Gulfstream Folly Could Be Peanuts Compared To This

- Magna Entertainment may be bleeding money, but Frank Stronach continues to live on the high horse, with an average pay package, since 2002, of $47 million, according to the Toronto Globe and Mail. And his bank accounts will grow even fatter after Magna International shareholders approved Stronach's plan to accept a $1.5 billion investment from the Russian aluminum magnate Oleg Deripaska who, with a net worth of $13.3 billion, ranks #40 on Forbes Magazine's list of wealthiest people, and is thought to be the richest man in Russia. Deripaska's RUSAL is said to account for 16% of the world's aluminum production. Deripaska will own 42% of a new holding company that will control Magna Int'l, the same percentage as will Stronach.

But while Frankie is ceding his sole control over the giant automobile parts maker that he built, to his everlasting credit, from a single machine shop in Toronto, under the terms of the deal, Mr. Stronach stood to gain $150 million up front from the sale of half his consulting contract, as well as millions more in annual dividends. [Wall Street Journal] There had been word of opposition to the deal amongst major shareholders, and the Globe and Mail suggested that they could at least have organized to obtain a better deal for themselves.

If they were smart, in return for a yes vote, they'd have demanded that Mr. Stronach be stripped of one of his more dangerous powers: He can sell control of Magna without the other shareholders receiving a dime. In Bay Street parlance, Magna has no “coattails” – nothing to ensure that all shareholders are given equal treatment if there's a takeover.

Had they been organized, minority investors could have proposed an elegant compromise. You want this deal, Mr. Stronach? Fine, but we want coattails. We want to know that if someone's going to pay $150 for your shares, they're going to offer the same for ours.

Stronach sees the deal as an opportunity for him to become involved in the Russian automaking industry, which he sees as an emerging and potentially lucrative market, and Deripaska is well-connected with Vladamir Putin, and married to the daughter of former president Boris Yeltsin. But Russia is a scary place.....even for those who have moved outside its borders. And Deripaska has been described as being "ruthless," and recently had his U.S. visa rescinded amid concerns about the accuracy of statements he made in a meeting with the Federal Bureau of Investigation. So Frankie seems to be venturing into a territory that is potentially far more treacherous than his ill-fated reconstruction of Gulfstream Park.

- Laurel Park's takeout reduction has failed to stimulate handle, and the track will not experiment with takeout cuts in the near future, Laurel's top official said Tuesday.

Lou Raffetto, chief operating officer of Laurel's owner, the Maryland Jockey Club, said the analysis of the five-day period from Aug. 15-19 revealed that average all-sources handle on Laurel's races was down from $1.66 million a day to $1.52 million a day, a decline of 9.2 percent. Raffetto said he used those five days because they matched up to last year's meet on an apples-to-apples comparison, based on the number of races run, the number of runners on the cards, and the number of turf races run.
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"The little guy, it doesn't appear as if he cares" about the takeout level, Raffetto said. "The big guy may look at Laurel at August and say that it's great we cut the takeout, but we're only doing $1.5 million a day, and it's hard to play in those small pools." [Daily Racing Form]

The problem with the pool sizes is kind of a Catch-22; you're trying to attract big handle with lower takeout, but that extra handle would distort the small pools so as to nullify any takeout reduction for big bettors. As far as small bettors go, the effect of the extra money to churn would only be felt over a far longer period of time than the ten days of this meeting. And, as Raffetto also pointed out, it didn't help that the meet competed with Saratoga. I have to plead guilty for not supporting this worthy experiment in large part because of that. And that's something that I, and other horseplayers who did the same, may come to regret in the future when tracks point to this meeting and ask why they should reduce their take.

- And back to Magna for a moment, I saw this disclaimer in the company's press release announcing the deal.

This press release may contain statements that, to the extent that they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of applicable securities legislation.......We use words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions to identify forward-looking statements. [CNN Money]

The folks at Siro's might want to consider posting a similar warning at its handicapping seminars.