 million cable and satellite TV subscribers. RTN, in which we have a minority interest, was formed to telecast races from our racetracks and other racetracks to paying subscribers, via private direct to home satellite. We also own AmTote International, Inc. ("AmTote"), a provider of totalisator services to the pari-mutuel industry. To support certain of our thoroughbred racetracks, we own and operate thoroughbred training centers in Palm Beach County, Florida and in the Baltimore, Maryland area and, under a lease agreement, operate an additional thoroughbred training center situated near San Diego, California. We also own and operate production facilities in Austria and in North Carolina for StreuFex™, a straw-based horse bedding product.

        We own all the land on which our racetracks are located, with the exception of Lone Star Park at Grand Prairie, Remington Park and Portland Meadows (in which we own a minority interest in the land). In December 2007, we re-acquired the land upon which Great Lakes Downs is located and that land has been listed for sale in connection with our debt elimination efforts.

        At December 31, 2007, in addition to our racetracks, our real estate portfolio includes a residential development in Austria. We are also working with potential developers and strategic partners on proposals for developing leisure and entertainment or retail-based projects on excess lands surrounding, or adjacent to, certain of our premier racetracks. We entered into a Limited Liability Company Agreement with Forest City Enterprises, Inc. ("Forest City") concerning the proposed development of "The Village at Gulfstream Park™", a mixed-use retail, entertainment and residential project on a portion of the Gulfstream Park property. The Limited Liability Company Agreement also contemplated additional agreements, including a ground lease, a reciprocal easement agreement, a development agreement, a leasing agreement and a management agreement which were executed upon satisfaction of certain conditions. We have also entered into definitive operating agreements with certain affiliates of Caruso Affiliated regarding the proposed mixed use development of approximately 51 acres surrounding Santa Anita Park, though construction has not yet proceeded due to a legal challenge from a neighboring developer. See "Our Strategy — Developing Our Significant Real Estate Assets".

5


        In recent years, particularly since mid-2004, there has been much activity impacting the proposed passage of legislation that would permit our racetracks to offer alternative gaming, such as slot machines, video lottery terminals and other forms of non-pari-mutuel gaming. A March 2005 referendum having a direct impact on our plan to provide alternative gaming at Gulfstream Park was held in Broward County, in which that track is located. The referendum resulted in voters approving the authorization of slot machines in the county and, in respect of a challenge to the validity of the referendum, a lower court decision granted summary judgment in favor of "Floridians for a Level Playing Field" ("FLPF"), a group in which Gulfstream Park is a member. However, an August 2006 Florida First District Court of Appeals decision ruled that a trial is necessary to determine whether the constitutional amendment adopting the slots initiative was invalid because the petitions bringing the initiative forward did not contain the minimum number of valid signatures. Though FLPF pursued various procedural options in response to the First District Court of Appeals decision, the Florida Supreme Court ruled in late September 2007 that the matter was not procedurally proper for consideration by the court. That ruling effectively remanded the matter to the trial court for a trial on the merits, which will likely take an additional year or more to fully develop and could take as many as three years to achieve a full factual record and trial court ruling for an appellate court to review. Notwithstanding the status of the FLPF litigation, new July 2007 Florida legislation (i) clarified Florida Slot Machine Act provisions regarding on-site availability of automated teller machines, check cashing services and hours of operations, as well as the permitted number of slot machines, which was increased, and (ii) addressed the activities of card rooms, specifically the permitted hours of operations, bet limits, prizes and jackpot payouts, and the types of permitted card games. Under legislation that was approved by the citizens of the State of Oklahoma in a referendum held in November 2004, Remington Park is permitted to operate electronic gaming machines. Initially permitted to offer 650 gaming machines, Remington Park is entitled to install an additional 50 electronic gaming machines on each of the third and fifth anniversaries of the gaming license, which would bring the total number of electronic gaming machines to 750. For additional information on our alternative gaming efforts and the impact of legislative changes and judicial decisions, see "Our Properties".

        In February 2006, we announced the formation of PariMax, Inc. ("PariMax"), a new company to oversee the development of our various electronic distribution platforms including XpressBet®, HRTV™ (in which we now have a 50% interest), MagnaBet™, RaceONTV™ and AmTote. The recently formed TrackNet Media joint venture with Churchill Downs is also in the purview of PariMax.

        We have also continued to increase the international aspect of our business. In the more traditional, licensed betting office market, since March 2006 one of our Austrian subsidiaries has been operating a service with Ladbrokes which provides U.S. horse racing to the Ladbrokes Xtra service in Britain and Ireland. Ladbrokes Xtra currently serves approximately 2,000 Ladbrokes shops in the U.K. and Ireland. In 2007, we extended our relationship with Satellite Information Services (SIS), to continue to provide selected U.S. horse races to all of the approximately 10,000 betting shops in the U.K. and Ireland through 2009. In January 2008 one of our subsidiaries entered into simulcast agreements with each of International Betting Association Ltd., the owner of Bet 3000, the largest bookmaker chain in Germany, and Pferdewetten, de GmbH, the largest horse racing account wagering company in Germany.

        2007 was a challenging year for MEC. Although revenues from continuing operations increased by 9.0% to $625.7 million, our net loss increased to $113.8 million from $87.4 million in 2006, primarily due to increased losses at Gulfstream Park and continued high debt service costs. Also, in 2006 we recognized a $126.4 million gain on sale of intangible assets related to The Meadows and a write-down of long-lived assets of $88.6 million.

        Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments and Current Initiatives" for further information.

        Please see our financial statements under "Financial Statements and Supplementary Data" for financial information concerning our business and segments, including a geographic breakdown of revenues and information concerning long-lived assets.

Our Strategy

        MEC has had a brief history. In its formative years from 1998 to 2002, its focus was on acquiring racetracks and other operations related to the horse racing industry. As a result, MEC now has a diversified portfolio of

6



operations and assets related to horse racing, as well as casino interests. More recently, particularly since 2005, the Company's strategic focus has shifted in an effort to improve operations and reduce indebtedness. During 2007, debt elimination became a key objective. We intend to improve the financial situation of the Company by:

Proceeding with Debt Elimination Plan

        Following the completion of a strategic review of assets and operations, on September 12, 2007, our Board of Directors approved a debt elimination plan (the "Plan"), designed to eliminate the Company's net debt by December 31, 2008 by generating funding from: (i) the sale of certain real estate, racetracks and other assets; (ii) the sale of, or entering into strategic transactions involving, the Company's other racing, gaming and technology operations; and (iii) a possible future equity issuance. We also arranged for $100.0 million of funding to address immediate liquidity concerns and provide sufficient time to implement the Plan. This funding was comprised of: (i) a $20.0 million private placement of Class A Subordinate Voting Stock ("Class A Stock") to Fair Enterprise Limited ("Fair Enterprise"), a company that forms part of an estate planning vehicle for the family of Frank Stronach, MEC's Chairman and Interim Chief Executive Officer (the "Fair Enterprise Private Placement"); and (ii) a short-term bridge loan facility of up to $80.0 million (the "Bridge Loan") with a subsidiary of our controlling shareholder, MI Developments Inc. ("MID"). Although we continue to implement the Plan, since the adoption of the Plan, weakness in the U.S. real estate and credit markets has adversely impacted our ability to execute the Plan as market demand for our assets has been weaker than expected and financing for potential buyers has become more difficult to obtain. These conditions have not abated through the date of this Report, with the result that it will take us longer to execute the Plan than originally anticipated. As a result, we will likely need to seek extensions from existing lenders and additional funds in the short-term from one or more possible sources. The availability of such extensions and additional funds is not assured and, if available, the terms thereof are not determinable at this time. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations — Long-term and related party debt" for further details of the terms of the Bridge Loan, including the security granted, and the Gulfstream Park and Remington Park project financings.

        The Plan contemplates selling certain real estate properties, including those situated in the following locations: Dixon, California; Ocala, Florida; Aventura and Hallandale, Florida, both adjacent to Gulfstream Park; Porter, New York; Anne Arundel County, Maryland, adjacent to Laurel Park; and Ebreichsdorf, Austria, adjacent to the Magna Racino™. We have initiated an active program to sell the Dixon and Ocala real estate properties and have listed both of these properties for sale with a real estate broker. The Porter lands, which comprise three parcels of land, have been sold. The sale of one parcel closed in December 2007 and sales of the remaining two parcels closed in early January 2008. The sale of these properties generated net proceeds of approximately $1.7 million, net of transaction costs, which was used to repay a portion of the Bridge Loan subsequent to December 31, 2007. We recognized an impairment charge of $1.3 million in 2007 in relation to the Porter Lands. On December 21, 2007, MEC entered into an agreement to sell 225 acres of excess real estate located in Ebreichsdorf, Austria to a subsidiary of Magna International Inc. ("Magna") for a purchase price of 20.0 million Euros (approximately $29.4 million), subject to customary closing adjustments. The closing of the transaction is expected to occur during the first quarter of 2008 following the satisfaction of customary closing conditions including the receipt of all necessary regulatory approvals. We are required to use Euros 7.5 million of the net proceeds to repay a portion of a Euros 15.0 million term loan facility and the remaining portion of the net proceeds is required to be used to repay a portion of the Bridge Loan.

        We also intend to explore the sale of our membership interests in the mixed-use developments at Gulfstream Park in Florida and Santa Anita Park in California that we are pursuing under joint venture arrangements with Forest City and Caruso Affiliated, respectively.

        The racetracks that we intend to sell include: Great Lakes Downs in Michigan, Remington Park in Oklahoma, Thistledown in Ohio and our interest in Portland Meadows in Oregon. We ceased racing at Great Lakes Downs on November 4, 2007 and listed the property for sale with a real estate broker in October 2007. In September 2007, we engaged a U.S. investment bank, recognized as an experienced advisor in the gaming industry, to assist in soliciting potential purchasers and manage the sale process for certain assets and in October 2007, the U.S. investment bank began marketing Remington Park and Thistledown for sale. In

7



November 2007, we initiated an active program to locate a buyer and began marketing our interest in Portland Meadows for sale.

        We have also entered into two consulting agreements related to the Plan. Upon completion of a strategic review of the Company by Greenbrook Capital Partners Inc. ("Greenbrook") in September 2007, we entered into a consulting agreement with Greenbrook under which Greenbrook will assist us with the implementation of the Plan by providing consulting services until December 12, 2008 (unless terminated earlier). Tom Hodgson, the senior partner of Greenbrook and former President and Chief Executive Officer of the Company (from March 2005 to March 2006), carried out Greenbrook's strategic review and is responsible for carrying out Greenbrook's obligations under the consulting agreement. We also entered into a September 2007 consulting agreement with our parent company, MID, pursuant to which MID will provide consulting services to our management and Board of Directors in connection with the Plan. We are required to reimburse MID for its expenses, but there are no fees payable to MID in connection with the consulting agreement. This consulting arrangement may be terminated by either party under certain circumstances.

        Although we continue to implement our Plan, real estate and credit markets have continued to demonstrate weakness in the first part of 2008. This has reduced the likelihood that we will be able to complete asset sales at acceptable prices as quickly as originally contemplated. In light of these adverse developments, combined with our upcoming debt maturities and operational funding requirements, we will likely need to seek extensions or additional funds in the short-term from one or more possible sources. The availability of such extensions or additional funds from existing lenders, including MID, or from other sources is not assured and, if available, the terms thereof are not determinable at this time. We expect that we will enter into negotiations with such existing lenders, including MID, with a view to extending, restructuring or refinancing such facilities. There is no assurance that such negotiations, if any, will result in a favorable outcome for MEC. If we are unable to repay our obligations when due, other current and long-term debt will also become due on demand as a result of cross-default provisions within loan agreements, unless we are able to obtain waivers or extensions. Unless we are successful in our efforts, we could be required to liquidate assets in the fastest manner possible to raise funds, seek protection from our creditors in one or more ways or be unable to continue as a going concern. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Going Concern" and "Risk Factors — Risks Regarding Our Company" elsewhere in this Report for more information.

        We also intend to explore other strategic transactions involving other racing, gaming and technology operations, including: partnerships or joint ventures in respect of the existing gaming facility at Gulfstream Park; partnerships or joint ventures in respect of potential alternative gaming operations at certain of our other racetracks that currently do not have gaming operations; and transactions involving our technology operations, which may include one or more of the assets that comprise our PariMax business.

Further Developing Our In-Home Simulcasting and Wagering Services

        In order to advance efforts to increase our overall customer base we formed PariMax. PariMax business units aggregate content from both MEC and non-MEC racetracks, creating economies of scale as we repackage and deliver this content in compelling formats to various customer segments. We believe this approach will enable us to cost-effectively present live horse racing action to an increasing number of locations for an increasing number of hours per week, thus growing our reach to new customers and growing frequency among existing customers. This growth would benefit PariMax, MEC-owned tracks, and non-MEC tracks, which elect to utilize PariMax services. For the domestic, in-home wagering market, these services include XpressBet®, which offers account wagering on over 100 North American racetracks via the Internet and by telephone. XpressBet® is complemented by HorseRacing TV™, a specialty television network focused on horse racing in which we hold a fifty percent interest. HRTV™ is distributed to more than 15 million cable and satellite television subscribers and enables fans to watch live racing content from all over the United States, as well as Australia, South Africa, Dubai, Germany, the United Kingdom and Hong Kong. We believe that broad television distribution will help increase future interest in horse racing and attract additional wagering customers. At present, HorseRacing TV™ is carried on cable in 27 states and is available nationally on Dish Network™ as well as RTN. In an effort to broaden the audience, reach and appeal of horse racing and wagering thereon, we are pursuing carriage agreements with additional cable and satellite operators to achieve expanded distribution of HRTV™ in North America.

8


        Our strategy is to focus on the development of complete wagering solutions and concentrate on serving the global wagering market by developing product lines which meet the needs of both distribution partners and end consumers worldwide. AmTote provides a variety of wagering interfaces and connectivity products for racetracks, off-track betting operators, and account wagering providers, both domestically and abroad. For consumers, XpressBet® and MagnaBet™ are PariMax' account wagering platforms, which provide video streaming and wagering opportunities to an increasingly international customer base. Consumers are further served by PariMax' investment in the television channel HRTV™ in the United States.

        TrackNet Media is focused on increasing the amount of money returned to host racetracks and their horsemen from wagering outlets that do not conduct live thoroughbred racing. These outlets include casinos, account wagering companies, rebate shops, greyhound racetracks, jai-alai frontons, certain off-track betting networks, and international locations. During the past year, TrackNet Media has been successful in its endeavors to increase the host fees received from certain of these outlets, and it anticipates further success in the year ahead.

        In the area of account wagering, TrackNet Media advocates the broad, non-exclusive distribution of wagering content. We believe this will benefit customers who previously had to maintain several advance deposit wagering accounts to wager on a wide variety of racing signals, thus increasing the market size for this wagering content. TrackNet Media believes that many other racetrack operators now share its view that the non-exclusive distribution of account wagering rights is best for the fans, racetracks and horsemen. Several high profile racing associations that were previously "exclusive" for account wagering purposes have recently decided to distribute their content on a broad, non-exclusive basis. These racing associations include the New York Racing Association, the New Jersey Sports and Exposition Authority and others.

        Enhanced wagering integrity is another goal for TrackNet Media, which is expected to invest resources to better monitor the entities that haves access to the companies' racing content and wagering pools. TrackNet Media staff will work closely with domestic and international outlets licensed to simulcast and accept wagers on TrackNet Media-licensed products to ensure that MEC and CDI signals are being used appropriately and in ways that provide compensation to the horsemen and racetracks that produce the content. Third parties will not be allowed to sublicense TrackNet Media products to other tracks, off-track betting operators, casinos, rebate shops or advance deposit wagering providers, thereby reducing the risk of horse racing signal piracy and other integrity issues. This increased ability to control and monitor the use of our content is intended to curtail current business practices employed by entities looking to benefit from our content while diverting revenues that would otherwise benefit track operators and horsemen.

        Through TrackNet Media, MEC and Churchill Downs will also focus on improving the production quality of their simulcast signals. TrackNet Media will also utilize technological advances to better promote MEC and CDI racing products as gaming and entertainment options.

Entering New Markets

        PariMax oversees the development of new markets for MEC around the world. We currently distribute our content to inter-track and off-track venues in the United States, Canada, Mexico, South America, the Caribbean, the United Kingdom, Ireland, Germany and Austria.

        The formation of TrackNet Media and the related agreements with Churchill Downs, which has upgraded the assets and capabilities of PariMax, aids our efforts to maintain our presence in recently entered new markets, as well as potential new markets. The increased wagering integrity presented by TrackNet Media is expected to slow the leakage of revenues to offshore competitors that would otherwise flow to track operators and horsemen. By exchanging content with Churchill Downs, we will provide consumers in these newer markets, as well as our current customers, with access to a wider variety of content. While we have made a sizeable increase in the amount of our content available to our customers, the sale of 50% of our interest in HRTV™ to Churchill Downs has resulted in operating costs savings.

        In April 2006, we entered into a joint venture agreement with Churchill Downs and Racing UK Limited, a media rights company and subscription television channel owned by thirty leading British racecourses, to establish Racing World Limited, a company registered in England and Wales. Racing World is a distribution

9



vehicle for account wagering rights and audio-visual signals in the United Kingdom and Ireland in respect of horse racing content from MEC, CDI, and most other North American racetracks. Racing World also operates a television channel which is available to customers who receive Sky satellite service and subscribe to the Setanta Sports Pack (of which Racing UK is also a member). Racing World has to date entered into definitive agreements with two account wagering providers to take wagers on Racing World content: RacingUS.com, an affiliate of XpressBet®, and Newcote Service Limited, which is part of the Victor Chandler Group of Companies and owns www.vcbet.com.

        In the more traditional, licensed betting office market, one of our Austrian subsidiaries has been operating a service with Ladbrokes which provides U.S. horse racing to the Ladbrokes Xtra service in Britain and Ireland. Ladbrokes Xtra currently serves approximately 2,000 Ladbrokes shops in the U.K. and Ireland. In 2007, we extended our relationship with Satellite Information Services (SIS), to continue to provide selected U.S. horse races to all of the approximately 10,000 betting shops in the U.K. and Ireland through 2009. We continue to believe the British and Irish markets have great potential for evening distribution of U.S. product, and our strategy is to continue to explore partnerships that allow us to strategically and cost-effectively deploy in these markets. We also believe that, subject to applicable regulation, significant opportunities exist to expand the distribution of our content through the further development of our European and international distribution network. To this end, in January 2008 one of our subsidiaries entered into simulcast agreements with each of International Betting Association Ltd., the owner of Bet 3000, the largest bookmaker chain in Germany, and Pferdewetten, de GmbH, the largest horse racing account wagering company in Germany.

Improving the Quality of the Entertainment Experience and Facilities at Certain of Our Racetracks

        In order to increase our customer base, we intend to improve the quality of the entertainment experience at our racetracks by offering a variety of experiences with horse racing as the feature attraction. In pursuit of this strategy, we have begun and intend to continue to redevelop and modernize various of our facilities. The 2006 completed redevelopment of Gulfstream Park, located just outside Miami, Florida, included the construction of new wider and longer racing surfaces, which allows Gulfstream Park to run a longer live racing season and offer larger field sizes as well as a new grandstand/entertainment facility, each of which permit greater attendance and handle. In addition, Gulfstream Park has a casino offering slot machines and video poker and has a poker and racing lounge offering no-limit tables and a sports and simulcast area. Gulfstream Park also simulcasts the signal from Calder Race Course. Gulfstream Park offers customers a number of different dining options and an improved quality of entertainment, including the addition in August 2007 of Christine Lee's, a well known local restaurant with a 37 year history in Southern Florida. We are also partners with Forest City in a joint venture involving the proposed development around Gulfstream Park of The Village at Gulfstream Park™. For details of the operations at Gulfstream Park, including our casino operations and our joint venture with Forest City, see "Our Properties — Gulfstream Park".

Employing "Best Practice" Improvements at our Racetracks

        Through our acquisitions, we own some of the largest and what we believe to be some of the highest-quality thoroughbred racetracks in North America, as measured in terms of total handle, average daily attendance and average daily wagering, both on and off-track. As the various racetracks acquisitions have resulted in the Company achieving the desired scale of operations, we have intensified efforts to improve the efficiency of our integrated racetrack operations and related wagering operations. Continued improvement in this area is expected to afford us the opportunity to both grow our revenues and achieve significant operational synergies through the implementation of best practices, cost reductions realized from economies of scale and increased efficiencies. The maintenance of the quality of the live racing experience for our customers and horsemen is critical and, in some cases, may require upgrading and expanding our physical facilities, technology and business processes in order to attract more customers and the best available horses, trainers and jockeys.

Adding Alternative Gaming, if Permitted, at Certain of Our Racetracks

        In order to broaden our market appeal and thereby increase attendance and revenues, we intend to pursue alternative gaming opportunities, where available. Alternative gaming legislation that authorizes slot machines, video lottery terminals or electronic gaming at certain designated locations has been approved in Oklahoma,

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where our racetrack Remington Park is located, in Pennsylvania, where we operate The Meadows racetrack and Broward County, Florida, where our Gulfstream Park racetrack is located.

        Under legislation which was approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park is permitted to operate electronic gaming machines. In November 2005, we opened a gaming facility with 650 electronic gaming machines, the maximum permitted by Oklahoma legislation at that time. We are in the process of adding an additional 50 machines, as permitted by the enabling legislation which allows for an additional 50 machines on each of the third and fifth anniversaries of the gaming license. See "Government Regulation — Alternative Gaming — Oklahoma" below.

        In Florida we obtained the licenses necessary to permit the November 2006 opening of the Gulfstream Park slots facility which opened initially with 516 slot machines, and currently offers approximately 825 machines. Two pieces of July 2007 Florida legislation became effective, which have benefited the operations at Gulfstream Park. First, Florida House Bill 1047 clarified a number of provisions in the Florida Slot Machine Act with respect to the on-site availability of automated teller machines, check cashing services and hours of operations and increases the number of permitted slot machines. The second, SB 752, is related to card rooms and addresses hours of operations, bet limits, prizes and jackpot payouts, and the types of permitted card games.

        In November 2007, the Maryland legislature passed legislation to authorize a statewide November 18, 2008 referendum on a constitutional amendment which, if approved, would permit the installation of slot machines at Laurel Park and would permit Pimlico to share in slots revenue for purposes of purses. Initial indications are that Laurel Park would be permitted to install 4,750 of the total 15,000 slot machines that would be permitted in the state.

Developing Our Significant Real Estate Assets

        We have a significant portfolio of high quality real estate located in densely populated urban markets. Included in this real estate portfolio is land adjacent to several of our racetracks, Santa Anita Park, Gulfstream Park, Golden Gate Fields, Lone Star Park at Grand Prairie, Laurel Park and Magna Racino™. We are considering a variety of options with respect to this land. In addition to the work commenced on the joint venture with Forest City in respect of land adjacent to Gulfstream Park in Florida and the intention to have work proceed on the joint venture development of approximately 51 acres of undeveloped land adjacent to Santa Anita Park in California in the event we are successful in the face of a neighboring developer's legal challenge, we are considering other possible development with business partners who could be expected to provide the necessary marketing and development expertise, as well as the necessary financing.

        See "Proceeding with Debt Elimination Plan" for details of our continued efforts to sell real estate assets and the proceeds from the sales which will be used, primarily, to reduce our debt.

Technology Leadership

        In addition to our continued focus on operating the racetracks we own or manage, we have also endeavored to establish a technology leadership position within the horseracing industry. By acquiring or developing interests in television channels, an advance deposit wagering platform, AmTote and TrackNet Media, and bringing those electronic distribution platforms under the purview of PariMax, we have applied a focused approach to technology issues. Since our July 2006 acquisition of all the shares of AmTote, a provider of totalisator services to the pari-mutuel industry, we have been able to play a greater role in processing wagering transactions. We hope to leverage our technological advancements to continue to increase sales to others participants in the pari-mutuel industry, both in North America and worldwide.

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Intellectual Property Management

        In order to improve the utilization of our investment in the quality racing content being generated from our premier racing facilities and our partnerships with others who are owners of premier racing facilities, we are undertaking an organized approach to intellectual property management. Our intellectual property ranges from ownership of racing content and the pari-mutuel racing event that is determined by the race outcome, to the techniques and technology used to process wagers placed on the pari-mutuel racing event. In recent years we have focused on the creation of alternative pari-mutuel wagering solutions, new wager types that use existing pari-mutuel wagering solutions and exploration in the development of wagers for non-traditional pari-mutuel wagering events. Acquisition of intellectual property has and will continue to include in-house research and development and the purchasing of intellectual property developed outside of the Company. Our intellectual property management includes the filing of patents, regular review of patents filed and awarded, review of the competitive landscape and review of the legislative landscape nationally and internationally.

        For a discussion of the impact various customer-focused agreements with Churchill Downs are expected to have on, among other things, the management of our racing content see "Our Business" and "Our Strategy — Further Developing Our In-Home Simulcasting and Wagering Services".

Our History

        We were incorporated in Delaware on March 4, 1999. In November 1999, Magna, our original parent company and one of the most diversified automotive parts suppliers in the world, completed a reorganization of its corporate structure, under which Magna's non-automotive businesses and certain real estate assets were transferred to us. As part of this reorganization, our capital structure was amended to establish two classes of stock: Class A Subordinate Voting Stock, with one vote per share, and Class B Stock, with 20 votes per share.

        On March 10, 2000, Magna distributed to holders of its Class A Subordinate Voting Shares and Class B Shares, by way of a special dividend, approximately 15.7 million shares composed of our Class A Subordinate Voting Stock and exchangeable shares of MEC Holdings (Canada) Inc. Each exchangeable share was exchangeable by the holder for one share of our Class A Subordinate Voting Stock at any time. The purpose of these shares was to permit certain Canadian shareholders of Magna that were subject to limitations on their holdings of shares of non-Canadian issuers to receive shares of a Canadian issuer in the special dividend by Magna described above. On December 30, 2002, all remaining exchangeable shares of MEC Holdings (Canada) Inc., other than those already owned by us, were purchased by us in exchange for shares of our Class A Subordinate Voting Stock on a one-for-one basis.

        On August 19, 2003, the shareholders of Magna approved the spin off of its wholly-owned subsidiary, MID. As a result of the spin-off transaction, MID acquired Magna's controlling interest in MEC. MID is a real estate operating company engaged in the ownership, development, management, leasing, acquisition and expansion of industrial and commercial real estate properties located in Canada, Europe, the United States and Mexico. Virtually all of MID's income-producing properties are under long-term leases to Magna and its subsidiaries.

        On October 29, 2007, the Company completed a $20.0 million private placement of the Company's Class A Subordinate Voting Stock to Fair Enterprise under which Fair Enterprise was issued 8.9 million shares of Class A Subordinate Voting Stock at a price of $2.25 per share. As a result of the private placement, the percentage of Class A Subordinate Voting Stock beneficially owned by Fair Enterprise increased from approximately 7.5% to approximately 21.6% of the issued and outstanding Class A Subordinate Voting Stock, representing approximately 10.8% of the equity of the Company.

        As of February 28, 2008, MID owns, directly or indirectly, all of our outstanding Class B Stock and 4,362,328 shares of our Class A Subordinate Voting Stock. As a result, MID is able to exercise approximately 96% of the total voting power attached to all of our outstanding stock, and therefore is able to elect all our directors and to control us. Each company has its own board of directors and management team, although we share the same Chairman. In addition, our Board of Directors has established a committee of independent directors to whom they have delegated the responsibility of reviewing any proposed related party transactions, including any proposed transactions between us and MID or between us and Magna. Sales or a spin-off or other

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distribution of our stock by MID or by certain of our other significant stockholders under our registration statements could depress our stock price. See "Risk Factors — Risks Relating to Our Securities".

Overview of the Horse Racing Industry

Pari-Mutuel Wagering

        Pari-mutuel wagering on horse racing is a form of wagering in which wagers on horse races are aggregated in a commingled pool of wagers, called a mutuel pool, and the payoff to winning customers is determined by both the total dollar amount of wagers in the mutuel pool and the allocation of those dollars among the various kinds of bets. Unlike casino gaming, the customers bet against each other, and not against the operator, and therefore the operator bears no risk of loss with respect to any wagering conducted. The pari-mutuel operator retains a pre-determined percentage of the total amount wagered, called the takeout, on each event, regardless of the outcome of the wagering event, and the remaining balance of the mutuel pool is distributed to the winning customers. Of the percentage retained by the pari-mutuel operator, a portion is paid to the horse owners in the form of purses or winnings, which encourage the horse owners and their trainers to enter their horses in a track's races. Pari-mutuel wagering on horse racing is the largest form of pari-mutuel wagering, and it is currently authorized in over 40 states of the United States, all provinces of Canada and approximately 100 other countries around the world.

Recent History

        Over the past twenty years live attendance at horse racetracks in the United States has declined substantially due to a number of factors, including the growth in off-track and account wagering; increased competition from other forms of gaming and leisure entertainment; the attrition of the racing industry's traditional customer base; the lack of, or deterioration in, the quality of live racing events at many racetracks; and the inability of racetrack operators to broaden the appeal of wagering on horse racing. Declines in live attendance have resulted in an overall decline in the amount of money wagered on-track on horse racing, which has exacerbated the problem of producing high-quality live wagering events and in developing entertaining racetrack facilities.

        In the early 1990s, the introduction of off-track and inter-track wagering became more prevalent and reversed the decline in the total amount of dollars wagered on horse racing. The rise in off-track and inter-track wagering has resulted in an increase in total industry revenues, and the creation of larger pools of wagers on horse races at certain racetracks. This has more than offset the decline in live on-track wagering due to declining live attendance.

        The early 1990's also saw the advent of a form of pari-mutuel and non-pari-mutuel wagering termed account wagering, or advance deposit wagering. Account wagering allows subscribers to establish wagering accounts and utilize various interactive platforms, such as the telephone, the Internet and interactive television, to transmit their wagering information to a designated account wagering operator, which then places wagers on the subscribers' behalf. Account wagering has grown steadily as a convenient and popular wagering option, for both pari-mutuel and non-pari-mutuel bettors alike. The rising popularity of account wagering serves as both an opportunity for the pari-mutuel wagering industry to further expand revenues and a challenge to prevent this new wagering platform from further eroding on-track attendance and wagering.

The Growth in Off-track and Inter-track Wagering

        Pari-mutuel wagering on thoroughbred horse racing in the United States increased from $12.5 billion in 1997 to $15.2 billion in 2003, before receding to $14.7 billion in 2007, according to The Jockey Club. This overall increase from 1997 resulted primarily from the growth of off-track and inter-track wagering, which has grown by approximately 33.7% from $9.8 billion in 1997 to $13.1 billion in 2007. The decrease during 2006 and 2007 resulted primarily from an increase in the number of non-pari-mutuel wagering options available to the general public, including lotteries, casinos and poker. This increased competition is both from on-line options and more traditional bricks and mortar establishments. Simulcasting live racing events to off-track and inter-track venues has been facilitated by technological advances and the introduction of legislative changes.

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U.S. Thoroughbred Pari-Mutuel Wagering Handle (in Billions)

 
  1997
  1998
  1999
  2000
  2001
  2002
  2003
  2004
  2005
  2006
  2007
Total Handle   $ 12.542   $ 13.115   $ 13.724   $ 14.321   $ 14.550   $ 15.062   $ 15.180   $ 15.099   $ 14.561   $ 14.785   $ 14.725
On-Track Handle   $ 2.703   $ 2.498   $ 2.359   $ 2.270   $ 2.112   $ 2.029   $ 1.902   $ 1.860   $ 1.741   $ 1.688   $ 1.670
Off-Track Handle   $ 9.839   $ 10.617   $ 11.365   $ 12.051   $ 12.438   $ 13.033   $ 13.278   $ 13.239   $ 12.819   $ 13.097   $ 13.055

Source: Equibase Company LLC; The Jockey Club.

        Simulcasting is the process of transmitting the audio and video signal of a live racing performance, referred to as the content, from one facility to other locations or venues where wagering on such content is permitted. Simulcast wagering provides racetracks with the opportunity to increase revenues by exporting their live racing content to as many wagering locations as possible, such as other racetracks, off-track betting facilities and casinos, and by importing racing content and wagering opportunities from other racetracks. Account wagering is a form of off-track wagering whereby the betting customer establishes a wagering account with an established account wagering provider. The account wagering subscriber uses the balance in the wagering account to fund wagers processed on the subscriber's behalf by the account wagering provider. Since its inception, account wagering has gained a growing percentage of the dollars wagered through off-track wagering operators. Account wagering is conducted both by operators based and licensed in the United States, such as our subsidiary, XpressBet, Inc. and by operators located outside the United States.

        Industry revenues have increased because simulcast wagering, including account wagering, provides racetracks that export their live content with additional customers in multiple locations who would not have otherwise been able to place wagers on the live racing event. Similarly, simulcast wagering provides operators of wagering venues who import content from other racetracks with more product upon which their customers can place wagers. Providers of live racing content who export their content to other venues generally charge these venues a percentage of all monies wagered on their content, while operators of pari-mutuel wagering venues that import racing content retain a pre-determined percentage of all amounts wagered at their facility on the imported content. Because the competition for time slots is relatively intense, the growth of simulcast wagering has been particularly beneficial to the operators of premier racetracks, which tend to offer higher quality racing, with larger fields and higher purses. Conversely, operators of smaller or lesser quality racetracks have historically benefited less from export simulcasting of their content, due to a lack of demand for their content. Part of our strategy involves efforts to broaden the distribution of, and demand for, the racing content from our smaller tracks. We are pursuing strategies, such as the formation of PariMax, to benefit from this revenue growth opportunity while at the same time exploring ways to minimize the potential negative effects often associated with non-U.S. companies placing wagers on behalf of U.S. citizens.

        We expect that off-track and inter-track wagering will experience continued growth as additional venues able to import simulcast content are established both domestically and internationally and new distribution channels for pari-mutuel wagering, such as the telephone, Internet and interactive television, are further developed. With the formation of TrackNet Media, we have been able to focus more intensely on rationalizing the acquisition and distribution of horse racing content.

        Because of the high quality of our thoroughbred racing content and racetrack properties, we believe we are well positioned to participate in the future growth of off-track, inter-track and account wagering as both a leading exporter and importer of live racing content, particularly since TrackNet Media has become key to our content acquisition and distribution efforts.

        For a discussion of our recent strategic initiatives related to off-track and inter-track wagering see "Our Business" and "Our Strategy — Further Developing Our In-Home Simulcasting and Wagering Services".

Our Content

        Our racetracks are geographically diversified. Santa Anita Park is near Los Angeles, Gulfstream Park is near Miami, Golden Gate Fields is near San Francisco, Lone Star Park at Grand Prairie is near Dallas, Pimlico Race Course is in Baltimore, Laurel Park is between Washington, D.C. and Baltimore, Thistledown is near Cleveland, Remington Park is in Oklahoma City and Portland Meadows is near Portland, Oregon. The Meadows and Maroñas, two racetracks to which we provide management services, are located near Pittsburgh, Pennsylvania and in Montevideo, Uruguay, respectively. Magna Racino™, is located near Vienna, Austria.

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2008 Racing Schedule

        As illustrated in the chart below, live racing is offered throughout the year at our racetracks. The racing dates for Santa Anita Park indicated below include The Oak Tree Meet.

Racetrack*

  Scheduled Racing Meets
Santa Anita Park   December 26, 2007 – April 20, 2008 and September 24, 2008 – October 26, 2008

Gulfstream Park

 

January 3, 2008 – April 20, 2008

Golden Gate Fields

 

January 3, 2008 – February 3, 2008, May 14, 2008 – June 22, 2008, September 17, 2008 – December 21, 2008

Laurel Park

 

January 1, 2008 – April 13, 2008, August 8 – 20, 2008, September 8, 2008 – December 28, 2008

Lone Star Park at Grand Prairie

 

April 20, 2008 – July 27, 2008 and September 26, 2008 – November 29, 2008

Pimlico Race Course

 

April 13, 2008 – June 7, 2008

The Meadows

 

January 1, 2008 – December 31, 2008

Thistledown

 

May 1, 2008 – September 29, 2008

Remington Park

 

March 7, 2008 – June 1, 2008 and August 21, 2008 – December 14, 2008

Portland Meadows

 

January 1, 2008 – March 11, 2008 and October 21, 2008 – December 31, 2008

Great Lakes Downs

 

None

Magna Racino™

 

None, on our own account
*
We have announced our intention to sell Remington Park, Thistledown, Great Lakes Downs and our interest in Portland Meadows.

Our Properties

        Set forth below is a description of certain of our properties. See "Our Strategy — Proceeding with Debt Elimination Plan" for information regarding our intention to sell assets in order to raise funds to repay debt.

Santa Anita Park

        Santa Anita Park is situated on approximately 305 acres of land in the City of Arcadia, California, approximately 14 miles northeast of Los Angeles. Approximately 10.9 million people are located within a 30-mile radius of Santa Anita Park.

        Santa Anita Park opened for thoroughbred horse racing in 1934 and hosts The Santa Anita Meet. The Santa Anita Meet generally commences on December 26 and runs until the end of April each year. In addition, we lease Santa Anita Park to The Oak Tree Racing Association, which is an unaffiliated not-for-profit California association that holds a license to host The Oak Tree Meet for five to six weeks each fall. Pursuant to this lease, which was extended in September 2007 until the later of November 30, 2016 or the close of the 2016 Oak Tree Meet, we receive rent that consists primarily of a percentage of the on-track handle wagered on races run at Santa Anita Park and a percentage of The Oak Tree Racing Association net commissions from fees earned on racing content, exported from or imported to Santa Anita Park. Santa Anita Park was the site of the Breeders' Cup™ World Thoroughbred Championships in 2003 during The Oak Tree Meet, as it will be in 2008 and 2009. Santa Anita Park has one of the longest racing schedules of the top North American racetracks, totaling approximately 110 to 116 racing days each year (including The Oak Tree Meet). Average daily attendance in

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2007 was approximately 9,300 customers per live racing day, representing one of the highest average daily attendance figures of all North American racetracks.

        Santa Anita Park had one of the highest total handles, or total amounts wagered, of all North American racetracks in 2007, approximately $1.335 billion, including wagers made at Santa Anita Park on its races (including The Oak Tree Meet), wagers made at other wagering venues and through various account wagering operations on Santa Anita Park's races (excluding wagers placed in Northern California and via account wagering systems licensed to operate in California), and wagers made at Santa Anita Park and its inter-track facilities on imported races. Wagers on Santa Anita Park's races (including The Oak Tree Meet and all venues at which wagers were placed) totaled approximately $955.3 million in 2007. Of this amount, approximately $790.8 million in wagers were placed at other wagering venues to which we exported Santa Anita Park's races via simulcast and through various account wagering operations. Santa Anita Park exports its simulcast signal to approximately 1,000 off-track and inter-track wagering facilities in 23 countries. Throughout the year, Santa Anita Park operates as an inter-track wagering facility where customers can wager on races that are imported to Santa Anita Park from other racetracks.

        Santa Anita Park's facilities include a large art deco-style grandstand structure with seating for approximately 19,000 customers, as well as standing room for additional customers, a one-mile oval dirt track as well as a 7/8-mile turf course, stalls for approximately 2,000 horses and parking facilities sufficient to accommodate approximately 17,000 cars. During the summer of 2007 a synthetic track surface was installed at Santa Anita Park, as mandated by the California Horse Racing Board ("CHRB"). During January and early February 2008, racing was cancelled on 11 days (offset in part by three rescheduled days) because additional work on the track surface was required to address drainage problems.

        In January 2004, we completed certain renovation and improvement projects that included the opening of Sirona's™, a 25,000 square foot sports bar and restaurant located across from the walking ring. Sirona's™ operates year-round from an open-air terrace overlooking a seven acre garden paddock. After-race activities feature a weekly musical concert from its garden stage. Other enhancements include two new customer convenient food service facilities in our front garden, eight high definition video projection systems in our major betting halls, two LED screens flanking our walking ring, and the extensive landscaping and lighting of our main entry and south parking lot.

        In September 2006, The Santa Anita Companies, Inc. entered into definitive operating agreements with certain Caruso Affiliated affiliates to develop approximately 51 acres of undeveloped lands surrounding Santa Anita Park. This project contemplates a mixed-use development with approximately 800,000 square feet of retail space, entertainment and restaurants as well as approximately 4,000 parking spaces. After the project was approved by the Arcadia City Council in April 2007, Westfield Corporation ("Westfield"), a developer of a neighboring parcel of land, has challenged the manner in which the entitlement process for the development of the land surrounding Santa Anita Park had been proceeding. On May 16, 2007, Westfield commenced civil litigation in the Los Angeles Superior Court in an attempt to overturn the Arcadia City Council's approval and granting of entitlements related to the construction of The Shops at Santa Anita. In addition, on May 21, 2007, Arcadia First! filed a petition against the City of Arcadia to overturn the entitlements and named the Company and certain of its subsidiaries as real parties in interest. If either Westfield or Arcadia First! is ultimately successful in its challenge, development efforts could potentially be delayed or suspended. The first hearings on the merits of the petitioners' claims are scheduled to be heard before the trial judge during the third week of April 2008.

Gulfstream Park

        Gulfstream Park is located on approximately 250 acres of land in the cities of Hallandale and Aventura, between Miami and Ft. Lauderdale in Florida. There are approximately 4.3 million people living within a 40-mile radius of Gulfstream Park.

        Gulfstream Park opened in 1939 and for many years, ending in 2001, the annual meet at Gulfstream Park lasted for approximately 63 days between January and March. Beginning in 2002, Gulfstream Park was granted approval to run its meet for approximately 90 days between January and April. The Breeders' Cup™, one of the

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preeminent series of races in the United States, was held at Gulfstream Park in 1989, 1992 and 1999. In 2007, average daily attendance was approximately 5,500 customers per live racing day.

        The redevelopment of Gulfstream Park, which commenced in 2004, was completed in 2006. The project included significant modifications and enhancements to the racing surfaces and stable area, including the construction of a new, wider turf course, which was completed prior to the start of the 2005 race meet. The project also included the construction of a modern clubhouse/grandstand offering an array of restaurants and entertainment facilities. In addition, Gulfstream Park has a casino offering approximately 825 slot machines and video poker and has a poker and racing lounge offering 20 no-limit tables and a sports and simulcast area. On September 6, 2007, a Florida Supreme Court ruling was issued which allows for cross-simulcasting, subsequent to which Gulfstream Park, Calder Race Course and the Florida horsemen entered into an agreement permitting Gulfstream Park and Calder Race Course to take simulcast wagering on each other's live cards as well as on any other signal the live track imports. Gulfstream Park began simulcasting the signal from Calder Race Course on September 22, 2007.

        Gulfstream Park offers customers a number of different dining options and an improved quality of entertainment, including the addition in August 2007 of Christine Lee's a well known local restaurant with a 37 year history in Southern Florida.

        Though the performance of Gulfstream Park has not met our desired objectives, the implementation of beneficial Florida legislation in July 2007, the favorable September 2007 Florida Supreme Court decision permitting cross-simulcasting, the opening of Christine Lee's and a Fall 2007 reconfiguration of the casino's first floor are expected to improve Gulfstream Park's financial performance. For additional information on the Florida legislation and September decision of the Florida Supreme Court, see "Our Strategy" and "Our Strategy — Adding Alternative Gaming, if permitted, at Certain of Our Racetracks".

        Gulfstream Park had total handle during 2007 of approximately $746.8 million, which includes wagers made at Gulfstream Park on its races, wagers made on Gulfstream Park races at other wagering venues and through various account wagering operations, and wagers made at Gulfstream Park on races imported to its inter-track facility. Wagers on Gulfstream Park's races totaled approximately $604.9 million in 2007. Of this amount, approximately $540.8 million in wagers were placed at other wagering venues to which we exported Gulfstream Park's signal and through various account wagering operations.

        We are also partners with Forest City in a joint venture formed pursuant to a May 2005 Limited Liability Company Agreement. The joint venture contemplates the development of The Village at Gulfstream Park™, a 60-acre master-planned lifestyle destination which will offer shops, destination retailers, signature restaurants, unique entertainment options and an appealing residential live/work environment. Phase I of the development will include 375,000 square feet of lifestyle retail space, featuring 70 upscale shops, specialty stores and restaurants and 70,000 square feet of office space. Operating agreements, including a ground lease, a reciprocal easement agreement, a development agreement, a leasing agreement and a management agreement were executed in connection with the joint venture in due course and the groundbreaking for Phase 1 occurred in June 2007. This phase is expected to open in the first quarter of 2009. Upon completion, The Village at Gulfstream Park™ is expected to result in the development of 1,500 condominiums, 750,000 square feet of retail space, 140,000 square feet of office space, a 500-room hotel and a 2,500 seat cinema. The project is expected to be built over 15 years and will involve the construction of 225 affordable/workforce-housing units both on the site itself and in the neighbourhoods within the city.

        On December 8, 2005, legislation authorizing the operation of slot machines within existing, licensed Broward County, Florida pari-mutel facilities that have conducted live racing or games during each of 2002 and 2003 was passed by the Florida Legislature. On January 4, 2006, the Governor of Florida signed the legislation into law and subsequently the Division of Pari-mutuel Wagering developed the governing rules and regulations. In October 2006, we were awarded a gaming license for slot machine operations at Gulfstream Park despite an August 2006 decision rendered by the Florida First District Court of Appeals that ruled that a trial is necessary to determine whether the constitutional amendment adopting the slots initiative was invalid because the petitions bringing the initiative forward did not contain the minimum number of valid signatures. Previously, a lower court decision had granted summary judgment in favor of "Floridians for a Level Playing Field" ("FLPF"), a group in which Gulfstream Park is a member. Though FLPF pursued various procedural options in

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response to the First District Court of Appeals decision, the Florida Supreme Court ruled in late September 2007 that the matter was not procedurally proper for consideration by the court. That ruling effectively remanded the matter to the trial court for a trial on the merits, which will likely take an additional year or more to fully develop and could take as many as three years to achieve a full factual record and trial court ruling for an appellate court to review. Also, new July 2007 Florida legislation (i) clarified Florida Slot Machine Act provisions regarding on-site availability of automated teller machines, check cashing services and hours of operations, as well as the permitted number of slot machines, which was increased, and (ii) addressed the activities of card rooms, specifically the permitted hours of operations, bet limits, prizes and jackpot payouts, and the types of permitted card games.

        On November 28, 2007, we sought and were granted amicus curiae status in a suit filed by the House of Representatives and Speaker Marco Rubio against the Governor of the State of Florida, Charlie Crist, relating to the approval of tribal compacts. The Florida Supreme Court heard arguments on January 30, 2008 and judgment is currently pending.

Golden Gate Fields

        Golden Gate Fields is located on approximately 154 acres of land in the cities of Albany and Berkeley, California, approximately eight miles from Oakland and approximately 11 miles from San Francisco. There are approximately 5.2 million people within a 40-mile radius of Golden Gate Fields.

        Golden Gate Fields' racing season lasts for approximately 98 racing days. The season is split throughout the year and has varied for the last few years. Average daily attendance in 2007 was approximately 2,500 customers per live racing day.

        Golden Gate Fields had total handle during 2007 of approximately $442.5 million, including wagers made at Golden Gate Fields on its races, wagers made at other wagering venues and through various account wagering systems on Golden Gate Fields' races (excluding wagers placed in Southern California, and wagers placed via advanced deposit wagering systems licensed to operate in California) and wagers made at Golden Gate Fields and its inter-track facilities on imported races. Wagers on Golden Gate Fields' races totaled approximately $249.6 million in 2007. Of this amount, approximately $226.0 million in wagers were placed at other wagering venues to which we exported Golden Gate Fields' races via simulcast and through various account wagering operations. Golden Gate Fields exports its simulcast signal to approximately 900 off-track and inter-track wagering facilities in the United States, Canada, Mexico and the Caribbean. Throughout the year, Golden Gate Fields operates as an inter-track wagering facility where customers can wager on races that are imported from other racetracks.

        Golden Gate Fields' facilities include a one-mile track and a 7/8-mile turf course, stalls for over 1,350 horses, a main grandstand with seating for approximately 8,000 customers, a Clubhouse with seating for approximately 4,500 customers, a Turf Club with seating for approximately 1,200 customers and parking for over 4,100 cars.

        During the late summer of 2007, a new synthetic track surface was installed at Gold Gate Fields, in compliance with CHRB mandated requirements. The track was installed in time for the Golden Gate Fields 2007-2008 meet running from November 2007 to February 2008. As was expected, the new track surface helped reduce injuries and track maintenance costs and increased field size.

        We are considering retail-based development proposals at Golden Gate Fields. This development would be intended to further enhance the entertainment experience at Golden Gate Fields, broaden the demographic composition of our customer base and strengthen the loyalty of our existing customers. These proposals are preliminary. If, after a detailed review, we decide to proceed with such proposals or alternative proposals, additional time would be required to obtain or finalize the necessary regulatory approvals and negotiate with potential business partners who could be expected to provide marketing and development expertise and the necessary financing.

Laurel Park

        In November 2002, we acquired a controlling interest in The Maryland Jockey Club, which owns and operates Laurel Park and Pimlico Race Course. In September 2007, the Company exercised its option to acquire

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the remaining voting and equity interests in The Maryland Jockey Club, pursuant to an agreement with certain companies controlled by Joseph De Francis, then a member of the Company's Board of Directors, and Karin De Francis. Under the terms of the option agreement, the Company paid $18.3 million plus interest on October 5, 2007 in connection with the option exercise. Laurel Park, which first appeared on the racing scene in 1911, is located on approximately 236 acres of land in Laurel, Maryland, between Washington, D.C. and Baltimore. There are approximately 6.6 million people living within a 40-mile radius of Laurel Park.

        Laurel Park's racing season in 2007 was 148 days. Average daily attendance at Laurel Park in 2007 was approximately 2,800 customers per live racing day.

        Laurel Park's handle was approximately $525.9 million in 2007, including wagers made at Laurel Park on its races, wagers made at other wagering venues and through various account wagering operations on Laurel Park's races, and wagers made at Laurel Park on imported races. Wagers on Laurel Park's races totaled approximately $368.1 million in 2007. Of this amount, approximately $346.3 million in wagers were placed at other wagering venues to which we exported Laurel Park's signal via simulcast and through various account wagering operations.

        Laurel Park's facilities include a grandstand with seating for approximately 5,200 customers, a 11/8-mile dirt track with a seven and one half-furlong chute which opened in January 2005, and a 7/8-mile turf course which opened in September 2005. Laurel Park has stalls for approximately 1,000 horses and parking facilities sufficient to accommodate approximately 8,000 cars.

        The Maryland Jockey Club was party to agreements with the Maryland Thoroughbred Horsemen's Association and the Maryland Breeders' Association, which expired on December 31, 2007, under which the horsemen and the breeders each contributed 4.75% of the costs of simulcasting to The Maryland Jockey Club. Without arrangements similar in effect to these agreements, there would be an increase in costs of approximately $2.0 million. At this time, we are uncertain as to the renewal of these agreements on comparable terms.

Lone Star Park at Grand Prairie

        On October 23, 2002, we acquired Lone Star Park at Grand Prairie ("Lone Star Park"), which operates thoroughbred and American quarter horse meets and is located on approximately 285 acres of land in the City of Grand Prairie, Texas, approximately 12 miles west of Dallas. There are approximately 5.1 million people living within a 40-mile radius of Lone Star Park.

        Lone Star Park is one of the newest horse racing facilities in the United States, having opened for live thoroughbred and quarter horse racing in 1997. Lone Star Park's thoroughbred meet generally commences each year in early April and continues through mid-July. Its quarter horse meet generally commences each year in early October and continues through November. Average daily attendance during the 2007 spring thoroughbred meet was approximately 7,100 customers per live race day and 3,100 customers during the fall quarter horse meet. In addition to its live racing facilities, Lone Star Park contains a state-of-the-art 36,000 square foot simulcast pavilion, which operates year-round.

        Lone Star Park had total handle during 2007 of approximately $290.9 million, which includes wagers made at Lone Star Park on its races, wagers made on Lone Star Park races at other wagering venues and through various account wagering operations, and wagers made at Lone Star Park on races imported to its inter-track facility. Wagers on Lone Star Park's races totaled approximately $127.5 million in 2007. Of this amount, approximately $95.5 million in wagers were placed at other wagering venues to which we exported Lone Star Park's signal and through various account wagering operations.

        Lone Star Park's facilities include a grandstand with seating for approximately 10,000 customers, a one-mile dirt track, a 7/8-mile turf track, stalls for approximately 1,600 horses and parking facilities sufficient to accommodate approximately 10,000 cars. In addition to its grandstand, clubhouse and turf club seating, Lone Star Park has two floors of luxury suites. Lone Star Park's simulcast pavilion can also accommodate approximately 2,100 customers.

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        Lone Star Park was the site of the 2004 Breeders' Cup™ World Thoroughbred Championships, making it the youngest track in history to host this prestigious event. An overwhelming response from racing fans from around the world resulted in what at that time was the fastest sellout in Breeders' Cup history with a total attendance of 53,717 on race day.

        Lone Star Park is operated pursuant to a lease with a governmental entity associated with the City of Grand Prairie. The lease expires in 2027, at which time we will have an option to purchase the Lone Star Park real property at a purchase price equal to one-half of its then fair market value. Pursuant to the lease terms, if we exercise the option, we will receive credit against the purchase price in an amount equal to the sum of all rent payments made during the life of the lease discounted back to 1997 at a rate of 8% per annum.

Pimlico Race Course

        Historic Pimlico Race Course, home of the Preakness Stakes®, first opened its doors in 1870, making it the second oldest racetrack in the United States. Pimlico is situated on approximately 116 acres of land in Baltimore, approximately 30 miles from Laurel Park. There are approximately 5.2 million people living within a 40-mile radius of Pimlico.

        The Preakness Stakes® dates back to 1873, two years before the first Kentucky Derby was run. Since 1909, the Preakness Stakes® has been run annually at Pimlico without interruption and this year's race, on May 17, 2008, will mark the 133rd edition of this sporting classic. Past winners of the Preakness Stakes® include legendary race horses such as Man o' War, Citation, Secretariat, Seattle Slew, Affirmed and, in 2007, Curlin, the winner of the National Thoroughbred Racing Association ("NTRA") sponsored Eclipse Awards as 2007 Horse of the Year and Three Year Old of the Year.

        The racing season at Pimlico in 2007 consisted of approximately 31 racing days in a Spring meet, between early April and mid-June. The Spring meet features 10 graded stakes races, including the middle jewel of thoroughbred racing's Triple Crown, the Preakness Stakes®, which is run annually on the third Saturday in May. Average daily attendance in 2007 was approximately 3,600 customers per live racing day.

        Pimlico's handle was approximately $284.7 million in 2007, including wagers made at Pimlico on its races, wagers made at other wagering venues and through various account wagering operations on Pimlico's races, and wagers made at Pimlico on imported races. Wagers on Pimlico's races totaled approximately $165.5 million in 2007. Of this amount, approximately $153.1 million in wagers were placed at other wagering venues to which its signal was exported via simulcast and through various account wagering operations.

        Pimlico's facilities include a grandstand with seating for approximately 13,000 customers, a one-mile dirt track with 13/16-mile and 3/4-mile chutes, a 7/8-mile turf course, stalls for approximately 700 horses and parking facilities sufficient to accommodate approximately 3,500 cars.

The Meadows

        We acquired The Meadows racetrack, which was our first standardbred (harness racing) track, in April 2001. It is located in Meadow Lands, Pennsylvania, in the greater Pittsburgh area, on approximately 155 acres of land. There are approximately 2.8 million people living within a 50-mile radius of The Meadows.

        The Meadows first opened in 1963 and has a year-round racing schedule encompassing approximately 205 live racing days. As part of this acquisition, we also acquired four off-track betting facilities in the greater Pittsburgh area, located in New Castle, Harmar Township, Moon Township and West Mifflin. In 2004, The Meadows opened a fifth off-track betting in Greensburg, which was subsequently closed in February 2007.

        The Meadows' facilities previously included a grandstand with seating for approximately 5,000 customers, a 5/8-mile harness track, stalls for approximately 990 horses and parking facilities to accommodate approximately 3,000 cars. The grandstand and parking facilities are currently being renovated as part of the construction by the property owners of a permanent casino and integrated racing facility, which is expected to be completed in early 2009. The Meadows' off-track betting facilities each contain a restaurant and bar and offer wagering on simulcast races from racetracks across the country.

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        The Meadows and its associated off-track betting facilities generated approximately $205.1 million in handle in 2006, including wagers made at The Meadows on its races, wagers made at other wagering venues and through various account wagering operations on The Meadows' races, wagers made at The Meadows on races imported to its inter-track facilities and wagers made at The Meadows' associated off-track betting facilities. Wagers on The Meadows' races (including all venues at which the wagers were placed) totalled approximately $73.5 million in 2006. Of this amount, approximately $68.8 million in wagers were placed at other wagering venues to which we exported The Meadows' races via simulcast and through various account wagering operations. The Meadows exports its simulcast signal to approximately 240 off-track and inter-track wagering facilities in the United States, Canada and the Caribbean. Throughout the year, The Meadows operates as an inter-track wagering facility where customers can wager on races that are imported to The Meadows from other racetracks.

        In July 2004, legislation was enacted in Pennsylvania that entitled The Meadows to apply for a license to operate between 1,500 and 3,000 slot machines, subject to future expansion of up to 2,000 additional slot machines upon certain conditions being met. As described below, a Conditional Category 1 Gaming License was ultimately approved in September 2006, shortly before we sold our ownership interest in The Meadows.

        On November 14, 2006, we completed the sale of all of the outstanding shares of Washington Trotting Association, Inc., Mountain Laurel Racing, Inc. and MEC Pennsylvania Racing, Inc. (collectively "The Meadows"), each a wholly-owned subsidiary of the Company, through which we owned and operated The Meadows, a standardbred racetrack in Pennsylvania, to PA Meadows, LLC, a company jointly owned by William Paulos and William Wortman, controlling shareholders of Millennium Gaming, Inc., and a fund managed by Oaktree Capital Management, LLC ("Oaktree" and together with PA Meadows, LLC, "Millennium-Oaktree"). On closing, we received cash consideration of $171.8 million, net of transaction costs of $3.2 million, and a holdback agreement, under which $25.0 million is payable to us over a five-year period, subject to offset for certain indemnification obligations. Under the terms of the holdback agreement, we agreed to release the security requirement for the holdback amount, defer subordinate payments under the holdback, defer receipt of holdback payments until the opening of the permanent casino at The Meadows and defer receipt of holdback payments to the extent of available cash flows as defined in the holdback agreement, in exchange for Millennium-Oaktree providing an additional $25.0 million of equity support for PA Meadows, LLC. The Company also entered into a racing services agreement whereby we pay $50 thousand per annum and continue to operate, for our own account, the racing operations at The Meadows for at least five years. On December 12, 2007, Cannery Casino Resorts, LLC, the parent company of Millennium-Oaktree, announced it had entered into an agreement to sell Millennium-Oaktree to Crown Limited. If the deal is consummated, either party to the racing services agreement will have the option to terminate the arrangement. The Meadows participates in a multi-employer defined benefit pension plan for which the pension plan's total vested liabilities exceed its assets. The Meadow's estimated unfunded liability for vested benefits is approximately $3.7 million. The Meadows withdrew from the pension plan in the fourth quarter of 2007. As part of the indemnification obligations under the holdback agreement with Millennium-Oaktree, the withdrawal liability that has been triggered as a result of the withdrawal from the plan will be offset against the amount owing to us under the holdback agreement.

Thistledown

        Thistledown is located on approximately 128 acres in North Randall, Ohio, approximately 10 miles southeast of downtown Cleveland. There are approximately 3.0 million people living within a 40-mile radius of Thistledown.

        Thistledown has one of the longest racing seasons of all North American thoroughbred racetracks, consisting of approximately 136 racing days between April and November. Thistledown hosts the Summit, Thistledown, Randall and Cranwood meets. Annually, Thistledown hosts the Ohio Derby, which is the premier graded stakes race in Ohio.

        Thistledown's handle was approximately $175.8 million in 2007, including wagers made at Thistledown on its races, wagers made at other wagering venues and through various account wagering operations on Thistledown's races, and wagers made at Thistledown on races imported to its inter-track facilities. Wagers on Thistledown's races (including all venues at which wagers were placed) totaled approximately $100.7 million in

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2007. Of this amount, approximately $87.1 million in wagers were placed at other wagering venues to which we exported Thistledown's races via simulcast and through various account wagering operations. Thistledown exports its simulcast signal to as many as 700 off-track and inter-track wagering facilities in the United States. Throughout the year, Thistledown operates as an inter-track wagering facility where customers can wager on races that are imported to Thistledown from other racetracks.

        Thistledown's facilities include a grandstand with seating for approximately 8,000 customers, a 600 seat tiered dining room, a 200 seat private party suite, a luxury suite for corporate and group events, a one-mile oval track, stalls for approximately 1,500 horses and parking for approximately 6,000 cars.

Remington Park

        Remington Park is situated on approximately 370 acres adjacent to Interstates 35 and 44 in Oklahoma City, Oklahoma. There are approximately 1.1 million people living within a 40-mile radius of Remington Park.

        In 2007, the racing schedule consisted of two meets totaling 119 days of live racing days, which included a 50 day quarter horse meet from mid-March through early June and a 69 day thoroughbred meet from early August through the end of November 2007.

        Remington Park's handle was approximately $122.7 million in 2007, including wagers made at Remington Park on its races, wagers made at other wagering venues and through various account wagering operations on Remington Park's races, and wagers made at Remington Park on races imported to its inter-track and associated off-track betting facilities. Wagers on Remington Park's races (including all venues at which wagers were placed) totaled approximately $69.6 million in 2007. Of this amount, approximately $60.7 million in wagers were placed at other wagering venues to which we exported Remington Park's races via simulcast and through various account wagering operations. Remington Park exports its simulcast signal to approximately 600 off-track and inter-track wagering facilities in the United States. Throughout the year, Remington Park operates as an inter-track wagering facility where customers can wager on races that are imported to Remington Park from other racetracks across the country.

        Remington Park's facilities include a grandstand with seating for approximately 20,000 customers, 21 suites for corporate and group events, a one-mile dirt track, a 7/8-mile turf course, stalls for approximately 1,300 horses, lighting to permit night racing and parking facilities sufficient to accommodate approximately 8,000 cars.

        The property on which Remington Park is located is leased from the Oklahoma Zoological Trust pursuant to a lease which extends through 2013, with options to renew until 2063 in ten-year increments.

        Under legislation which was approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park is permitted to operate electronic gaming machines. In November 2005, we opened a gaming facility with 650 electronic gaming machines, the maximum amount permitted by the legislation at Remington Park at that time and we are in the process of adding an additional 50 machines, as permitted by the enabling legislation which allows for the additional 50 machines on each of the third and fifth anniversaries of the gaming license. See "Government Regulation — Alternative Gaming — Oklahoma" below. During 2007, the machines generated an average daily net win per unit of $233. Under the terms of the legislation, gaming operations at the racetrack are permitted for up to 18 hours per day, not to exceed 106 hours per week. The distribution of revenues from the racetrack's electronic gaming operations will vary based on the annual gross revenues of the racetrack from gaming less all monetary payouts ("Adjusted Gross Revenues"). The legislation allocates between 10% and 30% of the Adjusted Gross Revenues to the State, primarily for the funding of education, between 20% and 30% for the benefit of the horsemen and the remaining 50% to 60% to the racetrack, out of which the racetrack operator will pay its capital and operating costs. Remington Park may be eligible for an additional 50 machines in 2010. The gaming facility has significantly improved Remington Park's operating results and contributions to the horse racing industry through increased purses.

Portland Meadows

        Portland Meadows is a thoroughbred racetrack located on approximately 100 acres in the Delta Park area of Portland, Oregon. There are approximately 2.0 million people living within a 40-mile radius of Portland Meadows. Portland Meadows first opened in 1946 and offers approximately 75 live racing days between October

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and April. Portland Meadows' facilities include a grandstand with seating for approximately 10,000 customers, a one-mile sand track, stalls for approximately 850 horses and parking facilities to accommodate approximately 2,500 cars.

        Portland Meadows generated approximately $85.7 million in handle during the 2007 calendar year, including wagers made at Portland Meadows on its races, wagers made at other wagering venues and through various account wagering operations on Portland Meadows' races and wagers on imported races at Portland Meadows and off-track betting facilities within the State of Oregon during Portland Meadows' live meet. Wagers on Portland Meadows' races (including all venues at which the wagers were placed) totaled approximately $34.7 million in 2007. Of this amount, approximately $32.6 million in wagers were placed at other wagering venues to which we exported Portland Meadows' races via simulcast and through various account wagering operations. Portland Meadows exports its simulcast signal to approximately 175 off-track and inter-track wagering facilities in the United States. Throughout the year, Portland Meadows operates as a simulcast wagering facility where customers can wager on races that are imported to Portland Meadows from other racetracks. In addition, we expended considerable efforts to work with legislators and industry participants in response to the Oregon Racing Commission's June 2007 decision, under request from the Oregon Attorney General, to revoke a rule permitting Instant Racing at Portland Meadows. Although the Office of Administrative Hearings released a February 27, 2008 proposed order in our favor approving Instant Racing wagering at Portland Meadows, we are waiting for confirmation as to whether the Oregon Racing Commission will accept that recommendation.

        We operate racing at Portland Meadows, subject to the satisfaction of certain conditions, pursuant to a long term lease. We own an approximately 22% interest in the real property upon which the Portland Meadows facility is located. Further to our announced intention to sell our interest in Portland Meadows, in November 2007 we initiated an active program to locate a buyer and began marketing our interest in Portland Meadows.

Great Lakes Downs

        Further to our January 18, 2007 announcement that the 2007 race meet would be the last we would run at Great Lakes Downs, this track was closed in November 2007. In December 2007, pursuant to an October 2007 repurchase agreement, we re-acquired the 85 acre site underlying the racetrack upon exercise of an option right granted in connection with our previous August 2004 sale of the land and associated racetrack license. As the re-acquisition was completed with the intention of completing a subsequent re-sale of the land, the property underlying the racetrack has been listed for sale and we have voluntarily surrendered our racing license.

        To the date of closing, Great Lakes Downs' handle was approximately $48.5 million in 2007, including wagers made at Great Lakes Downs on its races, wagers made at other wagering venues and through various account wagering operations on Great Lakes Downs' races, and wagers made at Great Lakes Downs on imported races. Wagers on Great Lakes Downs' races (including all venues at which wagers were placed) totaled approximately $38.1 million in 2007. Of this amount, approximately $36.0 million in wagers were placed at other wagering venues to which we exported Great Lakes Downs' races via simulcast and through various account wagering operations. Great Lakes Downs exports its simulcast signal to approximately 250 off-track and inter-track wagering facilities in the United States.

Magna Racino™

        Magna Racino™ opened on April 4, 2004 and is situated on approximately 650 acres in Ebreichsdorf, just outside Vienna, Austria. There are approximately 2.5 million people living within a 30-mile radius of Magna Racino™.

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        During 2007, Magna Racino™ was visited by over 35,000 guests on 25 race days between mid-March and November.

        Magna Racino™ features both thoroughbred and standardbred racing on three different tracks, a 5/8-mile sand track, a one-mile sand track and a one-mile turf course. In 2006, Magna Racino™ had a total of 79 paddocks. Magna Racino's™ sportsbook facility is operated by Admiral Sportwetten AG under an agreement that entitles Magna Racino™ to receive a percentage of all wagers placed with Admiral at Magna Racino™. Magna Racino's™ 150 video lottery terminals are operated by the Austrian Lottery, a division of Casinos Austria AG, under an agreement that entitles Magna Racino™ to receive a percentage of the gross profit and recovery of certain costs from the video lottery terminal operations located at Magna Racino™.

        Magna Racino's™ handle was approximately $2.4 million in 2007 including wagers made at Magna Racino™ on its races, wagers made at other wagering venues and through account wagering operations on Magna Racino™ races and wagers made at Magna Racino™ on imported races. Magna Racino™ exports its simulcast signal to various off-track and inter-track wagering facilities in Germany and Austria. Throughout the year, Magna Racino™ operates as an inter-track wagering facility on show days where customers can wager on races that are imported to Magna Racino™ from other racetracks around the world.

        On February 19, 2007, we announced that we recorded a non-cash impairment charge related to Magna Racino™ net of income taxes, of approximately $59.7 million ($0.56 per share) in the fourth quarter of 2006. In early August 2007, we announced that there would be a cessation of racing for our own account at the Magna Racino™ at the close of the 2007 meet.

        We announced on December 21, 2007 that we had entered into an agreement to sell 225 acres of excess real estate located in Ebreichsdorf, Austria to a subsidiary of Magna for a purchase price of 20.0 million Euros (approximately $29.4 million) subject to customary adjustments. The closing of the transaction is expected to occur during the first quarter of 2008 following the satisfaction of customary closing conditions including receipt of all necessary regulatory approvals. We are required to use Euros 7.5 million of the net proceeds to repay a portion of a Euros 15.0 million term loan facility and the remaining portion of the net proceeds is required to be used to repay a portion of the Bridge Loan.

Training Centers

Palm Meadows®

        On October 18, 2000, we acquired 481 acres of land in Palm Beach County, Florida for a total purchase price of $22.9 million. The property is located approximately 40 miles north of Gulfstream Park. We have developed Palm Meadows, a horse boarding and training center, which is operated in conjunction with Gulfstream Park.

        Palm Meadows® has helped us to continue to attract high-quality horses to Gulfstream Park, which has allowed us to increase both our number of live races and the total amount wagered on our races.

        The facility opened in November 2002 and currently includes a 11/8-mile dirt track, a 7/8-mile turf course, one-mile dirt jogging track, stalls for up to 1,424 horses, administrative offices, dormitories, pavilion and a 60,000 square foot compost building.

        On March 28, 2007, we sold a 157 acre parcel of excess land adjacent to the Palm Meadows Training Center and certain development rights to MID for cash consideration of $35.0 million.

San Luis Rey Downs

        San Luis Rey Downs is a horse boarding and training center situated approximately 45 miles north of downtown San Diego. It is located on approximately 200 acres of land and includes over 500 horse stalls, a one-mile oval dirt main track, a 3/8-mile dirt training track, an equine exercise swimming pool, 50,000 square foot practice arena, horse trails and related facilities and equipment. Due to its proximity to Santa Anita Park, San Luis Rey Downs supplements Santa Anita Park's stabling facilities, which we believe enables us to continue to attract some of the top horses in North America.

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        On June 7, 2007, we sold San Luis Rey Downs to a subsidiary of MID for cash consideration of approximately $24.0 million. The Company also entered into a lease agreement whereby an MEC subsidiary leases the property under a triple-net lease with a three year term for a nominal annual rent in addition to operating costs that arise from the use of the property. The lease is terminable at any time by either party on four-months notice.

Bowie Training Center

        The Bowie Training Center is located in Prince George's County, Maryland on approximately 162 acres. The site is located eight miles from Laurel Park and 30 miles from Pimlico Race Course. The facility includes approximately 1,000 stalls, a one-mile oval dirt main track, a 1/4-mile covered dirt track, 17 barns and dormitories capable of accommodating up to 224 grooms. Originally opened in 1914 as a racetrack, the property has been used since 1985 as a year-round training center to support thoroughbred racing at Pimlico and Laurel Park.

Account Wagering Operations

        Account wagering involves the placing of wagers on live horse racing events through various forms of electronic media, which could include telephone, the Internet and interactive television.

PariMax

        In February 2006, we announced the formation of PariMax, a new company to oversee the development of our various electronic distribution platforms including MEC Global Wagering Solutions, XpressBet®, the Company's 50% interest in HRTV™, MagnaBet™, Racing US and AmTote. PariMax focuses on the development of complete wagering solutions and will concentrate on serving the global wagering market by developing product lines which meet the needs of both distribution partners and end consumers worldwide. For distribution partners, MEC Global Wagering Solutions provides simulcasting and wagering solutions both domestically and internationally. AmTote continues to provide a variety of wagering interfaces and connectivity products for racetracks, off-track betting facilities, and account wagering providers, both domestically and abroad. For consumers, XpressBet®, MagnaBet™ and Racing US are PariMax's account wagering platforms, which provide video streaming and wagering opportunities to an increasingly international customer base. Consumers are further served by PariMax supported television channels, including HRTV™ in the United States (a joint venture between MEC and Churchill Downs). PariMax also holds our 50% interest in TrackNet Media.

TrackNet Media

        TrackNet Media is the vehicle through which MEC and Churchill Downs horse racing content is made available to third parties, including racetracks, off-track betting facilities, casinos and advance deposit wagering companies. TrackNet Media also distributes horse racing content for third parties and this content is made available through MEC's and Churchill Downs' respective outlets. Under the reciprocal content swap agreement, MEC and CDI exchange their respective horse racing signals. Churchill Downs racing content is available for wagering through MEC-owned tracks and simulcast-wagering facilities and through our advance deposit wagering platform, XpressBet®, and, similarly, our racing content is available for wagering through CDI tracks and off-track betting facilities and through CDI-owned advance deposit wagering platforms. For additional details on TrackNet Media see "Our Business" and "Our Strategy — Further Developing Our In-Home Simulcasting and Wagering Services".

XpressBet®

        We offer advance deposit account wagering by telephone and over the Internet through XpressBet®, to customers in certain jurisdictions of the United States and, in connection with Racing World, to customers in the United Kingdom and Ireland, subject to legal and governmental restrictions. See "— Government Regulation" below. Operators of advance deposit account wagering businesses may establish a hub in a state where advance deposit account wagering is expressly permitted, establish accounts into which customers deposit funds through debit or credit cards or by check to fund their wagering, and receive wagering instructions from these customers. Wagers placed on behalf of customers are not allowed to exceed the amounts on deposit in their accounts.

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Customers of XpressBet® may place wagers either over the telephone with a live teller, over the telephone with a voice-activated automated teller, over the telephone with a touch tone recognition system or through the Internet.

        XpressBet® was developed from the account wagering business operated by The Meadows harness racetrack in Pennsylvania under the trade name Call-A-Bet. Call-A-Bet launched a telephone account wagering business in 1983 for Pennsylvania account holders. In 1995, Call-A-Bet expanded its customer base throughout the United States. We purchased Ladbroke Racing Pennsylvania, Inc., which included The Meadows and Call-A-Bet, in April 2001 and upon obtaining a license to conduct advance deposit account wagering in California in January 2002, re-branded the account wagering company as XpressBet®. Our subsidiary, XpressBet, Inc. is primarily responsible for conducting our account wagering operations. XpressBet, Inc. is currently licensed as a multi-jurisdictional wagering hub in Oregon, where its totalisator hub operations are located. This license permits XpressBet, Inc., to place advance deposit account wagers on behalf of residents in Oregon and other jurisdictions that do not prohibit account wagering. In addition, XpressBet, Inc. has received state-based licenses or racing commission approval in California, Idaho, Maryland, Massachusetts, Pennsylvania, Virginia and Washington. See "— Government Regulation" below for a further discussion of the regulatory issues that affect our XpressBet® account wagering business.

        Wagering through an XpressBet® account is permitted only after XpressBet® has verified the account holder's identity, address and age and the account has been funded. XpressBet® account holders can wager on over 100 North American racetracks and internationally on races in Australia, South Africa, Dubai, Germany, the United Kingdom and Hong Kong. The XpressBet® service provides up-to-the-minute racing information, including live odds and results, race program information, real-time audio and video streaming and an easy-to-use betting screen.

        The primary source of revenue for XpressBet® is the takeout on the handle wagered by its customers through advance deposit wagering accounts. The takeout revenue is reduced by host track fees, purse account funds, source market fees and other operating expenses. For the year ended December 31, 2007, total handle wagered through XpressBet® was approximately $175.6 million.

MagnaBet™

        MagnaBet™ offers advance deposit account wagering over the Internet to customers in Austria, Germany and Spain. MagnaBet™ holds licenses issued by the provincial government of Lower Austria and the provincial government of Hanover, Germany, which allows it to accept and process pari-mutuel wagers. Customers deposit funds through credit cards, prepaid cards, bank transfers and internet-banking to fund their wagering accounts, and receive wagering instructions from these customers. Wagers placed by customers are not allowed to exceed the amounts on deposit in their accounts.

        We launched MagnaBet™ in Austria in September 2004, where its operations are located, in Germany in December 2004 and in Spain in April 2005. Wagering through a MagnaBet™ account is permitted only after MagnaBet™ has verified the account holder's identity, address and age and the account has been funded. MagnaBet™ account holders can wager on thoroughbred and harness races at Magna Racino™, on races at Krieau and Baden, Austrian standardbred racetracks, and internationally on over 100 North American thoroughbred and standardbred racetracks, 33 German thoroughbred and standardbred racetracks, 31 UK and 4 South American thoroughbred racetracks. The MagnaBet™ service provides up-to-the-minute racing information, including live odds and results, race program and past performance information, real-time audio and video streaming and an easy-to-use betting screen.

        The primary source of revenue for MagnaBet™ is the takeout on the handle wagered by its customers through advance deposit accounts. The takeout revenue is reduced by host track fees, totalisator purse account funds, source market fees and other operating expenses. For the year ended December 31, 2007, total handle wagered through MagnaBet™ was approximately $9.8 million.

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Television Distribution

        We believe that broad television distribution will help increase future interest in the sport of horse racing and attract additional wagering customers. In order to accomplish this goal, we have entered into a number of television distribution initiatives.

HorseRacing TV™

        HorseRacing TV™ is a television network focused on horse racing. HorseRacing TV™ carries horse racing from racetracks located throughout North America as well as commentary and related content, combined into a single signal produced by Santa Anita Park's award-winning television department. In January 2003, we launched HorseRacing TV™ on our first cable television system (Time Warner San Diego) and we have quickly grown the network's distribution to over 15 million cable and satellite subscribers nationally. HorseRacing TV™ has entered into a national distribution agreement with Dish Network™ (Echostar Communications Corp.) that makes HRTV™ available in all 50 U.S. states. Additionally, HorseRacing TV™ has entered into agreements with certain national/regional cable television operators, including Comcast, to make HorseRacing TV™ available via cable distribution in 18 states. HorseRacing TV™ is also available on RTN (see below).

        On March 5, 2007, we announced that Churchill Downs had purchased a 50% interest in HorseRacing TV™ in connection with a series of customer-focused agreements with Churchill Downs. The sale of that 50% interest has resulted in operating costs savings, some of which have been reinvested to increase production values. The sale, coupled with the formation of TrackNet Media, has provided consumers with access to a wider variety of content. See "Our Business" and "Our Strategy — Further Developing Our In-Home Simulcasting and Wagering Services" for further details on the customer-focused agreements.

RTN

        In 2002, we entered into an arrangement with Roberts Communications Network, Inc. and an affiliate of Greenwood Racing, Inc. to form RTN, a private U.S. direct-to-home satellite service that currently offers twenty channels dedicated to horse racing on a monthly subscription basis. We hold a minority interest in RTN, which is independently managed by Roberts Communications Network, Inc., and we are primarily a content provider to the service.

Other Television Distribution

        From time to time, we seek exclusive and non-exclusive television distribution agreements with television networks and other distribution outlets to cover horse racing events from our tracks. In 2005 we came to an agreement with NBC to extend its live broadcast of the Preakness until 2010. NBC will also carry the Santa Anita Derby and Florida Derby on one of its networks through 2010. Additionally, HDNet has carried live and tape-delayed, high-definition television coverage of certain horse races from Lone Star Park at Grand Prairie and Santa Anita Park. We continue to seek new outlets for national television coverage of our horse racing content in order to promote the sport of horse racing and attract additional wagering customers to our racetracks and other wagering platforms. The NTRA also occasionally arranges for races at various of our racetracks to be broadcast on ESPN or ESPN2.

Magna 5 Pick 5™

        In January 2004, we introduced a new Pick 5 wager, the Magna 5™, which offers a guaranteed $500,000 minimum pool every Saturday afternoon during selected periods each year. Sponsored by XpressBet®/HRTV™, the Magna 5™ features five races in the span of about one hour from premier tracks such as Santa Anita Park, Gulfstream Park, Golden Gate Fields and Laurel Park. While the Magna 5 features races from our tracks, the national wager is offered at pari-mutuel outlets throughout the country. Over ten weeks, the Magna 5™ drew an average pool of $645,582, $547,687 and $567,835 in 2007, 2006 and 2005, respectively.

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Sunshine Millions®

        On January 25, 2003, we launched the Sunshine Millions®, a thoroughbred horse racing event which features California breds and Florida breds in head to head competition. The annual event, which is hosted by Santa Anita Park and Gulfstream Park, consists of eight races, four races at Santa Anita Park and four races at Gulfstream Park, with purses ranging from $250,000 to $1 million per race, for a total of $3.6 million in guaranteed purses.

        Florida breds won seven out of eight races when they competed head to head against California breds during the sixth edition of the Sunshine Millions® held on January 26, 2008. This event was covered on ESPN2. Overnight ratings for the broadcast secured a 0.2 national rating. All sources of handle for Gulfstream Park and Santa Anita Park, together with on-site handle, topped $26.8 million for the 2008 edition of the Sunshine Millions®. Santa Anita reported that attendance on Saturday was 28,414, compared to 36,355 in 2006. Results for the 2008 edition of the Sunshine Millions ® were adversely impacted by inclement weather in California through most of January.

StreuFEX™

        In 2002, we purchased FEX ÖKO Faserverarbeitungs-GMBH ("FOF"), an Austrian company that manufactures and sells StreuFex™, a horse bedding product made from straw that is ground and turned into pellets. With the purchase of FOF, we acquired a StreuFEX™ manufacturing plant in Neusied/Zaya, Austria. In 2003, we purchased approximately 80 acres of land in Lumberton, North Carolina on which we have built a StreuFEX™ manufacturing facility. The Lumberton facility commenced operations and we introduced StreuFex™ to the North American market in the first quarter of 2004. The Lumberton facility currently supplies both Gulfstream Park and Palm Meadows Training Center with horse bedding. In September 2007, FEX Straw Manufacturing Inc. ("FEX") entered into a technology license agreement with Premier Equine Products Pty Ltd. ("PEP"), under which FEX granted PEP an exclusive license to manufacture and sell StreuFEX™ horse bedding product in Australia, New Zealand, Hong Kong, Macau, Japan and Singapore for 20 years. Under the arrangement, FEX received a one-time up-front license fee and will receive ongoing royalty fees over the duration of the agreement based on the number of tons of StreuFEX™ manufactured by PEP. In the event that PEP enters into any sublicense agreement, FEX will further be entitled to a sublicense fee as well as similar annual product sales-based fees. PEP is an Australian company that specializes in the provision of feed and bedding solutions, and the associated products and services, to the equine industry.

Dixon Downs Development

        For some time, we explored the possibility of the future development of a thoroughbred racetrack with an associated retail shopping and entertainment complex, on vacant land that we own in Dixon, California. The Dixon City Council approved the project in October 2006, but opponents gathered sufficient signatures on petitions to force an election in which Dixon residents voted on four measures aimed at overturning the City Council's various votes approving the project. In the April 17, 2007 election, Dixon voters overturned the four separate actions that were previously approved by the Dixon City Council allowing our proposed racetrack and mixed-use development. As a result, we have begun activities to sell the Dixon lands, including formally listing this 260 acre site for sale with a real estate broker.

Competition

        We face numerous sources of competition. We compete with other racetracks for customers both with respect to attendance at our racetracks and in the simulcast wagering markets. We also compete with other racetracks for horses, jockeys and backstretch personnel. Certain of our competitors operate in jurisdictions which permit alternative gaming at racetracks, which enhances their ability to compete for horsemen by offering larger purses and attracts additional potential customers to their facilities. One of our competitors, Churchill Downs, has been in operation for a much longer period of time than we have and may have greater name recognition. We expect this competition from other racetracks to intensify as new gaming operators enter our markets and existing competitors expand their operations and consolidate management of multiple racetracks.

        We also compete for customers with other sports, entertainment and gaming operators, including casinos and government-sponsored lotteries. We also compete with Internet and other account wagering gaming services

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that allow their customers to wager on a wide variety of sporting events and Las Vegas-style casino games from home, many of which are currently operating from off-shore locations in violation of U.S. law by accepting wagers from U.S. residents.

        Gaming companies that operate on-line and offer internet-based wagering services often do not have the same level of overhead as we do as they do not have similar capital expenditure requirements, which often results in those companies being able to offer services at discount prices. In addition, while we are required to pay certain percentages of handle to local horsemen, state regulatory agencies and other possible entities in accordance with applicable U.S. federal and state law and horse industry regulations, off-shore on-line operators are often not required to pay such amounts to local horsemen, regulators or other entities, which means those operators are able to attract U.S. based customers by offering rebates traditional U.S. based operations, like ours, cannot afford to offer.

        As we continue to develop our account wagering operations, including telephone, Internet and interactive television wagering, we expect our competition with other account wagering operators to also increase. In addition, our ability to conduct account wagering on races from racetracks that we do not own is dependent on our ability to enter into agreements with those racetracks whereby we obtain account wagering rights. Certain racetracks, including those currently operated by the New York Racing Association, have entered into contracts with other account wagering operators, granting such operators exclusive rights to accept certain types of account wagering on their races. We may not be able to obtain access, on terms that are acceptable to us, to racing content from racetracks not owned by us for our account wagering operations as a result of these exclusive arrangements or otherwise.

Government Regulation

        Horse racing is a highly regulated industry. In the United States, individual states control the operations of racetracks located within their respective jurisdictions with the intent of, among other things, protecting the public from unfair and illegal gambling practices, generating tax revenue, licensing racetracks and operators and preventing organized crime from being involved in the industry. Although the specific form may vary, states that regulate horse racing generally do so through a horse racing commission or other gambling regulatory authority. Regulatory authorities perform background checks on all racetrack owners prior to granting them the necessary operating licenses. Horse owners, trainers, jockeys, drivers, stewards, judges and backstretch personnel are also subject to licensing by governmental authorities. State regulation of horse races extends to virtually every aspect of racing and usually extends to details such as the presence and placement of specific race officials, including timers, placing judges, starters and patrol judges.

        In the United States, interstate pari-mutuel wagering on horse racing is also subject to the federal Interstate Horseracing Act of 1978 and the federal Interstate Wire Act of 1961. As a result of these two statutes, racetracks can commingle wagers from different racetracks and wagering facilities and broadcast horse racing events to other licensed establishments.

        We currently satisfy the applicable licensing requirements of the racing and gambling regulatory authorities in each state or province where we maintain racetracks and/or carry on business, including the California Horse Racing Board, the Florida Department of Business and Professional Regulation Division of Pari-Mutuel Wagering, the Texas Racing Commission, the Maryland Racing Commission, the Virginia Racing Commission, the Oklahoma Horse Racing Commission, the Ohio State Racing Commission, the Pennsylvania State Harness Racing Commission, the Pennsylvania Gaming Control Board, the Nevada Gaming Commission, the New Jersey Casino Control Commission, the Oregon Racing Commission and the Government of the Province of Lower Austria. Please see our discussion of our wholly-owned subsidiary, XpressBet, Inc., for a list of the jurisdictions where it is licensed or has received regulatory approval to conduct interstate account wagering. With respect to our racetracks, licenses to conduct live horse racing and to participate in simulcast wagering are required, and there is no assurance that these licenses will be granted, renewed or maintained in good standing, as applicable.

        In California, the CHRB is responsible for regulating the form of wagering, the length and conduct of meets and the allocation and distribution of pari-mutuel wagers within the limits set by the California legislature. The CHRB has annually licensed one of our subsidiaries, Los Angeles Turf Club, Inc. as well as The Oak Tree Racing Association to conduct separate racing meets at Santa Anita Park. At present, the CHRB has not

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licensed other thoroughbred racetracks in Southern California to conduct racing during these meets. However, night quarter horse racing is conducted at Los Alamitos Race Course in Southern California during portions of these meets. The CHRB also annually licenses the operations of Golden Gate Fields in respect of the two racing meets that it conducts each year. As with the Southern California market, the CHRB has not licensed other thoroughbred racetracks in Northern California to conduct racing during these meets. The CHRB also has licensed XpressBet, Inc., as an out-of-state account wagering hub, to place wagers on behalf of California residents as described more fully below. Currently, there are two other licensees in California that are licensed to conduct account wagering in that state. Our financial condition and operating results could be materially adversely affected by legislative changes or action by the CHRB that would increase the number of competitive racing days, reduce the number of racing days available to us and The Oak Tree Racing Association, authorize other forms of wagering, grant additional licenses authorizing competitors to conduct account wagering, or remove or limit our authority to conduct account wagering in California as it is currently being conducted. In the first quarter of 2006, the CHRB passed a motion to require all California thoroughbred racetracks to install a synthetic racing surface, such as "Polytrack", "Tapeta Footings" or "Cushion Track", by the end of 2007 or face a loss of dates. We installed new synthetic racing surfaces at Santa Anita and Golden Gate Fields in 2007 at a cost of approximately $11.8 million and $8.8 million, respectively.

        In Maryland, the Maryland Racing Commission approves annual licenses for racetracks to conduct thoroughbred and standardbred horse races with pari-mutuel wagering. However, Maryland's racing law effectively provides that except for Pimlico and Laurel Park, the Maryland Racing Commission may not issue thoroughbred racetrack licenses or thoroughbred race dates to any racetracks that have a circumference of at least one mile and are located within the Baltimore and Washington, D.C. markets. Other than a track located in Timonium, Maryland (a northern suburb of Baltimore), which has a racetrack circumference of less than one mile and which typically conducts an eight-day race meeting in connection with the Maryland State Fair, the Maryland Racing Commission has not approved a thoroughbred track license or thoroughbred race dates for any racetrack in either the Baltimore or Washington, D.C. markets.

        In Florida, the Division of Pari-Mutuel Wagering considers applications for annual licenses for thoroughbred, standardbred and quarter horse meetings with pari-mutuel wagering. Due to a change in Florida tax laws in 2001, Florida racetracks are no longer prevented from applying for race days outside of their traditional racing season. While this revised tax structure has enabled Gulfstream Park to apply for and receive additional race days since 2002, the deregulation of the race day allocation process may, in the future, cause an overlap in racing seasons which could result in Gulfstream Park facing direct competition from other Miami-area racetracks. In early September 2007, the Florida Supreme Court issued a unanimous opinion that struck down a statute which prevented Gulfstream Park Racing & Casino from accepting wagers on daytime simulcast signals from other thoroughbred racetracks across the country. As a result of that decision, Gulfstream Park has been able to accept wagers on daytime simulcast signals since completing successful negotiations with other industry participants. The Florida Supreme Court opinion dismissed an appeal by the Division of Pari-Mutuel Wagering of a September 2005 appeal court ruling affirming a July 2004 trial court ruling in Gulfstream Park's favor. That trial court had ruled that Section 550.615(6) of the Florida Statutes, which prohibited simulcasting at Gulfstream Park while it was not running its meet, was unconstitutional. In connection with its appeal of the September 2005 appeal court ruling, the Division of Pari-Mutuel Wagering had sought and was granted a restrictive injunction that was lifted as a result of the September 2007 Florida Supreme Court opinion.

        In Texas, the Texas Racing Commission issues licenses to conduct live racing with pari-mutuel wagering on thoroughbred, quarter horse and greyhound races. Once issued, a license can be suspended or revoked for a variety of reasons. Even with a license, a racetrack operator can conduct live racing only during the time periods authorized by the Texas Racing Commission. The Texas Racing Commission has not licensed any operator of a horse or greyhound racetrack in the Dallas area, other than Lone Star Park.

        In Ohio, the Ohio State Racing Commission approves annual licenses for racetracks to conduct thoroughbred, standardbred and quarter horse races. The Ohio State Racing Commission has not licensed any other operators of thoroughbred racetracks in the Cleveland area to conduct racing during Thistledown's meets. However, the Ohio State Racing Commission has licensed an operator of a night harness racing track in the Cleveland area.

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        In Oklahoma, the Oklahoma Horse Racing Commission regulates all aspects of live thoroughbred and mixed breed (quarter horse, paint horse and appaloosa) horse racing with pari-mutuel wagering, as well as alternative gaming operations by licensed tracks, as will be discussed in more detail below. The Commission considers and approves annual licenses for thoroughbred and mixed breed race meetings. Currently, there are four racetracks in Oklahoma that are licensed to offer a live race meet with pari-mutuel wagering. Since it opened in 1988, Remington Park has been the only racetrack licensed to conduct live horse racing and pari-mutuel wagering in the Oklahoma City metropolitan area.

        Prior to the closing in November 2007 of Great Lakes Downs in Muskegon, Michigan, we were subject to the jurisdiction of the Office of Racing Commissioner regarding the approval of annual licenses for thoroughbred, standardbred and mixed breed (quarter horse, paint horse, appaloosa and arabian) race meetings with pari-mutuel wagering. In connection with the cessation of operations at Great Lakes Downs in anticipation of the expected sale of the underlying land, and our decision to not proceed with building a new racetrack in Romulus, Michigan, we voluntarily relinquished both our racing license and our Michigan racetrack license in the latter half of 2007.

        In Pennsylvania, the Pennsylvania State Harness Racing Commission approves annual licenses for standardbred racetracks, while the Pennsylvania State Horse Racing Commission approves annual licenses for thoroughbred racetracks. Neither the Pennsylvania State Harness Racing Commission nor the Pennsylvania State Horse Racing Commission has licensed any operators of horse racetracks, other than The Meadows, in the Pittsburgh area; however, on September 26, 2002, the Pennsylvania State Horse Racing Commission approved an application for a thoroughbred racing license for an operation to be located near Erie, Pennsylvania, which is approximately 100 miles from The Meadows. Presque Isle Downs commenced racing on September 1, 2007. In addition, on September 5, 2007, the Pennsylvania Harness Racing Commission approved an application for a standardbred racing license for an operation to be located in Lawrence County located approximately 60 miles from The Meadows and within eight miles of our New Castle off-track wagering facility. This new harness track is not expected to open before January 2010.

        In Oregon, the Oregon Racing Commission approves annual licenses for horse and greyhound racetracks, and, as discussed below, multi-jurisdictional account wagering hubs. The Oregon Racing Commission has not licensed any operators of horse racetracks in the Portland area, other than Portland Meadows. The Oregon Racing Commission has, however, licensed five other account wagering operators who compete with XpressBet, Inc. for account wagering customers. In June 2007, the Oregon Racing Commission, under request of the Oregon Attorney General, temporarily suspended a rule permitting Instant Racing at Portland Meadows and began proceedings to repeal the Instant Racing Rules. Subsequently, we submitted an amended 2007/2008 race meet application that provided for reduced racetrack operations during the course of the dispute, as well as Instant Racing. In response to the Oregon Racing Commission's denial of the Instant Racing component of our application, we have proceeded with litigation challenging that denial. Upon evaluating the Instant Racing related developments and our investment in Portland Meadows, we decided to sell our interest in Portland Meadows. Notwithstanding the intended sale of our interest, which has not yet taken place, we proceeded with the Instant Racing related litigation. Although the Office of Administrative Hearings released a February 27, 2008 proposed order in our favor approving the Instant Racing wager at Portland Meadows, we are waiting for confirmation as to whether the Oregon Racing Commission will accept that recommendation.

        In Austria, horse race meets are conducted at the Magna Racino™ by the Austrian Race Horse Owners Club under agreement with us. The Austrian Race Horse Owners Club conducts standardbred (harness) and thoroughbred horse race meets pursuant to licenses issued by the Direktorium des Jockeyclub für Österreich (thoroughbred) and the Zentrale für Traberzucht und Rennen in Österreich (standardbred harness). There is no limitation as to the number of racing days that can be conducted under these licenses. We have previously announced a cessation of racing for our own account at the Magna Racino™ at the close of the 2007 meet.

        In addition to conducting live horse racing with pari-mutuel wagering at our various tracks in the United States, we conduct telephone and Internet account wagering through our subsidiary, XpressBet, Inc., and the entities that hold the licenses to conduct horseracing and pari-mutuel wagering at The Meadows. XpressBet, Inc. currently holds a license to serve as a multi-jurisdictional account wagering hub by the Oregon Racing Commission which expires June 30, 2008. The Oregon license enables XpressBet, Inc. to open accounts and accept wagering instructions on behalf of U.S citizens in respect of horse and dog races and to open

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accounts and accept wagering instructions on behalf of non-U.S. citizens in respect of horse races. XpressBet, Inc. also holds account wagering licenses issued by the California Horse Racing Board, the Idaho Racing Commission, the Virginia Racing Commission and the Washington Horse Racing Commission. XpressBet, Inc. also has received regulatory approvals from the Massachusetts Racing Commission and the Maryland Racing Commission to open accounts and place wagers on behalf of residents from those states. The two entities that conduct horseracing and pari-mutuel wagering at The Meadows are entitled to serve as a Pennsylvania-based account wagering hub by virtue of their annual licenses to conduct standardbred racing and pari-mutuel wagering. XpressBet, Inc. has an agreement with the entities that conduct horseracing and pari-mutuel wagering at The Meadows to provide account wagering services to those entities' account holders and to conduct their respective account wagering operations under the brand XpressBet®. In accordance with its multi-jurisdictional hub license from Oregon and, to the extent applicable, state-based requirements imposed by states where it is licensed or otherwise approved, XpressBet, Inc. opens wagering accounts on behalf of residents from various states and countries and processes wagering instructions from those account holders in respect of races conducted throughout the United States and in other countries.

        Laws governing account wagering in the United States vary from state to state. Currently, approximately seventeen states have expressly authorized some form of account wagering by their residents. A smaller number of states have expressly prohibited pari-mutuel wagering and/or account wagering. The remaining states have authorized pari-mutuel wagering but have neither expressly authorized nor expressly prohibited their residents from placing wagers through account wagering hubs located in different states. We believe that the amendment to the Federal Interstate Horseracing Act of 1978, described above, clarified that an account wagering operation may open accounts on behalf of and accept wagering instructions from residents of states where pari-mutuel wagering is legal and where providing wagering instructions to account wagering operators located in other states is not expressly prohibited by statute, regulation or other government restrictions. Although our account wagering operations are conducted in accordance with what we believe is a valid interpretation of applicable state and federal law, certain state attorneys general, district attorneys and other law enforcement officials have expressed concern over the legality of interstate account wagering. The amendment to the federal Interstate Horseracing Act of 1978 may not be interpreted similarly by all interested parties, and there may be challenges to our account wagering activities or those of other account wagering operations by both state and federal law enforcement authorities, which could have a material adverse effect on our business, financial conditions, operating results and prospects.

        On September 30, 2006, President George W. Bush signed into law the Unlawful Internet Gambling Enforcement Act, which prohibits the use of credit cards, checks, electronic funds transfers and certain other funding methods for most forms of Internet gambling. The new law contains an exemption for pari-mutuel wagers placed pursuant to the Federal Interstate Horseracing Act. It is unclear, however, whether and to what extent we will be able to utilize this exemption in respect to all of our account wagering operations as they are currently being conducted. The U.S. Treasury Department, in consultation with the U.S. Federal Reserve Board and the U.S. Department of Justice, has released proposed regulations which could potentially benefit all or a portion of our account wagering operations though it is currently uncertain if the proposed regulations will become final in the form as released.

        In addition to placing account wagers on behalf of U.S. residents, we also place wagers on behalf of account holders who reside in countries other than the United States. In the case of foreign-based account wagers, they are placed either directly or indirectly through our Oregon-licensed XpressBet, Inc. subsidiary. Regardless of which entity processes a wager, we comply with the regulatory requirements imposed by each of the jurisdictions that have licensed us to accept wagers from non-U.S. residents. The laws regarding account wagering by residents of countries other than the United States vary from country to country, and we seek to understand and comply with those laws to the greatest extent possible. As with any issue that turns on the interpretation of legal requirements, it is possible that law enforcement authorities from these foreign jurisdictions may disagree with our interpretation of their laws in respect of account wagering and seek to challenge our ability to place account wagers on behalf of their residents. In certain cases, such challenges could have a material adverse effect on our business, financial conditions, operating results and prospects, including the licenses we hold to conduct horse racing and pari-mutuel wagering (including account wagering) in the U.S.

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        In Pennsylvania, the Pennsylvania State Harness Racing Commission approves annual licenses for standardbred racetracks, while the Pennsylvania State Horse Racing Commission approves annual licenses for thoroughbred racetracks. Neither the Pennsylvania State Harness Racing Commission nor the Pennsylvania State Horse Racing Commission has licensed any operators of horse racetracks, other than The Meadows, which we currently manage, in the Pittsburgh area; however, on September 26, 2002, the Pennsylvania State Horse Racing Commission approved an application for a thoroughbred racing license for an operation to be located near Erie, Pennsylvania, which is approximately 100 miles from The Meadows. Presque Isle Downs commenced racing on September 1, 2007. In addition, on September 5, 2007, the Pennsylvania harness Racing Commission approved an application for a standardbred racing license for an operation to be located in Lawrence County located approximately 60 miles from The Meadows and within eight miles of our New Castle off-track wagering facility. This new harness track is not expected to open before January 2010.

        Under legislation approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park, our Oklahoma City racetrack, was permitted to operate 650 electronic gaming machines, subject to increases of an additional 50 machines in each of the third and fifth years after the issuance of the applicable license. The Oklahoma Horse Racing Commission was empowered under the legislation to oversee licensees' licenses and operations. The Commission promulgated temporary regulations regarding the licensure of electronic gaming operators and the operation of the electronic gaming machines, and subsequently adopted permanent regulations on June 25, 2006. On August 11, 2005, we received our license to operate 650 electronic gaming machines in 2005 and we opened for business on November 21, 2005.

        On November 15, 2006, we received our 2008 gaming license. On January 1, 2008, we were permitted to operate an additional 50 machines. As a result of an amendment to the Rules for Racetrack Gaming on March 23, 2006, as adopted by Governor Henry on June 25, 2006, the definition of the types of authorized games was expanded to include "Compact Electronic Game". A Compact Electronic Game means a gaming machine allowed to be used under Oklahoma laws by a federally recognized Indian tribe in Oklahoma. Pursuant to certain compacts entered into in February 2006, Class III games are accordingly permitted at Remington Park, and the facility is gradually switching from Class II games to Class III games.

        On November 2, 2004, Amendment 4 to the Florida State Constitution was approved, permitting the governing bodies of Broward and Miami-Dade counties to each hold a county-wide referendum on whether to authorize slot machines within existing, licensed pari-mutuel facilities that have conducted live racing during each of the last two years. On March 9, 2005, voters in Broward County, where Gulfstream Park is located, approved the referendum by a majority vote. Subsequently, on December 8, 2005, the state legislature adopted legislation to allow for and govern the slot machine operators of Gulfstream Park and the three other qualifying Broward County pari-mutuel facilities. This legislation, Florida Statutes Chapter 551, permitted Gulfstream Park and the three other pari-mutuel facilities in Broward County to operate up to 1,500 slot machines at each of their gaming facilities. On July 1, 2007, two pieces of legislation became effective, which have benefited the operations at Gulfstream Park. First, Florida House Bill 1047 clarifies a number of provisions in the Florida Slot Machine Act with respect to the on-site availability of automated teller machines, check cashing services and hours of operations and increases the number of permitted slot machines. The second piece of legislation is SB 752, which is related to card rooms and addresses hours of operations, bet limits, prizes and jackpot payouts, and the types of permitted card games. As a result of SB 752 the Gulfstream Park card room may be open year-round instead of just on live pari-mutuel days, bet limits can be $5, instead of $2, prizes and jackpots can be paid to players and $100 buy-in games of no-limit Texas Hold'em are permitted. The slot machine nonrefundable, annual license fee is $3.0 million and there is a required $250,000 annual minimum contributions to responsible gaming. As a result of the July 2007 legislation, we are permitted to offer gaming for a maximum of 18 hours per day, 24 hours per day on Saturdays, Sundays and state holidays. The tax payable to the state is 50% of Gulfstream Park's gross gaming revenues. In addition, under the legislation, we are required to have

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written agreements with the Florida Horsemen's Benevolent and Protective Associations and the Florida Thoroughbred Breeders' Association, Inc. prior to the renewal of a gaming license. We currently have agreements with each of these parties. We have entered into an agreement with Broward County, identical in principal terms to agreements entered into by the three other pari-mutuel facilities in that County, that contains, among other things, provision for payment to the County of 1.5% of gross terminal revenues up to a level of $250.0 million of gross terminal revenues and 2.0% on gross terminal revenues in excess of $250.0 million. This agreement also provides for further payments of an additional 1.7% on the first $250 million of gross gaming revenues and 2.5% on gross terminal revenues in excess of $250.0 million to go into escrow or account for the relevant city, until Gulfstream Park reaches agreement with the city thereby replacing the escrow.

        The Legislation required the Division of Pari-Mutuel Wagering to promulgate regulations regarding the licensure and regulation of slot machine operators at the four qualifying pari-mutuel facilities in Broward County. The Division of Pari-Mutuel Wagering adopted rules on June 25, 2006. On October 13, 2006, we received a license to conduct slot machine gaming at Gulfstream Park. On November 16, 2006, we opened the Gulfstream Park Racing & Casino slots facility with 516 slot machines and, after completing improvements to the facilities now offer 875 machines. We received a renewal of our gaming license on September 14, 2007.

        Austrian law permits Glucks — und Unterhaltungsspiel Ebreichsdorf Betriebsges.m.bH, a division of Casinos Austria AG, to operate video lottery terminals at the Magna Racino™ under license and pursuant to the Games of Chance Act (Austria).

Our Real Estate Portfolio

        As of December 31, 2007, the aggregate net book values of our real estate properties are as follows:

 
  ($ millions)
Revenue-Producing Racing Real Estate   655.8
Excess Racing Real Estate   87.1
Revenue-Producing Non-Racing Real Estate   8.5
   
Total   751.4
   

        Included in our Excess Racing Real Estate is land adjacent to several of our racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park at Grand Prairie, Laurel Park (in respect of which we disposed of a portion of the excess land, a 64 acre parcel in February 2007), Pimlico Race Course and Magna Racino™. We are considering a variety of options with respect to this excess land, including entertainment and retail-based developments that could be undertaken in conjunction with business partners who might provide the necessary financing.

        Our Revenue-Producing Non-Racing Real Estate includes our European residential development.

Environmental Matters

        We are subject to a wide range of requirements under environmental laws and regulations relating to wastewater discharge, waste management and storage of hazardous substances. Those requirements include United States Environmental Protection Agency and state regulations that address the impacts of manure and wastewater generated by concentrated animal feeding operations ("CAFO") on water quality, including, but not limited to, storm water discharges. CAFO regulations include permit requirements and water quality discharge standards. Enforcement of CAFO regulations has been receiving increased governmental attention. Compliance with these and other environmental laws and regulations can, in some circumstances, require significant capital expenditures. Moreover, violations can result in significant penalties and, in some cases, interruption or cessation of operations. Historically, environmental laws and regulations have not had a material adverse effect on our financial condition and operating results.

        The California Regional Water Quality Control Board (the "California Water Quality Board") requires that Santa Anita Park apply for, and keep in force, a wastewater discharge permit which governs and regulates the

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amount of contaminated water that may be discharged into the storm drain and the water table as a result of maintenance of the horse population on site. With the issuance of the permit, there are certain compliance efforts that the California Water Quality Board has requested that management address over the five-year permit period. The California Water Quality Board has not given deadlines for immediate compliance nor is our current permit at risk for non-compliance. Citations are not expected unless Santa Anita Park does not make an effort to comply. Upon receipt of the permit, we commenced discussions with the California Water Quality Board regarding the nature of the compliance requests and commenced the planning process as to how the Company would address these requirements over the next five years. It is our expectation that a number of these requirements are being addressed through planned capital projects, including the Summer 2007 installation of the polytrack a new, synthetic racing surface and the anticipated rebuild of barns on the backside over the next several years. Given the fact that a number of these remediation requirements would be better addressed through capital projects rather than merely a repair or fix of existing facilities, the ultimate cost of remediation will be impacted by the decision on how to best address the remediation requirements.

        While we have environmental permits for many of our racetracks and other business operations and are taking steps to comply with them and other applicable environmental legal requirements, we cannot be certain that we have all required environmental permits or are otherwise in compliance with all applicable environmental requirements. Where we determine that an environmental permit or other remediation or compliance programs are required of existing or acquired racetracks and other business operations, we intend to seek the necessary approvals, which may require us to make significant capital expenditures. Also, changes in governmental laws and regulations are ongoing, as evidenced by changes to the CAFO regulations that make environmental compliance increasingly expensive. In addition to environmental requirements that regulate our operations, various environmental laws and regulations in the United States, Canada and Europe impose liability on us as a current or previous owner and manager of real property, for the cost of maintenance, removal and remediation of hazardous materials released or deposited on or in properties now or previously managed by us or disposed of in other locations. We have adopted a health and safety and environmental policy, pursuant to which we are committed to ensuring that a systematic review program is implemented and measured for each of our operations with a goal of continued improvement in health and safety and environmental matters. We believe that environmental legal requirements will not have a material adverse impact on our business, although there can be no assurance of that.

Employees

        As of December 31, 2007, we employed approximately 5,300 employees, approximately 3,000 of whom were represented by unions. Due to the seasonal nature of the live horse racing industry, the number of our seasonal and part-time employees will vary considerably throughout the year.

        Since our inception, we have not had a work stoppage. We consider our relations with our employees to be good. We also believe that our future success will depend in part on our continued ability to attract, integrate, retain and motivate highly-qualified professional, technical and managerial personnel, and upon the continued service of our senior management.

Item 1A. Risk Factors

        The most significant risks and uncertainties we face are described below, but other risks and uncertainties that are not known to us or that we currently believe are not material or are similar to those faced by other companies in our industry may also have a material adverse effect on our business, financial condition, operating results or prospects.

        If any of the following risks, or any of the risks described in the other documents we file with the SEC and Canadian securities regulatory authorities, actually occur or increase, our business, financial condition, operating results and prospects could be materially adversely affected. In that case, the trading price of the shares of our Class A Subordinate Voting Stock could decline substantially and investors may lose all or part of the value of the shares of our Class A Subordinate Voting Stock held by them.

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Risks Regarding Our Company

        We currently have a number of debt obligations that we will be unable to meet unless we can extend or restructure existing facilities or raise capital from other sources, neither of which is assured. If we are unsuccessful in negotiations with our existing lenders, we may have to seek protection from our creditors, be unable to continue as a going concern and/or our stock may become illiquid or worthless.

        At December 31, 2007, we had $209.4 million of debt that matures in 2008, including amounts under our $40.0 million senior secured revolving credit facility with a Canadian financial institution which is scheduled to mature on March 31, 2008, our Bridge Loan of up to $80.0 million with a subsidiary of MID, which is scheduled to mature on May 31, 2008 and our obligation to repay $100.0 million of indebtedness under the Gulfstream Park project financing with a subsidiary of MID, which is due by May 31, 2008. In the event we are unable to extend or restructure such facilities, we will not have sufficient cash to meet the obligations under these facilities unless we are able to raise capital from other sources in the short term, including as a result of (i) asset sales under the Plan, (ii) additional financing arrangements or (iii) operations, none of which are assured. If we are unable to repay our obligations when due, other current and long-term debt will also become due on demand as a result of cross-default provisions within loan agreements, unless we are able to obtain waivers or extensions. As a result, we could be required to liquidate assets in the fastest manner possible to raise funds, seek protection from our creditors in one or more ways or be unable to continue as a going concern, any of which will have a material adverse effect on our business and operations.

        There is no assurance that we will be able to complete asset sales or undertake strategic transactions as contemplated under our debt elimination plan announced in September 2007 at acceptable prices or as quickly as originally contemplated.

        The Plan was designed to eliminate net debt by December 31, 2008 by generating funding from the sale of assets, entering into strategic transactions involving certain of the Company's racing, gaming and technology operations, and a possible future equity issuance. To date, we have not yet closed any significant transactions under the Plan and have not entered into any strategic transactions. Although the Company continues to implement the Plan, weakness in the U.S. real estate and credit markets has adversely affected our ability to execute the Plan as market demand for our assets has been weaker than expected and financing for buyers has become more difficult to obtain. We cannot predict when these market conditions may improve. Any failure or delay in implementation of the Plan will adversely affect our ability to meet upcoming debt maturities, satisfy operational requirements or continue as a going concern.

        Although our financial statements have been prepared on a going concern basis, there can be no assurance that we will be able to continue as a going concern.

        Although our financial statements since March 31, 2006 have been prepared on a going concern basis (which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future) there is substantial doubt as to our ability to continue as a going concern as a result of our recurring losses from operations, working capital deficiency and accumulated deficit as at December 31, 2007. Our financial statements do not give effect to any adjustments which would be necessary should MEC be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements. Our ability to continue as a going concern is dependent on our generating cash flows that are adequate to sustain the operations of our business, renewing, extending, restructuring or refinancing current financing arrangements and meeting our obligations with respect to secured and unsecured creditors, none of which is assured. If the Company is unable to repay its obligations when due, other current and long-term debt will also become due on demand as a result of cross-default provisions within loan agreements, unless the Company is able to obtain waivers or extensions. As a result, the Company will likely need to seek additional funds in the short-term from one or more possible sources. The availability of such additional funds is not assured and, if available, the terms thereof are not determinable at this time.

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        As a result of our financial condition, our Board of Directors has a duty to creditors that may adversely affect the interests of our shareholders.

        Because of our financial condition, our Board of Directors has a duty to our creditors that may affect the interests of our shareholders. When a Delaware corporation is operating in the vicinity of insolvency, the Delaware courts have imposed upon the corporation's directors a fiduciary duty to the corporation's creditors. Our Board of Directors may be required to make decisions that consider the interests of creditors at the expense of our stockholders to fulfill its fiduciary duty. For instance, we may be required to preserve our assets to maximize the repayment of debts versus employing the assets to further grow our business and increase shareholder value.

        We have a history of net losses; we anticipate additional losses and may never become profitable.

        We have incurred net losses in each fiscal year since the year ended December 31, 2002. For our fiscal year ended December 31, 2007, we incurred a net loss of $113.8 million. As of December 31, 2007, our accumulated deficit was $510.1 million. We expect to continue to incur additional operating losses in the future and there is no assurance that we will be profitable in any future period.

        We expect that during 2008 we will require additional financing to fund our current planned operations and the implementation of our strategic plan, but we may not be able to obtain such financing on satisfactory terms, if at all.

        We expect that during 2008, we will be required to seek additional financing in order to fund our operations and the implementation of our strategic plan, including capitalizing on future growth opportunities. If additional financing or other sources of funds are not available to us as needed, or are not available on terms that are acceptable to us, our ability to continue as a going concern, to add alternative gaming to our racetracks where permitted or to improve or expand our operations as planned may be adversely affected.

        We have already entered into numerous financing arrangements secured by significant portions of our assets, which would limit our ability to provide security for new loans. Please see "Management's Discussion and Analysis of Results of Operations and Financial Position — Working Capital, Cash and Other Resources" and "Financial Statements and Supplementary Data".

        Following the expiry of our existing financing arrangements, there can be no assurance that the amounts, terms and conditions involved in the renewal or extension of our existing financing arrangements will be favourable, or that we will be able to renew or extend any of these financing arrangements at all. In particular, our controlling shareholder, MID, has entered into financing arrangements with us in the past and there is no assurance that such arrangements will be continued or extended on favorable terms in the future. If we are unable to renew or extend our financing arrangements when due, on favourable terms, or at all, our business, operations and financial condition may be materially adversely affected.

        Our senior secured revolving credit facility imposes significant restrictions on us.

        Our senior secured revolving credit facility, which matures on March 31, 2008, requires us to maintain aggregate earnings before interest, taxes, depreciation and amortization from operations at Santa Anita Park and Golden Gate Fields, calculated on a rolling 12 month basis of not less than $15.0 million. This revolving credit facility is secured by a first charge on the assets of Golden Gate Fields and a second charge on the assets of Santa Anita Park and is guaranteed by certain of our subsidiaries which own and operate Golden Gate Fields and Santa Anita Park. The credit agreement contains customary covenants relating to our ability to incur additional indebtedness, make future acquisitions, enter into certain related party transactions, consummate asset dispositions, incur capital expenditures and make restricted payments. These restrictions may limit our ability to expand, pursue our business strategies and obtain additional funds. Our ability to meet these financial covenants may be adversely affected by a deterioration in business conditions or our results of operations, adverse regulatory developments and other events beyond our control. At September 30, 2007, we were not in compliance with one of the financial covenants contained in the credit agreement. A waiver was obtained from the lender for the financial covenant breach at September 30, 2007. At December 31, 2007, we were in compliance with the financial covenant. Failure to comply with these restrictions may result in the occurrence of an event of default under the senior, revolving credit facility and trigger a cross-default under certain of our

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other credit facilities. Upon the occurrence of an event of default, the lender may terminate the senior secured revolving credit facility, demand immediate payment of all amounts borrowed by us and require adequate security or collateral for all outstanding letters of credit outstanding under the facility, which could adversely affect our ability to repay our debt securities and would adversely affect the trading price of our Class A Subordinate Voting Stock.

        Repayments under our Gulfstream Park project financings and Remington Park project financings impose limitations on the amount of funds available to grow those businesses.

        Each of our Gulfstream Park project financing, which matures in 2016, and Remington Park project financing, which matures in 2015, require payment of principal and interest. These payments limit the amount of funds available to invest back into these properties. In addition, each of these loans provide that certain cash from the respective operations of Gulfstream Park and Remington Park must be used to pay deferred interest on the loans. This requirement will further limit the funds available to service our debt obligations and operational requirements.

        Our business is heavily concentrated at certain of our racetracks.

        Six of our racetracks, Santa Anita Park, Laurel Park, Pimlico Race Course, Gulfstream Park, Lone Star Park and Golden Gate Fields accounted for approximately 79.2% of our revenue from continuing operations for the year ended December 31, 2007. If a business interruption were to occur and continue for a significant length of time at any of these racetracks, it could adversely affect our operating results. Additionally, certain of our other racetrack properties have experienced operating losses before interest, income taxes, depreciation and amortization over the past three years. The operating performance of these racetracks may not improve in the future.

        We are controlled by MID and therefore MID is able to prevent any takeover of us by a third party.

        MID owns all our outstanding Class B Stock, which is entitled to 20 votes per share, and approximately 4.36 million shares of our Class A Stock, and therefore is able to exercise approximately 96% of the total voting power of our outstanding stock. It is therefore able to elect all our directors and to control us. As a result, MID is able to cause or prevent a change in our control.

        Our relationship with MID is not at "arm's length", and therefore MID may influence us to make decisions that are not in the best interests of our other stockholders.

        Our relationship with MID is not at "arm's length". In addition to the ownership of our stock as described in the preceding risk factor (and in the risks described below in " — Risks Relating to Our Securities"), sales or a spin-off or other distribution of our Class A Subordinate Voting Stock by MID or by certain of our other significant stockholders under our registration statements could depress our stock price. Our Chairman and Interim Chief Executive Officer is also the Chairman of MID's board of directors. In some cases, the interests of MID may not be the same as those of our other stockholders, and conflicts of interest may arise from time to time that may be resolved in a manner detrimental to us or our minority stockholders. MID is able to cause us to effect certain corporate transactions without the consent of the holders of our Class A Subordinate Voting Stock, subject to applicable law and the fiduciary duties of our directors and officers. Consequently, transactions effected between us and MID may not be on the same terms as could be obtained from independent parties, resulting in the possibility of our minority stockholders' interests being compromised.

        We may not be able to attract or retain the personnel necessary to achieve our business objectives.

        Our future success depends in part on our continued ability to hire, assimilate in a timely manner and retain qualified personnel. Since June 22, 2007 we have had an Interim Chief Executive Officer and, as of yet, have not been able to retain a permanent appointee. Our most recent permanent Chief Executive Office appointee stepped down after holding the position for approximately four months. The loss of key managers could have a material adverse effect on our business, results of operations and financial condition.

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        Although a prospectus supplement related to a given offering of securities may describe the proposed use of proceeds of such offering, our management may have broad discretion over the use of proceeds from any offering of securities described in such prospectus supplement, and may spend the proceeds in ways with which shareholders do not agree.

        Our management may retain broad discretion as to the use of proceeds from any offering of securities described in any prospectus or any prospectus supplement. Accordingly, shareholders may not have an opportunity to evaluate the specific uses of those proceeds and shareholders may not agree with those uses. Our failure to use the proceeds effectively could have an adverse effect on our business, financial condition, operating results and prospects.

        We are exposed to currency exchange rate fluctuations which could aversely affect our profitability as reported in U.S. Dollars.

        Our business outside the United States is generally transacted in currencies other than U.S. dollars. Fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of our operating results. Moreover, fluctuations in the U.S. dollar relative to currencies in which earnings are generated outside the United States could result in a reduction in our profitability as reported in U.S. dollars.

Risks Relating to Our Wagering and Gaming Operations

        The passage of legislation permitting alternative gaming at racetracks, such as slot machines, video lottery terminals and other forms of non-pari-mutuel gaming, can be a long and uncertain process. A decision to prohibit, delay or remove alternative gaming rights at racetracks by the government or the citizens of a state, or other jurisdiction, in which we own or operate a racetrack, could adversely affect our business or prospects.

        Three jurisdictions currently allow alternative gaming to be conducted at racetracks or other facilities owned and/or operated by MEC: Florida, Oklahoma and Pennsylvania, and one jurisdiction, Oregon, permits a limited number of video lottery terminal machines to be operated at our racetrack and our network of off-track betting centers, as well as bars and taverns located throughout the state. We are pursuing legislation similar to that which exists in Florida, Oklahoma, and Pennsylvania in other U.S. states where certain of our racetracks are located. There can be no assurance, however, that alternative gaming at racetracks will become permitted in those states.

        In the event that alternative gaming legislation is enacted in additional jurisdictions, there can be no certainty as to the terms of such legislation or regulations, including the timetable for commencement, the conditions and feasibility of operation and whether alternative gaming rights are to be limited to racetracks. If we proceed to conduct alternative gaming at any of our racetracks, there may be significant costs and other resources to be expended, and there will be significant risks involved, including the risk of changes in the enabling legislation, that may have a material adverse effect on the relevant racetrack's operations and profitability.

        The regulatory risks and uncertainties that are inherent in the conduct of alternative gaming also apply in other jurisdictions outside the United States. The Magna Racino™, located approximately 20 miles south of Vienna, Austria, serves as landlord to video lottery terminal operations conducted by a licensed casino operator. Under that arrangement, the racetrack retains 50% of the gross profit (excluding certain costs). This arrangement has an indefinite term (with a minimum five year term ending in September 2009) and is terminable by either party on 12 months prior notice. There can be no assurance as to how long this arrangement will continue, and if it does, whether the terms will remain the same.

        A decline in the popularity of horse racing could adversely impact our business.

        The continued popularity of horse racing is important to our growth plans and our operating results. Our business plan anticipates our attracting new customers to our racetracks, off-track betting facilities and account wagering operations. Even if we are successful in making acquisitions and expanding and improving our current operations, we may not be able to attract a sufficient number of new customers to achieve our business plan.

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Public tastes are unpredictable and subject to change. Any decline in interest in horse racing or any change in public tastes may adversely affect our revenues and, therefore, our operating results.

        Declining on-track attendance and increasing competition in simulcasting may materially adversely affect our operating results.

        There has been a general decline in the number of people attending and wagering at live horse races at North American racetracks due to a number of factors, including increased competition from other forms of gaming, unwillingness of customers to travel a significant distance to racetracks and the increasing availability of off-track and account wagering. The declining attendance at live horse racing events has prompted racetracks to rely increasingly on revenues from inter-track, off-track and account wagering markets. The industry-wide focus on inter-track, off-track and account wagering markets has increased competition among racetracks for outlets to simulcast their live races. A continued decrease in attendance at live events and in on-track wagering, as well as increased competition in the inter-track, off-track and account wagering markets, could lead to a decrease in the amount wagered at our facilities and on races conducted at our racetracks and may materially adversely affect our business, financial condition, operating results and prospects.

        Gaming companies that operate on-line and offer internet-based wagering services may materially adversely affect our operating results.

        Gaming companies that operate on-line and offer internet-based wagering services often do not have the same level of overhead as we do as they do not have similar capital expenditure requirements, which often results in those companies being able to offer services at discount prices. In addition, unlike traditional operations, like ours, these off-shore online operators often do not pay certain percentages of handle to local horsemen, state regulatory agencies and other possible entities in accordance with applicable U.S. federal and state law and horse industry regulations, which means those operators are able to attract U.S. based customers that might otherwise use our services by offering rebates we cannot afford to offer.

        Our strategy of increasing international distribution of North American horse racing may not be successful.

        We believe that there is a demand for North American horse racing in the international market, but we may not be correct in our belief. Our plan to distribute our content internationally has not been successfully carried out by any other company to date. We are spending financial capital and deploying human capital in an effort to capture the international market. If we are not successful, it may have a material adverse effect on our ability to meet any future revenue expectations and, therefore, our operating results.

        Both our pari-mutuel gaming and alternative gaming activities at racetracks are dependent on governmental regulation and approvals. Amendments to such regulation or the failure to obtain such approvals could adversely affect our business.

        All our pari-mutuel wagering and alternative gaming operations at racetracks are contingent upon the continued governmental approval of these operations as forms of legalized gaming. All our current gaming operations are subject to extensive governmental regulation and could be subjected at any time to additional or more restrictive regulation, or banned entirely.

        We may be unable to obtain, maintain or renew all governmental licenses, registrations, permits and approvals necessary for the operation of our pari-mutuel wagering and other gaming facilities. Licenses to conduct live horse racing and wagering, simulcast wagering and alternative gaming at racetracks must be obtained from each jurisdiction's regulatory authority, in many cases annually. In addition, licenses or approvals to conduct account wagering must be obtained in certain jurisdictions in which our account wagering customers reside, in many cases annually. The denial, loss or non-renewal of any of our licenses, registrations, permits or approvals may materially limit the number of races we conduct or the form or types of pari-mutuel wagering and other gaming activities we offer, and could have a material adverse effect on our business. In addition, we currently devote significant financial and management resources to complying with the various governmental regulations to which our operations are subject. Any significant increase in governmental regulation would increase the amount of our resources devoted to governmental compliance, could substantially restrict our business, and could materially adversely affect our operating results.

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        If the court challenge to a November 14, 2007 agreement between the State of Florida and the Seminole Tribe of Florida is unsuccessful, the casino at Gulfstream Park will be forced to compete with an entity that does not have a similar tax burden and, therefore, will likely have significant resources to apply to marketing and other efforts.

        On November 28, 2007, we sought and were granted amicus curiae status in a suit filed by the House of Representatives and Speaker Marco Rubio against the Governor of the State of Florida, Charlie Crist, relating to the approval of tribal compacts. The Florida Supreme Court heard arguments on January 30, 2008 and judgment is currently pending.

        Any future expansion of our pari-mutuel and gaming operations will likely require us to obtain additional governmental approvals or, in some cases, amendments to current laws governing such activities.

        The high degree of regulation in the pari-mutuel and gaming industry is a significant obstacle to our growth strategy, especially with respect to alternative gaming at racetracks and account wagering, including telephone, interactive television and Internet-based wagering. Currently, non-pari-mutuel gaming is only offered at three U.S. racetracks we own, Remington Park, Gulfstream Park and Portland Meadows, at which we offer a limited number of video lottery terminal machines. Non-pari-mutuel gaming is also offered at The Meadows, a U.S. racetrack that we operate.

        Account wagering in the United States may currently be conducted only through hubs or bases located in certain states. Our expansion opportunities with respect to account wagering will be limited unless more states amend their laws to permit account wagering or, in the alternative, if states take action to make such activities unlawful. In addition, the licensing and legislative amendment processes can be both lengthy and costly, and we may not be successful in obtaining required legislation, licenses, registrations, permits and approvals.

        In the past, certain state attorneys general, district attorneys and other law enforcement officials have expressed concern over the legality of interstate account wagering. In December 2000, legislation was enacted in the United States that amends the Interstate Horseracing Act of 1978. We believe that this amendment clarifies that inter-track simulcasting, off-track betting and account wagering, as currently conducted by the U.S. horse racing industry, are authorized under U.S. federal law. The amendment may not be interpreted in this manner by all concerned, however, and there may be challenges to these activities by both state and federal law enforcement authorities, which could have a material adverse impact on our business, financial condition, operating results and prospects.

        On September 30, 2006, President George W. Bush signed into law the Unlawful Internet Gambling Enforcement Act, which prohibits the use of credit cards, checks, electronic funds transfers and certain other funding methods for most forms of Internet gambling. The new law contains an exemption which, at the very least, permits such funding for pari-mutuel account wagering conducted in compliance with the Interstate Horseracing Act. It is unclear at this time, however, how U.S. law enforcement authorities, including the U.S. Department of Justice, will interpret the application of this new law. Furthermore, as required by the Unlawful Internet Gambling Enforcement Act, the U.S. Treasury Department, in consultation with the U.S. Federal Reserve Board and the U.S. Department of Justice, released proposed regulations. See "Government Regulation — Horse Racing". As it is currently unclear whether or to what extent the proposed regulations may be amended prior to becoming final, it is uncertain if the regulations or interpretations by U.S. Federal law enforcement authorities will benefit our account wagering operations or require us to curtail our account wagering operations. If our operations need to be curtailed we may suffer a materially adverse impact on our account wagering business which, in turn could have a materially adverse impact on our business, financial condition, operating results and financial performance. Since the passage of the federal Unlawful Internet Gambling Enforcement Act in the United States, it is unclear just how federal and/or state prosecutors will address wagers that involve parties from outside the United States. If this new act is interpreted as prohibiting international wagers, it will have a material adverse effect on our business, financial condition, operating results and financial performance.

        Even before the passage of the Unlawful Internet Gambling Enforcement Act, certain financial institutions began blocking the use of credit cards issued by them for Internet gambling, either voluntarily or as part of a settlement with the office of the Attorney General for New York. Legislation or actions of this nature, if enacted

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or implemented without providing for a meaningful exception to allow account wagering to be conducted as it is currently being conducted by the U.S. horse racing industry, could inhibit account wagering by restricting or prohibiting its use altogether or, at a minimum, by restricting or prohibiting the use of credit cards and other commonly used financial instruments to fund wagering accounts. If enacted or implemented, these or any other forms of legislation or practices restricting account wagering could cause our business and its growth to suffer.

        The U.S. Federal Government's response to a recent ruling by the World Trade Organization on the U.S.'s Internet gambling policy could adversely affect our financial performance.

        In the spring of 2005, the World Trade Organization Appellate Body ruled that a claim from the island country of Antigua regarding U.S. Federal policy on international gambling may have merit due to an apparent inconsistency in how the U.S. treats interstate pari-mutuel wagers under the Interstate Horseracing Act and all other sports wagers, both on an interstate and international basis. The WTO Appellate Body ruled that the Interstate Horseracing Act raised questions regarding whether the U.S. has taken a consistently negative position regarding Internet wagering across state and international boundaries. As a part of its ruling, the WTO Appellate Body ordered the U.S. to clarify its position on interstate pari-mutuel wagering on or before April 3, 2006. The Federal government elected to file no response, preferring to rely, instead on its historical position that interstate account wagering violates the U.S. Federal Wire Act. The U.S. has subsequently pursued eliminating gambling from the list of permitted services that are among the permitted services contained in the treaty that was the subject of Antigua's complaint to the World Trade Organization. However, there are no assurances that such approach will ultimately result in establishing a consensus. If a consensus is not established, the extent to which Federal authorities successfully prosecute account wagering operators based in the United States or that take wagers from United States residents could have a material adverse effect on our revenues, business, financial condition, operating results and financial performance. Alternatively, if, as a result of the U.S.'s position, offshore wagering is permitted into the United States, that also could have a material adverse effect on our revenues and financial performance.

        Uncertainty as to the effect of Congress' attempt to eliminate the federal income tax withholding requirement on winning wagers by foreign nationals could subject us to tax liability.

        In October 2004, a bill was enacted to enable U.S. pari-mutuel wagering operators to accept wagers from foreign nationals located in foreign countries into their pari-mutuel pools. The previous law required U.S. pari-mutuel wagering operators to withhold federal income tax on any winning wagers placed by foreign nationals located in foreign countries. Any failure to withhold income tax from these wagers made the payer entity liable. We believe that the new law reflects Congress' intent to eliminate the tax withholding requirement from winning pari-mutuel wagers placed by foreign nationals located in foreign countries. In the absence of specific rules expressing how this new law is to be interpreted, however, there is a risk that the law will be interpreted differently from Congress' apparent intent, thus imposing an obligation on tracks to continue withholding federal income tax from winning wagers by foreign nationals located in foreign countries. This uncertainty could expose us to tax liability if it is determined that our method for accepting foreign wagers into our pools is incorrect. Any resulting tax liability imposed on us could have a material adverse impact on our revenues and financial performance.

        We may not be able to continue to operate our slot facility at Gulfstream Park in the long term if the constitutional amendment adopting the slots initiative is determined to be invalid. At December 31, 2007, our casino facility at Gulfstream Park had a carrying value of $29.6 million.

        On November 15, 2006, the Company opened the slots facility at Gulfstream Park, which now offers approximately 825 slot machines. The Company opened the slots facilities despite an August 2006 decision rendered by the Florida First District Court of Appeals that reversed a lower court decision granting summary judgment in favor of "Floridians for a Level Playing Field" ("FLPF"), a group in which Gulfstream Park is a member. The Court ruled that a trial is necessary to determine whether the constitutional amendment adopting the slots initiative, approved by Floridians in the November 2004 election, was invalid because the petitions bringing the initiative forward did not contain the minimum number of valid signatures. FLPF filed an application for a rehearing, rehearing en banc before the full panel of the Florida First District Court of Appeals and Certification by the Florida Supreme Court. On November 30, 2006, in a split decision, the en banc court affirmed the August 2006 panel decision and certified the matter to the Florida Supreme Court, which stayed

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the appellate court ruling pending its jurisdictional review of the matter. On September 27, 2007, the Florida Supreme Court ruled that the matter was not procedurally proper for consideration by the court. Its order effectively remanded the matter to the trial court for a trial on the merits. A trial on the merits will likely take over a year to fully develop and could take as many as three years to achieve a full factual record and trial court ruling for an appellate court to review. The Company believes that the August 2006 decision rendered by the Florida First District Court of Appeals is incorrect and that any allegations of fraud in the securing of the petitions will ultimately be disproven at the trial level, and accordingly, we have proceeded to open the slots facility. In the event the November 2004 election results are ultimately held to be invalid, we could potentially have a write-down of casino assets and our Florida operations would be negatively impacted.

        We face significant competition from other racetrack operators, including those in states where more extensive gaming options are authorized, which could hurt our operating results.

        We face significant competition in each of the jurisdictions in which we operate racetracks and we expect this competition to intensify as new racetrack operators enter our markets and existing competitors expand their operations and consolidate management of multiple racetracks. In addition, the introduction of legislation enabling slot machines or video lottery terminals to be installed at racetracks in certain states allows those racetracks to increase their purses and compete more effectively with us for horse owners, trainers and customers. Competition from existing racetrack operators, as well as the addition of new competitors, may have a material adverse effect on our future performance and operating results.

        Competition from non-racetrack gaming operators may reduce the amount wagered at our facilities and materially adversely affect our operating results.

        We compete for customers with casinos, sports wagering services and other non-racetrack gaming operators, including government-sponsored lotteries, which benefit from numerous distribution channels, including supermarkets and convenience stores, as well as from frequent and extensive advertising campaigns. We do not enjoy the same access to the gaming public or possess the advertising resources that are available to government sponsored lotteries as well as some of our other non-racetrack competitors, which may adversely affect our ability to compete effectively with them.

        We currently face significant competition from Internet and other forms of account wagering, which may reduce our profitability.

        Internet and other account wagering gaming services allow their customers to wager on a wide variety of sporting events and casino games from home. Although many on-line wagering services are operating from offshore locations in violation of U.S. law by accepting wagers from U.S. residents, they may divert wagering dollars from legitimate wagering venues such as our racetracks and account wagering operations. Moreover, our racetrack operations generally require greater ongoing capital expenditures in order to expand our business than the capital expenditures required by Internet and other account wagering gaming operators. Currently, we cannot offer the diverse gaming options provided by many Internet and other account wagering gaming operators and may face significantly greater costs in operating our business. Our inability to compete successfully with these operators could be materially adverse to our business. It is anticipated that the passage of the Unlawful Internet Gambling Funding Prohibition Act will reduce the amount of competition from non-pari-mutuel account wagering operations, however, it is unclear at this time whether this new law will indeed curtail this type of wagering activity.

        In addition, the market for account wagering is affected by changing technology. Our ability to anticipate such changes and to develop and introduce new and enhanced services on a timely basis will be a significant factor in our ability to expand, remain competitive and attract new customers.

        It is not certain that TrackNet Media will exist beyond the initial five year term provided for in the limited liability company agreement under which it was formed.

        The TrackNet Media limited liability agreement provides for an initial five year term. Although that agreement contemplates that it may be extended, such an extension would only occur if both MEC and Churchill Downs decide to do so. As Churchill Downs is a competitor in the horseracing industry, there is a possibility that one or both of the parties may decide not to continue with the joint venture arrangement, in which case there

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may be considerable effort and cost expended to unwind the joint venture. Also, if the joint venture does not continue past the end of the initial term, we may lose access to Churchill Downs racing content.

        TrackNet Media may not be able to enter into agreements with additional content owners.

        In the event, the main competitor of HRTV™, TVG, is able to sign other horseracing content owners to exclusive agreements, as has been their past business practice, those content owners will not be able to make available their content to TrackNet Media, and HRTV™, respectively, which will in turn negatively impact our ability to attract additional customers.

        Expansion of gaming conducted by Native American groups may lead to increased competition in our industry, which may negatively impact our growth and profitability.

        In March 2000, the California state constitution was amended, resulting in the expansion of gaming activities permitted to be conducted by Native American groups in California. This has led to, and may continue to lead to, increased competition and may have an adverse effect on the profitability of Santa Anita Park and Golden Gate Fields and our future growth in California. It may also affect the purses that those tracks are able to offer and therefore adversely affect our ability to attract top horses.

        Several Native American groups in Florida have previously expressed interest in opening or expanding existing casinos in southern Florida, which could compete with Gulfstream Park and reduce its profitability. For example, the Seminole Tribe of Florida has partnered with Hard Rock International to open hotel and casino operations in Tampa and Hollywood, Florida. Also, the State of Florida has entered into a November 14, 2007 agreement with the Seminole Tribe of Florida approving tribal compacts. Though the validity of Governor Charlie Crist's actions are being challenged in litigation by, among others, the House of Representatives, if the agreement with the Seminole Tribe is ultimately upheld, our facilities will face even greater competition.

        Officials with the Miami, Oklahoma based Shawnnee Tribe announced January 23, 2008 that they had made a filing with the Bureau of Indian Affairs in connection with a plan to have 104 acres of land in northeast Oklahoma City put into federal trust for the purpose of a resort development which would include casino facilities. It is currently too early to determine if the Shawnee Tribe's plan will succeed, though if it does it would represent a significant challenge to our casino operations at Remington Park.

        Moreover, other Native American groups may open or expand casinos in other regions of the country where we currently operate, or plan to operate, racetracks or other gaming operations. Any such competition from Native American groups could adversely affect our growth and profitability.

        Some jurisdictions view our operations primarily as a means of raising taxes, and therefore we are particularly vulnerable to additional or increased taxes and fees.

        We believe that the prospect of raising significant additional revenue through taxes and fees is one of the primary reasons that certain jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant taxes and fees in addition to the normal federal, state, provincial and local income taxes, and such taxes and fees may be increased at any time. From time to time, legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. For instance, U.S. legislators have proposed the imposition of a U.S. federal tax on gross gaming revenues. It is not possible to determine with certainty the likelihood of any such changes in tax laws or their administration; however, if enacted, such changes could have a material adverse effect on our business.

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        Industry controversies could cause a decline in bettor confidence and result in changes to legislation, regulation, or industry practices of the horse racing industry, which could materially reduce the amount wagered on horse racing and increase our costs, and therefore adversely affect our revenue and operating results.

        In general, the pari-mutuel wagering industry is adversely affected by negative information that can erode bettor confidence. Any investigation (whether or not charges are ultimately laid) or any materially negative information arising out of an investigation by the FBI or any other federal, state or industry regulatory body, including, without limitation, any negative information concerning the internal controls and security of totalisator systems related to pari-mutuel wagering activities, may materially reduce the amount wagered on horse racing. Such a reduction would likely negatively impact the revenue and earnings of companies engaged in the horse racing industry, including us.

        Improper conduct concerns can also lead to the imposition of additional controls, which may in some cases negatively impact our business and results from operations. For example, several persons were convicted of fraudulent conduct in connection with certain Pick 6 wagers made on the 2002 Breeders' Cup hosted by Arlington Park in Chicago, Illinois. As a result of the Pick 6 controversy, the horse racing industry focused on another area of bettor concern, late odds changes, which sometimes occur as odds updates in the totalisator system cause significant changes in the odds after a race has commenced. We have expended considerable resources in connection with our role with various industry groups that are focused on making technological improvements in an effort to, among other things, reduce late odds shifts and provide additional controls.

        Also, in January 2005, the FBI announced indictments against 17 individuals alleged to have been engaged in money laundering, tax evasion and an illegal gambling conspiracy, in each case arising out of incidents connected with the horseracing industry. Certain of the alleged criminal acts are purported to have occurred through the facilities of certain rebate wagering operations, known as "rebate shops", that commingle significant amounts of wagers into wager pools hosted by U.S. racetrack operators, including MEC. One of the indictments arose out of an alleged scheme of doping horses to enhance performance. None of the indictments accused any rebate shops or U.S. racetrack operators of wrongdoing, however, the full impact of this controversy on bettor confidence is unclear.

        If we pay persons who place fraudulent "winning" wagers, we would remain liable to pay the holders of the proper winning wagers the full amount due to them.

        We may be subject to claims from customers for fraudulent "winning" wagers. If we paid those claims, we would remain liable to the holders of the proper winning wagers for the full amount due to them and would have the responsibility to attempt to recover the money that we paid on the fraudulent claims. We may not be able to recover that money, which would adversely affect our operating results.

        Our operating results fluctuate seasonally and may be impacted by a reduction in live racing dates due to regulatory factors.

        We experience significant fluctuations in quarterly operating results due to the seasonality associated with the racing schedules at our racetracks. Generally, our revenues from racetrack operations are greater in the first quarter of the calendar year than in any other quarter. We have a limited number of live racing dates at each of our racetracks and the number of live racing dates varies somewhat from year to year. The allocation of live racing dates in most of the jurisdictions in which we operate is subject to regulatory approval from year to year and, in any given year, we may not receive the same or more racing dates than we have had in prior years. We are also faced with the prospect that competing racetracks may seek to have some of our historical dates allocated to them. A significant decrease in the number of our live racing dates would reduce our revenues and cause our business to suffer.

        Compliance with new requirements mandated by regulators can represent a significant cost and, in the event those requirements must be met quickly, could lead to operational difficulties.

        During January and early February 2008, additional work on drainage problems was required on the synthetic track surface installed at Santa Anita Park. As a result of these problems and the additional work required, racing at Santa Anita Park was cancelled on 11 days (offset in part by three rescheduled days) during

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the critical time of the opening of the 2008 meet, and the running of the California half of the Sunshine Millions was jeopardized.

        Unfavourable weather conditions may result in a reduction in the number of races we hold.

        Since horse racing is conducted outdoors, unfavourable weather conditions, including extremely high or low temperatures, excessive precipitation, storms or hurricanes, may cause races to be cancelled or may reduce attendance and wagering. Since a substantial portion of our operating expenses is fixed, a reduction in the number of races held or the number of horses racing due to unfavourable weather would reduce our revenues and cause our business to suffer.

        We periodically enter into agreements with third parties over whom we have limited control but whose conduct could affect the licenses that we hold in various jurisdictions.

        From time to time, we may enter into agreements with third parties over whom we have limited control. Conduct arising from or related to these agreements or joint venture arrangements could have an impact on the various licenses that our subsidiaries hold in multiple jurisdictions. If one of these agreements or joint venture arrangements has an adverse impact on any of these licenses, such adverse impact could have a material adverse impact on us or our financial condition, operating results or prospects, primarily through the impact associated with any loss, denial, suspension or other penalty imposed on such licenses.

        The profitability of our racetracks is partially dependent upon the size and health of the local horse population in the areas in which our racetracks are located.

        Horse population is a factor in a racetrack's profitability because it generally affects the average number of horses (i.e., the average "field size") that run in races. Larger field sizes generally mean increased wagering and higher wagering revenues due to a number of factors, including the availability of exotic bets (such as "exacta" and "trifecta" wagers). Various factors have led to both short-term and long-term declines in the horse population in certain areas of the country, including competition from racetracks in other areas, increased costs and changing economic returns for owners and breeders, and the spread of various debilitating and contagious equine diseases, such as the Mare Reproductive Loss Syndrome, which can cause large numbers of mares to sustain late term abortions or embryonic loss, the neurologic form of Equine Herpes Virus-l and Strangles, which is a disease of the respiratory system caused by the organism Streptococcus equi. If any of our tracks are faced with a sustained outbreak of a contagious equine disease, or if we are unable to attract horse owners to stable and race their horses at our tracks by offering a competitive environment, including improved facilities, well-maintained racetracks, better living conditions for backstretch personnel involved in the care and training of horses stabled at our tracks, and a competitive purse structure, our profitability could decrease. In addition to equine specific maladies, in the event other serious diseases present themselves and pose a serious threat to the horse population and/or people working in our operations, which are labor intensive in a number of cases, we may be required to cease operations at affected locations until such time as the threat has passed, in which case our operations would likely be negatively impacted.

        We depend on agreements with our horsemen's industry associations to operate our business.

        The U.S. Interstate Horseracing Act of 1978, as well as various state racing laws, require that, in order to simulcast races and, in some cases conduct live racing, we have written agreements with the horsemen at our racetracks, who are represented by industry associations. In some jurisdictions, if we fail to maintain operative agreements with the industry associations, we may not be permitted to conduct live racing or simulcasting at tracks or account wagering from hubs located within those jurisdictions. In addition, our simulcasting agreements are generally subject to the approval of the industry associations. Should we fail to renew existing agreements with the industry associations on satisfactory terms or fail to obtain approval for new simulcast agreements, we would lose revenues and our operating results would suffer.

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        If we are unable to continue to negotiate satisfactory union contracts, some of our employees may commence a strike. A strike by our employees or a work stoppage by backstretch personnel, who are employed by horse owners and trainers, may lead to lost revenues and could have a material adverse effect on our business.

        As of December 31, 2007, we employed approximately 5,300 employees, approximately 3,000 of whom were represented by unions. A strike or other work stoppage by our employees could lead to lost revenues and have a material adverse effect on our business, financial condition, operating results and prospects.

        Legislation enacted in California in 2002 could facilitate the organization of backstretch personnel in that state.

        A strike by backstretch personnel could, even though they are not our employees, lead to lost revenues and therefore adversely affect our operating results.

        An earthquake in California could interrupt our operations at Santa Anita Park and Golden Gate Fields, which would adversely impact our cash flow from these racetracks.

        Two of our largest racetracks, Santa Anita Park and Golden Gate Fields, are located in California and are therefore subject to greater earthquake risks than our other operations. We do not maintain significant earthquake insurance on the structures at our California racetracks. We maintain fire insurance for fire risks, including those resulting from earthquakes, subject to policy limits and deductibles. There can be no assurance that earthquakes or the fires often caused by earthquakes will not seriously damage our California racetracks and related properties or that the recoverable amount of insurance proceeds will be sufficient to fully cover reconstruction costs and other losses. If an uninsured or underinsured loss occurs, we could lose anticipated revenue and cash flow from our California racetracks.

        A severe hurricane hitting the Miami area could interrupt our operations at Gulfstream Park, which would adversely impact our cash flow from this track.

        Gulfstream Park is located in Aventura, Florida, just inland from the Atlantic Ocean. The new construction at Gulfstream Park has been built to withstand severe winds but significant flooding resulting from a hurricane or other tropical storm could result in significant damage to the facility. If the facility sustained serious damage, the operations and results would be negatively impacted.

Real Estate Ownership and Development Risks

        Our ownership and development of real estate is subject to risks and may involve significant ongoing expenditures or losses that could adversely affect our operating results.

        All real estate investments are subject to risks including: general economic conditions, such as the availability and cost of financing; local real estate conditions, such as an oversupply of residential, office, retail or warehousing space, or a reduction in demand for real estate in the area; governmental regulation, including taxation of property and environmental legislation; and the attractiveness of properties to potential purchasers or tenants. The real estate industry is also capital intensive and sensitive to interest rates. Further, significant expenditures, including property taxes, mortgage payments, maintenance costs, insurance costs and related charges, must be made throughout the period of ownership of real property, which expenditures may negatively impact our operating results.

        Redevelopment projects at our racetracks may result in a write down of the value of certain assets may cause temporary disruptions of our racing operations.

        We have completed the redevelopment of the racing surfaces, the grandstand and the backstretch facilities at Gulfstream Park in Florida. We have also completed the redevelopment of the dirt racing surfaces and the turf track at Laurel Park. These redevelopments resulted in write-downs in 2004 of $26.3 million and $0.4 million, respectively. The redevelopment at Gulfstream Park resulted in a racing meet using temporary facilities for 2005 and the re-opening of Laurel Park for its 2004 - 2005 meet was delayed due to construction delays, which also resulted in a loss of a number of racing days. In addition, since the commencement in June 2007 of construction of our Forest City joint venture mixed-use development, The Village at Gulfstream

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Park™, on lands immediately adjacent to Gulfstream Park, a perceived lack of convenient parking has been a contributing factor in a reduction in attendance.

        Racetrack redevelopment efforts made pursuant to deadlines mandated by state regulators may result in difficulties with integration that adversely impact racetrack performance.

        During the summer of 2007 a synthetic track surface was installed at Santa Anita Park, in order to meet the installation deadline mandated by the CHRB. During January and early February 2008, additional work on the track surface was required to address drainage problems. As a result of these problems and the additional work required, racing at Santa Anita Park had to be cancelled on 11 days (offset in part by three rescheduled days) during the critical time of the opening of the 2008 meet, and the running of the California half of the Sunshine Millions was jeopardized. In the event regulators in other states in which we operate adopt the same approach as the CHRB and mandate the installation of synthetic tracks, in addition to the capital cost associated with such installations, there is a risk that installation problems could develop and race days could be lost, which in turn would negatively impact financial performance.

        We may not be able to complete expansion or redevelopment projects successfully and on time, which would materially adversely affect our growth and our operating results.

        We intend to further develop our racetracks and expand our gaming activities. Numerous factors, including regulatory and financial constraints, could cause us to alter, delay or abandon our existing plans. If we proceed to develop new facilities or enhance our existing facilities, we face numerous risks that could require substantial changes to our plans. These risks include the inability to secure all required permits and the failure to resolve potential land use issues, as well as risks typically associated with any construction project, including possible shortages of materials or skilled labour, unforeseen engineering or environmental problems, delays and work stoppages, weather interference and unanticipated cost overruns. For example, Gulfstream Park was forced to run its 2005 meet from temporary facilities which reduced total on-track wagering at Gulfstream Park and attendance in 2005. In addition, we encountered delays in the rebuilding of the racetrack surfaces at Laurel Park, which resulted in a late re-opening of Laurel Park for its 2004 - 2005 meet and a loss of certain race dates. Even if completed in a timely manner, an expansion project may not be successful, which would affect our growth and could have a material adverse effect on our future profitability.

        The recent subprime mortgage crisis in the United States, in which the majority of our properties are situated, could have various negative impacts on our properties, business and our debt elimination plan.

        The subprime mortgage crisis of 2007 has seen high default rates on subprime and other mortgage loans made to higher-risk borrowers with lower income or lesser credit history than "prime" borrowers. As a result, there was a sharp rise in home foreclosures which started in the United States during the Fall of 2006, which became a global financial crisis during 2007 and 2008. Though the full impact of the crisis is not yet known, if it negatively impacts the value of our real estate holdings due to a general devaluing of real estate, it may be difficult to execute plans to lease space at our two mixed-use developments, "The Village at Gulfstream Park™" in Florida, construction of which commenced in June 2007, and The Shops at Santa Anita in California, construction of which has not yet commenced due to a neighboring land owner's legal challenge to the Arcadia City Council's approval of the development.

        The weak U.S. real estate and credit markets have adversely impacted our progress to date on asset sales we intend to complete in connection with our September 2007 adopted debt elimination plan.

        We face strict environmental regulation and may be subject to liability for environmental damage, which could materially adversely affect our financial results.

        We are subject to a wide range of requirements under environmental laws and regulations relating to waste water discharge, waste management and storage of hazardous substances. Compliance with environmental laws and regulations can, in some circumstances, require significant capital expenditures. Moreover, violations can result in significant penalties and, in some cases, interruption or cessation of operations. The California Water Quality Board requires that Santa Anita Park apply for, and keep in force, a wastewater discharge permit which governs and regulates the amount of contaminated water that may be discharged into the storm drain and the water table as a result of maintenance of the horse population on site. With the issuance of the permit, there are

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certain compliance efforts that the California Water Quality Board has requested that management address over the five-year permit period. The California Water Quality Board has not given deadlines for immediate compliance nor is our current permit at risk for non-compliance. Citations are not expected unless Santa Anita Park does not make an effort to comply. Upon receipt of the permit, we commenced discussions with the California Water Quality Board regarding the nature of the compliance requests and commenced the planning process as to how the Company would address these requirements over the next five years. It is our expectation that a number of these requirements are being addressed through planned capital projects, including the Summer 2007 installation of the polytrack a new, synthetic racing surface and the anticipated rebuild of barns on the backside over the next several years. Given the fact that a number of these remediation requirements would be better addressed through capital projects rather than merely a repair or fix of existing facilities, the ultimate cost of remediation will be impacted by the decision on how to best address the remediation requirements.

        Furthermore, we may not have all required environmental permits and we may not otherwise be in compliance with all applicable environmental requirements. Where we do not have an environmental permit but one may be required, we will determine if one is in fact required and, if so, will seek to obtain one and address any related compliance issues, which may require significant capital expenditures.

        Various environmental laws and regulations in the United States, Canada and Europe impose liability on us as a current or previous owner and manager of real property, for the cost of maintenance, removal and remediation of hazardous substances released or deposited on or in properties now or previously owned or managed by us or disposed of in other locations. Our ability to sell properties with hazardous substance contamination or to borrow money using that property as collateral may also be uncertain.

        Changes to environmental laws and regulations, resulting in more stringent terms of compliance, or the enactment of new environmental legislation, could expose us to additional liabilities and ongoing expenses.

        Any of these environmental issues could have a material adverse effect on our business.

        We may not be able to sell or otherwise monetize some of our real estate, excess racing real estate and revenue-producing non-racing real estate when we need to or at the price we want, which may materially adversely affect our financial condition.

        At times, it may be difficult for us to dispose of or otherwise monetize some of our excess racing real estate and revenue-producing non-racing real estate. The costs of holding real estate may be high and we may be faced with ongoing expenditures with little prospect of earning revenue on our excess racing real estate properties. If we have inadequate cash reserves or credit facilities, we may have to dispose of properties at prices that are substantially below the prices we desire, and in some cases, below the prices we originally paid for the properties, which may materially adversely affect our financial condition and our growth plans.

        We require governmental approvals for some of our properties which may take a long time to obtain or which may not be granted, either of which could materially adversely affect our existing business or our growth.

        Some of our properties will require zoning and other approvals from local government agencies. The process of obtaining these approvals may take many months and we might not obtain the necessary approvals. Holding costs, while regulatory approvals are being sought, and delays may render a project economically unfeasible. If we do not obtain all of our necessary approvals, our plans, growth and profitability could be materially adversely affected.

Risks Relating to Our Securities

        Should our Class A Subordinate Voting Stock be delisted by NASDAQ for any reason, there could be a material adverse effect on the liquidity of the shares of Class A Subordinate Voting Stock.

        As a result of the bid price of our publicly held Class A Subordinate Voting Stock closing below the $1.00 per share minimum for 30 consecutive business days, on February 12, 2008, we received a letter from the Nasdaq Stock Market advising that in accordance with Nasdaq Marketplace Rules, MEC has until August 11, 2008 (or such later date as may be permitted by Nasdaq) to regain compliance with the minimum bid price for MEC's

49



publicly held Class A Subordinate Voting Stock required for continued listing on the Nasdaq Global Market. The February 12, 2008 letter further stated, that we will receive further notification from Nasdaq staff (i) stating that we have regained compliance, in the event the bid price of MEC's Class A Subordinate Voting Stock on the Nasdaq Global Market closes at $1.00 per share or more for a minimum of 10 consecutive trading days or (ii) indicating that our Class A Subordinate Voting Stock will be delisted, in the event the minimum bid price requirement is not satisfied.

        Our stock price may be volatile, and future issuances or sales of our stock may decrease our stock price.

        The trading price of our Class A Subordinate Voting Stock has experienced, and may continue to experience, substantial volatility. The following factors have had, and may continue to have, a significant effect on the market price of our Class A Subordinate Voting Stock:

    our historical and anticipated operating results;

    the announcement of new wagering and gaming opportunities by us or our competitors;

    the passage or anticipated passage of legislation affecting horse racing or gaming;

    developments affecting the horse racing or gaming industries generally;

    sales or other issuances or the perception of potential sales or issuances, including in connection with our past and future acquisitions, of substantial amounts of our shares. We have an effective shelf registration statement outstanding that permits us to sell up to $300 million of certain types of debt and/or equity securities. As of March 10, 2008, we have not sold any securities registered under this shelf registration statement. We also have an effective shelf registration statement on Form S-3 (the "U.S. Registration Statement") filed with the United States Securities and Exchange Commission (the "SEC") and a preliminary short form base shelf prospectus (the "Canadian Prospectus") filed with the securities commissions in each of the Provinces of Canada (collectively, the "Canadian Securities Commissions"). MEC will be able to offer and sell up to U.S. $500 million of its equity securities (including stock, warrants, units and, subject to filing a Canadian rights offering circular or prospectus with the Canadian Securities Commissions, rights) from time to time in one or more public offerings or other offerings. The terms of any such future offerings would be established at the time of such offering;

    sales or the expectation of sales by MI Developments Inc. of a portion of our shares held by it, or by our other significant stockholders; and

    a shift in investor interest away from the gaming industry, in general.

        These factors could have a material adverse effect on the market price of our Class A Subordinate Voting Stock and other securities, regardless of our financial condition and operating results.

        The trading price of our Class A Subordinate Voting Stock could decrease as a result of our issuing additional shares as consideration for future acquisitions or efforts to raise funds to finance operations.

        We may issue our Class A Subordinate Voting Stock as full or partial consideration in connection with future acquisitions or efforts to raise funds to finance operations. To the extent that we do so, the percentage of our common equity and voting stock that our existing stockholders own will decrease and, particularly if such acquisitions or operations do not contribute proportionately to our profitability, the trading price of our shares may also decrease.

        Sales or a spin-off or other distribution of our Class A Subordinate Voting Stock by MI Developments Inc. or by certain of our other significant stockholders under our registration statements could depress our stock price.

        As of March 10, 2008, MI Developments Inc. owned, directly or indirectly, 4,362,328 shares of our Class A Subordinate Voting Stock and 58,466,056 shares of our Class B Stock (which are convertible into shares of our Class A Subordinate Voting Stock on a one-for-one basis). In addition, we have an effective registration statement that permits the secondary sale of shares of our Class A Subordinate Voting Stock by some of our stockholders who received those shares in connection with our past acquisitions. A total of 4,793,043 shares were initially registered pursuant to that registration statement. In December 2002, we issued $75.0 million aggregate principal amount of our 71/4% convertible Subordinated Notes due December 15, 2009 that are currently

50



convertible into 8,823,529 shares of our Class A Subordinate Voting Stock (subject to certain potential adjustments). In June 2003, we issued $150.0 million aggregate principal amount of our 8.55% Convertible Subordinated Notes due June 15, 2010 that are convertible into 21,276,595 shares of our Class A Subordinate Voting Stock. We have effective registration statements filed with the SEC covering all such shares of our Class A Subordinate Voting Stock issuable upon the conversion of such notes. In connection with the October 29, 2007 closing by MEC of a $20.0 million private placement of the Company's Class A Subordinate Voting Stock to Fair Enterprise, Fair Enterprise was issued 8.9 million shares of Class A Subordinate Voting Stock at a price of $2.25 per share. As a result of the private placement, the percentage of Class A Subordinate Voting Stock beneficially owned by Fair Enterprise has increased to approximately 21.6% of the issued and outstanding Class A Subordinate Voting Stock, representing approximately 10.8% of the equity of the Company. Sales of a substantial number of shares of our Class A Subordinate Voting Stock, by MID, Fair Enterprise or upon conversion of our Convertible Notes could depress the prevailing market price of our Class A Subordinate Voting Stock.

        We have no current plans to pay dividends and may never pay dividends.

        We have not paid any dividends to date on our Class A Subordinate Voting Stock and we do not anticipate declaring or paying cash dividends until we generate after-tax profits, if ever. See "Dividends and Dividend Policy" below.

Item 1B. Unresolved Staff Comments.

        None.

Item 2. Properties

        Information concerning properties required by this item is incorporated by reference to the information contained in "Item 1. Business" of this Report.

Item 3. Legal Proceedings

        We are not directly involved in any material litigation nor, to our knowledge, is any material litigation threatened against us, other than routine litigation arising in the ordinary course of business or that which is expected to be covered by insurance other than:

        On November 15, 2006, the Company opened the slots facility at Gulfstream Park, which now offers approximately 825 slot machines. The Company opened the slots facilities despite an August 2006 decision rendered by the Florida First District Court of Appeals that reversed a lower court decision granting summary judgment in favor of "Floridians for a Level Playing Field" ("FLPF"), a group in which Gulfstream Park is a member. The Court ruled that a trial is necessary to determine whether the constitutional amendment adopting the slots initiative, approved by Floridians in the November 2004 election, was invalid because the petitions bringing the initiative forward did not contain the minimum number of valid signatures. FLPF filed an application for a rehearing, rehearing en banc before the full panel of the Florida First District Court of Appeals and Certification by the Florida Supreme Court. On November 30, 2006, in a split decision, the en banc court affirmed the August 2006 panel decision and certified the matter to the Florida Supreme Court, which stayed the appellate court ruling pending its jurisdictional review of the matter. On September 27, 2007, the Florida Supreme Court ruled that the matter was not procedurally proper for consideration by the court. Its order effectively remanded the matter to the trial court for a trial on the merits. A trial on the merits will likely take over a year to fully develop and could take as many as three years to achieve a full factual record and trial court ruling for an appellate court to review. The Company believes that the August 2006 decision rendered by the Florida First District Court of Appeals is incorrect and that any allegations of fraud in the securing of the petitions will ultimately be disproven at the trial level, and accordingly, we proceeded to open the slots facility.

        On November 28, 2007, we sought and were granted amicus curiae status in a suit filed by the House of Representatives and Speaker Marco Rubio against the Governor of the State of Florida, Charlie Crist, relating to the approval of tribal compacts. The Florida Supreme Court heard arguments on January 30, 2008 and judgment is currently pending.

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        On May 18, 2007, ODS Technologies, L.P., doing business as TVG Network, filed a summons against MEC, HRTV, LLC and XpressBet, Inc. in United States District Court seeking an order that the defendants be enjoined from infringing certain patents relating to interactive wagering systems and for an award for damages to compensate for the infringement. An Answer to Complaint, Affirmative Defenses and Counterclaims have been filed on behalf of the defendants. At the present time, the final outcome related to this action cannot be accurately determined by management.

        In September 2006, one of our subsidiaries, The Santa Anita Companies, Inc., entered into definitive operating agreements with certain Caruso Affiliated affiliates to develop approximately 51 acres of undeveloped lands surrounding Santa Anita Park. This project contemplates a mixed-use development with approximately 800,000 square feet of retail, entertainment and restaurants as well as approximately 4,000 parking spaces. After the project was approved by the Arcadia City Council April 2007, Westfield, a developer of a neighboring parcel of land, has challenged the manner in which the entitlement process for the development of the land surrounding Santa Anita Park has been proceeding. On May 16, 2007, Westfield commenced civil litigation in the Los Angeles Superior Court in an attempt to overturn the Arcadia City Council's approval and granting of entitlements related to the construction of The Shops at Santa Anita. In addition, on May 21, 2007, Arcadia First! filed a petition against the City of Arcadia to overturn the entitlements and named the Company and certain of its subsidiaries as real parties in interest. If either Westfield or Arcadia First! is ultimately successful in its challenge, development efforts could potentially be delayed or suspended. The first hearings on the merits of the petitioners' claims are scheduled to be heard before the trial judge during the third week of April 2008.

Item 4. Submission of Matters to a Vote of Security Holders

        No matter was submitted to a vote of our stockholders during the fourth quarter of the fiscal year covered by this Report.

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Part II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Trading History

        Our Class A Subordinate Voting Stock is listed and traded on the Nasdaq Global Market ("Nasdaq") and the Toronto Stock Exchange ("TSX") under the symbols "MECA" and "MEC.A", respectively. Class A Subordinate Voting Stock commenced trading on Nasdaq on February 23, 2000 and closed at a price of $3.06 per share, and on the TSX on February 23, 2000 where it closed at a price of Cdn. $4.60 per share. The following table sets forth for the calendar periods indicated the high and low sale prices per share of the Class A Subordinate Voting Stock as reported by Nasdaq and the TSX.

 
  Nasdaq
  TSX
 
  High
  Low
  High
  Low
2006:                    
  First Quarter   $ 7.55   $ 6.21   Cdn. $8.64   Cdn. $7.13
  Second Quarter   $ 6.89   $ 4.85   Cdn. $8.00   Cdn. $5.25
  Third Quarter   $ 5.84   $ 3.75   Cdn. $6.50   Cdn. $4.20
  Fourth Quarter   $ 5.58   $ 4.21   Cdn. $6.30   Cdn. $4.71

2007:

 

 

 

 

 

 

 

 

 

 
  First Quarter   $ 4.57   $ 3.04   Cdn. $5.68   Cdn. $3.61
  Second Quarter   $ 3.92   $ 2.74   Cdn. $4.50   Cdn. $3.00
  Third Quarter   $ 2.99   $ 1.65   Cdn. $3.34   Cdn. $1.75
  Fourth Quarter   $ 2.85   $ 0.95   Cdn. $2.74   Cdn. $0.95

2008:

 

 

 

 

 

 

 

 

 

 
  First Quarter (through March 10, 2008)   $ 0.98   $ 0.42   Cdn. $1.40   Cdn. $0.43

        On February 28, 2008, the last sale price of the Class A Subordinate Voting Stock as reported by Nasdaq was $0.88 and by the TSX was Cdn. $0.87.

        Our Class B Stock is unlisted and not actively traded.

        The number of security holders of record as of February 28, 2008 was as follows: Class A Subordinate Voting Stock: 583; Class B Stock: two.

Securities Authorized for Issuance under Equity Compensation Plans

        Information relating to compensation plans under which our equity securities are authorized for issuance is incorporated herein by reference from the section of our Proxy Statement titled "Equity Based Compensation Plan Information", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31, 2007.

Comparative Stock Performance Graph

        The following graph compares the cumulative total shareholder return on MEC's Class A Subordinate Voting Stock to the cumulative total shareholder return of the Nasdaq 100 Market Index and a peer group index. The peer group index used by MEC is the Bloomberg US Entertainment Index, which is a published industry peer index of companies engaged in the entertainment industry. The graph depicts the results of an investment of $100 in MEC's Class A Subordinate Voting Stock, the Nasdaq 100 Market Index and the Bloomberg US Entertainment Index.

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Magna Entertainment Corp. vs Peer Group
December 2002 to December 2007

GRAPHIC

Dividends and Dividend Policy

        We have never declared or paid dividends on our Class A Subordinate Voting Stock or Class B Stock and we do not anticipate declaring or paying cash dividends until we generate after-tax profits, if ever. The holders of our Class A Subordinate Voting Stock and our Class B Stock are entitled to receive their proportionate share of dividends declared by our Board of Directors, except in the case of certain stock dividends. Any dividends will be declared on our Class A Subordinate Voting Stock and Class B Stock in accordance with our restated certificate of incorporation, including our Corporate Constitution, which sets forth certain dividend entitlements for our stockholders if we generate after-tax profits, subject to applicable law.

Recent Sales of Unregistered Securities

        None.

Issuer Purchases of Equity Securities

        None.

Item 6. Selected Financial Data

        The following tables set forth our selected consolidated financial and operating data for the periods indicated. The selected consolidated financial and operating data as at and for the years ended December 31, 2003, 2004, 2005, 2006 and 2007 have been derived from and should be read in conjunction with our audited Consolidated Financial Statements as at and for the years ended December 31, 2003 (as filed with our Annual Report for the fiscal year ended December 31, 2003), December 31, 2004 (as filed with our Annual Report for the year ended December 31, 2004), December 31, 2005 (as filed with our Annual Report for the year ended December 31, 2005), December 31, 2006 (as filed with our Annual Report for the year ended December 31, 2006) and December 31, 2007 (included in this Report). The selected financial and operating information should

54



also be read in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Annual Report.

 
  Years Ended December 31,
 
Income Statement Data(1):
  2003
  2004
  2005
  2006
  2007
 
 
  (U.S. dollars in thousands, except per share figures)

 
Racing and Gaming Revenues   $ 590,331   $ 591,515   $ 522,020   $ 569,252   $ 617,240  
Real Estate and Other Revenues     6,206     20,937     4,643     4,946     8,475  
   
 
 
 
 
 
Total Revenues   $ 596,537   $ 612,452   $ 526,663   $ 574,198   $ 625,715  
   
 
 
 
 
 
Racing and Gaming Costs and Expenses   $ 570,166   $ 598,476   $ 541,725   $ 586,809   $ 630,067  
Real Estate and Other Costs and Expenses     9,781     13,247     4,867     4,030     5,901  
Pre-development, pre-opening and other     7,983     18,271     9,494     10,602     2,866  
Depreciation and amortization     25,876     31,273     33,431     38,989     42,297  
Write-down of long-lived and intangible assets     122,622     26,685         88,627     1,308  
Equity loss (income)     (143 )   (577 )   (1,122 )   493     3,098  
Gain on sale of intangible assets related to The Meadows                 (126,374 )    
Interest expense, net     12,167     21,927     32,613     57,758     50,621  
   
 
 
 
 
 
Loss from continuing operations before income taxes   $ (151,915 ) $ (96,850 ) $ (94,345 ) $ (86,736 ) $ (110,443 )
Income tax benefit     (56,905 )   (4,939 )   (1,239 )   (7,124 )   (2,574 )
   
 
 
 
 
 
Loss from continuing operations   $ (95,010 ) $ (91,911 ) $ (93,106 ) $ (79,612 ) $ (107,869 )
Loss from discontinued operations     (10,087 )   (3,725 )   (12,187 )   (7,739 )   (5,890 )
   
 
 
 
 
 
Net Loss   $ (105,097 ) $ (95,636 ) $ (105,293 ) $ (87,351 ) $ (113,759 )
   
 
 
 
 
 
Loss per share for Class A Subordinate Voting Stock and Class B Stock:                                
Basic and Diluted                                
Continuing operations   $ (0.89 ) $ (0.86 ) $ (0.87 ) $ (0.74 ) $ (0.99 )
Discontinued operations     (0.09 )   (0.03 )   (0.11 )   (0.07 )   (0.05 )
   
 
 
 
 
 
Loss per share   $ (0.98 ) $ (0.89 ) $ (0.98 ) $ (0.81 ) $ (1.04 )
   
 
 
 
 
 
Average number of shares of Class A Subordinate Voting Stock, Class B Stock and Exchangeable Shares outstanding during the year (in thousands):                                
Basic and Diluted     107,143     107,323     107,356     107,461     109,219  
 
 
  Years Ended December 31,
 
Other Data(2):
  2003
  2004
  2005
  2006
  2007
 
EBITDA(3)   $ (113,872 ) $ (43,650 ) $ (28,301 ) $ 10,011   $ (17,525 )
Capital expenditures(4)     90,787     133,722     122,971     80,422     74,382  
Cash provided from (used for)                                
Operating activities     12,874     (48,151 )   (57,666 )   (63,842 )   (61,822 )
Investing activities     (94,236 )   (116,504 )   (118,607 )   96,553     16,640  
Financing activities     102,692     95,556     124,179     (58,509 )   41,857  

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  At December 31,
Balance Sheet Data(1)(2):
  2003
  2004
  2005
  2006
  2007
Cash and cash equivalents   $ 92,447   $ 57,632   $ 41,484   $ 47,655   $ 34,315
Real estate properties and fixed assets, net     722,263     807,491     877,458     852,516     842,164
Total assets     1,322,940     1,403,353     1,414,644     1,246,885     1,242,642
Total debt(5)     362,281     461,970     586,782     557,364     588,258
Shareholders' equity     657,054     578,680     459,594     400,618     362,713
(1)
We prepare our financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.

(2)
Represents financial information from continuing operations only.

(3)
"EBITDA" is not intended to represent cash flows or results of operations in accordance with U.S. GAAP. EBITDA may not be comparable to similarly titled amounts reported by other companies. See "GAAP and Non-GAAP Financial Measures" below for a cautionary disclosure and the reconciliation of EBITDA to our consolidated financial statements.

(4)
Capital expenditures include both maintenance and strategic capital expenditures less the cost of real estate acquired.

(5)
Total debt includes bank indebtedness, long-term debt, amounts due to parent and convertible subordinated notes.

GAAP and Non-GAAP Financial Measures

        We evaluate the operating and financial performance of our business using several measures, including revenue, EBITDA (defined as income (loss) before interest, income taxes, depreciation and amortization), income (loss) before income taxes, net income (loss) and diluted earnings (loss) per share. We measure and present EBITDA because it is a measure that is widely used by analysts and investors in evaluating our operating performance. This measure should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with generally accepted accounting principles.

        The following table reconciles our non-GAAP financial measures to the accompanying financial statements:

Reconciliation of Non-GAAP to GAAP Financial Measures

 
  Years Ended December 31,
 
 
  2003
  2004
  2005
  2006
  2007
 
 
  (U.S. dollars in thousands)
(unaudited)

 
Earnings (Loss) Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA")                              
Loss before income taxes from continuing operations   $ (151,915 ) $ (96,850 ) $ (94,345 ) $ (86,736 ) (110,443 )
Interest expense, net     12,167     21,927     32,613     57,758   50,621  
Depreciation and amortization     25,876     31,273     33,431     38,989   42,297  
   
 
 
 
 
 
EBITDA from continuing operations   $ (113,872 ) $ (43,650 ) $ (28,301 ) $ 10,011   (17,525 )
   
 
 
 
 
 

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion of our results of operations and financial position should be read in conjunction with our consolidated financial statements for the year ended December 31, 2007. This discussion includes forward-looking statements that reflect our current views with respect to future events and financial performance and that involve risks and uncertainties. Our actual results, performance or achievements could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including risks discussed in "Management's Discussion and Analysis of Results of Operations and Financial Position — Forward-Looking Statements" and "Risk Factors" included elsewhere in this Report. The amounts described below are based on our consolidated financial statements, which we prepare in accordance with United States generally accepted accounting principles ("U.S. GAAP").

Overview

        Magna Entertainment Corp. ("MEC", "we" or the "Company") owns horse racetracks in California, Florida, Maryland, Texas, Oklahoma, Ohio, Oregon and Ebreichsdorf, Austria. In addition, we operated a racetrack in Michigan until November 2007 and, under a management agreement, operate a racetrack in Pennsylvania that we previously owned. Based on revenues, MEC is North America's number one owner and operator of horse racetracks, and is a leading supplier, via simulcasting, of live racing content to the growing inter-track, off-track and account wagering markets. We currently operate or manage seven thoroughbred racetracks, one standardbred (harness racing) racetrack and two racetracks that run both thoroughbred and quarterhorse meets, as well as the simulcast wagering venues at these tracks. Also, we previously managed the thoroughbred and standardbred meets at Magna Racino™, but now expect that a local operator will manage future meets at that facility. Three of the racetracks owned or operated by us (Gulfstream Park, Remington Park and Magna Racino™) include casino operations with alternative gaming machines. In addition, we operate off-track betting facilities, a United States national account wagering business known as XpressBet®, which permits customers to place wagers by telephone and over the Internet on horse races at over 100 North American racetracks and internationally on races in Australia, South Africa, Dubai, Germany, the United Kingdom and Hong Kong, and a European account wagering service known as MagnaBet™. Under a series of March 2007 agreements with Churchill Downs Incorporated ("CDI"), we own a 50% interest in a joint venture, TrackNet Media Group, LLC ("TrackNet Media"), the content management company formed for distribution of the full breadth of MEC's horse racing content. In addition to making horse racing content available for both MEC and CDI, it also makes such content available for third parties, including racetracks, off-track betting facilities, casinos and advance deposit wagering companies, and purchases horse racing content from third parties to be made available through CDI's and MEC's respective outlets. The TrackNet Media arrangement also involves the exchange by MEC and CDI of their respective horse racing signals such that CDI's racing content is available for wagering through MEC-owned tracks and simulcast-wagering facilities and through our advanced deposit wagering platform, XpressBet®, and our racing content is similarly available for wagering through CDI tracks and off-track betting facilities and through CDI-owned advance deposit wagering platforms. A separate joint venture with CDI also involves the ownership by MEC and CDI of equal (50%) shares in HorseRacing TV™ ("HRTV™"), a television network focused on horse racing that we initially launched on the Racetrack Television Network ("RTN"). HRTV™ is currently distributed to more than 15 million cable and satellite TV subscribers. RTN, in which we have a minority interest, was formed to telecast races from our racetracks and other racetracks to paying subscribers, via private direct to home satellite. We also own AmTote International, Inc. ("AmTote"), a provider of totalisator services to the pari-mutuel industry. To support certain of our thoroughbred racetracks, we own and operate thoroughbred training centers in Palm Beach County, Florida and in the Baltimore, Maryland area and, under a lease agreement, operate an additional thoroughbred training center situated near San Diego, California. We also own and operate production facilities in Austria and in North Carolina for StreuFex™, a straw-based horse bedding product. In addition to our racetracks, our real estate portfolio includes a residential development in Austria. We are also working with potential developers and strategic partners on proposals for developing leisure and entertainment or retail-based projects on excess lands surrounding, or adjacent to, certain of our premier racetracks.

        2007 was a challenging year for MEC. Although revenues from continuing operations increased by 9.0% to $625.7 million, our net loss increased to $113.8 million from $87.4 million in 2006, primarily due to increased

57



losses at Gulfstream Park and continued high debt service costs. Also, in 2006 we recognized a $126.4 million gain on sale of intangible assets related to The Meadows and a write-down of long-lived assets of $88.6 million. We discuss our results of operations in detail in the "Results of Operation" section below.

        Following the completion of a strategic review of the Company's assets and operations, on September 12, 2007, our Board of Directors approved a debt elimination plan (the "Plan"), designed to eliminate the Company's net debt by December 31, 2008 by generating funding from: (i) the sale of certain real estate, racetracks and other assets; (ii) the sale of, or entering into strategic transactions involving, the Company's other racing, gaming and technology operations; and (iii) a possible future equity issuance. We also arranged for $100.0 million of funding to address immediate liquidity concerns and provide sufficient time to implement the Plan. This funding was comprised of: (i) a $20.0 million private placement of Class A Subordinate Voting Stock ("Class A Stock") to Fair Enterprise Limited ("Fair Enterprise"), a company that forms part of an estate planning vehicle for the family of Frank Stronach, MEC's Chairman and Interim Chief Executive Officer (the "Fair Enterprise Private Placement"); and (ii) a short-term bridge loan facility of up to $80.0 million (the "Bridge Loan") with a subsidiary of our controlling shareholder, MI Developments Inc. ("MID"). Although we continue to implement the Plan, since the adoption of the Plan, weakness in the U.S. real estate and credit markets has adversely impacted our ability to execute the Plan as market demand for our assets has been weaker than expected and financing for potential buyers has become more difficult to obtain. These conditions have not abated through the date of this Report, with the result that it will take us longer to execute the Plan than originally anticipated. As a result, we will likely need to seek extensions from existing lenders and additional funds in the short-term from one or more possible sources. The availability of such extensions and additional funds is not assured and, if available, the terms thereof are not determinable at this time.

        At December 31, 2007, we had a working capital deficiency of $162.2 million and had $209.4 million of debt that matures in 2008, including: (i) amounts owing under our $40.0 million senior secured revolving credit facility with a Canadian financial institution, which is scheduled to mature on March 31, 2008, (ii) our $80.0 million Bridge Loan, which is scheduled to mature on May 31, 2008, and (iii) our obligation to repay $100.0 million of indebtedness under the Gulfstream Park project financings with a subsidiary of MID by May 31, 2008. Accordingly, our financial statements have been prepared with a "going concern" qualification. See "Outlook", "Liquidity and Capital Resources" and "Going Concern" below for more information.

Debt Elimination Plan

        The Plan contemplates selling certain real estate properties, including those situated in the following locations: Dixon, California; Ocala, Florida; Aventura and Hallandale, Florida, both adjacent to Gulfstream Park; Porter, New York; Anne Arundel County, Maryland, adjacent to Laurel Park; and Ebreichsdorf, Austria, adjacent to the Magna Racino™. We have initiated an active program to sell the Dixon and Ocala real estate properties and have listed both of these properties for sale with a real estate broker. The Porter lands, which comprise three parcels of land, have been sold — the sale of one parcel closed in December 2007 and sales of the remaining two parcels closed in early January 2008. The sale of these properties generated net proceeds of approximately $1.7 million, net of transaction costs, which was used to repay a portion of the Bridge Loan subsequent to December 31, 2007. We recognized an impairment charge of $1.3 million in 2007 in relation to the Porter lands.

        On December 21, 2007, we entered into an agreement to sell 225 acres of excess real estate located in Ebreichsdorf, Austria to a subsidiary of Magna International Inc., a related party, for a purchase price of Euros 20.0 million (approximately U.S. $29.4 million), subject to customary closing adjustments. The closing of the transaction is expected to occur during the first quarter of 2008 following the satisfaction of customary closing conditions including the receipt of all necessary regulatory approvals. We are required to use Euros 7.5 million of the net proceeds to repay a portion of a Euros 15.0 million term loan facility and the remaining portion of the net proceeds is required to be used to repay a portion of the Bridge Loan.

        We also intend to explore the sale of our membership interests in the mixed-use developments at Gulfstream Park in Florida and Santa Anita Park in California that we are pursuing under joint venture arrangements with Forest City Enterprises, Inc. ("Forest City") and Caruso Affiliated, respectively.

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        The racetracks that we intend to sell include: Great Lakes Downs in Michigan, Remington Park in Oklahoma, Thistledown in Ohio and our interest in Portland Meadows in Oregon. We ceased racing at Great Lakes Downs on November 4, 2007 and listed the property for sale with a real estate broker in October 2007. In September 2007, we engaged a U.S. investment bank, recognized as an experienced advisor in the gaming industry, to assist in soliciting potential purchasers and manage the sale process for certain assets and in October 2007, the U.S. investment bank began marketing Remington Park and Thistledown for sale. In November 2007, we initiated an active program to locate a buyer and began marketing our interest in Portland Meadows for sale.

        We also intend to explore other strategic transactions involving other racing, gaming and technology operations, including: partnerships or joint ventures in respect of the existing gaming facility at Gulfstream Park; partnerships or joint ventures in respect of potential alternative gaming operations at certain of our other racetracks that currently do not have gaming operations; and transactions involving our technology operations, which may include one or more of the assets that comprise our PariMax business.

        The real estate properties located in Dixon, California and Ocala, Florida, the two parcels of land in Porter, New York, that were sold in January 2008 and the excess land in Ebreichsdorf, Austria that is under a contractual sale agreement, have been classified as "assets held for sale" on our consolidated balance sheet as at December 31, 2007. Similarly, the operations of Great Lakes Downs, Remington Park, Thistledown and Portland Meadows have been presented as "discontinued operations" at December 31, 2007 given that all of these assets met the criteria under U.S. GAAP for classification as either "assets held for sale" or "discontinued operations" at December 31, 2007. Comparative periods presented have been restated to reflect the results of these assets held for sale and discontinued operations on a consistent basis.

Outlook

        Although we continue to implement our Plan, real estate and credit markets have continued to demonstrate weakness in the first part of 2008. This has reduced the likelihood that we will be able to complete asset sales at acceptable prices as quickly as originally contemplated. In light of these adverse developments, combined with our upcoming debt maturities and operational funding requirements, we will likely need to seek extensions or additional funds in the short-term from one or more possible sources. The availability of such extensions or additional funds from existing lenders, including MID, or from other sources is not assured and, if available, the terms thereof are not determinable at this time. We expect that we will enter into negotiations with such existing lenders, including MID, with a view to extending, restructuring or refinancing such facilities. There is no assurance that such negotiations, if any, will result in a favorable outcome for MEC. If we are unable to repay our obligations when due, other current and long-term debt will also become due on demand as a result of cross-default provisions within loan agreements, unless we are able to obtain waivers or extensions. Unless we are successful in our efforts, we could be required to liquidate assets in the fastest manner possible to raise funds, seek protection from our creditors in one or more ways or be unable to continue as a going concern. See the "Going Concern" section below and the section entitled "Risk Factors — Risks Regarding Our Company" elsewhere in this Report for more information.

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Our Operations

        Our revenues are derived primarily from our racing and gaming operations. Selected information about our racing and gaming operations is set forth below:

 
   
   
  Year ended December 31, 2007
Track / Operation

  Date Acquired
  Local Market Population(1)
(in millions)

  Racing Season
  Live Racing Days
  Total Handle(2)
(in millions)

  Revenue(2)(3)
(in millions)

Continuing Operations                            
Santa Anita Park
 — Los Angeles
  Dec. 1998   10.9   Jan. 1 to Apr. 22 and
Dec. 26 to 31
  85   $ 1,051.4   $ 145.9
            The Oak Tree Meet
Sep. 26 to Nov. 4
  31     283.4 (4)    
Gulfstream Park
 — Miami
  Sep. 1999   4.3   Jan. 3 to Apr. 22   88     746.8     123.0
Laurel Park
— 
Baltimore
  Nov. 2002   6.6   Jan. 1 to Apr. 15 and
Aug. 10 to Aug. 23
and Sep. 5 to Dec. 29
  148     525.9     57.5
Golden Gate Fields
— 
San Francisco
  Dec. 1999   5.2   Jan. 1 to Feb. 11 and
Apr. 25 to Jun. 10 and
Nov. 7 to Dec. 31
  98     442.5     55.7
Pimlico Race Course
— 
Baltimore
  Nov. 2002   5.2   Apr. 19 to Jun. 9   31     284.7     52.9
Lone Star Park
— 
Dallas
  Oct. 2002   5.1   Apr. 12 to Jul. 29 and
Oct. 5 to Dec. 1
  99     290.9     60.5
The Meadows
— 
Pittsburgh
  Apr. 2001   2.8   Jan. 1 to Aug. 15 and
Nov. 1 to Dec. 31
  205     205.1     35.1
XpressBet®
— 
National
  Apr. 2001   N/A   All year   N/A     175.6     36.6
MagnaBet™   Apr. 2004   N/A   All year   N/A     9.8     2.1
Magna Racino™
— 
Ebreichsdorf, Austria
  Apr. 2004   2.5   Mar. 18 to Nov. 11   25     2.4     8.0
                         
  Total Continuing Operations                         $ 577.3
                         

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Remington Park
 — Oklahoma City
  Nov. 1999   1.1   Mar. 9 to Jun. 3 and
Aug. 2 to Dec. 1
  119   $ 122.7   $ 77.6
Thistledown
 — Cleveland
  Nov. 1999   3.0   Apr. 12 to Nov. 19   136     175.8     24.7
Portland Meadows
 — Portland
  Jul. 2001   2.0   Jan. 1 to May 5 and
Oct. 7 to Dec. 31
  75     85.7     15.3
Great Lakes Downs
— 
Muskegon, Michigan
  Feb. 2000   1.2   May 5 to Nov. 6   98     48.5     5.4
                         
  Total Discontinued Operations                         $ 123.0
                         
(1)
Population residing within 40 miles of each of our racetracks, except for Santa Anita Park and Magna Racino™ (30 miles), The Meadows (50 miles) and Great Lakes Downs (50 miles). Data from Urban Systems Inc.

(2)
Amounts comprising total handle and revenue include inter-company transactions for our racetracks, account wagering operations and separate OTB facilities, for both our importing and our exporting facilities.

(3)
Revenue excludes our AmTote operations, our training centers, HRTV™ and our straw-based horse bedding production facilities in Europe and North Carolina.

(4)
Rental and other revenues earned from The Oak Tree Meet are included in Santa Anita Park's revenue.

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        Our primary source of racing revenues is commissions earned from pari-mutuel wagering. Pari-mutuel wagering on horse racing is a form of wagering in which wagers on horse races are aggregated in a commingled pool of wagers (the "mutuel pool") and the payoff to winning customers is determined by both the total dollar amount of wagers in the mutuel pool and the allocation of those dollars among the various kinds of bets. Unlike casino gambling, the customers bet against each other, and not against us, and therefore we bear no risk of loss with respect to any wagering conducted. We retain a pre-determined percentage of the total amount wagered (the "take-out") on each event, regardless of the outcome of the wagering event, and the remaining balance of the mutuel pool is distributed to the winning customers. Of the percentage we retain, a portion is paid to the horse owners in the form of purses or winnings, which encourage the horse owners and their trainers to enter their horses in our races. Our share of pari-mutuel wagering revenues is based on pre-determined percentages of various categories of the pooled wagers at our racetracks. The maximum pre-determined percentages are approved by state regulators. Pari-mutuel wagering on horse racing occurs on the live races being conducted at racetracks, as well as on televised racing signals, or simulcasts, received or imported by the simulcast wagering facilities located at such racetracks or OTB facilities, and through various forms of account wagering. Our racetracks have simulcast wagering facilities to complement our live horse racing, enabling our customers to wager on horse races being held at other racetracks.

        We derive our pari-mutuel wagering revenues from the following primary sources:

    Wagers placed at our racetracks or our OTB facilities on live racing conducted at our racetracks;

    Wagers placed at our racetracks' simulcast wagering venues or our OTB facilities on races imported from other racetracks;

    Wagers placed at other locations (i.e. other racetracks, OTB facilities or casinos) on live racing signals exported by our racetracks; and

    Wagers placed by telephone or over the Internet by customers enrolled in XpressBet® or MagnaBet™, our account wagering platforms.

        Wagers placed at our racetracks or our OTB facilities on live racing conducted at one of our racetracks produce more net revenue for us than wagers placed on imported racing signals, because we must pay the racetrack sending us its signal a fee generally equal to 3% to 4% of the amount wagered on its race. Wagers placed on imported signals, in turn, produce more revenue for us than wagers placed on our signals exported to off-track venues (i.e. other racetracks, OTB facilities or casinos), where we are paid a commission generally equal to only 3% to 4% of the amount wagered at the off-track venue on the signal we export to those venues. Revenues from our telephone and Internet account wagering operations vary depending upon the source of the signal upon which the wager is placed.

        We also generate gaming revenues from our Gulfstream Park and Remington Park (which is reflected as "discontinued operations") gaming operations. Gaming revenues represent the net win earned on slot wagers. Net win is the difference between wagers placed and winning payouts to patrons.

        We also generate non-wagering revenues which include totalisator equipment sales and service revenues from AmTote earned in the provision of totalisator services to racetracks, food and beverage sales, program sales, admissions, parking, sponsorship, rental fees and other revenues.

        Live race days are a significant factor in the operating and financial performance of our racing business. Another significant factor is the level of wagering per customer on our racing content on-track, at inter-track simulcast locations and at OTB facilities. There are also many other factors that have a significant impact on our racetrack revenues. Such factors include, but are not limited to: attendance at our racetracks, inter-track simulcast locations and OTB facilities; activity through our XpressBet® and MagnaBet™ systems; the number of races conducted at our racetracks and at racetracks whose signals we import and the average field size per race; our ability to attract the industry's top horses and trainers; inclement weather; and changes in the economy.

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        Set forth below is a list of the total live race days by racetrack for the years ended December 31, 2007, 2006 and 2005:

 
  Years ended December 31,
 
  2007
  2006
  2005
Continuing Operations Racetracks            
Santa Anita Park(1)   85   86   85
Gulfstream Park   88   87   86
Golden Gate Fields   98   106   96
Laurel Park(2)   148   152   135
Lone Star Park   99   97   100
Pimlico Race Course(2)   31   31   59
The Meadows   205   208   206
Magna Racino™   25   40   45
   
 
 
    779   807   812
   
 
 

Discontinued Operations Racetracks(3)

 

 

 

 

 

 
Thistledown   136   156   185
Remington Park   119   118   98
Portland Meadows   75   86   70
Great Lakes Downs   98   101   100
   
 
 
    428   461   453
   
 
 
Total   1,207   1,268   1,265
   
 
 
(1)
Excludes The Oak Tree Meet which consisted of 31 days in 2007, 26 days in 2006 and 31 days in 2005.

(2)
Laurel Park and Pimlico Race Course constitute The Maryland Jockey Club.

(3)
Flamboro Downs had 203 live race days in 2005 to the date of its sale on October 19, 2005. The results of Flamboro Downs in 2005 have been reported as discontinued operations in our consolidated financial statements.

        We recognize racing revenue prior to our payment of purses, stakes, awards and pari-mutuel taxes. The racing costs relating to these revenues are shown as "pari-mutuel purses, awards and other" in our consolidated financial statements. We recognize gaming revenue prior to our payment of taxes and purses. The gaming costs relating to these revenues are shown as "gaming purses, taxes and other" in our consolidated financial statements.

        Our operating costs principally include salaries and benefits, the cost of providing totalisator services and manufacturing totalisator equipment, utilities, the cost of food and beverages sold, racetrack repairs and maintenance expenses, sales and marketing expenses, rent, printing costs, property taxes, license fees and insurance premiums.

Seasonality

        Most of our racetracks operate for prescribed periods each year. As a result, our racing revenues and operating results for any quarter will not be indicative of our racing revenues and operating results for any other quarter or for the year as a whole. Because five of our largest racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park at Grand Prairie, Pimlico Race Course and Golden Gate Fields, run live race meets principally during the first half of the year, our racing operations have historically operated at a loss in the second half of the year, with our third quarter generating the largest operating loss. This seasonality has resulted in large quarterly fluctuations in revenue and operating results.

Real Estate and Other Operations

        Our real estate and other revenues represent revenues earned from our European residential development.

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        We characterize our real estate as follows:

    Revenue-Producing Racing and Gaming Real Estate

    real estate at our racetracks used in our racing and gaming operations;

    Excess Racing Real Estate

    excess real estate at our racetracks that we are considering developing with strategic partners or otherwise; and

    Revenue-Producing Non-Racing Real Estate

    developed real estate not at our racetracks that is currently generating revenue for us.

        As of December 31, 2007, the aggregate net book values of our real estate properties are as follows:

 
  $ millions
Revenue-Producing Racing and Gaming Real Estate   655.8
Excess Racing Real Estate   87.1
Revenue-Producing Non-Racing Real Estate   8.5
   
    751.4
   

        Included in our Excess Racing Real Estate is land adjacent to certain of our racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park at Grand Prairie, Laurel Park (in respect of which we disposed of a portion of the excess land, a 64 acre parcel in February 2007), Pimlico Race Course and Magna Racino™. We are considering a variety of options with respect to this excess land, including entertainment and retail-based developments that could be undertaken in conjunction with business partners who might provide the necessary financing.

        Our Revenue-Producing Non-Racing Real Estate includes our European residential development.

Critical Accounting Policies

        The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates that affect: the amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and various other assumptions that are believed to be reasonable and prudent in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. On an ongoing basis, we evaluate our estimates. However, actual results could differ from those estimates under different assumptions or conditions.

        Our significant accounting policies are included in Note 2 to our consolidated financial statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Impairment of Intangible and Long-Lived Assets

        Our most significant intangible assets are racing licenses which represent the value attributed to licenses to conduct race meets acquired through our racetrack acquisitions. In accordance with Financial Accounting Standards Board Statement No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", intangibles are evaluated for impairment on an annual basis or when impairment indicators are present. Racing license impairment is assessed based on a comparison of the fair value of an individual reporting unit's racing license to its carrying value. An impairment write-down to fair value would occur if estimated discounted cash flows from operations less charges for contributory assets assumed to be owned by third parties is less than the carrying value of the racing license.

        Under Financial Accounting Standards Board Statement No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-lived Assets", our long-lived assets are evaluated for impairment whenever

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events or changes in circumstances indicate that the carrying value may not be recoverable. If such events or changes in circumstances are present, we assess the recoverability of the long-lived assets by determining whether the carrying value of such assets can be recovered through projected undiscounted cash flows. If the sum of expected future cash flows, undiscounted and without interest charges, is less than net book value, the excess of the net book value over the estimated fair value, based on discounted future cash flows and appraisals, is charged to operations in the period in which such impairment is determined by management. When long-lived assets are identified as available for sale, if necessary, the carrying value is reduced to the estimated fair value less costs of disposal. Fair value is determined based upon discounted cash flows of the assets, appraisals and, if appropriate, current estimated net sales proceeds from pending offers.

        We believe the accounting estimates related to intangibles and long-lived asset impairment assessments are "critical accounting estimates" because they are subject to significant measurement uncertainty and are susceptible to change as management is required to make forward-looking assumptions regarding cash flows and business operations. Any resulting impairment loss could have a material impact on our consolidated operating results and on the amount of assets reported on our consolidated balance sheets.

Future Income Tax Assets

        At December 31, 2007, we recorded future tax assets (net of related valuation allowances) in respect of loss carryforwards and other deductible temporary differences. We evaluate quarterly the realizability of our future tax assets by assessing our valuation allowance and by adjusting the allowance as necessary. The assessment considers forecasts of future taxable income and tax planning strategies that could be implemented to realize the future tax assets. Should operations not yield future taxable income or if tax planning strategies can not be implemented, then there could be a material impact on our consolidated tax expense or recovery and on the amount of future tax assets reported on our consolidated balance sheets.

Stock-Based Compensation

        Prior to January 1, 2006, we accounted for stock-based compensation under the recognition and measurement provisions of APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and related Interpretations, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), "Share-Based Payment" ("SFAS 123(R)"), using the modified-prospective method. Under the modified-prospective method, compensation expense recognized in 2006 includes: (a) compensation expense for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).

Revenue Recognition

        A significant component of our revenues is generated from our racing and gaming operations. Revenues generated from horse racing are recorded on a daily basis and are recognized gross of purses, stakes and awards as well as pari-mutuel wagering taxes. Gaming revenues represent the net win earned on slots wagers. Net win is the difference between wagers placed and winning payouts to patrons, and is recorded at the time wagers are made. Non-wagering revenues include totalisator equipment sales and service revenues from AmTote earned in the provision of totalisator services to racetracks, food and beverage sales, program sales, admissions, parking, sponsorship, rental fees and other revenues. Revenues derived principally from totalisator equipment sales are recognized upon shipment or acceptance of the equipment by the customer depending on the terms of the underlying contracts. Revenues generated from service contracts in the provision of totalisator services are recognized when earned based on the terms of the service contract. Revenues from food and beverage and program sales are recorded at the time of sale. Revenues from admissions and parking are recorded on a daily basis, except for seasonal amounts which are recorded ratably over the racing season. Revenues from sponsorship and rental fees are recorded ratably over the terms of the respective agreements or when the related event occurs. Revenues from the sale of residential development inventory are recognized when title passes to the purchaser and collection is reasonably assured.

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Employee Defined Benefit and Postretirement Plans

        In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS 158"). SFAS 158 requires employers to recognize the funded status (the difference between the fair value of plan assets and the projected benefit obligations) of a defined benefit postretirement plan as an asset or liability on the consolidated balance sheet with a corresponding adjustment to accumulated comprehensive income (loss), net of tax, measure the fair value of plan assets and benefit obligations as of the balance sheet date and provide additional disclosures about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations. On December 31, 2006, we adopted the recognition and disclosure provisions of SFAS 158. The adjustment to accumulated comprehensive income (loss) upon adoption represented the net unrecognized actuarial gain or loss determined in accordance with SFAS No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), which was previously netted against the plan's funded status pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as net periodic pension cost pursuant to our historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of other comprehensive income (loss). Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated comprehensive income (loss) upon adoption of SFAS 158.

Litigation

        In the ordinary course of business, we may be contingently liable for litigation and claims with, among others, customers, suppliers and former employees. Management believes that adequate provisions have been recorded in the accounts where required. Although it is not possible to accurately estimate the extent of potential costs and losses, if any, management believes, but can provide no assurance, that the ultimate resolution of such contingencies would not have a material adverse effect on our financial position.

Off-Balance Sheet Arrangements

        At December 31, 2007, we do not have any material off-balance sheet arrangements that have not been disclosed in either our consolidated financial statements or in this Report.

Related Party Transactions

        Refer to Note 22 to our consolidated financial statements which describes all material related party transactions.

Results of Operations

        The following is a discussion and comparison of our results of operations and financial position for the years ended December 31, 2007, 2006 and 2005.

Year Ended December 31, 2007 Compared to December 31, 2006

Racing and gaming operations

        In 2007, we operated our continuing operations racetracks for 28 fewer live race days compared to the prior year primarily due to a decrease in the awarded live race days at Golden Gate Fields in 2007 compared to the prior year and planned reductions in live race days at Magna Racino™.

        In 2007, revenues from our racing and gaming operations increased $48.0 million or 8.4% to $617.2 million, compared to $569.3 million in 2006, primarily due to:

    Florida revenues above the prior year by $34.1 million or 37.5% due to the opening of casino operations at Gulfstream Park in November 2006 and expanded casino operations in March 2007, which generated $41.1 million of gaming revenues in 2007, compared to $9.0 million in 2006, and increased simulcasting revenues with new legislation in 2007 which allows us to simulcast year round, partially offset by

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      reductions in wagering at Gulfstream Park's racing operations, despite one additional live race day, caused, in part, to the limited access to ATM banking machines and check cashing services on site at Gulfstream Park during the 2007 live race meet.

    PariMax revenues above the prior year by $28.8 million or 55.9% as a result of the acquisition of the remaining 70% equity interest in AmTote in July 2006, which generated incremental revenues of $26.7 million in 2007 and is now being consolidated into the PariMax operations, whereas previously our 30% equity interest was accounted for on an equity basis and $5.8 million of increased revenues at XpressBet® due to a 14.0% increase in U.S. handle compared to the prior year primarily due to having access to CDI racing content, including the Kentucky Derby, through our TrackNet Media joint venture arrangement, partially offset by decreased revenues of $3.4 million at MagnaBet™ due to a decline in handle as a result of wagering platform changes and the termination of a contract with a German television service.

    Maryland operations below the prior year by $4.1 million or 3.5% primarily due to fewer live race days at Laurel Park.

    Northern U.S. operations below the prior year by $3.7 million or 9.3% primarily due to fewer live race days at The Meadows.

    California revenues below the prior year by $2.5 million or 1.2% primarily due to a reduction in live race days at Golden Gate Fields, whereby live race days were decreased from 106 days in 2006 to 98 days in 2007.

    European operations below the prior year by $1.3 million or 12.8% primarily due to fewer live race days at Magna Racino™.

    Eliminations of inter-company revenues between business units above the prior year by $3.5 million due to the consolidation of AmTote for the full period in the current year, compared to only from the date of acquisition in the prior year.

        Pari-mutuel purses, awards and other decreased $16.2 million or 5.9% to $259.9 million in 2007, from $276.2 million in 2006, primarily due to decreased wagering at Golden Gate Fields, Laurel Park, Gulfstream Park, MagnaBet™ and The Meadows for reasons noted above as well as increased inter-company eliminations of tote fees paid by our racetracks to AmTote, which became a wholly-owned subsidiary in July 2006 and reduced carriage costs related to HRTV™ which is now being accounted for using equity accounting with the formation of a joint venture with CDI in late April 2007. As a percentage of pari-mutuel wagering revenues, pari-mutuel purses, awards and other decreased from 62.4% in 2006 to 60.1% in 2007 primarily due to lower wagering at MagnaBet™ which has historically had a higher than average purses, awards and other costs.

        Gaming purses, taxes and other increased $22.2 million to $28.3 million in 2007, compared to $6.1 million in 2006, due to the opening of the casino facility at Gulfstream Park in November 2006 and the expanded casino facility in March 2007. As a percentage of gaming revenues, gaming purses, taxes and other increased from 67.0% in 2006 to 68.9% in 2007 as a result of increased slot revenues.

        Operating costs in our racing and gaming operations increased $35.4 million or 14.9% to $273.0 million in 2007, from $237.6 million in 2006, primarily due to:

    an increase of $23.9 million in our Florida operations, primarily due to operating costs at Gulfstream Park for the new casino facility; and

    an increase of $11.8 million in our PariMax operations as a result of the consolidation of AmTote as noted previously, partially offset by reduced costs at HRTV™ with the formation of the joint venture with CDI.

        As a percentage of total racing and gaming revenues, operating costs increased from 41.7% in 2006 to 44.2% in 2007, primarily as a result of higher costs incurred during the start-up of the casino operations at Gulfstream Park.

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        General and administrative expenses in our racing and gaming operations increased by $1.8 million or 2.7% to $68.8 million in 2007, compared to $67.0 million in 2006. Several of our racetracks experienced lower general and administrative expenses as a result of cost reduction initiatives, which were more than offset by an increase in our PariMax operations with the consolidation of AmTote as noted previously. As a percentage of total racing and gaming revenues, general and administrative expenses decreased from 11.8% in 2006 to 11.1% in 2007.

Real estate and other operations

        Revenues from real estate and other operations increased $3.5 million from $4.9 million in 2006 to $8.5 million in 2007 and includes $0.3 million of revenues related to the sale of one parcel of land in Porter, New York. The remaining increase in revenues is attributable to increased housing unit sales at our European residential housing development in 2007 compared to 2006. Real estate and other operating costs and general and administrative expenses increased from $4.0 million in 2006 to $5.6 million in 2007, primarily due to the increased sales activity in 2007 as well as the recognition of a $0.9 million recovery of warranty costs in 2006 from a third party for costs incurred with respect to previously built housing units.

Predevelopment, pre-opening and other costs

        Predevelopment, pre-opening and other costs decreased $7.7 million from $10.6 million in 2006 to $2.9 million in 2007. Predevelopment, pre-opening and other costs incurred in 2007 represent $0.9 million of costs that we incurred pursuing alternative gaming opportunities, $0.9 million of costs related to the Dixon Downs campaign, $0.5 million of costs incurred pursuing certain financing initiatives and $1.2 million of costs relating to developmental initiatives undertaken to enhance our racing operations, partially offset by a recovery of $0.6 million of costs related to the Florida slot initiatives incurred in 2006. In 2006, the predevelopment, pre-opening and other costs incurred represent $3.0 million incurred in the expensing of deferred development costs incurred related to the Romulus, Michigan racing license, $2.5 million pursuing alternative gaming opportunities, $1.5 million incurred pursuing certain financing initiatives, $1.5 million of costs relating to development initiatives undertaken to enhance our racing operations and $2.1 million of pre-opening costs incurred in the opening of the Gulfstream Park casino facility.

Depreciation and amortization

        Depreciation and amortization increased $3.3 million from $39.0 million in 2006 to $42.3 million in 2007, primarily due to increased depreciation on the slots facility at Gulfstream Park and on AmTote fixed assets as a result of full consolidation upon completion of the acquisition as noted previously, partially offset by reduced depreciation at Magna Racino™ with the write-down of long-lived assets in the fourth quarter of 2006.

Interest income and expense

        Net interest expense decreased $7.1 million to $50.6 million in 2007 from $57.8 million in 2006. The lower net interest expense is primarily attributable to the repayment of a previous bridge loan facility with a subsidiary of MID, reduced borrowings under our $40.0 million senior secured revolving credit facility and repayment of other debt during 2006 from the proceeds of various asset sales, partially offset by increased borrowings on our Gulfstream Park project financings with a subsidiary of MID. In 2007, $0.4 million of interest was capitalized with respect to projects under development, compared to $2.6 million in 2006.

Write-down of long-lived assets

        The write-down of long-lived assets in 2007 of $1.3 million represents an impairment charge related to our Porter, New York real estate properties, of which one parcel was sold in the fourth quarter of 2007 and the remaining two parcels were sold in January 2008. The impairment loss represents the excess of our carrying value of the real estate over the fair value of the real estate properties. The write-down of long-lived assets in 2006 of $88.6 million is comprised of a $76.2 million write-down of Magna Racino™'s long-lived assets, a $11.2 million write-down on The Meadows' long-lived assets as a result of the transaction with Millennium-Oaktree and a $1.3 million write-down on our Canadian residential development real estate.

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Equity loss

        Equity loss in 2007 of $3.1 million increased $2.6 million from an equity loss of $0.5 million in 2006. In 2007, our equity loss represents losses incurred on our investment in Racing World, HRTV, LLC, since its effective date of April 27, 2007 and TrackNet Media, LLC from the date of creation on March 4, 2007. In 2006, our equity loss represented losses incurred in our investment in Racing World, partially offset by equity income earned from our initial 30% equity investment in AmTote until July 26, 2006.

Gain on sale of intangible assets related to The Meadows

        The gain on sale of intangible assets related to The Meadows in 2006 of $126.4 million represents the gain recognized on The Meadows' transaction with Millennium-Oaktree, which was completed on November 14, 2006.

Income tax expense

        We recorded an income tax recovery of $2.6 million on a loss from continuing operations of $110.4 million in 2007, whereas in 2006, we recorded an income tax benefit of $7.1 million on a loss from continuing operations of $86.7 million. The income tax recovery of $2.6 million in 2007 represents the income tax benefit of consolidating AmTote's operations in our consolidated tax position in 2007 as well as the release of valuation allowances on tax losses used in the current year and applied to gains recognized on land sales. The income tax recovery of $7.1 million in 2006 represents the reversal of net future tax liabilities associated with temporary differences related to Magna Racino™'s long-lived assets which were written down, partially offset by income tax expense recognized in certain U.S. operations.

Discontinued operations

        Discontinued operations in 2007 include the operations of Remington Park in Oklahoma, Thistledown in Ohio, Portland Meadows in Oregon and Great Lakes Downs in Michigan. In addition to Remington Park, Thistledown, Portland Meadows and Great Lakes Downs, discontinued operations in 2006 also includes the Fontana Golf Club, the sale of which was completed on November 1, 2006, the Magna Golf Club, the sale of which was completed on August 25, 2006 and the operations of a restaurant and related real estate in the United States, the sale of which was completed on May 26, 2006. The following table presents the results of operations from discontinued operations for 2007 and 2006:

 
 
Years ended December 31,

 
 
  2007
  2006
 
Revenues   $ 122,200   $ 142,534  
Costs and expenses     120,873     133,303  
   
 
 
      1,327     9,231  
Predevelopment, pre-opening and other costs     447     3,557  
Depreciation and amortization     3,976     7,069  
Interest expense, net     2,794     4,984  
Impairment loss recorded on disposition(i)         1,202  
   
 
 
Loss before gain on disposition     (5,890 )   (7,581 )
Gain on disposition(ii)         1,495  
   
 
 
Loss before income taxes     (5,890 )   (6,086 )
Income tax expense         1,653  
   
 
 
Loss from discontinued operations   $ (5,890 ) $ (7,739 )
   
 
 
(i)
Given that the sale of the Magna Golf Club on August 25, 2006 established fair values for certain assets, we performed impairment testing of these assets. Based on this analysis, a non-cash impairment loss of $1.2 million was required, which was equal to the excess of our carrying value of the assets disposed over their fair values at the date of disposition.

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(ii)
The gain on disposition of $1.5 million represents the gain recognized on the sale of a restaurant and related real estate in the United States on May 26, 2006.

Year Ended December 31, 2006 Compared to December 31, 2005

Racing and gaming operations

        In 2006, we operated our continuing operations racetracks for five fewer live race days compared to the prior year primarily due to a change in the racing calendar at the Maryland Jockey Club and planned reductions in live race days at Magna Racino™, partially offset by an increase in awarded live race days at Golden Gate Fields.

        In 2006, revenues from our racing and gaming operations increased $47.2 million or 9.0% to $569.3 million, compared to $522.0 million in 2005, primarily due to:

    PariMax revenues above the prior year by $17.3 million or 50.7% as a result of the acquisition of the remaining 70% equity interest in AmTote in July 2006, the operations of which are now being consolidated into the PariMax operations, whereas previously our 30% equity interest was accounted for on an equity basis and increased wagering activity through MagnaBet™.

    Florida revenues above the prior year by $16.4 million or 22.0% due to the opening of the slots facility on November 16, 2006 as well as increased racing revenues due to the opening of the new clubhouse facility at Gulfstream Park. The Gulfstream Park slots facility generated $9.0 million of gaming revenues in 2006. The live race meet conducted in the first half of 2005 operated out of temporary facilities which affected 2005 revenues despite best efforts to minimize the disruption's negative impact.

    California revenues above the prior year by $11.2 million or 5.7% due to:
      increased attendance and higher levels of handle and wagering at Santa Anita Park throughout the 2006 live race meet as a result of good weather in Southern California and focused marketing initiatives to attract patrons "back to the track". Southern California experienced significant rainfall during the 2005 live race meet, which resulted in lower attendance and gross wagering and a reduction in the number of races that were run on the turf course during the 2005 live race meet. Turf course races typically generate higher levels of wagering; and

 

 


 

a change in the racing calendar at Golden Gate Fields, whereby live race days were increased from 96 days in 2005 to 106 days in 2006.
    Maryland operations above the prior year by $5.2 million or 4.6% due to increased food and beverage revenues from Maryland Turf Caterers, the food and beverage operations at Laurel Park and Pimlico, which was acquired in September 2005. These operations are now being consolidated into the Maryland operations, whereas previously the operations were accounted for on an equity basis. The increase is also attributable to increased wagering on Laurel Park racing content as a result of the new turf course at Laurel Park, which has resulted in increased field sizes and handle. Average daily export handle on Laurel Park racing content was up significantly in 2006 compared to 2005, evidencing higher quality racing that has generated increased wagering activity.

    Northern U.S. operations above the prior year by $1.0 million or 2.6% due primarily to two additional live race days at The Meadows in 2006 compared to 2005.

    Southern U.S. operations below the prior year by $4.5 million or 7.0% due to decreased handle and revenues at Lone Star Park due to three fewer live race days in 2006 compared to 2005 and increased competition from racetracks in surrounding states and internet wagering operations.

        Pari-mutuel purses, awards and other increased $9.5 million or 3.6% to $276.2 million in 2006, from $266.7 million in 2005, primarily due to increased wagering at Santa Anita Park, Golden Gate Fields and Gulfstream Park for reasons noted above. As a percentage of pari-mutuel wagering revenues, pari-mutuel purses, awards and other remained relatively consistent at 62.4% in 2006 and 62.3% in 2005.

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        Gaming purses, taxes and other increased $6.1 million to $6.1 million in 2006 as Gulfstream Park's casino facility opened in mid November 2006.

        Operating costs in our racing and gaming operations increased $20.0 million to $237.6 million in 2006, from $217.6 million in 2005, primarily due to:

    an increase of $10.0 million in our PariMax operations primarily as a result of the consolidation of AmTote as noted previously;

    an increase of $6.8 million in our Florida operations, primarily due to increased food and beverage operations and operating and marketing costs at Gulfstream Park as a result of the new slots facility;

    an increase of $2.5 million in our Maryland operations as a result of the acquisition of Maryland Turf Caterers as noted previously; and

    an increase of $2.2 million in our California operations due to increased wagering activity at Santa Anita Park as well as additional live race days at Golden Gate Fields as a result of the change in the racing calendar; partially offset by

    a decrease of $1.8 million in our European operations as a result of cost reduction initiatives at Magna Racino™.

        As a percentage of total racing and gaming revenues, operating costs remained consistent at 41.7% in both 2006 and 2005.

        General and administrative expenses in our racing and gaming operations increased $9.5 million to $67.0 million in 2006, from $57.5 million in 2005. The increase is primarily attributable to increased costs at our Corporate office as a result of $2.7 million in severance for three senior executives at our Corporate office, which includes $0.7 million of stock-based compensation and an additional $0.7 million of costs relating to stock-based compensation for other executives and employees. With the implementation of SFAS 123(R) on January 1, 2006, we are now required to expense stock-based compensation, whereas historically, we have provided only pro-forma disclosure of stock-based compensation expense. General and administrative expenses also increased in our PariMax operations with the consolidation of AmTote as previously noted.

        As a percentage of total racing and gaming revenues, general and administrative expenses increased from 11.0% in 2005 to 11.8% in 2006 primarily due to additional costs at our Corporate office for severance and stock option arrangements and at AmTote.

Real estate and other operations

        Revenues from real estate and other operations increased $0.3 million from $4.6 million in 2005 to $4.9 million in 2006. The increase in revenues is attributable to increased housing unit sales at our European residential housing development in 2006 compared to the prior year. Real estate and other operating costs and general and administrative expenses decreased from $4.9 million in 2005 to $4.0 million in 2006 primarily due to the recognition of a $0.9 million recovery of warranty costs in 2006 from a third party for costs incurred with respect to previously built housing units.

Predevelopment, pre-opening and other costs

        Predevelopment, pre-opening and other costs increased $1.1 million from $9.5 million in 2005 to $10.6 million in 2006. Predevelopment, pre-opening and other costs incurred in 2006 represent $3.0 million incurred in the expensing of deferred development costs incurred related to the Romulus, Michigan racing license, $2.5 million pursuing alternative gaming opportunities, $1.5 million incurred pursuing certain financing initiatives, $1.5 million of costs relating to development initiatives undertaken to enhance our racing operations and $2.1 million of pre-opening costs incurred in the opening of the Gulfstream Park casino facility. In 2005, the predevelopment, pre-opening and other costs incurred represented costs of $6.1 million pursuing alternative gaming opportunities, $1.0 million of legal costs relating to protection of our distribution rights, $0.6 million on the write-off of information technology costs which were determined to have no future benefit, $0.4 million of

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costs relating to the Laurel Park redevelopment and $1.4 million of costs relating to development initiatives undertaken to enhance our racing operations.

Depreciation and amortization

        Depreciation and amortization increased $5.6 million from $33.4 million in 2005 to $39.0 million in 2006, primarily due to increased depreciation on the clubhouse facility at Gulfstream Park which was substantially completed in the first quarter of 2006.

Interest income and expense

        Our net interest expense increased $25.1 million to $57.8 million in 2006 from $32.6 million in 2005. The higher net interest expense is primarily attributable to borrowings on a bridge loan facility and the Gulfstream Park project financings with MID. Prior to completion of the Gulfstream Park redevelopment, interest on these financings were capitalized to the redevelopment project. In 2006, $2.6 million of interest was capitalized with respect to projects under development, compared to $5.7 million in 2005.

Write-down of long-lived assets

        The write-down of long-lived assets in 2006 of $88.6 million is comprised of a $76.2 million write-down of Magna Racino™'s long-lived assets, a $11.2 million write-down on The Meadows' long-lived assets as a result of the transaction with Millennium-Oaktree and a $1.3 million write-down on our Canadian residential development real estate. We tested Magna Racino™'s long-lived assets for impairment upon completion of its 2007 business plan. We used an expected present value approach of estimated future cash flows, including a probability-weighted approach in considering the likelihood of possible outcomes, and external valuation reports, to determine the fair value of the long-lived assets. Based on this analysis, a non-cash write-down of $76.2 million was required. Subsequent to December 31, 2006, we disposed of all of our interests and rights in a 34 acre parcel of residential development land in Aurora, Ontario, Canada for cash consideration of Cdn. $12.0 million (U.S. $10.1 million). Based on this transaction, which established a fair value for the land, we recognized a non-cash impairment loss of $1.3 million related to this property. There were no write-downs of long-lived assets in 2005.

Equity loss (income)

        Equity loss in 2006 of $0.5 million decreased $1.6 million from equity income of $1.1 million in 2005. In 2006, our equity loss represents losses incurred in our investment in Racing World, partially offset by equity income earned from our initial 30% equity investment in AmTote until July 26, 2006. In 2005, our equity earnings represented earnings from our initial 30% equity investment in AmTote.

Gain on sale of intangible assets related to The Meadows

        The gain on sale of intangible assets related to The Meadows in 2006 of $126.4 million represents the gain recognized on The Meadows' transaction with Millennium-Oaktree, which was completed on November 14, 2006.

Income tax benefit

        We recorded an income tax benefit of $7.1 million on a loss from continuing operations before income taxes of $86.7 million in 2006, whereas in 2005, we recorded an income tax benefit of $1.2 million on a loss from continuing operations before income taxes of $94.3 million. The income tax benefit in 2006 of $7.1 million represents the reversal of net future tax liabilities associated with temporary differences related to Magna Racino™'s long-lived assets which were written down, partially offset by income tax expense recognized in certain U.S. operations. The income tax benefit in 2005 of $1.2 million represents primarily certain Austrian income tax losses benefited, partially offset by income tax expense recognized by certain U.S. operations.

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Discontinued operations

        Discontinued operations in 2006 include the operations of Remington Park in Oklahoma, Thistledown in Ohio, Portland Meadows in Oregon and Great Lakes Downs in Michigan, which are held for sale at December 31, 2006, the Fontana Golf Club, the sale of which was completed on November 1, 2006, the Magna Golf Club, the sale of which was completed on August 25, 2006, the operations of a restaurant and related real estate in the United States, the sale of which was completed on May 26, 2006. In addition to Remington Park, Thistledown, Portland Meadows, Great Lakes Downs, Fontana Golf Club, the Magna Golf Club and the operations of the restaurant and related real estate in the United States, discontinued operations in 2005, also include Flamboro Downs, the sale of which was completed on October 19, 2005, and the Maryland-Virginia Racing Circuit, Inc., the sale of which was completed on September 30, 2005. The following table presents the results of operations from discontinued operations for 2006 and 2005:

 
 
Years ended December 31,

 
 
  2006
  2005
 
Revenues   $ 142,534   $ 120,475  
Costs and expenses     133,303     113,999  
   
 
 
      9,231     6,476  
Predevelopment, pre-opening and other costs     3,557     2,388  
Depreciation and amortization     7,069     6,574  
Interest expense, net     4,984     4,085  
Impairment loss recorded on disposition(i)(ii)     1,202     14,961  
   
 
 
Loss before gain on disposition     (7,581 )   (21,532 )
Gain on disposition(iii)(iv)     1,495     9,837  
   
 
 
Loss before income taxes     (6,086 )   (11,695 )
Income tax expense     1,653     492  
   
 
 
Loss from discontinued operations   $ (7,739 ) $ (12,187 )
   
 
 
(i)
Given that the sale of the Magna Golf Club on August 25, 2006 established fair values for certain assets, we performed impairment testing of these assets. Based on this analysis, a non-cash impairment loss of $1.2 million was required, which was equal to the excess of our carrying value of the assets disposed over their fair values at the date of disposition.

(ii)
Upon entering into an agreement in principle with Great Canadian Gaming Corporation in July 2005 for the disposition of Flamboro Downs, which established fair values for certain assets, we performed impairment testing of these assets. Based on this analysis, a non-cash impairment charge of $15.0 million before income taxes or $12.5 million after income taxes, was required of Flamboro Downs' racing license in the year ended December 31, 2005.

(iii)
The gain on disposition of $1.5 million represents the gain recognized on the sale of a restaurant and related real estate in the United States on May 26, 2006.

(iv)
The gain on disposition of $9.8 million represents the gain recognized on the disposition of the investment in Maryland-Virginia Racing Circuit, Inc. on September 30, 2005.

Year Ended December 31, 2005 Compared to December 31, 2004

Racing and gaming operations

        In 2005, we operated our continuing operations racetracks for 104 fewer live race days compared to the prior year, primarily due to the expiration of the Bay Meadows lease and fewer live race days at Golden Gate Fields and Gulfstream Park due to reductions in awarded live race days, partially offset by the resumption of the quarter horse meet at Lone Star Park in 2005, which was cancelled in the prior year as the track hosted the Breeders' Cup™ in 2004.

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        In 2005, revenues from our racing and gaming operations decreased $69.5 million or 11.7% to $522.0 million, compared to $591.5 million in 2004, primarily due to:

    California revenues below the prior year by $69.3 million or 26.2% due to:
      the expiry of the Bay Meadows lease on December 31, 2004;

 

 


 

nine fewer live race days at Golden Gate Fields due to a change in the racing calendar; and

 

 


 

lower levels of handle and gross wagering at Santa Anita Park as a result of significant rainfall in Southern California in the first quarter of 2005, which resulted in the cancellation of a live race day and significantly reduced the number of races on the turf course. Turf course races typically generate higher levels of wagering;
    Southern U.S. operations below the prior year by $6.8 million or 9.5% due to reductions in attendance and wagering at Lone Star Park due to increased competition from nearby casinos, decreased horse population as a result of intense competition for horses and higher purse offerings at neighboring tracks;

    Florida revenues below the prior year by $5.5 million or 6.9% due to the disruption of the racing operations as a result of the redevelopment project at Gulfstream Park. The live race meet conducted in the first half of 2005 operated out of temporary facilities and best efforts were made to minimize the negative impact of the disruption;

    Northern U.S. operations below the prior year by $3.0 million or 7.0% due primarily to the expiry of the Multnomah Greyhound Park lease on December 31, 2004;

    Increased revenues in our Maryland operations, where revenues were above the prior year by $8.7 million or 8.5% due to a record setting Preakness® in terms of admissions, handle and wagering and as a result of the new turf course at Laurel Park, which since being available for racing, has resulted in increased field sizes and increased handle;

    Increased revenues in our European operations, where revenues were above the prior year by $2.6 million or 35.9% due to the opening of the Magna Racino™ in the second quarter of 2004; and

    Increased revenues in our PariMax operations, where revenues were above the prior year by $4.3 million or 14.3% due to increased wagering activity through MagnaBet™ and additional advertising revenues generated by HRTV™.

        Pari-mutuel purses, awards and other decreased $26.8 million or 9.1% to $266.7 million in 2005, from $293.4 million in 2004, primarily due to the expiry of the Bay Meadows and Multnomah Greyhound Park leases, fewer live race days at Golden Gate Fields and decreased wagering at Santa Anita Park, Gulfstream Park and Lone Star Park for reasons noted above, partially offset by an increase in pari-mutuel taxes at XpressBet® as a result of a $1.6 million provision for state pari-mutuel taxes for 2003, 2004 and 2005, which was recorded in 2005. As a percentage of pari-mutuel wagering revenues, pari-mutuel purses, awards and other increased from 60.5% in 2004 to 62.3% in 2005, primarily due to lower pari-mutuel wagering revenues and the increase in pari-mutuel taxes at XpressBet® as noted above.

        Operating costs in our racing and gaming operations decreased $26.2 million to $217.6 million in 2005, from $243.8 million in 2004, primarily due to:

    a decrease of $23.3 million in our California operations primarily as a result of the expiry of the Bay Meadows lease;

    a decrease of $4.9 million in our Southern U.S. operations primarily due to reduced marketing costs and other expense reductions at Lone Star Park;

    a decrease of $2.8 million in our Northern U.S. operations primarily due to the expiry of the Multnomah Greyhound Park lease on December 31, 2004;

    a decrease of $1.3 million in our PariMax operations primarily due to cost saving initiatives; partially offset by

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    an increase of $3.1 million in our Maryland operations primarily due to a $1.9 million provision for an amount due from the horsemen with respect to their contribution to the costs of simulcasting in 2004 and 2005 as well as increased costs incurred to generate additional revenues at the Preakness®; and

    an increase of $3.2 million in our Florida operations as cost savings and expense reductions were offset by $5.7 million of amortization relating to the temporary facility construction costs at Gulfstream Park, which were amortized over Gulfstream Park's 2005 race meet.

        As a percentage of total racing and gaming revenues, operating costs increased from 41.2% in 2004 to 41.7% in 2005, primarily as a result of the decline in racing revenues.

        General and administrative expenses in our racing and gaming operations decreased $3.8 million to $57.5 million in 2005, from $61.3 million in 2004, primarily due to:

    a decrease of $5.4 million as a result of the expiry of the Bay Meadows lease; offset by

    an increase of $2.3 million in our European operations due to the start-up during 2004 of Magna Racino™ compared to a full year of operations in 2005; and

    increases at several of our facilities as a result of increased health and benefit costs.

        As a percentage of total racing and gaming revenues, general and administrative expenses increased from 10.4% in 2004 to 11.0% in 2005 due primarily to the decline in racing revenues.

Real estate and other operations

        Revenues from real estate and other operations decreased $16.3 million from $20.9 million in 2004 to $4.6 million in 2005. The decrease in revenues is primarily attributable to the fact that in 2004, four Non-Core Real Estate properties were sold which generated revenues of $16.4 million and income before income taxes of $9.6 million, whereas in 2005, there were no sales of Non-Core Real Estate.

Predevelopment, pre-opening and other costs

        Predevelopment, pre-opening and other costs decreased $8.8 million from $18.3 million in 2004 to $9.5 million in 2005. Predevelopment, pre-opening and other costs incurred in 2005 represented costs of $6.1 million pursuing alternative gaming opportunities, $1.0 million of legal costs relating to protection of our distribution rights, $0.6 million on the write-off of information technology costs which were determined to have no future benefit, $0.4 million of costs relating to the Laurel Park redevelopment and $1.4 million of costs relating to development initiatives undertaken to enhance our racing operations. In 2004, the predevelopment, pre-opening and other costs incurred represented costs of $11.3 million pursuing alternative gaming opportunities, $2.7 million on the development of a simplified wagering machine, $1.3 million of costs relating to the Laurel Park redevelopment and $3.0 million of costs relating to developmental initiatives undertaken to enhance our racing operations.

Depreciation and amortization

        Depreciation and amortization increased $2.2 million from $31.3 million in 2004 to $33.4 million in 2005, primarily due to increased depreciation in our European operations primarily at the Magna Racino™, which commenced operations and depreciation of fixed assets on April 4, 2004 and increased depreciation at certain of our facilities on recent fixed asset additions.

Interest income and expense

        Our net interest expense in 2005 increased $10.7 million to $32.6 million from $21.9 million in 2004. The higher net interest expense is primarily attributable to increased borrowings on our senior secured revolving credit facility and on a bridge loan facility with MID. In 2005, $5.7 million of interest was capitalized with respect to projects under development, compared to $4.0 million in 2004.

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Write-down of long-lived assets

        During 2004, we commenced a major redevelopment of the Gulfstream Park racetrack and the racing surfaces at Laurel Park. As a result, we recognized a non-cash write-down of $26.3 million related to Gulfstream Park's long-lived assets and $0.4 million related to Laurel Park's long-lived assets in connection with these redevelopments.

Income tax benefit

        We recorded an income tax benefit of $1.2 million on a loss from continuing operations before income taxes of $94.3 million in 2005, whereas in 2004, we recorded an income tax benefit of $4.9 million on a loss from continuing operations before income taxes of $96.9 million. The income tax benefit in 2005 of $1.2 million represents primarily certain Austrian income tax losses benefited, partially offset by income tax expense recognized by certain U.S. operations. The income tax benefit in 2004 of $4.9 million represents a reduction in enacted income tax rates in Austria, which resulted in a revaluation of our European net future tax liabilities, partially offset by income tax expense recognized by certain U.S. operations.

Discontinued operations

        Discontinued operations in 2005 and 2004 include the operations of Remington Park in Oklahoma, Thistledown in Ohio, Portland Meadows in Oregon and Great Lakes Downs in Michigan, which are held for sale at December 31, 2005, the Fontana Golf Club, the sale of which was completed on November 1, 2006, the Magna Golf Club, the sale of which was completed on August 25, 2006, the operations of a restaurant and related real estate in the United States, the sale of which was completed on May 26, 2006, Flamboro Downs, the sale of which was completed on October 19, 2005, and the Maryland-Virginia Racing Circuit, Inc., the sale of which was completed on September 30, 2005. The following table presents the results of operations from discontinued operations for 2005 and 2004:

 
 
Years ended December 31,

 
 
  2005
  2004
 
Revenues   $ 120,475   $ 119,125  
Costs and expenses     113,999     108,942  
   
 
 
      6,476     10,183  
Predevelopment, pre-opening and other costs     2,388     2,237  
Depreciation and amortization     6,574     6,237  
Interest expense, net     4,085     2,164  
Impairment loss recorded on disposition(i)     14,961      
   
 
 
Loss before gain on disposition     (21,532 )   (455 )
Gain on disposition(ii)     9,837      
   
 
 
Loss before income taxes     (11,695 )   (455 )
Income tax expense     492     3,270  
   
 
 
Loss from discontinued operations   $ (12,187 ) $ (3,725 )
   
 
 
(i)
Upon entering into an agreement in principle with Great Canadian Gaming Corporation in July 2005 for the disposition of Flamboro Downs, which established fair values for certain assets, we performed impairment testing of these assets. Based on this analysis, a non-cash impairment charge of $15.0 million before income taxes or $12.5 million after income taxes, was required of Flamboro Downs' racing license in the year ended December 31, 2005.

(ii)
The gain on disposition of $9.8 million represents the gain recognized on the disposition of the investment in Maryland-Virginia Racing Circuit, Inc. on September 30, 2005.

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Liquidity and Capital Resources

        At December 31, 2007, we had a working capital deficiency of $162.2 million and had $209.4 million of debt that matures in 2008. Also, we continue to experience operational losses. Accordingly, unless we are able to generate increased cash flows through improvements in the operation of our business, assets sales or strategic transactions as contemplated by our Plan or otherwise and/or renewal, extension or replacement of our current financing arrangements, none of which are assured, we may not be able to generate cash flows that are adequate to sustain the operations of the business and pay our secured and unsecured creditors when due.

Cash Flows

Year Ended December 31, 2007

Operating activities

        Cash used in operations before changes in non-cash working capital balances decreased $0.8 million from $69.1 million in 2006 to $68.2 million in 2007, due to an increase in items not involving current cash flows, partially offset by an increase in loss from continuing operations. In 2007, cash provided from non-cash working capital balances was $6.4 million compared to cash provided from non-cash working capital balances of $5.2 million in 2006. Cash provided from non-cash working capital balances of $6.4 million in 2007 is primarily due to an increase in income taxes payable and other accrued liabilities, partially offset by an increase in accounts receivable at December 31, 2007 compared to the respective balances at December 31, 2006.

Investing activities

        Cash provided from investing activities in 2007 was $16.6 million, including $95.7 million of proceeds received on the disposal of real estate properties and fixed assets, partially offset by $74.4 million of expenditures on real estate property and fixed assets and $4.7 million of expenditures on other asset additions. Expenditures on real estate property and fixed asset additions in 2007 of $74.4 million consisted of $19.9 million on the Gulfstream Park casino facilities, $20.7 million on the installation of synthetic racing surfaces at Santa Anita Park and Golden Gate Fields, $8.2 million on maintenance capital improvements, $7.2 million on the Gulfstream Park redevelopment, $10.8 million on equipment and terminals at AmTote primarily related to new totalisator service contracts and $7.6 million of expenditures related to other racetrack property enhancements, infrastructure and development costs on certain of our properties and PariMax operations.

Financing activities

        Cash provided from financing activities was $41.9 million in 2007 arising from proceeds from bank indebtedness of $73.8 million, proceeds from indebtedness and long-term debt with our parent company of $52.4 million, proceeds of other long-term debt of $13.8 million and issuance of share capital of $19.6 million, partially offset by repayment of other long-term debt of $73.6 million, repayment of bank indebtedness of $41.1 million and repayment of long-term debt with our parent company of $3.0 million. The proceeds from indebtedness and long-term debt with our parent company of $52.4 million consists of $33.8 million on the bridge loan, $5.4 million on the second tranche of the Gulfstream Park project financing arrangement and $13.2 million on the third tranche of the Gulfstream Park project financing arrangement.

Year Ended December 31, 2006

Operating activities

        Cash used in operations before changes in non-cash working capital increased $6.2 million from a use of cash of $62.9 million in 2005 to a use of cash of $69.1 million in 2006, due primarily to a decrease in items not involving current cash flows, partially offset by an improvement in net loss from continuing operations. In 2006 and 2005, cash provided from non-cash working capital balances was consistent at $5.2 million.

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Investing activities

        Cash provided from investing activities in 2006 was $96.6 million, and included $171.8 million of net proceeds on The Meadows transaction and $14.5 million of net proceeds received on the disposal of real estate properties, fixed and other assets, partially offset by expenditures of $80.4 million on real estate property and fixed assets and $9.3 million on the acquisition of AmTote. Expenditures on real estate property and fixed asset additions in 2006 of $80.4 million consisted of $43.5 million on the Gulfstream Park redevelopment, $15.8 million on the Gulfstream Park gaming facility, $6.4 million on maintenance capital improvements and $14.7 million of expenditures related to other racetrack property enhancements, infrastructure and development costs on certain of our properties and technology operations.

Financing activities

        Cash used in financing activities was $58.5 million in 2006, and included repayment of indebtedness and long-term debt with parent of $111.8 million, repayment of bank indebtedness of $39.9 million and repayment of long-term debt of $15.8 million, partially offset by proceeds of $77.3 million from advances and long-term debt with our parent company, proceeds on bank indebtedness of $19.1 million and the issuance of long-term debt of $12.6 million. The proceeds from indebtedness and long-term debt with our parent company of $77.3 million consists of $34.6 million on the bridge loan, $24.6 million on the first tranche of the Gulfstream Park project financing arrangement and $18.1 million on the second tranche of the Gulfstream Park project financing arrangement.

Year Ended December 31, 2005

Operating activities

        Cash used in operations before changes in non-cash working capital increased $14.2 million to a use of cash of $62.9 million in 2005 from a use of cash of $48.8 million in 2004, primarily due to a decrease in items adjusting net loss to net cash. In 2005, cash provided from non-cash working capital balances was $5.2 million, compared to cash provided from non-cash working capital balances of $0.6 million in 2004. Cash provided from non-cash working capital balances of $5.2 million in 2005 is primarily due to a net increase in accounts payable, other accrued liabilities and amounts due from parent, partially offset by a decrease in accounts receivable and income taxes receivable at December 31, 2005 compared to the respective balances at December 31, 2004.

Investing activities

        Cash used for investing activities in 2005 was $118.6 million, including expenditures of $123.0 million on real estate property and fixed asset additions and $1.4 million on other asset additions, partially offset by $5.8 million of net proceeds received on the disposal of real estate properties and fixed assets. Expenditures on real estate property and fixed asset additions in 2005 of $123.0 million consisted of $91.0 million on the Gulfstream Park redevelopment, $11.0 million at The Maryland Jockey Club, $7.8 million on maintenance capital improvements and $13.2 million of expenditures related to other racetrack property enhancements, infrastructure and development costs on certain of our properties and technology operations.

Financing activities

        Cash provided from financing activities was $124.2 million in 2005 arising from indebtedness and long-term debt from our parent company of $136.8 million, net advances on our bank indebtedness of $2.8 million and an issuance of long-term debt of $0.2 million, partially offset by repayment of long-term debt of $15.6 million. The proceeds from indebtedness and long-term debt with our parent company of $136.8 million consists of $70.6 million on the bridge loan and $66.2 million on the first tranche of the Gulfstream Park project financing arrangement. The issuance of debt of $0.2 million represents an equipment loan at The Maryland Jockey Club. The net advances of $2.8 million on our bank indebtedness relates to a $3.0 million bank term line of credit at one of our European subsidiaries.

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Working Capital, Cash and Other Resources

        Our net working capital deficiency was $162.2 million at December 31, 2007, compared to $94.2 million at December 31, 2006. The increase in working capital deficiency at December 31, 2007 compared to the same date in 2006, is primarily due to the amendment to our Gulfstream Park project financing arrangement which requires us to repay $100.0 million to MID by May 31, 2008, as well as borrowings on the Bridge Loan. At December 31, 2007, we had cash and cash equivalents of $34.3 million, bank indebtedness of $39.2 million and total shareholders' equity of $362.7 million.

Bank indebtedness

        We have a $40.0 million senior secured revolving credit facility with a Canadian financial institution, which was scheduled to mature on January 31, 2008, but on January 31, 2008 was amended and extended to February 29, 2008 and on February 28, 2008 was further extended to March 31, 2008. The credit facility is available by way of U.S. dollar loans and letters of credit. Loans under the facility bear interest at the U.S. Base rate plus 5% or the London Interbank Offered Rate ("LIBOR") plus 6%. Loans under the facility are secured by a first charge on the assets of Golden Gate Fields and a second charge on the assets of Santa Anita Park, and are guaranteed by certain of our subsidiaries. At December 31, 2007, we had borrowings of $34.9 million under the credit facility and had issued letters of credit totaling $4.3 million, such that $0.8 million of the loan facility was unused and available.

        One of our wholly-owned subsidiaries, The Santa Anita Companies, Inc. ("SAC"), has a $7.5 million revolving loan agreement under its existing credit facility with a U.S. financial institution. While the maturity date is October 31, 2012, there is a requirement for the facility to be fully repaid for a period of 60 consecutive days during each year. The revolving loan agreement is guaranteed by our wholly-owned subsidiary, the Los Angeles Turf Club, Incorporated ("LATC") and is secured by a first deed of trust on Santa Anita Park and the surrounding real property, an assignment of the lease between LATC, the racetrack operator, and SAC and a pledge of all of the outstanding capital stock of LATC and SAC. Loans under the agreement bear interest at the U.S. Prime rate. At December 31, 2007, we had borrowings of $3.5 million under the revolving loan agreement.

        One of our wholly-owned subsidiaries, AmTote, has a $3.0 million revolving credit facility with a U.S. financial institution, which matures on May 1, 2008, and is secured by a first charge on the assets and a pledge of stock of AmTote. Loans under the facility are available by way of U.S. dollar loans and letters of credit, bearing interest at LIBOR plus 2.75%. At December 31, 2007, we had borrowed $0.8 million under the revolving credit facility, such that $2.2 million of the facility was unused and available.

Long-term and related party debt

Bridge Loan

        On September 12, 2007, we entered into the Bridge Loan pursuant to which up to $80.0 million of financing will be made available, subject to certain conditions. The Bridge Loan matures on May 31, 2008, is non-revolving and bears interest at a rate of LIBOR plus 11.0% per annum. On February 29, 2008, as we had not entered into agreements acceptable to MID for asset sales that would yield aggregate net proceeds sufficient to repay the entire outstanding loan amount, the interest rate increased by an additional 1.0% per annum. An arrangement fee of $2.4 million was paid to MID on closing and there is a commitment fee equal to 1.0% per annum (payable in arrears) on the undrawn portion of the $80.0 million maximum loan commitment. In addition, on February 29, 2008, there was an additional arrangement fee equal to 1.0% of the maximum principal amount then available under this facility.

        The Bridge Loan is required to be repaid by way of the payment of the net proceeds of any asset sale, any equity offering (other than the Fair Enterprise Private Placement) or any debt offering, subject to specified amounts required to be paid to eliminate other prior-ranking indebtedness. The Bridge Loan is secured by essentially all of our assets and by guarantees provided by certain of our subsidiaries. The guarantees are secured by charges over the lands owned by Golden Gate Fields, Santa Anita Park and Thistledown, and charges over the lands in Dixon, California and Ocala, Florida, as well as by pledges of the shares of certain of our

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subsidiaries. The Bridge Loan is also cross-defaulted to all other obligations to MID and to other significant indebtedness of the Company and certain of our subsidiaries.

        During 2007, we received loan advances of $38.0 million, incurred interest expense and commitment fees of $1.2 million, and repaid interest and commitment fees of $0.8 million, such that at December 31, 2007, $38.4 million was outstanding under the Bridge Loan, including $0.2 million of accrued interest and commitment fees payable. During 2007, we incurred $4.2 million of loan origination costs and amortized $1.8 million of loan origination costs, such that at December 31, 2007, $2.5 million of net loan origination costs have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

        Pursuant to the terms of the Bridge Loan, advances after January 15, 2008 are subject to MID being satisfied that our $40.0 million senior secured revolving credit facility will be further extended to at least April 30, 2008 or that satisfactory refinancing of that facility has been arranged. As our senior secured revolving credit facility was extended to March 31, 2008, MID has waived this condition for advances between January 15, 2008 and March 31, 2008.

Gulfstream Park and Remington Park Project Financings

        In December 2004, certain of our subsidiaries entered into a $115.0 million project financing arrangement with a subsidiary of MID, for the reconstruction of facilities at Gulfstream Park. This project financing arrangement was amended on July 22, 2005 in connection with the Remington Park loan as described below. The project financing was made by way of progress draw advances to fund reconstruction. The loan has a ten-year term from the completion date of the reconstruction project, which was February 1, 2006. Prior to the completion date, amounts outstanding under the loan bore interest at a floating rate equal to 2.55% per annum above MID's notional cost of borrowing under its floating rate credit facility, compounded monthly. After the completion date, amounts outstanding under the loan bear interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, interest was capitalized to the principal balance of the loan. Commencing January 1, 2007, we are required to make monthly blended payments of principal and interest based on a 25-year amortization period commencing on the completion date. The loan contains cross-guarantee, cross-default and cross-collateralization provisions. The loan is guaranteed by our subsidiaries that own and operate Remington Park and the Palm Meadows Training Center ("Palm Meadows") and is collateralized principally by security over the lands forming part of the operations at Gulfstream Park, Remington Park and Palm Meadows and over all other assets of Gulfstream Park, Remington Park and Palm Meadows, excluding licenses and permits. During 2007, we received no loan advances, incurred interest expense of $13.7 million, repaid interest of $12.5 million and repaid outstanding principal of $2.5 million, such that at December 31, 2007, $133.5 million was outstanding under this project financing arrangement, including $1.1 million of accrued interest payable. At December 31, 2007, net loan origination expenses of $3.2 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

        On July 26, 2006, the Gulfstream Park project financing arrangement was amended to add an additional tranche of $25.8 million, plus lender costs and capitalized interest, to fund the design and construction of phase one of the slots facility to be located in the existing Gulfstream Park clubhouse building, as well as related capital expenditures and start-up costs, including the acquisition and installation of approximately 500 slot machines. The second tranche of the Gulfstream Park financing has a five-year term and bears interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, interest on this tranche was capitalized to the principal balance of the loan. Beginning January 1, 2007, this tranche requires blended payments of principal and interest based on a 25-year amortization period commencing on that date. Advances related to phase one of the slots facility were made available by way of progress draw advances and there is no prepayment penalty associated with this tranche. The Gulfstream Park project financing facility was further amended to introduce a mandatory annual cash flow sweep of not less than 75% of Gulfstream Park's total excess cash flow, after permitted capital expenditures and debt service, to be used to repay the additional principal amount being made available under the new tranche. A lender fee of $0.3 million (1% of the amount of this tranche) was added to the principal amount of the loan as consideration for the amendments. During 2007, we received loan advances of $5.5 million, incurred interest expense of $2.4 million, repaid accrued interest of $2.2 million, and

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repaid outstanding principal of $0.4 million, such that at December 31, 2007, $24.7 million was outstanding under this project financing arrangement, including $0.2 million of accrued interest payable. At December 31, 2007, net loan origination expenses of $0.4 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

        On December 22, 2006, the Gulfstream Park project financing arrangement was further amended to add an additional tranche of $21.5 million, plus lender costs and capitalized interest, to fund the design and construction of phase two of the slots facility, as well as related capital expenditures and start-up costs, including the acquisition and installation of approximately 700 slot machines. This third tranche of the Gulfstream Park financing has a five-year term and bears interest at a rate of 10.5% per annum, compounded semi-annually. Prior to May 1, 2007, interest on this tranche was capitalized to the principal balance of the loan. Beginning May 1, 2007, this tranche requires blended payments of principal and interest based on a 25-year amortization period commencing on that date. Advances related to phase two of the slots facility are made available by way of progress draw advances and there is no prepayment penalty associated with this tranche. A lender fee of $0.2 million (1% of the amount of this tranche) was added to the principal amount of the loan as consideration for the amendments on January 19, 2007, when the first funding advance was made available to us. During 2007, we received loan advances of $13.8 million, incurred interest expense of $1.0 million, repaid accrued interest of $0.7 million, and repaid outstanding principal of $0.2 million, such that at December 31, 2007, $13.9 million was outstanding under this project financing arrangement, including $0.1 million of accrued interest payable. At December 31, 2007, net loan origination expenses of $0.3 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

        On September 12, 2007, certain amendments were made to the Gulfstream Park and Remington Park project financings. In return for the lender agreeing to waive any applicable make-whole payments for repayments made under either of the project financings prior to May 31, 2008, the required amendments provide, among other things, that under the Gulfstream Park project financing arrangement: (i) Gulfstream Park's obligations are now guaranteed by MEC; and (ii) $100.0 million of indebtedness under the Gulfstream Park project financings must be repaid by May 31, 2008.

        A subsidiary of MID provided project financing of $34.2 million to finance the build-out of the casino facility at Remington Park. Advances under the loan were made by way of progress draw advances to fund the capital expenditures relating to the development, design and construction of the casino facility, including the purchase and installation of electronic gaming machines. The loan has a ten-year term from the completion date of the reconstruction project, which was November 28, 2005. Prior to the completion date, amounts outstanding under the loan bore interest at a floating rate equal to 2.55% per annum above MID's notional cost of LIBOR borrowing under its floating rate credit facility, compounded monthly. After the completion date, amounts outstanding under the loan bear interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, interest was capitalized to the principal balance of the loan. Commencing January 1, 2007, we are required to make monthly blended payments of principal and interest based on a 25-year amortization period commencing on the completion date. Certain cash from the operations of Remington Park must be used to pay deferred interest on the loan plus a portion of the principal under the loan equal to the deferred interest on the Gulfstream Park construction loan. The loan is secured by all assets of Remington Park, excluding licenses and permits. The loan is also secured by a charge over the Gulfstream Park lands and a charge over Palm Meadows and contains cross-guarantee, cross-default and cross-collateralization provisions. During 2007, we received no loan advances, incurred interest expense of $3.1 million, repaid accrued interest of $2.8 million and repaid outstanding principal of $4.2 million, respectively, such that at December 31, 2007, $27.7 million was outstanding under this project financing arrangement, including $0.2 million of accrued interest payable. At December 31, 2007, net loan origination expenses of $1.2 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

        At December 31, 2007, $4.5 million of the funds we placed into escrow with MID remain in escrow, which is included in "due from parent" on the consolidated balance sheets.

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SAC Secured Term Loan Facility

        One of our subsidiaries, SAC, has a secured term loan facility that was scheduled to mature on October 8, 2007, but on October 2, 2007, was amended and extended. The principal amendments to the term loan agreement included increasing the amount available under the facility from $60.0 million to $67.5 million, reducing the monthly principal repayments to $0.4 million, extending the maturity date until October 31, 2012 and modifying certain financial covenants. Borrowings under the facility bear interest at LIBOR plus 2.0% per annum. On March 1, 2007, April 27, 2007 and July 26, 2007, we entered into interest rate swap contracts, each with an effective date of October 1, 2007, which fix the rate of interest at 6.98%, 7.06% and 7.24% per annum, respectively, to October 8, 2009 on a notional amount of $10.0 million per contract on the outstanding balance under the SAC term loan facility. Additionally, on October 4, 2007, we entered into an interest rate swap contract, with an effective date of October 8, 2009, which fixes the rate of interest at 7.15% per annum to October 31, 2012 on a notional amount of $23.4 million of the outstanding balance under the SAC term loan facility. The loan facility is guaranteed by LATC, our wholly-owned subsidiary, and is secured by a first deed of trust on Santa Anita Park and the surrounding real property, an assignment of the lease between LATC, the racetrack operator, and SAC and a pledge of all of the outstanding capital stock of LATC and SAC. The loan contains cross-default provisions with respect to our senior secured revolving credit facility. At December 31, 2007, $66.4 million was outstanding under this fully drawn facility.

8.55% Convertible Subordinated Notes

        In June 2003, we issued $150.0 million of 8.55% convertible subordinated notes, which are convertible at any time at the option of the holders into shares of our Class A Stock at a conversion price of $7.05 per share, subject to adjustment under certain circumstances, and mature on June 15, 2010. The notes are redeemable at the principal amount together with accrued and unpaid interest, at our option, under certain conditions in the period from June 2, 2006 to June 1, 2008. At December 31, 2007, all of the notes remained outstanding.

7.25% Convertible Subordinated Notes

        In December 2002, we issued $75.0 million of 7.25% convertible subordinated notes, which are convertible at any time at the option of the holders into shares of our Class A Stock at a conversion price of $8.50 per share, subject to adjustment under certain circumstances, and mature on December 15, 2009. The notes were redeemable at the principal amount together with accrued and unpaid interest, at our option, under certain conditions in the period from December 21, 2005 to December 14, 2007. At December 31, 2007, all of the notes remained outstanding.

Other Term Loan Facilities

        One of our European subsidiaries has a Euros 15.0 million term loan facility, secured by a first and second mortgage on land in Austria owned by the European subsidiary, which bears interest at the European Interbank Offered Rate ("EURIBOR") plus 2.0% per annum. At December 31, 2007, Euros 15.0 million (U.S. $22.1 million) was outstanding under this fully drawn facility, and is repayable in two installments of Euros 7.5 million each due on February 29, 2008 and December 31, 2008, respectively. In February 2008, the due date for the first installment was extended to March 15, 2008 and on March 12, 2008, the due date for the first installment was further extended to March 31, 2008.

        Two of our subsidiaries, which are part of The Maryland Jockey Club, are party to secured term loan facilities that bear interest at the U.S. Prime rate or LIBOR plus 2.6% and 7.7% per annum, respectively. Both term loans have interest rate adjustment clauses that reset to the market rate for U.S. Treasury security of an equivalent term plus 2.6% at set dates prescribed in the agreements. At December 31, 2007, $6.3 million and $3.1 million, respectively, were outstanding under these fully drawn term loan facilities which mature on December 1, 2013 and June 7, 2017, respectively. Both loan facilities are secured by deeds of trust on land, buildings and improvements and security interests in all other assets of certain affiliates of The Maryland Jockey Club.

        One of our subsidiaries, Pimlico Racing Association, Inc., has a revolving term loan facility that permits the prepayment of outstanding principal without penalty. This facility matures on December 1, 2013, bears interest

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at either the U.S. Prime rate or LIBOR plus 2.6% per annum and is secured by deeds of trust on land, buildings and improvements and security interests in all other assets of the subsidiary and certain affiliates of The Maryland Jockey Club. At December 31, 2007, there are no borrowings on this facility as the subsidiary has made prepayments of $8.1 million. Accordingly, the subsidiary is permitted to re-borrow up to this amount.

        On July 24, 2007, one of our European subsidiaries amended and extended its Euros 3.9 million bank term loan facility by increasing the amount available under the bank term loan facility of up to Euros 4.0 million, bearing interest at the Euro Overnight Index Average rate ("EONIA") plus 3.0% per annum (previously EONIA plus 1.1% per annum), and extending the term to July 31, 2008. A European subsidiary has provided two first mortgages on real estate properties as security for this term loan. At December 31, 2007, Euros 2.4 million (U.S. $3.6 million) was outstanding under the fully drawn bank term loan facility. In January 2008, we agreed to reduce the amount available under the bank term loan facility to Euros 3.5 million and increase the interest rate to EONIA plus 3.75% per annum.

        On May 11, 2007, AmTote completed a refinancing of its existing credit facilities with a new lender. The refinancing included a $3.0 million revolving credit facility to finance working capital requirements, a $4.2 million term loan for the repayment of AmTote's debt outstanding under its existing term loan facilities and an equipment term loan of up to $10.0 million to finance up to 80% of eligible capital costs related to tote service contracts. The term loan facilities bear interest at LIBOR plus 3.0%. Loans under the credit facilities are secured by a first charge on the assets and a pledge of stock of AmTote. The $4.2 million term loan matures on May 11, 2011 and the $10.0 million term loan matures on May 11, 2012. At December 31, 2007, $3.3 million was outstanding under the $4.2 million term loan facility and $2.0 million was outstanding under the equipment term loan facility.

Shelf Registration Statement

        On February 21, 2007, we filed a shelf registration statement on Form S-3 (the "U.S. Registration Statement") with the United States Securities and Exchange Commission (the "SEC") and a preliminary short form base shelf prospectus (the "Canadian Prospectus") with the securities commissions in each of the Provinces in Canada (collectively, the "Canadian Securities Commissions"). As the U.S. Registration Statement has been declared effective by the SEC and the Canadian Prospectus has received a final receipt from the Canadian Securities Commissions, we will be able to offer to sell up to U.S. $500.0 million of our equity securities (including stock, warrants, units and, subject to filing a Canadian rights offering circular or prospectus with the Canadian Securities Commissions, rights) from time to time in one or more public offerings or other offerings. The terms of any such future offerings would be established at the time of such offering. The U.S. Registration Statement and Canadian Prospectus are intended to give us the flexibility to take advantage of equity financing opportunities when and if deemed appropriate. There is no assurance when and if an equity financing could be completed.

Going Concern

        The consolidated financial statements included with this Report have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. We have incurred net losses of $113.8 million, $87.4 million and $105.3 million for the years ended December 31, 2007, 2006 and 2005, respectively, and had an accumulated deficit of $510.1 million and a working capital deficiency of $162.2 million at December 31, 2007. At December 31, 2007, we had $209.4 million of debt that matures in 2008, including amounts owing under our $40.0 million senior secured revolving credit facility with a Canadian financial institution which is scheduled to mature on March 31, 2008, and the Bridge Loan, which is scheduled to mature on May 31, 2008, and our obligation to repay $100.0 million of indebtedness under the Gulfstream Park project financings with a subsidiary of MID by May 31, 2008. Accordingly, our ability to continue as a going concern is in substantial doubt and is dependent on generating cash flows that are adequate to sustain the operations of our business, renewing or extending current financing arrangements and meeting our obligations with respect to secured and unsecured creditors, none of which is assured. If we are unable to repay our obligations when due, other current and long-term debt will also become due on demand as a result of cross-default provisions within loan agreements, unless we are able to obtain waivers or extensions. On September 12, 2007, our Board of Directors

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approved the Plan which was designed to eliminate net debt by December 31, 2008 by generating funding from the sale of assets, entering into strategic transactions involving certain of our racing, gaming and technology operations, and a possible future equity issuance. The success of the Plan is not assured. To address short-term liquidity concerns and provide sufficient time to implement the Plan, we arranged $100.0 million of funding, comprised of: (i) the Fair Enterprise Private Placement; and (ii) the Bridge Loan. Although we continue to implement our Plan, the sale of assets under the Plan is taking longer than originally contemplated. As a result, we will likely need to seek additional funds in the short-term from one or more possible sources. The availability of such additional funds is not assured and, if available, the terms thereof are not determinable at this time. Accordingly, the consolidated financial statements included with this Report do not give effect to any adjustments to recorded amounts and their classification, which would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the consolidated financial statements.

        In order to fund operations, implement our strategic plan and capitalize on future growth opportunities, we will be required to seek additional financing and funds from one or more possible sources, which may include MID, through means such as asset sales, project financings for racing and/or alternative gaming developments, investments by partners in certain of our racetracks and other business operations and debt or equity offerings through public or private sources. If additional financing or other sources of funds are not available to us as needed, or are not available on terms that are acceptable to us, our ability to continue as a going concern, add alternative gaming to our racetracks where and when permitted or improve and expand our operations as planned may be adversely affected.

Contractual Obligations and Commitments

        Our commitments to make future payments consist primarily of repayments of long-term debt including capital lease obligations, amounts due to our parent, obligations under operating and facility leases, construction commitments and other long-term liabilities. Our contractual obligations and commitments at December 31, 2007 are as follows:

 
  Less than 1 year
  1 to 3 years
  3 to 5 years
  More than 5 years
  Total
 
 
($ thousands)

Long-term debt   32,600   13,799   57,718   3,048   107,165
Capital lease obligations(i)   1,452   2,904   3,049   25,463   32,868
Amounts due to Parent   137,400   2,238   2,746   88,266   230,650
Convertible subordinated notes     225,000       225,000
Operating leases(ii)   2,182   3,497   1,056     6,735
Facility leases(iii)   2,311   3,491   2,280   24,328   32,410
Construction and development project commitments   4,157         4,157
Joint venture funding(iv)   2,480   2,548       5,028
Other liabilities(v)   469         469
   
 
 
 
 
    183,051   253,477   66,849   141,105   644,482
   
 
 
 
 
(i)
The racetrack and associated land under capital lease at Lone Star Park at Grand Prairie is included in the Grand Prairie Metropolitan Utility and Reclamation District ("GPMURD"). Lone Star Park entered into an agreement with GPMURD whereby it is required to make certain payments to GPMURD in lieu of property taxes. Such payments include amounts necessary to cover GPMURD operating expenses and debt service for certain bonds issued by GPMURD to fund improvements on the land up to the debt service requirements. Lone Star Park incurred $1.7 million in regards to this arrangement in 2007. The capital lease has an imputed interest rate of 8.5%, matures on April 1, 2027 and is secured by the buildings and improvements at Lone Star Park.

83


(ii)
Operating lease obligations do not include contingent rental payments and represent primarily obligations for totalisator and other equipment under lease, rental or service agreements. Contingent rental payments are typically dependent upon handle, live race days and other factors.

(iii)
Facilities lease obligations do not include contingent rental payments and represent primarily obligations for premises under lease or rental agreements. Contingent payments are typically dependent on handle and revenues.

(iv)
Joint venture funding represents our obligations with respect to funding the HRTV, LLC joint venture to October 1, 2009.

(v)
Other liabilities includes our expected 2008 pension and postretirement benefit contributions. Required pension and postretirement benefit contributions for years beyond 2008 depend on certain factors that cannot be reasonably determined at this time.

Qualitative and Quantitative Disclosures about Market Risk

        Our primary exposure to market risk related to financial instruments (or the risk of loss arising from adverse changes in market rates and prices, including interest rates, foreign currency exchange rates and commodity prices) is with respect to our investments in companies with a functional currency other than the U.S. dollar. Fluctuations in the U.S. dollar exchange rate relative to the Canadian dollar and the Euro will result in fluctuations in shareholders' equity and comprehensive income (loss). We have generally not entered into derivative financial arrangements for currency hedging purposes, and have not and will not enter into such arrangements for speculative purposes.

        Additionally, we are exposed to interest rate risk. Interest rates are sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.

        Our future earnings, cash flows and fair values relating to financial instruments are primarily dependent upon prevalent market rates of interest, such as the U.S. Prime rate, LIBOR and EURIBOR. Based on interest rates at December 31, 2007 and our current credit and debt facilities, a 1% per annum increase or decrease in interest rates on our credit facilities and other variable rate borrowings would not materially affect our annual future earnings and cash flows. Based on borrowing rates currently available to us, the carrying amount of our debt approximates its fair value.

        In order to mitigate a portion of the interest rate risk associated with the SAC term loan facility, we have entered into the four interest rate swap contracts described under "Long-term and related party debt".

Accounting Change

        In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), which clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". FIN 48 requires an entity to recognize the tax benefit of uncertain tax positions only when it is more likely than not, based on the position's technical merits, that the position would be sustained upon examination by the respective taxing authorities. The tax benefit is measured as the largest benefit that is more than fifty-percent likely of being realized upon final settlement with the respective taxing authorities. Effective January 1, 2007, we adopted the provisions of FIN 48 on a retroactive basis, which did not result in any charge to accumulated deficit as a cumulative effect of an accounting change or adjustment to the liability for unrecognized tax benefits. Accordingly, the adoption of FIN 48 did not have an effect on our results of operations or financial position. It is our policy to account for interest and penalties associated with income tax obligations as a component of income tax expense. We did not recognize any interest and penalties as provision for income taxes in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2007 as the maximum interest and penalty period have elapsed.

        As of December 31, 2007, we had $4.0 million of unrecognized income tax benefits and $0.3 million of related accrued interest and penalties (net of any tax effect) and $0.3 million of foreign exchange, $2.6 million of

84



which could ultimately reduce our effective tax rate. We are currently under audit in Austria. Although it is not possible to accurately predict the timing of the conclusion of the audit, we anticipate that the Austrian audit relating to the years 2002 through 2005 will be completed before the end of 2008. Given the stage of completion of the audit, we are unable to estimate the range of any possible changes to unrecognized income tax benefits the audit may cause over the next year. In addition, we do not anticipate any other significant changes to unrecognized income tax benefits over the next year.

        As of January 1, 2008, the following tax years remained subject to examination by the major tax jurisdictions:

Major Jurisdictions

  Open Years
Austria   2002 through 2007
Canada   2001 through 2007
United States   2003 through 2007

        We are subject to income taxes in many state and local taxing jurisdictions in the U.S. and Canada, many of which are still open to tax examinations. Management does not believe these represent a significant financial exposure to the Company.

Impact of Recently Issued Accounting Standards

        In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for fiscal years beginning after November 15, 2007. We are currently reviewing SFAS 157, but have not yet determined the impact on our consolidated financial statements.

        In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, "The Fair Value Option for Financial Assets and Liabilities" ("SFAS 159"). SFAS 159 allows companies to voluntarily choose, at specified election dates, to measure certain financial assets and liabilities, as well as certain non-financial instruments that are similar to financial instruments, at fair value (the "fair value option"). The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, SFAS 159 specifies that all subsequent changes in fair value for that instrument be reported in income. The provisions of SFAS 159 are effective for fiscal years beginning after November 15, 2007. We are currently reviewing SFAS 159, but have not yet determined the impact on our consolidated financial statements.

Forward-looking Statements

        This Report contains "forward-looking statements" within the meaning of applicable securities legislation, including Section 27A of the United States Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act") and forward-looking information as defined in the Securities Act (Ontario) (collectively referred to as forward-looking statements). These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the Securities Act (Ontario) and include, among others, statements regarding: the current status and the potential impact of the Plan on our debt reduction efforts, as to which there can be no assurance of success; expectations as to our ability to complete asset sales at the appropriate prices and in a timely manner; the impact of the Bridge Loan; expectations as to our ability to comply with the Bridge Loan and other credit facilities; strategies and plans; expectations as to financing and liquidity requirements and arrangements; expectations as to operations; expectations as to revenues, costs and earnings; the time by which certain redevelopment projects, transactions or other objectives will be achieved; estimates of costs relating to environmental remediation and restoration; proposed new racetracks or other developments, products and services; expectations as to the timing and receipt of government approvals and regulatory changes in gaming and other racing laws and regulations; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidated financial position, operating results, prospects or

85



liquidity; projections, predictions, expectations, estimates, beliefs or forecasts as to our financial and operating results and future economic performance; and other matters that are not historical facts.

        Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or the times at or by which such performance or results will be achieved. Undue reliance should not be placed on such statements. Forward-looking statements are based on information available at the time and/or management's good faith assumptions and analyses made in light of our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances and are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control, that could cause actual events or results to differ materially from such forward-looking statements. Important factors that could cause actual results to differ materially from our forward-looking statements include, but may not be limited to, material adverse changes in: general economic conditions; the popularity of racing and other gaming activities as recreational activities; the regulatory environment affecting the horse racing and gaming industries; our ability to obtain or maintain government and other regulatory approvals necessary or desirable to proceed with proposed real estate developments; increased regulation affecting certain of our non-racetrack operations, such as broadcasting ventures; and our ability to develop, execute or finance our strategies and plans within expected timelines or budgets. In drawing conclusions set out in our forward-looking statements above, we have assumed, among other things, that we will be able to successfully implement our Plan and comply with the terms of and/or obtain waivers or other concessions from our lenders and refinance or repay on maturity our existing financing arrangements (including our Bridge Loan and our senior secured revolving credit facility with a Canadian financial institution), and there will not be any material adverse changes in: general economic conditions; the popularity of horse racing and other gaming activities; weather and other environmental conditions at our facilities; the regulatory environment; and our ability to develop, execute or finance our strategies and plans as anticipated.

        Forward-looking statements speak only as of the date the statements were made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.

86


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

        Information required by this item is contained in this Annual Report under "Management's Discussion and Analysis of Financial Condition and Results of Operations — Qualitative and Quantitative Disclosures about Market Risk" and is incorporated herein by reference.

87


Item 8. Financial Statements and Supplementary Data

88



REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Magna Entertainment Corp.

        We have audited the accompanying consolidated balance sheets of Magna Entertainment Corp. (the "Company") as of December 31, 2007 and 2006 and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2007. Our audit also includes the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2007 and 2006 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with U.S. generally accepted accounting principles.

        The accompanying financial statements have been prepared assuming that Magna Entertainment Corp. will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses and has a working capital deficiency. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2008 expressed our opinion that Magna Entertainment Corp. has maintained effective internal control over financial reporting as of December 31, 2007.

        As discussed in Note 3 to these consolidated financial statements, the Company changed its accounting policy in regard to the accounting for income taxes for the year ended December 31, 2007.

Toronto, Canada
March 12, 2008
  /s/ ERNST & YOUNG LLP                
      Ernst & Young LLP
      Chartered Accountants
      Licensed Public Accountants

89



MAGNA ENTERTAINMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(U.S. dollars in thousands, except per share figures)

 
   
  Years ended December 31,
 
 
  Note
  2007
  2006
  2005
 
 
   
   
  (restated —
note 7)


  (restated —
note 7)


 
Revenues   21                    
Racing and gaming                        
  Pari-mutuel wagering       $ 432,280   $ 442,831   $ 428,169  
  Gaming         41,117     9,043      
  Non-wagering         143,843     117,378     93,851  
       
 
 
 
          617,240     569,252     522,020  
       
 
 
 
Real estate and other                        
  Sale of real estate         270          
  Other         8,205     4,946     4,643  
       
 
 
 
          8,475     4,946     4,643  
       
 
 
 
          625,715     574,198     526,663  
       
 
 
 
Costs, expenses and other income                        
Racing and gaming                        
  Pari-mutuel purses, awards and other         259,916     276,160     266,661  
  Gaming purses, taxes and other         28,324     6,059      
  Operating costs         273,011     237,586     217,585  
  General and administrative         68,816     67,004     57,479  
Real estate and other                        
  Cost of real estate sold         270          
  Operating costs         4,918     3,839     4,831  
  General and administrative         713     191     36  
Predevelopment, pre-opening and other costs         2,866     10,602     9,494  
Depreciation and amortization         42,297     38,989     33,431  
Interest expense, net   14, 22     50,621     57,758     32,613  
Write-down of long-lived assets   8     1,308     88,627      
Equity loss (income)         3,098     493     (1,122 )
Gain on sale of intangible assets related to The Meadows   5         (126,374 )    
       
 
 
 
          736,158     660,934     621,008  
       
 
 
 
Loss from continuing operations before income taxes         (110,443 )   (86,736 )   (94,345 )
Income tax benefit   12     (2,574 )   (7,124 )   (1,239 )
       
 
 
 
Loss from continuing operations         (107,869 )   (79,612 )   (93,106 )
Loss from discontinued operations   7     (5,890 )   (7,739 )   (12,187 )
       
 
 
 
Net loss         (113,759 )   (87,351 )   (105,293 )
Other comprehensive income (loss)                        
  Foreign currency translation adjustment   19     5,245     3,104     (14,971 )
  Change in fair value of interest rate swap   20     (1,052 )   (88 )   415  
  Change in net unrecognized pension actuarial gains   24     585          
       
 
 
 
Comprehensive loss       $ (108,981 ) $ (84,335 ) $ (119,849 )
       
 
 
 
Loss per share for Class A Subordinate                        
  Voting Stock and Class B Stock                        
  Basic and Diluted                        
    Continuing operations   18   $ (0.99 ) $ (0.74 ) $ (0.87 )
    Discontinued operations   18     (0.05 )   (0.07 )   (0.11 )
       
 
 
 
Loss per share       $ (1.04 ) $ (0.81 ) $ (0.98 )
       
 
 
 
Average number of shares of Class A Subordinate                        
  Voting Stock or Class B Stock outstanding during the year (in thousands):                        
  Basic and Diluted   18     109,219     107,461     107,356  
       
 
 
 

See accompanying notes

90



MAGNA ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)

 
   
  Years ended December 31,
 
 
  Note
  2007
  2006
  2005
 
 
   
   
  (restated —
note 7)

  (restated —
note 7)

 
Cash provided from (used for):                        

OPERATING ACTIVITIES OF CONTINUING OPERATIONS:

 

 

 

 

 

 

 

 

 

 

 

 
Net loss from continuing operations       $ (107,869 ) $ (79,612 ) $ (93,106 )
  Adjustments to reconcile net loss to net cash provided from (used for) operating activities:                        
    Depreciation and amortization         42,297     38,989     33,431  
    Future income taxes   12     (5,680 )   (11,980 )   (2,232 )
    Amortization of loan origination costs         2,817     6,104     1,541  
    Amortization of convertible subordinated notes issue costs   15     1,090     1,090     1,090  
    Amortization of financing obligation and other long-term liabilities         (2,072 )        
    Deferred interest expense   22     75     12,167      
    Write-down of long-lived assets   8     1,308     88,627      
    Write-down of development costs   22         3,048      
    Equity loss (income)         3,098     493     (1,122 )
    Gain on sale of intangible assets related to The Meadows   5         (126,374 )    
    Gain on disposal of real estate properties             (1,181 )    
    Gain on disposal of fixed assets         (4,673 )   (2,828 )   (2,612 )
    Stock-based compensation expense   3, 17     621     1,410      
    Issuance of Class A Subordinate Voting Stock under the Long-term Incentive Plan   16     767     982     102  
       
 
 
 
          (68,221 )   (69,065 )   (62,908 )
       
 
 
 
Changes in non-cash working capital balances:                        
    Restricted cash         797     (8,293 )   (840 )
    Accounts receivable         (2,659 )   6,799     10,272  
    Due from parent         4,027     7,020     (13,668 )
    Income taxes payable/receivable         2,921     923     2,372  
    Inventories         (302 )   394     (331 )
    Prepaid expenses and other         (1,519 )   (2,007 )   (2 )
    Accounts payable         (3,789 )   6,084     (23,452 )
    Accrued salaries and wages         616     620     (2,408 )
    Customer deposits         44     (18 )   (356 )
    Other accrued liabilities         6,135     (5,276 )   33,437  
    Deferred revenue         128     (1,023 )   218  
       
 
 
 
          6,399     5,223     5,242  
       
 
 
 
          (61,822 )   (63,842 )   (57,666 )
       
 
 
 
INVESTING ACTIVITIES OF CONTINUING OPERATIONS:                        
Acquisition of business, net of cash acquired   4         (9,347 )    
Proceeds on The Meadows transaction   5         171,777      
Real estate property additions         (61,217 )   (75,474 )   (117,241 )
Fixed asset additions         (13,165 )   (4,948 )   (5,730 )
Other asset disposals (additions)         (4,690 )   2,539     (1,439 )
Proceeds on real estate sold to related parties   22     88,031     5,578     1,400  
Proceeds on disposal of real estate properties             2,100      
Proceeds on disposal of fixed assets         7,681     4,328     4,403  
       
 
 
 
          16,640     96,553     (118,607 )
       
 
 
 
FINANCING ACTIVITIES OF CONTINUING OPERATIONS:                        
Proceeds from bank indebtedness   13     73,831     19,144     3,260  
Proceeds from indebtedness and long-term debt with parent   22     52,362     77,294     136,787  
Proceeds from long-term debt         13,819     12,582     209  
Repayment of bank indebtedness   13     (41,132 )   (39,929 )   (500 )
Repayment of indebtedness and long-term debt with parent   22     (3,026 )   (111,800 )    
Repayment of long-term debt         (73,578 )   (15,800 )   (15,577 )
Issuance of share capital   16     19,581          
       
 
 
 
          41,857     (58,509 )   124,179  
       
 
 
 
Effect of exchange rate changes on cash and cash equivalents         170     (104 )   1,141  
       
 
 
 
Net cash flows used for continuing operations         (3,155 )   (25,902 )   (50,953 )
       
 
 
 
Cash provided from (used for) discontinued operations:                        
Operating activities of discontinued operations         (3,062 )   3,572     (8,434 )
Investing activities of discontinued operations         (4,417 )   54,963     9,056  
Financing activities of discontinued operations         (4,264 )   (25,224 )   40,572  
       
 
 
 
Net cash flows provided from (used for) discontinued operations         (11,743 )   33,311     41,194  
       
 
 
 
Net increase (decrease) in cash and cash equivalents during the year         (14,898 )   7,409     (9,759 )
Cash and cash equivalents, beginning of year         58,291     50,882     60,641  
       
 
 
 
Cash and cash equivalents, end of year         43,393     58,291     50,882  
Less: cash and cash equivalents, end of year of discontinued operations         (9,078 )   (10,636 )   (9,398 )
       
 
 
 
Cash and cash equivalents, end of year of continuing operations       $ 34,315   $ 47,655   $ 41,484  
       
 
 
 

See accompanying notes

91



MAGNA ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEETS
(Refer to Note 1 — Going Concern)
(U.S. dollars and share amounts in thousands)

 
   
  December 31,
 
 
  Note
  2007
  2006
 
 
   
   
  (restated —
notes 6 & 7)

 
ASSETS                  
Current assets:                  
  Cash and cash equivalents       $ 34,315   $ 47,655  
  Restricted cash         28,264     29,061  
  Accounts receivable         35,335     32,010  
  Due from parent   22     4,463     6,648  
  Income taxes receivable             580  
  Inventories         6,450     6,117  
  Prepaid expenses and other         9,991     8,593  
  Assets held for sale   6     35,658      
  Discontinued operations   7     71,970     20,266  
       
 
 
          226,446     150,930  
       
 
 
Real estate properties, net   9     751,492     771,783  
Fixed assets, net   10     90,672     80,733  
Racing licenses         109,868     109,868  
Other assets, net   11     10,996     4,590  
Future tax assets   12     53,168     42,388  
Assets held for sale   6         36,063  
       
 
 
Discontinued operations   7         50,530  
       
 
 
        $ 1,242,642   $ 1,246,885  
       
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY                  
Current liabilities:                  
  Bank indebtedness   13   $ 39,214   $ 6,515  
  Accounts payable         65,533     69,302  
  Accrued salaries and wages         8,347     7,674  
  Customer deposits         2,575     2,531  
  Other accrued liabilities         52,387     50,635  
  Income taxes payable         1,948      
  Long-term debt due within one year   14     32,727     85,724  
  Due to parent   22     137,003     2,823  
  Deferred revenue         4,339     4,211  
  Liabilities related to assets held for sale   6     1,047      
  Discontinued operations   7     43,547     15,716  
       
 
 
          388,667     245,131  
       
 
 
Long-term debt   14     89,680     93,721  
Long-term debt due to parent   22     67,107     147,144  
Convertible subordinated notes   15     222,527     221,437  
Other long-term liabilities   24     18,325     16,776  
Future tax liabilities   12     93,623     90,059  
Liabilities related to assets held for sale   6         1,047  
Discontinued operations   7         30,952  
       
 
 
          879,929     846,267  
       
 
 
Commitments and contingencies   22, 23              
Shareholders' equity:                  
Class A Subordinate Voting Stock                  
  (Issued: 2007 — 58,159; 2006 — 49,055)   16     339,435     319,087  
Class B Stock                  
  (Convertible into Class A Subordinate Voting Stock)                  
  (Issued: 2007 and 2006 — 58,466)   16     394,094     394,094  
Contributed surplus   22     91,825     41,718  
Other paid-in-capital   3, 17     2,031     1,410  
Accumulated deficit         (510,057 )   (396,298 )
Accumulated comprehensive income   19, 20, 24     45,385     40,607  
       
 
 
          362,713     400,618  
       
 
 
        $ 1,242,642   $ 1,246,885  
       
 
 

See accompanying notes

On behalf of the Board:


Director

Director

92



MAGNA ENTERTAINMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. dollars in thousands)

 
  Note
  Class A Subordinate
Voting Stock

  Class B Stock