In a southern suburb of Vienna, a 30-minute drive from the Austrian capital, there is a monument to the folly and the extravagance of Frank Stronach.
On the glorious Sunday when he opened Magna Racino for its first day of horse racing, the grandstand was packed and Mr. Stronach declared that with the lustrous new entertainment centre in his homeland, "everyone shall be a winner." And there would be no bigger winner than Magna Entertainment, for which the revenues would roll in as gamblers and horse addicts played at the attached casino, dined in the restaurant with the panoramic view or drank away their worries at Die Derby Bar.
At a cost of nearly $100-million (U.S.), it was expensive. So? Reinventing the business model of an ancient sport doesn't come cheap.
Nearly five years later, the crowds are gone and so are the pie-in-the-sky projections used to justify building such a big project in such a small country. In 2007, Magna Racino hosted just 25 days of races all year, half of what its visionary had promised. And all that revenue?
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Try not to laugh: $8-million. That's not the profit. That's the revenue. On a $100-million investment. Or that's what it was in 2007. With Europe locked in an economic deep freeze, it's lower now.
Magna Entertainment wrote off most of the value of Magna Racino long before this week's decision to cave in to the inevitable and put much of the company into Chapter 11 bankruptcy protection. But before anyone crafts the obituary for Mr. Stronach's grand plan, let's just take a moment to wrap our minds around how this might play out.
To understand it properly, you have to know a few basic principles of a Stronach-controlled enterprise, or, as we shall call them, Frank's Rules. They are as follows: (1) Frank goes for what Frank wants, (2) He keeps voting control, which enables him to get what he wants, (3) Frank does not particularly care for the opinions of shareholders when they oppose what he wants.
And for nearly five years now - roughly since Mr. Stronach opened that Austrian white elephant - investors in his real estate company, MI Developments, have wanted one thing. They wanted MI, Magna Entertainment's controlling shareholder, to stop shovelling money into the black hole of a horse-racing business that never makes a profit or even comes close.
They've pleaded with him. They've sued him. They've fought him in the press. In 2005, they voted en masse in favour of a shareholder plan that would have separated MI from Magna Entertainment. (Mr. Stronach vetoed the idea with his multiple voting shares.) A few shareholders, believing a less confrontational approach might work, tried to put together a compromise. They've appealed to reason.
The futility of all this activity can be measured in numbers. At the end of 2004, Magna Entertainment owed its parent company about $27-million. Now it owes $372-million. Mr. Stronach's partners wanted less exposure to his hobby; what he gave them was 180 degrees in the other direction. The two companies now have their arms firmly wrapped around each other.
So is this really the liquidation of Mr. Stronach's dream? The end of him using the money of others to indulge his equine pastime? The final chapter in the whole sorry tale? Maybe not.
Yes, some of the tracks Mr. Stronach bought will have to be sold (at much lower prices than he paid for them) to repay debt. But he still controls MI, which is by far the largest creditor of Magna Entertainment and which is providing the fresh cash needed to keep the racetrack business going while it restructures. And MI has already agreed to pay nearly $200-million (some of which is debt forgiveness) for some of the tracks, including one of the jewels, Gulfstream Park in Miami.
Unless someone comes along to pay more - fat chance in this economy, we'd guess - Mr. Stronach can continue to grace Gulfstream's VIP suite as a big shot. And it's far from clear who, other than MI, will step up with a cheque for other assets that are now on the block. The gambling and casino business worldwide is in rough shape, partly because too many of the people fulfilled their grandiose visions with debt. Anyone want to buy a lightly used racetrack near Vienna? It's dead, but like Vegas, it does attract the occasional star.
If you hang out there long enough, for example, you might even see a famous white-haired Austro-Canadian auto parts magnate.
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