MAGNA ENTERTAINMENT CORP - 10-K Annual Report

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

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002.

OR

[ ] 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 98-0208374
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)

337 Magna Drive
Aurora, Ontario, Canada L4G 7K1
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (905) 726-2462
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Subordinate Voting Stock
(Title of class)

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 /X/ No / /

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. /X/

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes /X/ No / /

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As of June 28, 2002, the aggregate market value of the Class A Subordinate
Voting Stock held by non-affiliates of the registrant was approximately
$268,434,272 (based on the closing sale price of $6.99 per share of Class A
Subordinate Voting Stock reported on The Nasdaq National Market on June 28,
2002). As of June 28, 2002, the aggregate market value of the exchangeable
shares of MEC Holdings (Canada) Inc., each of which was exchangeable into one
share of Class A Subordinate Voting Stock of the registrant, held by
non-affiliates of the registrant was approximately $11,783,658 (based on the
closing sale price of $6.99 per share of Class A Subordinate Voting Stock
reported on The Nasdaq National Market on June 28, 2002). As of June 28, 2002,
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 17, 2003 was 48,674,796.

The number of shares of Class B Stock of the registrant outstanding as of March
17, 2003 was 58,466,056.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant's proxy statement is being simultaneously filed with
the Securities and Exchange Commission ("SEC") pursuant to Regulation 14A, with
respect to the annual meeting of stockholders scheduled to be held on April 30,
2003, is incorporated by reference in Part III of this Annual Report to the
extent stated herein. The section entitled "Description of the Notes" in the
prospectus included in the registrant's registration statement on Form S-3 (File
number 333-102889), filed with the SEC on January 31, 2003, is incorporated by
reference into Part II, Item 5 of this Annual Report. 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.

AVAILABLE INFORMATION

The Company maintains a website that contains information about the
Company, 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 the Company's website, stockholders and the general public may access
free of charge (other than any connection charges from internet service
providers) filings the Company makes with the SEC as soon as reasonably
practicable after filing. Filing accessibility in this manner includes 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 filed with or furnished
to the SEC.

In this Annual Report, when we use the terms "we", "us", "our" and the
"Company", we are referring to Magna Entertainment Corp. 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.

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INDEX TO ITEMS

PART I............................................................................................................4

Item 1. Business.................................................................................................4

Item 2. Properties..............................................................................................47

Item 3. Legal Proceedings.......................................................................................47

Item 4. Submission of Matters to a Vote of Security Holders.....................................................48

PART II..........................................................................................................48

Item 5. Market for Registrant's Common Equity and Other Stockholder Matters.....................................48

Item 6. Selected Financial Data.................................................................................49

Item 7. Management's Discussion and Analysis of Results of Operations and Financial Position....................53

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................................70

Item 8. Financial Statements and Supplementary Data.............................................................71

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................114

PART III........................................................................................................114

Item 10. Directors and Executive Officers of the Registrant....................................................114

Item 11. Executive Compensation................................................................................114

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters........114

Item 13. Certain Relationships and Related Transactions........................................................114

Item 14. Disclosure Controls and Procedures....................................................................114

PART IV.........................................................................................................115

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................115

SIGNATURES......................................................................................................117

EXHIBIT INDEX...................................................................................................123

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Part I
ITEM 1. BUSINESS

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

This Annual Report contains forward-looking statements as defined by
the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934.
These forward-looking statements may include, among others, statements
regarding: expectations as to operational improvements; expectations as to cost
savings, revenue growth and earnings; the time by which certain objectives will
be achieved; estimates of costs relating to environmental remediation and
restoration; proposed new products and services; 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
liquidity; projections, predictions, expectations, estimates 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 future performance or results will be
achieved. Forward-looking statements are based on information available at the
time and/or management's good faith belief with respect to future events, and
are subject to risks and uncertainties that could cause actual performance or
results to differ materially from those expressed in the statements.

Important factors that could cause such differences include, but are
not limited to, the factors discussed below under "Our Business - Risk Factors"
and our subsequent public filings.

Forward-looking statements speak only as of the date the statement was
made. We assume no obligation to update forward-looking information to reflect
actual results, changes in assumptions or changes in other factors affecting
forward-looking information. 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.

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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The following chart shows our organizational structure and that of our
material subsidiaries, together with the jurisdiction of incorporation of each
of the entities shown thereon as of March 17, 2003.

MAGNA ENTERTAINMENT CORP. ORGANIZATIONAL CHART

OUR BUSINESS

We are North America's number one owner and operator of thoroughbred
racetracks and one of the world's leading suppliers, via simulcasting, of live
racing content to the growing inter-track, off-track and account wagering
markets. We currently operate or manage eleven thoroughbred racetracks, one
standardbred racetrack, one racetrack which runs both thoroughbred and
standardbred meets and one greyhound racetrack, as well as the simulcast
wagering venues at these tracks. In addition, we operate off-track betting
("OTB") facilities and a national account wagering business known as
XpressBet(TM), which permits customers to place wagers by telephone and over the
Internet on horse races at up to 70 racetracks in North America. We also own and
operate HorseRacing TV(TM), a new television network focused exclusively on
horse racing that we launched on the Racetrack Television Network ("RTN") in
July 2002. HorseRacing TV(TM) is currently available to cable customers in the
Western Pennsylvania and San Diego areas and we are pursuing broader cable and
satellite distribution. RTN, in which we have a one-third ownership interest,
telecasts races from our racetracks and other racetracks, via private
direct-to-home satellite, to paying subscribers. For the year ended December 31,
2002, our operations generated consolidated revenues of $549.2 million.

Since December 1998, we have acquired seven large racetrack
operations in North America: Santa Anita Park near Los Angeles, Gulfstream
Park near Miami, Golden Gate Fields and Bay Meadows near San Francisco, Lone
Star Park at Grand Prairie near Dallas and The Maryland Jockey Club, which
operates Laurel Park in Maryland and Pimlico Race Course in Baltimore, home
of the Preakness Stakes(R), the middle jewel in thoroughbred racing's Triple
Crown. We have also acquired the racetrack operations of The Meadows near
Pittsburgh, Thistledown near Cleveland, Remington Park in Oklahoma City,
Great Lakes Downs in Muskegon, Michigan, Portland Meadows near Portland,
Oregon, and Multnomah Greyhound Park also near Portland, Oregon. We own all
the land on which these racetracks are located, with the exception of Bay
Meadows, Lone Star Park at Grand Prairie, Remington Park, Portland Meadows
and Multnomah Greyhound Park where we lease the land from third parties.
During the spring of 2003, we also expect to complete our acquisition of
Flamboro Downs, a standardbred racetrack located in Hamilton, Ontario, which
is currently controlled by one of our employees. Subject to our receipt of
final regulatory approvals, our employee has agreed to transfer all his
interest in Flamboro Downs to us. These acquisitions have enabled us to
secure the ownership rights to what we believe is some of the highest quality
and most popular live horse racing content in North America, based on
standard industry measures, such as total handle, average daily attendance
and average daily wagering, both on and off-track. We believe that the
aggregation of this high-quality content, combined with a strong branding
strategy and the introduction of new media distribution technologies, will
enhance the distribution of our content and help us develop new sources of
revenues. We intend to continue to acquire strategic racetracks and other
related assets on a selective basis.

We distribute our live racing content to approximately 1,000 off-track
and inter-track venues, including other racetracks, OTB facilities and casinos
in the United States, Canada, Mexico, the Caribbean and the United Kingdom. We
intend to expand the distribution of this content in these markets

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and, to the extent permitted by various regulatory regimes, in additional
markets, particularly emerging electronic media-based markets, such as wagering
via interactive television and the Internet.

In conjunction with our racetrack operations, we own and operate
thoroughbred training centers situated near San Diego, California, in Palm Beach
County, Florida and in the Baltimore, Maryland area. We believe that facilities
such as these will provide us with a competitive advantage by helping us to
attract additional high-quality horses to our racetracks and to expand our field
sizes. We believe that this will allow us to increase both our number of live
races and the total amount wagered on our races.

Legislators in a number of the states in which our racetracks
operate are considering the legalization of alternative gaming at racetracks.
Upon the completion of the Flamboro Downs acquisition, we will develop a
relationship with the Ontario Lottery and Gaming Corporation, which operates
the gaming facility at Flamboro Downs. We expect that the ownership of
Flamboro Downs and this relationship will enable us to develop additional
expertise in the issues surrounding the operation and management of
alternative gaming facilities at racetracks.

In addition to our racetracks, we also have significant real estate
holdings in the United States, Canada and Austria. As of December 31, 2002, the
aggregate net book value of all our real estate was $717.4 million. While we are
exploring the development of some of our real estate, we are actively marketing
our non-core real estate in order to generate additional capital to grow and
enhance our racing business. During the past three fiscal years, we sold
non-core real estate with an aggregate net book value of $91.0 million for gross
proceeds of $147.7 million. As of December 31, 2002, the aggregate net book
value of our remaining non-core real estate was approximately $10.8 million. We
currently have substantial real estate holdings in excess of that needed to
support our racetrack operations. This real estate consists of vacant industrial
lands, golf courses, residential housing developments, excess land around
several of our racetracks and other real estate. We are continually
re-evaluating each of these holdings in relation to our core business
activities. We will, from time to time, sell or otherwise monetize some or all
of these real estate holdings in order to fund the growth of our core racetrack
operations and related businesses. The aggregate net book value of these excess
real estate assets, including our remaining non-core real estate was
approximately $179.6 million, as of December 31, 2002.

Please see our financial statements beginning on page 71 for financial
information concerning our business and segments.

OUR STRATEGY

Since our inception in 1998, we have experienced significant growth in
scale and profitability through a strategic acquisition program. We intend to
grow and develop our business further by:

CONTINUING TO INTEGRATE OUR ACQUISITIONS BY 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. We believe that the increased
scale and integration of our racetrack operations and related wagering
operations will 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. We
intend to

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improve the quality of the live racing experience by upgrading and expanding the
infrastructure of our properties in order to attract the best available horses,
trainers and jockeys.

EXPANDING THE DISTRIBUTION OF OUR LIVE RACING

We currently distribute our live racing to inter-track and off-track
venues in the United States, Canada, Mexico, the Caribbean and the United
Kingdom. We believe that, subject to applicable regulation, significant
opportunities exist to expand the distribution of our content through the
further development of our simulcasting operations and our XpressBet(TM)
Internet and telephone account wagering business, as well as the development of
new forms of account wagering, including interactive television in the United
States.

FURTHER DEVELOPING AN INTEGRATED BRANDING AND MARKETING STRATEGY

We intend to combine our racing content, and possibly the racing
content from racetracks not owned by us, and market this content under our brand
name. We believe that aggregating this content would offer pari-mutuel wagering
venues that import our content greater convenience and lower operating costs,
while offering customers at their facilities access to more racing content,
including signals that the venue operators may not have purchased as stand-alone
products. We believe that packaging our product this way will increase the
exposure of our smaller racetracks.

IMPROVING THE QUALITY OF THE ENTERTAINMENT EXPERIENCE AT OUR RACETRACKS AND OTB
FACILITIES

We believe that the horse racing industry does not currently reach a
large portion of its potential customer base. We are attempting to increase
attendance at our racetracks and broaden the appeal of horse racing by
developing higher-quality racetrack facilities with a wider variety of
amenities. We will seek to enter into joint venture arrangements with strategic
partners to develop leisure and entertainment-based real estate projects on land
surrounding, or adjacent to, certain of our premier racetracks. Such
developments could include retail shopping facilities, restaurants, hotels and
entertainment projects. Subject to regulatory approval, these developments may
also involve the integration of other gaming operations, such as video lottery
terminals or similar gaming devices.

OBTAINING BROADER DISTRIBUTION OF HORSERACING TV(TM)

We believe that broad television distribution will help increase
future interest in horse racing and attract additional wagering customers. At
present, HorseRacing TV(TM) is carried on cable in the Western Pennsylvania
and San Diego, California areas, as well as on RTN. In the effort to broaden
the audience, reach and appeal of horse racing and wagering thereon, we are
pursuing carriage agreements with other cable and satellite operators who
could package the network with other digital sports programming sold to their
subscribers.

SELECTIVELY ACQUIRING AND DEVELOPING ADDITIONAL STRATEGIC RACETRACKS AND RELATED
ASSETS

We will selectively pursue the acquisition and development of
strategically important, geographically diverse racetracks and related
operations in order to increase our ownership of live racing content. We intend
to simulcast this content to other pari-mutuel wagering venues and to increase
both the number of days in the year and hours in the day that we offer wagering
on live and simulcast races.

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OUR HISTORY

Our parent company, Magna International Inc. ("Magna International") is
one of the most diversified automotive parts suppliers in the world. In 1999,
Magna International entered into a series of transactions in order to separate
its non-automotive businesses from its automotive businesses.

We were incorporated in Delaware on March 4, 1999. In November 1999,
Magna International completed a reorganization of its corporate structure (the
"Reorganization"), under which Magna International's non-automotive businesses
and certain real estate assets were transferred to us. As part of the
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, generally with 20 votes per share.

In December 1999, Magna International redeemed approximately 14.8
million shares of our Class B Stock for proceeds of $110.0 million. On that same
date, Magna International invested $110.0 million in our Canadian subsidiary,
MEC Holdings (Canada) Inc., in return for approximately 14.8 million
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 International 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 International described below. 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 March 10, 2000, Magna International 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 comprised of our Class A Subordinate
Voting Stock and the exchangeable shares of MEC Holdings (Canada) Inc. As of
March 17, 2003, Magna International owns, directly or indirectly, all our
outstanding Class B Stock and 4,362,328 shares of our outstanding Class A
Subordinate Voting Stock. As a result, Magna International is able to exercise
approximately 96% of the total voting power attached to all our outstanding
stock, and therefore is able to elect all our directors and to control us. Two
members of our board of directors are also members of Magna International's
board of directors and we have the same chairman.

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 (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 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 (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 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

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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

The horse racing industry is a highly fragmented industry with
relatively few high-quality racetracks and relatively few operators owning more
than two facilities. Over the past 20 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 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
live 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 of off-track and inter-track wagering
has resulted in a significant 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 larger pools of wagers have produced larger purses, which have
resulted in higher-quality racing events and an increased interest in horse
racing and pari-mutuel wagering. Subsequently, the financial performance of many
of the premier racetracks in the United States has improved.

THE GROWTH IN OFF-TRACK AND INTER-TRACK WAGERING

Pari-mutuel wagering on thoroughbred horse racing in the United States
increased from approximately $9.4 billion in 1990 to approximately $15.1 billion
in 2002, according to The Jockey Club. This increase resulted primarily from the
growth of off-track and inter-track wagering, which has grown by approximately
50.1% from approximately $8.7 billion in 1996 to approximately $13.0 billion in
2002. Simulcasting live racing events to off-track and inter-track venues has
been facilitated by technological advances and the introduction of legislative
changes.

U.S. THOROUGHBRED PARI-MUTUEL WAGERING HANDLE (IN BILLIONS)

Source: Equibase Company LLC; The Jockey Club.

Simulcasting is the process of transmitting the audio and video
signal of a live racing performance (ie, "content") from one facility to
other locations or venues where

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wagering on such content is permitted. Simulcasting 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, OTB facilities
and casinos, and by importing racing content from other racetracks.

Revenues are increased because simulcasting 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, simulcasting 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 simulcasting 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 expect that off-track and inter-track wagering will experience
continued growth as additional venues able to import simulcast content are
established and new distribution channels for pari-mutuel wagering, such as the
telephone, Internet and interactive television, are further developed.

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.

OUR CONTENT

Our racetracks are geographically diversified. Santa Anita Park is
near Los Angeles, Gulfstream Park is near Miami, Golden Gate Fields and Bay
Meadows are 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, The Meadows is near Pittsburgh, Thistledown
is near Cleveland, Remington Park is in Oklahoma City, Great Lakes Downs is
in Muskegon, Michigan, and Portland Meadows and Multnomah Greyhound Park are
in or near Portland, Oregon. Colonial Downs, whose racing operations we
manage, is in New Kent, Virginia.

2003 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.

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OUR PROPERTIES

Set forth below is a description of certain of our properties.

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 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 approximately six
weeks each fall. Pursuant to this lease, 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 will be the site of the Breeders' Cup World Thoroughbred
Championships in 2003 during The Oak Tree Meet. Santa Anita Park has one of the
longest racing schedules of the top North American racetracks, totaling
approximately 110 to 115 racing days each year (including The Oak Tree Meet).
Average daily attendance in 2002 was approximately 10,000 customers per live
racing day, representing one of the highest average daily attendance figures of
all North American racetracks.

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Santa Anita Park had one of the highest total handles, or total
amounts wagered, of all North American racetracks in 2002, approximately
$1.410 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,
and wagers made at Santa Anita Park on races imported to its inter-track
facilities. Wagers on Santa Anita Park's races (including The Oak Tree
Meet and all venues at which wagers were placed) totaled approximately
$947.0 million in 2002. Of this amount, approximately $771.6 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 20,000 cars.

In December 1999, we completed a $45.0 million capital renovation
program at Santa Anita Park, which included the development of a new 750-seat
high-end restaurant, the installation of a 2,120 square foot LED screen in the
infield track area for racing customers and other upgrades to the grandstand,
the track and other areas of the facility.

We are considering a variety of retail-based development proposals
for approximately 81 acres of excess real estate at Santa Anita Park. This
development would be intended to further enhance the entertainment experience
at Santa Anita Park, broaden the demographic composition of our customer base
and strengthen the loyalty of existing customers. These proposals are
preliminary. If, after a detailed review, any of these proposals turn out to
be commercially viable, additional time would be required to obtain the
necessary regulatory approvals and negotiate with potential business partners
who could be expected to provide marketing and development expertise and the
necessary financing.

GOLDEN GATE FIELDS

Golden Gate Fields is located on approximately 181 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. In November
2002, we entered into an agreement to sell approximately 16 acres of excess real
estate located at Golden Gate Fields (see "Our Real Estate Portfolio").

Golden Gate Fields' racing season of approximately 103 racing days
complements the Bay Meadows racing schedule. The season runs after the close of
Bay Meadows' racing season in the fall through to the end of March, when Bay
Meadows opens again. From the end of December through to the close of the
season, Golden Gate Fields operates simultaneously with Santa Anita Park.
Average daily attendance in 2002 was approximately 2,500 customers per live
racing day.

Golden Gate Fields had one of the highest total handles of all North
American racetracks in 2002, approximately $559.9 million, including wagers made
at Golden Gate Fields on its races, wagers made at other wagering venues and
through various account wagering operations on Golden Gate Fields' races,

12

and wagers made at Golden Gate Fields on races imported to its inter-track
facilities. Wagers on Golden Gate Fields' races (including all venues at which
wagers were placed) totaled approximately $340.6 million in 2002. Of this
amount, approximately $308.0 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 to Golden Gate Fields from other racetracks.

Golden Gate Fields' facilities include a one-mile main track and a
9/10-mile turf course, stalls for over 1,400 horses, a main grandstand with
seating for approximately 8,000 customers, a clubhouse with seating for
approximately 5,250 customers, a turf club with seating for approximately 1,150
customers and parking for over 8,500 cars.

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 existing
customers. These proposals are preliminary, although plans have been
submitted to the appropriate municipalities for approval. 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.

BAY MEADOWS

Bay Meadows is situated on approximately 100 acres of land in San
Mateo, California, between San Francisco and San Jose. There are approximately
5.7 million people living within a 40-mile radius of Bay Meadows.

The racing season at Bay Meadows is divided into a spring meet, which
runs approximately 55 days between early April and mid-June, and a fall meet,
which runs approximately 50 days between late August and early November. This
schedule complements the racing schedule of Golden Gate Fields, which is located
approximately 30 miles from Bay Meadows. Average daily attendance in 2002 was
approximately 3,400 customers per live racing day. In addition, we sub-lease Bay
Meadows to the San Mateo County Exposition and Fair Association, which hosts The
San Mateo County Fair Meet for two weeks during the summer.

Bay Meadows had one of the highest total handles of all North American
racetracks in 2002, approximately $516.5 million, including wagers made at Bay
Meadows on its races, wagers made at other wagering venues and through various
account wagering operations on Bay Meadows' races, and wagers made at Bay
Meadows on races imported to its inter-track facilities. Wagers on Bay Meadows'
races (including all venues at which wagers were placed) totaled approximately
$267.3 million in 2002. Of this amount, approximately $232.8 million in wagers
were placed at other wagering venues to which we exported Bay Meadows' races via
simulcast and through various account wagering operations. Bay Meadows 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, Bay Meadows operates as an

13

inter-track wagering facility where customers can wager on races that are
imported to Bay Meadows from other racetracks.

The facilities at Bay Meadows include a grandstand with seating for
approximately 8,000 customers (including the clubhouse and turf club), a
one-mile oval track with 1 1/4-mile and 3/4-mile chutes, a 7/8-mile turf course
and stalls for approximately 900 horses with auxiliary stabling available at
Golden Gate Fields.

The Bay Meadows property is operated under a lease that expires on
December 31, 2003, subject to a further one-year extension at the landlord's
option. We are exploring various alternative venues, including vacant land which
we purchased in Dixon, California, to conduct the racing dates currently held at
Bay Meadows after the expiry of the lease term (including any extensions).

GULFSTREAM PARK

Gulfstream Park is located on approximately 255 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 90 days between January and April. The Breeders' Cup, one of the
preeminent series of races in the United States, was held at Gulfstream Park
three times: in 1989, 1992 and 1999. Average daily attendance in 2002 was
approximately 9,300 customers per live racing day.

Gulfstream Park had one of the highest total handles of all North
American racetracks in 2002, approximately $789.5 million, including wagers made
at Gulfstream Park on its races, wagers made at other wagering venues and
through various account wagering operations on Gulfstream Park's races, and
wagers made at Gulfstream Park on races imported to its inter-track facilities.
Wagers on Gulfstream Park's races (including all venues at which wagers were
placed) totaled approximately $660.5 million in 2002. Of this amount,
approximately $571.5 million in wagers were placed at other wagering venues to
which we exported Gulfstream Park's races via simulcast and through various
account wagering operations. Gulfstream Park exports its simulcast signal to
approximately 1,000 off-track and inter-track wagering facilities in the United
States, Canada, the Caribbean and Mexico. For the 90-day meet in 2002, average
daily on-track handle was approximately $1.7 million per day, compared to
approximately $2.0 million per day in 2001, and average field size was
approximately 8.1 horses per race, compared to 8.9 horses per race in 2001.

Gulfstream Park's facilities include a grandstand with permanent
seating for approximately 8,700 customers, a clubhouse with seating for an
additional 5,800 customers, a one-mile main track, a 7/8-mile turf track, stalls
for approximately 1,390 horses and parking for approximately 14,000 cars.

Although we are considering a major redevelopment of Gulfstream Park,
we have deferred a decision on the project. Should we proceed as contemplated,
the redevelopment would include a simulcast pavilion, a sports and entertainment
arena, and a new turf club and grandstand. In addition, there would be
significant modifications and enhancements to the racetracks and stable areas.
If completed, the Gulfstream Park redevelopment would require the demolition of
a substantial portion of the current buildings and related structures, which
include the grandstand and turf club. The aggregate carrying

14

value at December 31, 2002 of the assets that would be demolished if the
Gulfstream Park redevelopment were completed is approximately $22.2 million. We
have deferred this project for now, but if we decide to proceed with the
Gulfstream Park redevelopment as originally intended and obtain board approval,
a reduction in the expected life of the existing assets would occur and a
write-down would be necessary.

LAUREL PARK

On November 27, 2002, we acquired a controlling interest in The
Maryland Jockey Club, which owns and operates Laurel Park and Pimlico Race
Course ("Pimlico"), and manages Colonial Downs. 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 of approximately 107 racing days,
excluding 36 racing days conducted by Pimlico at Laurel Park, complements the
Pimlico racing schedule. Live thoroughbred racing is conducted at Laurel Park
from the end of Pimlico's summer/fall meet in early October to the end of
March, when Pimlico opens for its spring meet. Racing then resumes at Laurel
Park in late July for a four-week summer meet. Average daily attendance in
2002 was approximately 4,100 customers per live racing day.

Laurel Park's handle was approximately $379.9 million in 2002,
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 $202.6 million in 2002. Of this amount, approximately
$180.9 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 1 1/8-mile dirt track with a seven-furlong
chute, a one-mile turf course, stalls for approximately 1,100 horses and
parking facilities sufficient to accommodate approximately 8,000 cars.

PIMLICO RACE COURSE

Historic Pimlico Race Course, home of the Preakness Stakes(R), 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(R) dates back to 1873, two years before the first
Kentucky Derby was run. Since 1909, the Preakness Stakes(R) has been run
annually without interruption at Pimlico and this year's race, on May 17, 2003,
will mark the 128th edition of this sporting classic. Past winners of the
Preakness Stakes(R) include legendary race horses such as Man o' War, Citation,
Secretariat, Seattle Slew and Affirmed.

The racing season at Pimlico consists of approximately 110 racing
days, including 36 racing days conducted by Pimlico at Laurel Park, and is
divided into a 10 week spring meet between early April and mid-June and a
month-long summer/fall meet in September. The spring meet features 10 graded
stakes races, including the middle jewel of thoroughbred racing's Triple
Crown, the Preakness Stakes(R), which is run annually on the third Saturday
of May. Average daily attendance in 2002 was approximately 3,900 customers
per live racing day.

15

Pimlico's handle was approximately $466.9 million in 2002, 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
$285.6 million in 2002. Of this amount, approximately $258.5 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 1 1/4-mile and
3/4-mile chutes, a 7/8-mile turf course, stalls for approximately 800 horses and
parking facilities sufficient to accommodate approximately 3,500 cars.

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 2002 thoroughbred and quarter horse meets were
approximately 9,000 and 4,400 customers per live racing day, respectively. 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 2002 of approximately $400.1
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 (both thoroughbred and
quarter horse) totaled approximately $213.7 million in 2002. Of this amount,
approximately $163.1 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 14,300 customers, a one-mile dirt track, a 7/8-mile turf track,
stalls for approximately 1,400 horses and parking facilities sufficient to
accommodate approximately 11,300 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 contains seating for approximately 675 customers.

Lone Star Park has been selected as the site of the 2004 Breeders'
Cup World Thoroughbred Championships. We have commenced an improvement
program of approximately $5.8 million designed to upgrade and expand certain
of Lone Star Park's facilities in anticipation of hosting this event. Under
existing State of Texas legislation and an agreement with the City of Grand
Prairie, we expect that approximately $2.9 million of these improvement
costs, along with a substantial portion of the chair and equipment rental and
other costs of hosting the event, will be reimbursed by governmental
authorities.

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 property at a
purchase price equal to one-half of its then fair market value. Pursuant to the
lease

16

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.

THE MEADOWS

We acquired The Meadows racetrack, which was our first standardbred
(harness racing) track, through the acquisition of Ladbroke Racing Pennsylvania,
Inc. (renamed MEC Pennsylvania Racing, Inc.) 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 210 live racing days. As part of this acquisition, we
also acquired four OTB facilities in the greater Pittsburgh area, located in New
Castle, Harmar Township, Moon Township and West Mifflin.

17

The Meadows' facilities include 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 four OTB facilities acquired with The Meadows each contain a
restaurant and bar and offer wagering on simulcast races from racetracks across
the country.

The Meadows and its associated OTB facilities generated approximately
$245.2 million in handle in 2002, 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 OTB
facilities. Wagers on The Meadows' races (including all venues at which the
wagers were placed) totaled approximately $99.4 million in 2002. Of this amount,
approximately $90.0 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. By packaging the simulcast signal from The Meadows with the
simulcast signals from our other racetracks, we expect to further increase the
number of sites to which The Meadows' simulcast program is exported. 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.

THISTLEDOWN

Thistledown is located on 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 187 racing days between
March and December. 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 $221.0 million in 2002,
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 $116.9 million in 2002. Of this amount, approximately
$88.0 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 500 off-track
and inter-track wagering facilities in the United States. By packaging the
simulcast signal from Thistledown with the simulcast signals from our other
racetracks, we expect to further increase the number of sites to which
Thistledown's simulcast program is exported. 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 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.

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REMINGTON PARK

Remington Park racetrack is situated on approximately 370 acres in
Oklahoma City, Oklahoma. There are approximately 1.1 million people living
within a 40-mile radius of Remington Park.

Remington Park's racing schedule has been significantly rationalized,
at our request, over the past two years. In 2002, the racing schedule consisted
of two meets totaling 105 live racing days: a quarter horse meet that ran from
April to June and a thoroughbred meet that ran from mid-August to mid-December.
For 2003, Remington Park has been approved for 82 total racing days, consisting
of a 13-day mixed meet for June and July, a 12-day mixed meet (including
thoroughbreds) for July and August and a 57-day thoroughbred meet from August
until the end of November.

Remington Park's handle was approximately $110.3 million in 2002,
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 OTB facilities. Wagers on Remington Park's races
(including all venues at which wagers were placed) totaled approximately $38.3
million in 2002. Of this amount, approximately $28.6 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 275 off-track and inter-track
wagering facilities in the United States. By packaging the simulcast signal from
Remington Park with the simulcast signals from our other racetracks, we expect
to further increase the number of sites to which Remington Park's simulcast
program is exported. 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.

Remington Park's facilities include a grandstand with seating for
approximately 20,000 customers, 21 luxury 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.

GREAT LAKES DOWNS

Great Lakes Downs is situated on approximately 85 acres in Muskegon,
Michigan, approximately 35 miles from Grand Rapids. There are approximately 1.2
million people living within a 50-mile radius of Great Lakes Downs.

Great Lakes Downs, which commenced operations in January 1999, offers
approximately 118 live racing days beginning in April or May and ending in
October or November of each year.

Great Lakes Downs' handle was approximately $60.0 million in 2002,
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 $44.6 million in 2002. Of this amount, approximately $41.1
million in wages 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 600
off-track and inter-track wagering facilities in the United States. By packaging
the simulcast signal from Great Lakes Downs with the simulcast signals from our
other racetracks, we expect to further increase the number of sites to which
Great Lakes Downs' simulcast program is exported. Throughout the year, Great
Lakes Downs operates as an inter-track wagering facility where customers can
wager on races that are imported to Great Lakes Downs from other racetracks.

Great Lakes Downs' facilities include a grandstand with seating for
approximately 10,000 customers, a 5/8-mile dirt track, stalls for approximately
800 horses and parking facilities sufficient to accommodate approximately 3,200
cars.

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 in a typical year
approximately 80 live racing days between October and April.

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

Portland Meadows generated approximately $42.5 million in handle during
its abbreviated 2002 race meet, 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 OTB 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 $7.0 million in 2002. Of this amount,
approximately $5.0 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 55 off-track and inter-track wagering facilities in the United
States and Canada. By packaging the simulcast signal from Portland Meadows with
the simulcast signals from our other

19

racetracks, we expect to further increase the number of sites to which Portland
Meadows' simulcast program is exported. Throughout the year, Portland Meadows
operates as an inter-track wagering facility where customers can wager on races
that are imported to Portland Meadows from other racetracks.

Due to a dispute with the United States Environmental Protection Agency
("EPA") concerning the amount of stormwater the Portland Meadows facility must
capture and send to the municipal sewers during heavy rain, the 2001-2002 live
meet commenced after its planned September 1, 2001 opening date and concluded
early, on February 10, 2002. A stormwater retention system for the facility,
acceptable to the EPA, was completed in May 2002 and live racing resumed in
October 2002. See "Our Business Environmental Matters".

The property on which Portland Meadows is located is leased pursuant
to a lease agreement which expires on May 15, 2005.

MULTNOMAH GREYHOUND PARK

We acquired the business operations of Multnomah Greyhound Park in
October 2001 and entered into a lease for the underlying real estate for a
period of up to five years. The leased real estate consists of approximately 32
acres and is located in Wood Village, Oregon, which is near Portland. There are
approximately 2.0 million people living within a 40-mile radius of Multnomah
Greyhound Park.

Multnomah Greyhound Park first opened in 1933 and offers approximately
127 live racing days beginning in April or May and ending in mid-October of each
year.

Multnomah Greyhound Park's facilities include a grandstand with seating
for approximately 6,000 customers, a 1/4-mile greyhound track and parking
facilities to accommodate approximately 1,200 cars.

Multnomah Greyhound Park generated approximately $43.4 million in
handle in 2002, including wagers made at Multnomah Greyhound Park on its races,
wagers made at other wagering venues and through various account wagering
operations on Multnomah Greyhound Park's races, and wagers made on imported
races at Multnomah Greyhound Park and OTB facilities within the State of Oregon
during Multnomah Greyhound Park's live meet. Wagers on Multnomah Greyhound
Park's races (including all venues at which the wagers were placed) totaled
approximately $12.8 million in 2002. Of this amount, approximately $5.1 million
in wagers were placed at other wagering venues to which we exported Multnomah
Greyhound Park's races via simulcast and through various account wagering
operations. Multnomah Greyhound Park exports its simulcast signal to
approximately 110 off-track and inter-track wagering facilities in the United
States, Canada and the Virgin Islands. Throughout the year, Multnomah Greyhound
Park operates as an inter-track wagering facility where customers can wager on
races that are imported to Multnomah Greyhound Park from other racetracks.

COLONIAL DOWNS

The Maryland Jockey Club manages the racing operations of Colonial
Downs and its network of four OTB facilities in Virginia. Colonial Downs is a
racetrack in New Kent, Virginia which hosted 26 days of thoroughbred racing
and 24 days of standardbred racing in 2002. The thoroughbred meet at Colonial
Downs runs from mid-June to mid-July, between the meets at Pimlico Race
Course and Laurel Park. The standardbred meet runs from early October to
mid-November. The track's signature race is the Virgina Derby, which is a 1
1/4-mile turf race for three-year-old horses that features a $500,000 purse.

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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 are currently
developing a horse boarding and training center on this land to be operated in
conjunction with Gulfstream Park, which we believe will help us to continue to
attract high-quality horses to Gulfstream Park and to expand our field sizes at
that racetrack. We believe that this in turn will allow us to increase both our
number of live races and the total amount wagered on our races.

The first phase of our Palm Meadows training center opened in November
2002. The facility currently includes a 1 1/8-mile dirt track, a European style
one-mile jogging path and stalls for approximately 800 thoroughbreds. A one-mile
turf track will be completed following the 2003 Gulfstream Park meet. The
development has also been designed to accommodate up to 600 additional stalls,
six dormitory buildings, a canteen, an administration office and a stand from
which owners and trainers may observe their horses' training performance, all of
which we presently expect to construct in phases at later dates. We have also
applied to Palm Beach County for subdivision approval to construct an equestrian
estate residential development on a portion of our property adjacent to the
training facility. As of December 31, 2002, we have spent approximately $46.7
million on the development of the training center, in addition to the initial
purchase price of the land.

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 pool,
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.

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
utilized since 1985 as a year-round training center to support thoroughbred
racing at Pimlico Race Course and Laurel Park.

AUSTRIAN RACETRACK DEVELOPMENT

In 2001, we commenced a 200 acre development on our land in
Ebreichsdorf, Austria, consisting of a horse racetrack combined with a gaming
and entertainment center. The racing surfaces were substantially completed in
2002, as were eight barns containing approximately 600 stalls. As of December
31, 2002, we have spent or committed a total of approximately $36.0 million on
improvements to this property. We are continuing joint venture negotiations with
an Austrian third party in order to capitalize on alternative gaming
possibilities within the development. At the same time, we are developing the
final plans for the design, engineering and financing of the grandstand and
entertainment facilities. See also "Risk Factors -- Risks Relating to Our Gaming
Operations".

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MICHIGAN RACETRACK DEVELOPMENT

On August 29, 2002, we filed an application with the Michigan Racing
Commissioner's Office for a license to construct a racetrack in the Greater
Detroit area. The proposed site for the new racetrack is in the City of Romulus,
Michigan, on a property which is situated less than two miles from the Detroit
Metropolitan Airport. The proposed site, which we have contracted to purchase,
subject to satisfactory completion of due diligence, consists of approximately
212 acres in a location less than 25 miles from the center of the business
districts of both Detroit and Ann Arbor. The proposed new track would be a dual
purpose facility which could host both thoroughbred and standardbred racing. The
issuance of a racetrack license is subject to the review and approval of the
application by the Michigan Racing Commissioner's Office. The construction of
the racetrack is also subject to certain regulatory approvals, including site
plan application review by the City of Romulus.

In December 2002, a competing application for a license to construct
and operate a horse racetrack with pari-mutuel wagering was filed with the
Michigan Office of Racing Commissioner by Triple Creek Associates, LLC. The site
for this competing application is located in Van Buren Township, Michigan, which
is adjacent to the City of Romulus, where our proposed racetrack is located.

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. Currently, fourteen states expressly
permit the licensing of an operator to conduct telephone account wagering:
California, Connecticut, Kentucky, Louisiana, Maryland, Massachusetts, Nevada,
New Hampshire, New Jersey, New York, North Dakota, Ohio, Oregon and
Pennsylvania. To date, the industry has proceeded on the basis that states that
expressly permit telephone account wagering also permit Internet account
wagering and interactive television-based wagering.

TELEPHONE ACCOUNT WAGERING AND INTERNET ACCOUNT WAGERING

Operators of telephone account wagering may establish a hub in one of
the states where telephone account wagering is 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 by customers are not allowed to exceed the amounts on deposit in
their accounts. States permitting telephone account wagering allow telephone
account wagering facilities to accept wagering instructions from customers
residing in those states as well as in states where the placing of such wagering
instructions by telephone is not expressly prohibited.

In 2001, we acquired the Call-A-Bet (renamed XpressBet(TM)) telephone
account wagering operation as part of our acquisition of Ladbroke Racing
Pennsylvania, Inc. Customers of XpressBet(TM) may give wagering instructions on
horse races offered at our racetracks and at various racetracks that have
entered into agreements with us.

On January 18, 2002, we introduced a new online wagering platform,
www.xpressbet.com. Due to the growth of the Internet and its increased
recognition as a medium of both communication and commerce facilitation, we are
exploring further opportunities to enhance our Internet-based account wagering
services. We believe that this will enable us to increase the market for our
simulcast product by maximizing the opportunities offered by the Internet as a
distribution channel for our live horse racing content.

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On January 25, 2002, we announced that our wholly-owned subsidiary that
operates XpressBet(TM)'s California wagering hub had been granted a license to
conduct account wagering in the State of California by the California Horse
Racing Board.

Since 1997, XpressBet(TM) has been party to a Telecommunications
Facilitation System Agreement with YouBet.com, Inc. ("YouBet") whereby YouBet
operates an interactive system over the Internet from its website that
facilitates the transmission of wagering information from customers to
XpressBet(TM)'s Pennsylvania hub account wagering operation. Users of YouBet's
interactive system are customers of XpressBet(TM), but net revenue is shared by
XpressBet(TM) and YouBet. Until August 2001, YouBet offered only the XpressBet
system, but now also offers its own interactive wagering system at its website.
For the year ended December 31, 2002, total handle wagered through our
California and Pennsylvania hubs was $118.4 million, of which $31.5 million was
wagered through the California hub and $86.9 million was wagered through the
Pennsylvania hub. Of the amount wagered through the Pennsylvania hub, $39.4
million was wagered through the YouBet interactive system and approximately
$47.5 million came from telephone and on-line wagering instructions received by
XpressBet(TM)'s Pennsylvania hub. Our agreement with YouBet expires on December
25, 2003, subject to our right to terminate it after March 31, 2003 by giving 60
days written notice of termination.

We expect that account wagering through XpressBet(TM) will make
wagering on horse racing more convenient for our customers and expand the market
for our simulcast product by enabling us to fully utilize an important
distribution channel for our horse racing product. In the future, we will seek
to expand the operations of XpressBet(TM) through a focused marketing effort.

INTERACTIVE TELEVISION-BASED WAGERING

Interactive television-based wagering involves the transmission of
horse racing-related television content through cable or satellite delivery into
the homes of subscribers. Subscribers would then be able to use interactive,
"real-time" technology, generally through a remote-controlled device connected
to a television, to wager on televised broadcasts of live horse races. In order
to place wagers, customers must deposit money with the relevant wagering
operators through the use of debit or credit cards. The horse racetrack
exporting its live signal would be entitled to a simulcast fee based on in-home
wagers placed on its races.

Interactive television-based wagering would allow us to increase the
market for our simulcast product by using an important distribution channel for
this product. We currently control the rights to broadcast races from our
tracks. Interactive television-based wagering would enhance our ability to
promote our live horse racing, and we expect that it would enable us to attract
new customers to horse racing. We are currently exploring the potential of
interactive television-based wagering on horse racing, possibly in conjunction
with business partners.

TELEVISION DISTRIBUTION

The first step in our television distribution plans was realized
through our participation in RTN, which is owned equally by Roberts
Communications Network, Inc., Greenwood Racing, Inc. and us. RTN is a private
direct-to-home satellite service that offers eight channels dedicated to horse
racing on a monthly subscription basis.

The RTN service is being managed independently by Roberts
Communications Network, Inc. on behalf of RTN and we are primarily a content
provider to the service. We believe that offering core and

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loyal wagering customers and owners, trainers and breeders this dedicated racing
on television is important.

In July 2002, we launched HorseRacing TV(TM), a new television
network focused exclusively on horse racing, which is presently carried on
cable in the Western Pennsylvania and San Diego, California areas, as well as
on RTN. We are seeking to achieve broader distribution of HorseRacing TV(TM)
through U.S. cable and satellite systems. HorseRacing TV(TM) is produced by
Santa Anita Park's award-winning television department.

We believe that broad television distribution will help increase future
interest in the sport and attract additional wagering customers. In the effort
to broaden the audience, reach and appeal of horse racing and wagering across
North America, we are pursuing carriage agreements with multiple system digital
cable operators (MSO) and direct broadcast satellite operators (DBS) for
HorseRacing TV(TM). The carriage agreements that we are seeking for HorseRacing
TV(TM) would package the network with other digital sports programming sold to
DBS and MSO subscribers.

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 markets. We also compete with other racetracks for horses,
jockeys and backstretch personnel. One of our competitors, Churchill Downs Inc.,
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 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.

As we develop our account wagering operations, including telephone,
Internet and interactive television wagering, we expect our competition with
other account wagering operators to increase substantially. 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 owned by Churchill Downs Inc. and 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 account wagering
on their races. We may not be able to obtain access to racing content from
racetracks not owned by us for our account wagering operations as a result of
these exclusive arrangements or otherwise on terms that are acceptable to us.

GOVERNMENT REGULATION

Horse racing is a highly regulated industry. 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 involvement in the industry. Although the
specific form may vary,

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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 addition to state regulation of horse racing, the United States
government regulates horse racing through the Interstate Horseracing Act of 1978
and the Interstate Wire Act of 1961. As a result of these two statutes,
racetracks can commingle wagers from differing racetracks and wagering
facilities and broadcast horse racing events to other licensed establishments.
Currently, fourteen states expressly permit the licensing of an operator to
conduct telephone account wagering: California, Connecticut, Kentucky,
Louisiana, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New York,
North Dakota, Ohio, Oregon and Pennsylvania.

We currently satisfy the applicable licensing requirements of the
racing and gambling regulatory authorities in each state 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 Office of the Racing
Commissioner of the Michigan Department of Agriculture, the Pennsylvania Harness
Racing Commission, the Nevada Gaming Commission, the New Jersey Casino Control
Commission and the Oregon Racing Commission. As part of this regulation,
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 California Horse Racing Board is responsible for
regulating the form of wagering, the length and conduct of meets and the
distribution of the pari-mutuel wagers within the limits set by the California
legislature. The California Horse Racing Board has annually licensed one of our
subsidiaries, Los Angeles Turf Club, Inc., and The Oak Tree Racing Association
to conduct racing meets at Santa Anita Park. At present, the California Horse
Racing Board has not licensed other thoroughbred racetracks in Southern
California to conduct racing during these meets. However, night quarter horse
meets are conducted at Las Alamitos racetrack in Southern California during
portions of these meets. The California Horse Racing Board also annually
licenses the operations of Golden Gate Fields and Bay Meadows. Furthermore,
pursuant to legislation effective January 1, 2002, the California Horse Racing
Board granted us, on January 24, 2002, a license to conduct account wagering in
California that runs until December 31, 2003. 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 California Horse
Racing Board 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.

In Maryland, the Maryland Racing Commission approves annual licenses
for racetracks to conduct thoroughbred and standardbred horse races. However,
Maryland's racing law effectively provides that except for Pimlico Race Course
and Laurel Park, the Maryland Racing Commission may not issue thoroughbred
racetrack licenses or thoroughbred race dates to any racetracks that have a

25

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. We are currently subject to an
agreement with the Maryland Racing Commission that obligates us, as a condition
of our racing license in Maryland, to expend at least $15 million on capital
expenditures for renovations at the Laurel Park and Pimlico racetracks and the
thoroughbred training facility in Bowie, Maryland, together with their related
facilities and operations, between January 1, 2003 and June 30, 2004.

In Virginia, the Virginia Racing Commission regulates all aspects of
the conduct of horse racing and pari-mutuel wagering. Virginia law requires both
an owner's license, for those persons who own or lease the property and
facilities at which live horse racing is conducted, and an operator's license,
for those persons responsible for conducting live horse racing or pari-mutuel
wagering at a licensed racetrack facility or off-track wagering facility. Each
type of license has a duration of twenty years, subject to ongoing compliance
with its terms and with applicable laws and regulations. Unlike most other
states in which we operate, annual renewals are not required, other than an
annual application for race dates. MEC, through its indirect subsidiary,
Maryland-Virginia Racing Circuit, Inc. ("MVRC"), possesses a 20-year operator's
license that was issued in 1996, and pursuant to which MVRC manages the live
horse racing and pari-mutuel operations on behalf of the owners of Colonial
Downs racetrack. Currently, Colonial Downs holds the only unlimited owner's
license issued by the Virginia Racing Commission, and Colonial Downs and MVRC
each hold the only unlimited operator's licenses issued by the Virginia Racing
Commission. Unlimited licenses entail 15 or more race days.

In Florida, the Division of Pari-Mutuel Wagering considers applications
for annual licenses for thoroughbred, standardbred and quarter horse meetings.
Tax laws in Florida have historically discouraged the three Miami-area
racetracks, Gulfstream Park, Hialeah Park (which no longer hosts live racing)
and Calder Race Course, from applying for race days outside of their traditional
racing season, so the race days for these Miami-area racetracks did not overlap.
Effective July 1, 2001, a new tax structure has eliminated this deterrent. As a
result, Gulfstream Park applied for and received an additional 27 race days for
2002 and 2003, for a total of 90 race days per year. This deregulation and
accompanying increase in race days 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 Texas, the Texas Racing Commission issues licenses to conduct
pari-mutuel wagering. 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, other than Lone Star Park at Grand Prairie, in the Dallas
area.

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.

26

In Oklahoma, the Oklahoma Horse Racing Commission regulates all
aspects of live horse racing with pari-mutuel wagering. The Commission
considers and approves annual licenses for thoroughbred and mixed breed
(quarter horse, paint horse and Appaloosa) race meetings. Currently, there
are three 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 in the Oklahoma City metropolitan area licensed to conduct
live horse racing and pari-mutuel wagering.

In Michigan, the Office of Racing Commissioner approves annual licenses
for thoroughbred, standardbred and mixed breed (quarter horse, paint horse,
Appaloosa and Arabian) race meetings. There are currently no
thoroughbred-exclusive racetracks in Michigan other than Great Lakes Downs.
However, the Office of Racing Commissioner has licensed standardbred race
meetings of five existing racetracks in Michigan. See "Our Business - Business
Developments" in connection with our application for a license to construct a
dual purpose racetrack in the Greater Detroit area and a competing application
filed by a third party.

In Pennsylvania, the Pennsylvania Harness Racing Commission approves
annual licenses for standardbred racetracks, while the Pennsylvania Horse Racing
Commission approves annual licenses for thoroughbred racetracks. Neither the
Pennsylvania Harness Racing Commission nor the Pennsylvania Horse Racing
Commission has licensed any other operators of horse racetracks, other than The
Meadows, in the Pittsburgh area. However, five applications for racetracks in
the Pittsburgh marketplace have been filed in the past year, consisting of two
standardbred applications and three thoroughbred applications. In addition, on
January 28, 2003, we filed an application with the Pennsylvania Horse Racing
Commission for a proposed thoroughbred horse racing and pari-mutuel wagering
operation to be constructed in Findlay Township, less than three miles from the
Pittsburgh International Airport. See "Our Business - Business Developments." On
September 26, 2002, the Pennsylvania 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.

In Oregon, the Oregon Racing Commission approves annual licenses for
horse and greyhound racetracks. The Oregon Racing Commission has not licensed
any operators of horse or greyhound racetracks in the Portland area, other than
Portland Meadows and Multnomah Greyhound Park.

OUR REAL ESTATE PORTFOLIO

As of December 31, 2002, the aggregate net book values of our real
estate are as follows:

Included in our income before income taxes for the year ended December
31, 2002 are gains on the sale of our non-core real estate of $2.2 million
(these gains amounted to $20.4 million in 2001 and $7

27

million in 2000). We expect the gains from sales of our non-core real estate to
be reduced to zero over the next year as the balance of our non-core real estate
is sold. We are actively marketing and intend to continue to sell the balance of
our non-core real estate in order to provide capital to grow and enhance our
racing business; accordingly, we are currently servicing, improving and seeking
zoning and other approvals for some of this real estate in order to enhance its
value on sale. See "Risk Factors -- Risks Regarding Our Company -- Our recent
operating income includes substantial gains from the sale of non-core real
estate, which sales may soon be completed, causing our future operating income
and cash flow to decrease".

We currently have substantial holdings of excess racing real estate,
revenue-producing non-racing real estate and non-core real estate in excess of
that needed to support our racetrack operations. We are continually
re-evaluating each of these holdings in relation to our core business
activities. We will, from time to time, sell or otherwise monetize some or all
of these real estate holdings in order to fund the growth of our core racing
operations and related businesses. The aggregate net book value of these excess
real estate assets as of December 31, 2002 was approximately $179.6 million.

Included in our excess racing real estate is land adjacent to several
of our racetracks, Santa Anita Park, Gulfstream Park, Golden Gate Fields, Lone
Star Park, Laurel Park and Pimlico Race Course, totaling approximately 314
acres. 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 could be expected to provide the
necessary marketing and development expertise, as well as the necessary
financing. In November 2002, we entered into an agreement with the East Bay
Regional Park District, a California Special District, to sell approximately 16
acres of excess real estate located at Golden Gate Fields in Berkeley,
California. The value of the consideration to be received by us for the real
estate, excluding certain tax benefits of $1.4 million, is $8.5 million. The
carrying value of the property, prior to entering into the agreement, was $14.3
million, which was based on an allocation of the purchase price for the Golden
Gate Fields acquisition in 1999. The transaction is expected to close in the
third quarter of 2003, subject to certain conditions, including the purchaser
completing its due diligence procedures. In 2002, we recorded a write-down of
this real estate which resulted in a loss before and after income taxes of $5.8
million and $2.4 million, respectively.

Our development real estate includes: approximately 562 acres of land
in Ebreichsdorf, Austria, located approximately 15 miles south of Vienna, on
which we have commenced development of a horse racetrack and gaming facility;
approximately 110 acres of undeveloped land in Oberwaltersdorf, Austria, also
located approximately 15 miles south of Vienna; approximately 800 acres of
undeveloped land in upstate New York; approximately 260 acres of undeveloped
land in Dixon, California located approximately 20 miles west of Sacramento and
approximately 435 acres of undeveloped land in Ocala, Florida.

Our revenue-producing non-racing real estate consists of two golf
courses that we own and operate, Fontana Sports and Magna Golf Club, related
recreational facilities and gated residential communities under development in
Austria and in Canada in close proximity to the golf courses. Fontana Sports,
which opened in 1997, is a semi-private sports facility located in
Oberwaltersdorf, Austria that includes an 18-hole golf course, a clubhouse which
contains dining facilities, a pro shop, a tennis club and a fitness facility.
The Magna Golf Club, which is in Aurora, Ontario, adjacent to our and Magna
International's headquarters approximately 30 miles north of Toronto, opened in
May 2001. The clubhouse was completed in the spring of 2002 and contains dining
facilities, a members' lounge, a pro shop and a fitness facility.

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Pursuant to an access arrangement effective as of March 1, 1999, Magna
International is paying us an annual fee of 2.5 million Euros (approximately
$2.6 million) to access the Fontana Sports golf course and related recreational
facilities for Magna International-sponsored corporate and charitable events, as
well as for business development purposes. The access fee relating to Fontana
Sports is payable only until March 1, 2004, unless renewed by mutual agreement
of the parties. Pursuant to an access agreement effective as of January 1, 2001,
Magna International is paying us an annual fee of Cdn. $5.0 million
(approximately $3.2 million) to access the Magna Golf Club. The access fee
relating to the Magna Golf Club is payable only until December 31, 2003, unless
renewed by mutual agreement of the parties. The Fontana Sports and Magna Golf
Club properties are both subject to rights of first refusal in favor of Magna
International if we decide to sell either of them.

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 ("CAFOs") on
water quality, including, but not limited to, stormwater 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.

A dispute with the EPA (which has since been resolved) involving the
Portland Meadows racetrack caused us to postpone the planned opening of that
facility's 2001-2002 meet on September 1, 2001. The dispute with the EPA
concerned the amount of stormwater the facility must capture and send to the
municipal sewers during heavy rain. The Portland Meadows facility ultimately
opened in October 2001 for an abbreviated race meet which concluded on February
10, 2002. Pursuant to a consent decree that we entered into with the EPA, we
completed the construction of a stormwater retention system acceptable to the
EPA in May 2002. Live racing resumed at Portland Meadows in October 2002.

Our receipt of the necessary regulatory permits and other approvals to
operate the Palm Meadows facility is conditional on our agreement to haul horse
manure off-site on an interim basis, to post a performance bond to service such
obligation, and to either have an approved treatment facility in place by
November 15, 2003, or to have received all required permits and other approvals
for such facility, commenced construction and posted a performance bond by
November 15, 2003, to ensure the completion of the treatment facility by at
latest November 15, 2004. In the event of a breach of any of those timelines, we
will be forced to cease operations at Palm Meadows.

Additionally, our Gulfstream Park facility has recently received a
Notice of Violation ("NOV") from Broward County indicating violations of the
facility's wastewater discharge permit. We are presently negotiating a
compliance plan with Broward County to address the NOV. However, we do not
believe that the resulting compliance plan or any penalties that may be assessed
will have a material adverse effect on our financial condition and operating
results.

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While we have environmental permits for many of our racetracks and are
taking steps to comply with them and other applicable environmental legal
requirements, we cannot assure you 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, 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 proposed changes to the CAFO
regulations that would significantly increase the burden of CAFO regulations,
and may 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.

A subsidiary of Magna International has agreed to indemnify us in
respect of environmental remediation costs and expenses relating to existing
conditions at some of our Austrian real estate properties.

EMPLOYEES

As of December 31, 2002, we employed approximately 5,100 full-time
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 technical and managerial personnel, and upon the
continued service of our senior management.

BUSINESS DEVELOPMENTS

Set forth below is a summary of certain transactions effected in 2002,
but not yet completed, and other business developments that have occurred since
January 1, 2003.

FLAMBORO DOWNS

On June 4, 2002, we entered into an agreement to acquire all the shares
of Flamboro Downs Holdings Limited, the owner and operator of Flamboro Downs, a
standardbred racetrack located in Hamilton, Ontario, 45 miles west of Toronto,
Ontario. Flamboro Downs conducts a live harness racing meet year-round with
approximately 260 live race days. Flamboro Downs also houses a gaming facility
with 750 slot machines operated by the Ontario Lottery and Gaming Corporation.
Pursuant to an agreement with the Ontario Lottery and Gaming Corporation,
Flamboro Downs receives 20% of the "net win" (slot machine revenues minus payout
to slot players), with one-half of that amount distributed to horsemen and the
other half being retained by Flamboro Downs. Flamboro Downs also operates nine

30

OTB facilities in its Home Market Area, as designated by the Canadian
Pari-Mutuel Agency, and in 2002 began conducting telephone account wagering in
that area through an agreement with Woodbine Entertainment Group.

On October 18, 2002, Ontario Racing Inc., our former subsidiary that is
presently owned by one of our employees, acquired Flamboro Downs Holdings
Limited. Our employee had received the requisite regulatory clearances and
approvals to own and operate Flamboro Downs. The purchase price, net of cash,
was $55.9 million, consisting of a payment of $23.1 million in cash on closing,
with the remainder satisfied by ongoing payments under secured notes of
approximately $32.8 million. One of our wholly-owned subsidiaries has provided
the funding for the acquisition cost by way of a revolving secured loan facility
to Ontario Racing Inc., and we have guaranteed the secured notes.

Our employee has agreed to transfer all the shares of Ontario Racing
Inc. back to us, at his original cost, five business days after we, including
our officers and directors, have received all regulatory approvals required to
own and operate Flamboro Downs. We are using the equity method of accounting for
the results of operations of Ontario Racing Inc. pending receipt of these
approvals, which are expected to be received during the spring of 2003.

SUNSHINE MILLIONS(TM)

On January 25, 2003, Santa Anita Park and Gulfstream Park jointly
hosted the inaugural running of the Sunshine Millions(TM), a thoroughbred horse
racing event which featured California-breds and Florida-breds in head-to-head
competition. The event consisted 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. The event,
which generated significant increases in attendance and handle relative to
appropriate comparables from the previous year, was covered on a national NBC
broadcast.

PITTSBURGH RACETRACK DEVELOPMENT

On January 28, 2003, we filed an application with the Pennsylvania
Horse Racing Commission for a license to conduct thoroughbred horse racing and
pari-mutuel wagering at a new racetrack in the Pittsburgh area. The proposed
site for the new racetrack is in Allegheny County, Pennsylvania, on a property
which is located less than three miles from the Pittsburgh International
Airport. The proposed site, which we have contracted to purchase, subject to
satisfactory completion of due diligence, consists of approximately 174 acres
located less than 18 miles from the center of Pittsburgh's business district.
The issuance of a racetrack license is subject to the review and approval of our
application by the Pennsylvania Horse Racing Commission. The construction of the
proposed racetrack is also subject to certain regulatory approvals.

DIXON DOWNS DEVELOPMENT

On March 3, 2003, we filed an application for various local approvals
with the City of Dixon, California relating to the phased development of a
destination entertainment and retail complex. The centerpiece of the development
would be a thoroughbred horse racing track ("Dixon Downs") to be constructed on
a 260-acre site in Dixon's Northeast Quadrant, approximately 20 miles from
Sacramento. The proposed site was purchased in 2001 and 2002. The environmental
impact analysis and the rest of the land-use approval process normally takes
from 12 to 18 months for a project of this nature. See "Our Business - Our Real
Estate Portfolio."

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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, actually occur, our business, financial
condition, operating results and prospects could be materially adversely
affected. In that case, our ability to make payments of principal and interest
on our debt securities may be limited and the trading price of the shares of our
Class A Subordinate Voting Stock or other securities could decline substantially
and investors may lose all or part of the value of the shares of our Class A
Subordinate Voting Stock or other securities held by them.

RISKS REGARDING OUR COMPANY

WE ARE A RELATIVELY NEW COMPANY WITH A SHORT HISTORY OF RACETRACK
OPERATIONS. WE MUST SUCCESSFULLY INTEGRATE RECENT RACETRACK ACQUISITIONS OR OUR
OPERATING RESULTS MAY BE ADVERSELY AFFECTED.

We were incorporated four years ago and acquired our first racetrack in
December 1998. Accordingly, although all our racetracks have been in operation
for some time, we have a relatively short history of owning and operating
racetracks. The acquisition of Santa Anita Park was completed in December 1998,
the acquisition of Gulfstream Park was completed in September 1999, the
acquisition of Remington Park and Thistledown was completed in November 1999,
the acquisition of Golden Gate Fields was completed in December 1999, the
acquisition of Great Lakes Downs was completed in February 2000, the acquisition
of Bay Meadows was completed in November 2000, the acquisition of The Meadows
was completed in April 2001, the acquisition of Multnomah Greyhound Park was
completed in October 2001, the acquisition of Lone Star Park at Grand Prairie