10-K

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

FORM 10-K

(Mark One)

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006.
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                          to                         .
Commission File No. 000-30578

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

Delaware
(State or Other Jurisdiction of Incorporation or Organization)
337 Magna Drive
Aurora, Ontario, Canada
(Address of Principal Executive Offices) 98-0208374
(I.R.S. Employer Identification No.)

L4G 7K1
(Zip Code)

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one). Large accelerated filer o Accelerated Filer ý Non-accelerated Filer o

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

As of June 30, 2006, the aggregate market value of the Class A Subordinate Voting Stock held by non-affiliates of the registrant was approximately $203,163,912 (based on the closing sale price of $5.26 per share of Class A Subordinate Voting Stock reported on The Nasdaq National Market on June 30, 2006, the last day of the registrant's most recently completed second quarter). As of June 30, 2006, 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 8, 2007 was 49,101,415.

The number of shares of Class B Stock of the registrant outstanding as of March 8, 2007 was 58,466,056.

Documents Incorporated by Reference

        Portions of the registrant's proxy statement (our "Proxy Statement") to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the registrant's fiscal year end of December 31, 2006 are incorporated by reference in Part III of this Annual Report to the extent stated herein. Except with respect to information specifically incorporated by reference in this Annual Report, the documents incorporated by reference are not deemed to be filed as part hereof.

INDEX

	Page
PART I	4
Item 1. Business	5
Item 1A. Risk Factors	35
Item 1B. Unresolved Staff Comments	49
Item 2. Properties	49
Item 3. Legal Proceedings	49
Item 4. Submission of Matters to a Vote of Security Holders	49
PART II	50
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	50
Item 6. Selected Financial Data	51
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	53
Item 7A. Quantitative and Qualitative Disclosures about Market Risk	83
Item 8. Financial Statements and Supplementary Data	84
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	129
Item 9A. Controls and Procedures	129
Item 9B. Other Information	•
PART III	131
Item 10. Directors and Executive Officers of the Registrant	131
Item 11. Executive Compensation	131
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	131
Item 13. Certain Relationships and Related Transactions	131
Item 14. Principal Accountant Fees and Services	131
PART IV	132
Item 15. Exhibits, Financial Statement Schedules	132
SIGNATURES	133
EXHIBIT INDEX	134

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Part I

Item 1. Business

Available Information

        We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K with the Securities and Exchange Commission ("SEC"). You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information on the hours of operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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

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

Special Note Regarding Forward-Looking Information

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

Incorporation and Corporate Structure

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

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

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OUR BUSINESS

        Magna Entertainment Corp. owns and operates horse racetracks in California, Florida, Maryland, Texas, Oklahoma, Ohio, Michigan, Oregon and Ebreichsdorf, Austria and, under a management agreement, operates a Pennsylvania racetrack previously owned by the Company. Based on revenues, MEC is North America's number one owner and operator of horse racetracks, and is a leading supplier, via simulcasting, of live racing content to the growing inter-track, off-track and account wagering markets. We currently operate or manage eight thoroughbred racetracks, one standardbred (harness racing) racetrack, two racetracks that run both thoroughbred and quarterhorse meets and one racetrack that runs both thoroughbred and standardbred meets, as well as the simulcast wagering venues at these tracks. Three of our racetracks, Gulfstream Park, Remington Park and Magna Racino™, include casino operations with alternative gaming machines and The Meadows, at which we manage racing operations, is scheduled to commence casino operations in May 2007. In addition, we operate off-track betting facilities, a United States national account wagering business known as XpressBet®, which permits customers to place wagers by telephone and over the Internet on horse races at over 100 North American racetracks and internationally on races in Australia, South Africa and Dubai, and a European account wagering service known as MagnaBet™. Pursuant to a joint venture with Churchill Downs Incorporated ("Churchill Downs" or "CDI"), we also own a 50% interest in HorseRacing TV™ ("HRTV™"), a television network focused on horse racing that we initially launched on the Racetrack Television Network ("RTN"). HRTV™ is currently distributed to more than 13 million cable and satellite TV subscribers. RTN, in which we have a minority interest, was formed to telecast races from our racetracks and other racetracks to paying subscribers, via private direct to home satellite. In April 2006, we entered into an agreement with Churchill Downs and Racing UK Limited ("Racing UK"), a media rights company and subscription television channel owned by 30 British racecourses, to partner in a venture called Racing World that serves as a distribution vehicle for account wagering rights and audio-visual signals in the United Kingdom and Ireland in respect of horse racing content from MEC, Churchill Downs and other North American racetracks. In July 2006, we announced that MEC Maryland Investments Inc., a wholly-owned subsidiary, acquired the remaining 70% equity interest of AmTote International, Inc. ("AmTote"), a provider of totalisator services to the pari-mutuel industry. To support certain of our thoroughbred racetracks, we own and operate thoroughbred training centers situated near San Diego, California, in Palm Beach County, Florida and in the Baltimore, Maryland area. We also own and operate production facilities in Austria and in North Carolina for StreuFex™, a straw-based horse bedding product.

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

        On March 4, 2007, we entered into a series of customer-focused agreements with Churchill Downs in order to enhance wagering integrity and security, to own and operate HRTV™, to buy and sell horse racing content and to promote the availability of horse racing signals to customers worldwide. These agreements involved the formation of a joint venture, TrackNet Media Group LLC ("TrackNet Media"), the finalization of a reciprocal content swap agreement and the purchase by CDI from MEC of a 50% interest in HRTV^TM.. TrackNet Media is the vehicle through which MEC and CDI horse racing content will be made available to third parties, including racetracks, off-track betting facilities, casinos and advance deposit wagering companies. TrackNet Media will also purchase horse racing content from third parties to be made available through CDI's and MEC's respective outlets. Under the reciprocal content swap agreement, the Company and CDI will exchange their respective horse racing signals. Churchill Downs racing content will be available for wagering through MEC-owned tracks and simulcast-wagering facilities and through our advance deposit wagering platform, XpressBet®, and our racing content will be similarly available for wagering through CDI tracks and off-track betting facilities and through a CDI-owned advance deposit wagering platform that is under development and is expected to launch later this year. Both CDI and MEC intend to work to offer as much of their respective live export simulcast content as possible on HRTV™ and will actively explore how the television medium can be used to more

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effectively serve horse racing customers. HRTV will seek additional content providers who wish to televise their horse racing content alongside the CDI and MEC content.

        Since December 1998, we have acquired six large racetrack operations in North America: Santa Anita Park near Los Angeles, Gulfstream Park near Miami, Golden Gate Fields near San Francisco, Lone Star Park at Grand Prairie near Dallas, and The Maryland Jockey Club, which operates both Laurel Park, situated between Washington, D.C. and Baltimore, and Pimlico Race Course in Baltimore, home of the Preakness Stakes®, the middle jewel in thoroughbred racing's Triple Crown. We have also acquired the racetrack operations of Thistledown near Cleveland, Remington Park in Oklahoma City, Great Lakes Downs in Muskegon, Michigan, Portland Meadows near Portland, Oregon and our newest racetrack, Magna Racino™, which we built near Vienna, Austria. In addition, though we completed the sale of The Meadows in November 2006, we retain the right to manage and benefit from the operations of that racetrack for a five-year period. 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. In January 2007, we announced that the 2007 race meet will be the last meet that will be held under our ownership at Great Lakes Downs. The decision to cease operations was based on continuing and forecasted operational losses at the racetrack.

        We own all the land on which these racetracks are located, with the exception of Great Lakes Downs, Lone Star Park at Grand Prairie, Remington Park and Portland Meadows (in which we own a minority interest in the land).

        At December 31, 2006, in addition to our racetracks, our real estate portfolio included three residential developments in various stages of development in Austria, the United States and Canada. All of our interests and rights in the Canadian residential development were sold subsequent to December 31, 2006 and we may sell residential developments and other real estate in order to generate additional capital for our racing and gaming business. During 2006, we sold the Magna Golf Club located in Aurora, Ontario and our interest in the entity that owns and operates the Fontana Golf Club located in Oberwaltersdorf, Austria to Magna International Inc. In April 2006, an agreement previously entered into by one of our subsidiaries to sell 157 acres of excess real estate in Palm Beach County, Florida to Toll Bros., Inc., a Pennsylvania real estate company, was terminated. In May 2006, we announced the completion of the sale of a restaurant and related real estate in the United States. We are also working with potential developers and strategic partners on proposals for developing leisure and entertainment or retail-based projects on excess land surrounding, or adjacent to, certain of our premier racetracks. We have entered into a Limited Liability Company Agreement with Forest City Enterprises, Inc. concerning the proposed development of "The Village at Gulfstream Park™", a mixed-use retail, entertainment and residential project on a portion of the Gulfstream Park Property. We have also entered into definitive operating agreements with certain affiliates of Caruso Affiliated regarding the proposed mixed use development of approximately 51 acres surrounding Santa Anita Park.

        Initiatives related to the passage of legislation permitting alternative gaming at racetracks, such as slot machines, video lottery terminals and other forms of non-pari-mutuel gaming, are actively underway in a number of states in which we operate. A referendum was held in Broward County, where Gulfstream Park is located, on March 8, 2005 and the authorization of slot machines in the county was approved. On December 8, 2005, legislation authorizing the operation of slot machines within existing, licensed Broward County, Florida pari-mutuel facilities that have conducted live racing or games during each of 2002 and 2003 was passed by the Florida Legislature. On January 4, 2006, the Governor of Florida signed the legislation into law and subsequently the Division of Pari-mutuel Wagering developed the governing rules and regulations. In October 2006 we were awarded a gaming license for slot machine operations at Gulfstream Park. We have had 516 slot machines installed and operational since November 15, 2006 and an additional 700 slot machines will be installed and operational in the first half of 2007. Under the legislation, a qualifying facility is entitled to offer up to 1,500 Class III slot machines. Under legislation that was approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park is permitted to operate electronic gaming machines. In November 2005, we opened a gaming facility with 650 electronic gaming machines, the current maximum

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permitted by the Oklahoma legislation. Remington Park has an entitlement to an additional 50 electronic gaming machines on each of the third and fifth anniversaries of the gaming license, to bring the total number of electronic gaming machines to 750.

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

        In March 2006, we announced that our Board of Directors had initiated a search for a new Chief Executive Officer. In February 2007, we announced that our Board of Directors appointed Michael Neuman to its Board of Directors and as Chief Executive Officer of the Company. Mr. Neuman succeeded Frank Stronach, who had been Interim Chief Executive officer since March 2006.

        Also in March 2006, we reached an agreement under which one of our Austrian subsidiaries distributes premium North American horse racing content directly to Ladbrokes' licensed betting shops throughout the United Kingdom and Ireland.

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

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

Our Strategy

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

Further Developing Our In-Home Simulcasting and Wagering Services

        In order to advance efforts to increase our overall customer base we formed PariMax. PariMax business units aggregate content from both MEC and non-MEC racetracks, creating economies of scale as we repackage and deliver this content in compelling formats to various customer segments. We believe this approach will enable us to cost-effectively present live horse racing action to an increasing number of locations for an increasing number of hours per week, thus growing our reach to new customers and growing frequency among existing customers. This growth would benefit PariMax, MEC-owned tracks, and non-MEC tracks, which elect to utilize PariMax services. For the domestic, in-home wagering market, these services include XpressBet®, which offers account wagering on over 100 North American racetracks via the Internet and by telephone. XpressBet® is complemented by HorseRacing TV™, a specialty television network focused on horse racing in which we hold a fifty percent interest. HRTV™ is distributed to more than 13 million cable and satellite television subscribers and enables fans to watch live racing content from all over the United States, as well as Australia, Hong Kong and Great Britain. We believe that broad television distribution will help increase future interest in horse racing and attract additional wagering customers. At present, HorseRacing TV™ is carried on cable in 27 states and is available nationally on Dish Network™ as well as RTN. In an effort to broaden the audience, reach and appeal of horse racing and wagering thereon, we are pursuing carriage agreements with additional cable and satellite operators to achieve expanded distribution of HorseRacing TV™ in North America.

        Our strategy is to focus on the development of complete wagering solutions and concentrate on serving the global wagering market by developing product lines which meet the needs of both distribution partners and end consumers worldwide. AmTote will continue to provide a variety of wagering interfaces and connectivity products for racetracks, off-track betting operators and account wagering providers, both domestically and abroad. For consumers, XpressBet® and MagnaBet™ will be PariMax's account wagering platforms, which provide video streaming and wagering opportunities to an increasingly international customer base. Consumers will be further served by PariMax supported television channels, including HRTV™ in the United States and Racing World in the United Kingdom and Ireland (a joint venture between MEC, Churchill Downs, and Racing UK).

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        TrackNet Media will benefit consumers by providing optimal distribution of simulcast content originating from MEC- and CDI-owned racetracks to other tracks and off-track wagering facilities as well as account-wagering providers. With respect to advance deposit wagering providers, MEC and CDI hope that other content rights holders will follow their example and make the content they control available as well. We believe this will benefit customers who previously had to maintain several advance deposit wagering accounts to wager on a wide variety of racing signals, thus increasing the market size for this wagering content.

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

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

        TrackNet Media's ability to license simulcast content from CDI-owned racetracks to account-wagering providers will commence with the expiration of the CDI tracks' respective agreements with Television Games Network ("TVG"). Both MEC and CDI will continue to honor all existing contractual obligations with respect to their content, including the contracts between affiliates of CDI and TVG, providing TVG access to Arlington Park's races through Aug. 6, 2007, and to Calder Race Course races through the end of its 2007-08 racing season, which concludes Jan. 2, 2008.

Entering New Markets

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

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

        In April 2006, we entered into a joint venture agreement with Churchill Downs and Racing UK Limited, a media rights company and subscription television channel owned by thirty leading British racecourses, to establish Racing World Limited, a company registered in England and Wales. Racing World is a distribution vehicle for account wagering rights and audio-visual signals in the United Kingdom and Ireland in respect of horse racing content from MEC, CDI, and most other North American racetracks. Racing World also operates a television channel which is available to customers who receive Sky satellite service and subscribe to the Setanta Sports Pack (of which Racing UK is also a member). Racing World has to date entered into definitive agreements with two account wagering providers to take wagers on Racing World content: RacingUS.com, an affiliate of XpressBet®, and Newcote Service Limited, which is part of the Victor Chandler Group of Companies and owns www.vcbet.com.

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        In the more traditional, licensed betting office market, one of our Austrian subsidiaries has been operating a service with Ladbrokes which provides U.S. horse racing to the Ladbrokes Xtra service in Britain and Ireland. Ladbrokes Xtra currently serves approximately 2,000 Ladbrokes shops in the U.K. and Ireland. In 2006, we also entered into a relationship with Satellite Information Services (SIS), to provide selected U.S. horse races to all of the approximately 10,000 betting shops in the U.K. and Ireland. We continue to believe the British and Irish markets have great potential for evening distribution of U.S. product, and our strategy is to continue to explore partnerships that allow us to strategically and cost-effectively deploy in these markets. We also believe that, subject to applicable regulation, significant opportunities exist to expand the distribution of our content through the further development of our international distribution network.

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

        In order to increase our customer base, we intend to improve the quality of the entertainment experience at our racetracks by offering a variety of experiences with horse racing as the feature attraction. In pursuit of this strategy, we have begun and intend to continue to redevelop and modernize various of our facilities. In 2004, we commenced the redevelopment of Gulfstream Park, located just outside Miami, Florida. This redevelopment included the construction of new wider and longer racing surfaces, which allows Gulfstream Park to run a longer live racing season and offer larger field sizes as well as a new grandstand/entertainment facility, each of which permit greater attendance and handle. In January 2006, the new Gulfstream Park opened for the 2006 winter meet and, in November 2006, the Gulfstream Park Casino opened its doors to 516 slot machines with an additional 700 slot machines to be made available in the first half of 2007. The redeveloped Gulfstream Park offers customers a number of different dining options and an improved quality of entertainment.

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 improve the quality of the live racing experience for our customers and horsemen by upgrading and expanding our physical facilities, technology and business processes in order to attract more customers and the best available horses, trainers and jockeys.

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

        In order to broaden our market appeal and thereby increase attendance and revenues, we intend to pursue alternative gaming opportunities, where available. Alternative gaming legislation that authorizes slot machines, video lottery terminals or electronic gaming at certain designated locations has been approved in Oklahoma, where our racetrack Remington Park is located, in Pennsylvania, where we operate The Meadows racetrack and Broward County, Florida, where our Gulfstream Park racetrack is located.

        Under legislation which was approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park is permitted to operate electronic gaming machines. In November 2005, we opened a gaming facility with 650 electronic gaming machines, the current maximum permitted by Oklahoma legislation. See "Government Regulation — Alternative Gaming — Oklahoma" below.

        In Florida we obtained the licenses necessary to permit our November 2006 opening of the Gulfstream Park Racing & Casino slots facility. The new casino facility currently offers guests access to 516 slot machines and an additional 700 slot machines will be installed and operational in the first half of 2007.

        Alternative gaming legislation is also being seriously considered in other states in which we operate pari-mutuel facilities and if such legislation is approved, we would expect to apply for the applicable licenses and build the necessary facilities as soon as practicable.

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Developing Our Significant Real Estate Assets

        We have a significant portfolio of high quality real estate located in densely populated urban markets. Included in this real estate portfolio is land adjacent to several of our racetracks, Santa Anita Park, Gulfstream Park, Golden Gate Fields, Lone Star Park at Grand Prairie, Laurel Park and Magna Racino™. We are considering a variety of options with respect to this land, 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 pursuit of this strategy, we have entered into a Limited Liability Company Agreement with Forest City Enterprises, Inc. concerning the proposed development of a combined retail and entertainment development called "The Village at Gulfstream Park™" featuring the Gulfstream Park racetrack as its cornerstone entertainment feature. Also, further to a letter of intent with Caruso Affiliate Holdings to explore the possibility of joint ventures to develop certain undeveloped lands surrounding our Santa Anita Park and Golden Gate Fields racetracks into retail and entertainment venues, on September 28, 2006, certain of our affiliates entered into definitive operating agreements with certain Caruso Affiliated affiliates. These operating agreements relate to the proposed development of approximately 51 acres of undeveloped lands surrounding Santa Anita Park. This development project contemplates a mixed-use development with approximately 800,000 square feet of retail, entertainment and restaurants as well as 4,000 parking spaces.

        In connection with our debt reduction efforts and efforts to focus our development strategy, during 2006, we sold non-core real estate assets and the proceeds from the sales were used, primarily, to reduce our debt.

Selectively Acquiring and Developing Additional Content

        We will selectively pursue the acquisition and development of strategically important, geographically diverse racetracks and content in order to increase our distribution 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.

        For a discussion of various customer-focused agreements we have entered into with Churchill Downs see "Our Business" and "Our Strategy — Further Developing Our In-Home Simulcasting and Wagering Services".

        On August 16, 2006, along with Churchill Downs, we joined the Empire Racing team ("Empire") that is bidding to operate New York State's thoroughbred racetracks including Saratoga, Belmont and Aqueduct. Empire is a group of New York horsemen and breeders seeking to revitalize racing in New York by securing the exclusive right to operate the three New York thoroughbred racetracks. An application was submitted on August 29, 2006 by Empire to acquire ownership of the New York Racing Association franchise upon its expiry at the end of 2007. On November 21, 2006, the Ad Hoc Committee on the Future of Racing recommended that Excelsior Racing Associates be granted the franchise to operate the racetracks and on February 21, 2007 the committee released its final report. Recently, New York State's new governor decided to create a panel to evaluate groups interested in taking over the franchise. It is expected that the creation of the panel will lead to the consideration of additional parties. We have one seat on Empire's 15-member board of directors.

Technology Leadership

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

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Intellectual Property Management

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

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

Our History

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

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

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

        As of March 8, 2007, MI Developments Inc. owns, directly or indirectly, all of our outstanding Class B Stock and 4,362,328 shares of our Class A Subordinate Voting Stock. As a result, MI Developments Inc. is able to exercise approximately 96% of the total voting power attached to all of our outstanding stock, and therefore is able to elect all our directors and to control us. Each company has its own board of directors and management team, although we share the same Chairman and Vice-Chairman. In addition, our Board of Directors has established a committee of independent directors to whom they have delegated the responsibility of reviewing any proposed related party transactions, including any proposed transactions between us and MI Developments Inc. or between us and our original parent company, Magna International Inc. Sales or a spin-off or other distribution of our stock by MI Development Inc. or by certain of our other significant stockholders under our registration statements could depress our stock price. See "Risk Factors — Risks Relating to Our Securities".

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Overview of the Horse Racing Industry

Pari-Mutuel Wagering

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

Recent History

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

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

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

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The Growth in Off-track and Inter-track Wagering

        Pari-mutuel wagering on thoroughbred horse racing in the United States increased from $10.4 billion in 1995 to $15.2 billion in 2003, before receding to $14.6 billion in 2005, according to The Jockey Club. Total handle increased slightly in 2006 to $14.8 billion. This overall increase from 1995 resulted primarily from the growth of off-track and inter-track wagering, which has grown by approximately 47% from $8.7 billion in 1996 to $13.1 billion in 2006. The decrease during 2004 and 2005 resulted primarily from an increase in the number of non pari-mutuel wagering options available to the general public, including lotteries, casinos and poker. This increased competition is both from on-line options and more traditional bricks and mortar establishments. Notwithstanding these developments, there was a slight recovery in 2006. 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)

	1995	1996		1997		1998		1999		2000		2001		2002		2003		2004		2005		2006
Total Handle	$10.429	$	11.627	$	12.542	$	13.115	$	13.724	$	14.321	$	14.550	$	15.062	$	15.180	$	15.099	$	14.561	$	14.785
On-Track Handle	*	$	2.944	$	2.703	$	2.498	$	2.359	$	2.270	$	2.112	$	2.029	$	1.902	$	1.860	$	1.741	$	1.688
Off-Track Handle	*	$	8.683	$	9.839	$	10.617	$	11.365	$	12.051	$	12.438	$	13.033	$	13.278	$	13.239	$	12.819	$	13.097

*

Not available

Source: Equibase Company LLC; The Jockey Club.

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

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

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

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        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.

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

Our Content

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

2007 Racing Schedule

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

Racetrack	Scheduled Racing Meets
Santa Anita Park	December 26, 2006 – April 23, 2007 and September 27, 2007 – October 29, 2007
Gulfstream Park	January 4, 2007 – April 23, 2007
Golden Gate Fields	February 8, 2007 – May 7, 2007, August 24, 2007 – October 15, 2007
Laurel Park	January 1, 2007 – April 15, 2007, September 6, 2007 – December 31, 2007
Lone Star Park at Grand Prairie	April 13, 2007 – July 23, 2007 and October 6, 2007 – December 2, 2007
Pimlico Race Course	April 20, 2007 – June 11, 2007
The Meadows	January 3, 2007 – December 30, 2007
Thistledown	April 14, 2007 – November 27, 2007
Remington Park	March 10, 2007 – June 4, 2007 and August 4, 2007 – November 28, 2007
Portland Meadows	January 1, 2007 – May 7, 2007 and October 21, 2007 – December 31, 2007
Great Lakes Downs	May 6, 2007 – November 7, 2007
Magna Racino™	March 12, 2007 – December 3, 2007

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 the end of April each year. In addition, we lease Santa Anita Park to The Oak Tree Racing Association, which is an unaffiliated not-for-profit California association that holds a license to host The Oak Tree Meet for five to six weeks each fall. Pursuant to this lease, we receive rent that consists primarily of a percentage of the on-track handle wagered on races run at Santa Anita Park and a percentage of The Oak Tree Racing Association net commissions from fees earned on racing content, exported from or imported to Santa Anita Park. Santa Anita Park was the site of the Breeders' Cup™ World Thoroughbred Championships in 2003 during The Oak Tree Meet. Santa Anita Park has one of the longest racing schedules of the top North American racetracks, totaling approximately 110 to 116 racing days

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each year (including The Oak Tree Meet). Average daily attendance in 2006 was approximately 9,400 customers per live racing day, representing one of the highest average daily attendance figures of all North American racetracks.

        Santa Anita Park had one of the highest total handles, or total amounts wagered, of all North American racetracks in 2006, approximately $1.290 billion, including wagers made at Santa Anita Park on its races (including The Oak Tree Meet), wagers made at other wagering venues and through various account wagering operations on Santa Anita Park's races (excluding wagers placed in Northern California and via account wagering systems licensed to operate in California), and wagers made at Santa Anita Park and its inter-track facilities on imported races. Wagers on Santa Anita Park's races (including The Oak Tree Meet and all venues at which wagers were placed) totaled approximately $896.1 million in 2006. Of this amount, approximately $730.7 million in wagers were placed at other wagering venues to which we exported Santa Anita Park's races via simulcast and through various account wagering operations. Santa Anita Park exports its simulcast signal to approximately 1,000 off-track and inter-track wagering facilities in 23 countries. Throughout the year, Santa Anita Park operates as an inter-track wagering facility where customers can wager on races that are imported to Santa Anita Park from other racetracks.

        Santa Anita Park's facilities include a large art deco-style grandstand structure with seating for approximately 19,000 customers, as well as standing room for additional customers, a one-mile oval dirt track as well as a ⁷/8-mile turf course, stalls for approximately 2,000 horses and parking facilities sufficient to accommodate approximately 17,000 cars.

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

        In September 2006, The Santa Anita Companies, Inc. entered into definitive operating agreements with certain Caruso Affiliated affiliates to develop approximately 51 acres of undeveloped lands surrounding Santa Anita Park. This project contemplates a mixed-use development with approximately 800,000 square feet of retain, entertainment and restaurants as well as approximately 4,000 parking spaces. The project is to be presented to Arcadia City Council in April 2007.

Gulfstream Park

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

        Gulfstream Park opened in 1939 and for many years, ending in 2001, the annual meet at Gulfstream Park lasted for approximately 63 days between January and March. Beginning in 2002, Gulfstream Park was granted approval to run its meet for approximately 90 days between January and April. The Breeders' Cup™, one of the preeminent series of races in the United States, was held at Gulfstream Park in 1989, 1992 and 1999. In 2005, Gulfstream Park's race meet was conducted out of temporary facilities and average daily attendance was approximately 5,100 customers per live racing day.

        The redevelopment of Gulfstream Park, which commenced in 2004, was completed in 2006. The project included significant modifications and enhancements to the racing surfaces and stable area, including the construction of a new, wider turf course, which was completed prior to the start of the 2005 race meet. The project also included the construction of a modern clubhouse/grandstand offering an array of restaurants and entertainment facilities. Since the project included the demolition of a substantial portion of the existing buildings and related structures, temporary facilities were erected to house the 2005 race meet and best efforts were made to minimize the disruption to the live racing operations; however, as with any disruption to the racing operations during a race meet, revenues and earnings generated during the 2005 race meet were negatively

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impacted. Although racing and patron areas were sufficiently complete to open the 2006 live race meet, construction continued through the race meet and best efforts were made to complete the facility and minimize interference with the race meet. However, as a result of on-going construction, revenues and earnings generated during the 2006 race meet were also negatively impacted.

        Gulfstream Park had total handle during 2006 of approximately $800.7 million, which includes wagers made at Gulfstream Park on its races, wagers made on Gulfstream Park races at other wagering venues and through various account wagering operations, and wagers made at Gulfstream Park on races imported to its inter-track facility. Wagers on Gulfstream Park's races totaled approximately $665.6 million in 2006. Of this amount, approximately $600.1 million in wagers were placed at other wagering venues to which we exported Gulfstream Park's signal and through various account wagering operations.

        In May 2005, we entered into a Limited Liability Company Agreement with Forest City concerning the development of The Village at Gulfstream Park™. In November 2006, we received final approval from the City of Hallandale Beach, Florida for the development of The Village at Gulfstream Park™, a 60-acre master-planned lifestyle destination. Phase I is expected to be ready for ground breaking in the spring of 2007 and will include 375,000 square feet of lifestyle retail space, including upscale shops, specialty stores and restaurants and 75,000 square feet of office space. This phase is expected to be in operation in the fall 2008. Upon completion, The Village at Gulfstream Park™ is expected to result in the development of 1,500 condominiums, 750,000 square feet of retail space, 140,000 square feet of office space, a 500-room hotel and a 2,500 seat cinema. The project is expected to be built over 15 years and will involve the construction of 225 affordable/workforce-housing units both on the site itself and in the neighbourhoods within the city. When completed, it is expected to generate more than $22 million in taxes and create more than 2,800 permanent jobs.

        On December 8, 2005, legislation authorizing the operation of slot machines within existing, licensed Broward County, Florida pari-mutel facilities that have conducted live racing or games during each of 2002 and 2003 was passed by the Florida Legislature. On January 4, 2006, the Governor of Florida signed the legislation into law and subsequently the Division of Pari-mutuel Wagering developed the governing rules and regulations. In October 2006 we were awarded a gaming license for slot machine operations at Gulfstream Park. We have had 516 slot machines installed and operational since November 15, 2006. We have commenced Phase II of the slots facility and plan to have an additional 700 slot machines installed and operational in the first half of 2007.

        For addtional details on Gulfstream Park matters, including information on The Village of Gulfstream Park™ and the casino facility, see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments and Current Initiatives".

Golden Gate Fields

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

        Golden Gate Fields' racing season lasts for approximately 106 racing days. The season is split throughout the year and has varied for the last few years. Average daily attendance in 2006 was approximately 2,200 customers per live racing day.

        Golden Gate Fields had total handle during 2006 of approximately $442.1 million, including wagers made at Golden Gate Fields on its races, wagers made at other wagering venues and through various account wagering systems on Golden Gate Fields' races (excluding wagers placed in Southern California, and wagers placed via advanced deposit wagering systems licensed to operate in California) and wagers made at Golden Gate Fields and its inter-track facilities on imported races. Wagers on Golden Gate Fields' races totaled approximately $231.9 million in 2006. Of this amount, approximately $208.7 million in wagers were placed at other wagering venues to which we exported Golden Gate Fields' races via simulcast and through various account wagering operations. Golden Gate Fields exports its simulcast signal to approximately 900 off-track and inter-track wagering facilities in the United States, Canada, Mexico and the Caribbean. Throughout the year, Golden Gate Fields operates as an inter-track wagering facility where customers can wager on races that are imported from other racetracks.

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

        In 2006, Golden Gate Fields began the planning process to install a synthetic racing surface to replace the track's dirt surface per the mandate of the California Horse Racing Board. Golden Gate Fields selected Tapeta Footings as the vendor to provide the new surface and plans to install the surface during the Summer of 2007. The new track surface is expected to help reduce injuries and track maintenance costs and increase field size.

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

Laurel Park

        On November 27, 2002, we acquired a controlling interest in The Maryland Jockey Club, which owns and operates Laurel Park and Pimlico Race Course. Laurel Park, which first appeared on the racing scene in 1911, is located on approximately 236 acres of land in Laurel, Maryland, between Washington, D.C. and Baltimore. There are approximately 6.6 million people living within a 40-mile radius of Laurel Park.

        Laurel Park's racing season in 2006 was 152 days compared to 135 racing days in 2005. There were less live racing dates in 2005 due to the redevelopment of Laurel Park's racing surfaces. Live thoroughbred racing is generally conducted at Laurel Park from September to mid-April, when Pimlico opens for its spring meet. Average daily attendance at Laurel Park in 2006 was approximately 3,200 customers per live racing day.

        Laurel Park's handle was approximately $541.4 million in 2006, 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 $406.7 million in 2006. Of this amount, approximately $380.6 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 new 1¹/8-mile dirt track with a seven and one half-furlong chute which opened in January 2005, and a new ⁷/8-mile turf course which opened in September 2005. Laurel Park has stalls for approximately 1,000 horses and parking facilities sufficient to accommodate approximately 8,000 cars.

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 2006 spring thoroughbred meet was approximately 7,000 customers per live race day and 3,600 customers during the fall quarter horse meet. In addition to its live racing facilities, Lone Star Park contains a state-of-the-art 36,000 square foot simulcast pavilion, which operates year-round.

        Lone Star Park had total handle during 2006 of approximately $302.7 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

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various account wagering operations, and wagers made at Lone Star Park on races imported to its inter-track facility. Wagers on Lone Star Park's races totaled approximately $144.8 million in 2006. Of this amount, approximately $111.6 million in wagers were placed at other wagering venues to which we exported Lone Star Park's signal and through various account wagering operations.

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

        Lone Star Park was the site of the 2004 Breeders' Cup™ World Thoroughbred Championships, making it the youngest track in history to host this prestigious event. An overwhelming response from racing fans from around the world resulted in the fastest sellout in Breeders' Cup history with a total attendance of 53,717 on race day. Four major Breeders' Cup wagering records were established: $120,863,117 for all sources on the 12-race program; $109,838,668 for all sources on the eight Breeders' Cup races; $107,536,392 for total simulcast handle; and $16,401,762 for international simulcast handle.

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

Pimlico Race Course

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

        The Preakness Stakes® dates back to 1873, two years before the first Kentucky Derby was run. Since 1909, the Preakness Stakes® has been run annually at Pimlico without interruption and this year's race, on May 19, 2007, will mark the 132^nd edition of this sporting classic. Past winners of the Preakness Stakes® include legendary race horses such as Man o' War, Citation, Secretariat, Seattle Slew and Affirmed.

        The racing season at Pimlico in 2006 consisted of approximately 30 racing days in a Spring meet, between early April and mid-June. Historically, after its Summer meet in the middle part of August, racing would resume at Laurel Park in September and run through December. The Spring meet features 10 graded stakes races, including the middle jewel of thoroughbred racing's Triple Crown, the Preakness Stakes®, which is run annually on the third Saturday in May. Average daily attendance in 2006 was approximately 4,200 customers per live racing day.

        Pimlico's handle was approximately $285.2 million in 2006, 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 $189.5 million in 2006. Of this amount, approximately $176.2 million in wagers were placed at other wagering venues to which its signal was exported via simulcast and through various account wagering operations.

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

The Meadows

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

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        The Meadows first opened in 1963 and has a year-round racing schedule encompassing approximately 208 live racing days. As part of this acquisition, we also acquired four off-track betting facilities in the greater Pittsburgh area, located in New Castle, Harmar Township, Moon Township and West Mifflin. In 2004, The Meadows opened a fifth off-track betting in Greensburg, which was subsequently closed in February 2007.

        The Meadows' current 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 Meadows' off-track betting facilities each contain a restaurant and bar and offer wagering on simulcast races from racetracks across the country.

        The Meadows and its associated off-track betting facilities generated approximately $230.3 million in handle in 2006, including wagers made at The Meadows on its races, wagers made at other wagering venues and through various account wagering operations on The Meadows' races, wagers made at The Meadows on races imported to its inter-track facilities and wagers made at The Meadows' associated off-track betting facilities. Wagers on The Meadows' races (including all venues at which the wagers were placed) totalled approximately $86.2 million in 2006. Of this amount, approximately $79.9 million in wagers were placed at other wagering venues to which we exported The Meadows' races via simulcast and through various account wagering operations. The Meadows exports its simulcast signal to approximately 240 off-track and inter-track wagering facilities in the United States, Canada and the Caribbean. Throughout the year, The Meadows operates as an inter-track wagering facility where customers can wager on races that are imported to The Meadows from other racetracks.

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

        In November 2005, we entered into a share purchase agreement with PA Meadows, LLC, a company jointly owned by William Paulos and William Wortman, controlling shareholders of Millennium Gaming, Inc. and a fund managed by Oaktree Capital Management, LLC ("Oaktree" and together with PA Meadows, LLC, "Millennium-Oaktree"), providing for the acquisition by Millennium-Oaktree of all of the outstanding shares of Washington Trotting Association, Inc., Mountain Laurel Racing, Inc. and MEC Pennsylvania Racing, Inc. (collectively "The Meadows Entities"), each wholly-owned subsidiaries through which we owned and operated The Meadows. In July 2006, we entered into an amended share purchase agreement, which modified the original agreement. As a result of regulatory requirements relating to the approval of the issuance of a gaming license by the Pennsylvania Gaming Control Board ("PGCB"), as well as significant changes in the economic and regulatory environment in Pennsylvania since the date of the original share purchase agreement, including regulations adopted by the Pennsylvania Department of Revenue in respect of the amount of local share assessment taxes payable to North Strabane Township and Washington County, the parties agreed to revise the terms of the original share purchase agreement. The $225.0 million purchase price in the original share purchase agreement, which included a $39.0 million holdback note, was reduced to $200.0 million, with a $25.0 million holdback note, payable to us over a five-year period, subject to offset for certain indemnification obligations. In exchange for the shares of The Meadows Entities, we received two notes representing the purchase price in the amounts of $175.0 million (the "First Note") and $25.0 million (the "Second Note"). In September 2006, the PGCB granted approval to Washington Trotting Association, Inc. of a Conditional Category 1 Gaming License (the "Gaming License"). In November 2006, we completed The Meadows transaction and received payment of the First Note and received a $25.0 million holdback note. Payments under the holdback agreement will be deferred until the opening of the permanent casino at The Meadows. Pursuant to a racing services agreement entered into on July 26, 2006, we will continue to manage the racing operations at The Meadows on behalf of Millennium-Oaktree, for at least five years. Of the proceeds on the collection of the First Note, $111.8 million was used to pay the full amount of indebtedness outstanding under the bridge loan with MI Developments, $39.0 million was used to pay down our senior secured revolving bank credit facility, $2.0 million was used to pay down the loan from BE&K, Inc. ("BE&K"), the parent company of Suitt Construction Co. Inc., the general contractor for the Gulfstream Park redevelopment project and $15.0 million was put into escrow with MI Developments to ensure adequate funding to fully repay the BE&K loan. For details on the accounting

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impact of this transaction, see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments and Current Initiatives".

Thistledown

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

        Thistledown has one of the longest racing seasons of all North American thoroughbred racetracks, consisting of approximately 156 racing days between April and November. Thistledown hosts the Summit, Thistledown, Randall and Cranwood meets. Annually, Thistledown hosts the Ohio Derby, which is the premier graded stakes race in Ohio.

        Thistledown's handle was approximately $208.7 million in 2006, 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 $121.7 million in 2006. Of this amount, approximately $104.8 million in wagers were placed at other wagering venues to which we exported Thistledown's races via simulcast and through various account wagering operations. Thistledown exports its simulcast signal to as many as 700 off-track and inter-track wagering facilities in the United States. Throughout the year, Thistledown operates as an inter-track wagering facility where customers can wager on races that are imported to Thistledown from other racetracks.

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

Remington Park

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

        In 2006, the racing schedule consisted of two meets totaling 118 days of live racing days, which included a 50 day quarter horse meet from mid-March through early June and a 68 day thoroughbred meet from early August through the end of November 2006. In 2007, Remington Park has been approved for 119 days of live racing, consisting of 50 days of quarter horse racing from mid-March through early June and a 69 day thoroughbred meet from early August through late November.

        Remington Park's handle was approximately $138.7 million in 2006, including wagers made at Remington Park on its races, wagers made at other wagering venues and through various account wagering operations on Remington Park's races, and wagers made at Remington Park on races imported to its inter-track and associated off-track betting facilities. Wagers on Remington Park's races (including all venues at which wagers were placed) totaled approximately $84.8 million in 2006. Of this amount, approximately $75.9 million in wagers were placed at other wagering venues to which we exported Remington Park's races via simulcast and through various account wagering operations. Remington Park exports its simulcast signal to approximately 600 off-track and inter-track wagering facilities in the United States. Throughout the year, Remington Park operates as an inter-track wagering facility where customers can wager on races that are imported to Remington Park from other racetracks across the country.

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

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        Under legislation which was approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park is permitted to operate electronic gaming machines. In November 2005, we opened a gaming facility with 650 electronic gaming machines, the current maximum amount permitted by the legislation at Remington Park. See "Government Regulation — Alternative Gaming — Oklahoma" below. During 2006, the machines generated an average daily net win per unit of $235. Under the terms of the legislation, gaming operations at the racetrack are permitted for up to 18 hours per day, not to exceed 106 hours per week. The distribution of revenues from the racetrack's electronic gaming operations will vary based on the annual gross revenues of the racetrack from gaming less all monetary payouts ("Adjusted Gross Revenues"). The legislation allocates between 10% and 30% of the Adjusted Gross Revenues to the State, primarily for the funding of education, between 20% and 30% for the benefit of the horsemen and the remaining 50% to 60% to the racetrack, out of which the racetrack operator will pay its capital and operating costs. Remington Park may be eligible for an additional 50 machines in each of 2008 and 2010. The gaming facility has significantly improved Remington Park's operating results and contributions to the horse racing industry through increased purses.

Portland Meadows

        Portland Meadows is a thoroughbred racetrack located on approximately 100 acres in the Delta Park area of Portland, Oregon. There are approximately 2.0 million people living within a 40-mile radius of Portland Meadows. Portland Meadows first opened in 1946 and offers approximately 80 live racing days between October and April. Portland Meadows' facilities include a grandstand with seating for approximately 10,000 customers, a one-mile sand track, stalls for approximately 850 horses and parking facilities to accommodate approximately 2,500 cars.

        Portland Meadows generated approximately $76.3 million in handle during the 2006 calendar year, including wagers made at Portland Meadows on its races, wagers made at other wagering venues and through various account wagering operations on Portland Meadows' races and wagers on imported races at Portland Meadows and off-track betting facilities within the State of Oregon during Portland Meadows' live meet. Wagers on Portland Meadows' races (including all venues at which the wagers were placed) totaled approximately $25.1 million in 2006. Of this amount, approximately $22.7 million in wagers were placed at other wagering venues to which we exported Portland Meadows' races via simulcast and through various account wagering operations. Portland Meadows exports its simulcast signal to approximately 175 off-track and inter-track wagering facilities in the United States. Throughout the year, Portland Meadows operates as a simulcast wagering facility where customers can wager on races that are imported to Portland Meadows from other racetracks.

        We operate racing at Portland Meadows, subject to the satisfaction of certain conditions, pursuant to a long term lease. We own an approximately 22% interest in the real property upon which the Portland Meadows facility is located.

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 100 live racing days beginning in May and ending in early November of each year.

        Great Lakes Downs' handle was approximately $57.2 million in 2006, 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 $45.6 million in 2006. Of this amount, approximately $43.2 million in wagers were placed at other wagering venues to which we exported Great Lakes Downs' races via simulcast and through various account wagering operations. Great Lakes Downs exports its simulcast signal to approximately 250 off-track and inter-track wagering facilities in the United States. 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.

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        On August 24, 2004, we sold the real property and associated racetrack license of Great Lakes Downs to Richmond Racing Co., LLC for approximately $4.2 million. The consideration included cash of $0.2 million and the issuance of a 20-year promissory note with a principal amount of $4.0 million, which bears interest at 5% per annum. We also entered into a lease agreement with Richmond Racing, which gives us the conditional right to continue operating Great Lakes Downs and to conduct thoroughbred race meetings at the racetrack. The lease is for an initial term of five years with an option to renew the lease for up to three additional periods of five years each. We also have an option to repurchase the property and associated racetrack license of Great Lakes Downs from Richmond Racing in the event that state law in Michigan is amended to allow an entity to hold more than one racetrack license. On May 17, 2005, the Michigan Office of Racing Commission granted us the license for the Romulus track.

        In January 2007, we announced that the 2007 race meet will be the last meet that we will operate at Great Lakes Downs. The decision to cease operations was based on continuing and forcast operational losses at the racetrack. In order to give horsemen sufficient time to adjust, we have agreed to operate Great Lakes Downs through its 2007 meet. Should the regulatory environment become more conducive to horseracing in Michigan and permit racetrack operations to compete on a level playing field we would be prepared to reconsider this decision.

Magna Racino™

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

        During 2006, Magna Racino™ was visited by over 130,000 guests on 40 race days between mid-March and November and 82 show days with national and international acts. Furthermore, it was ranked one of the top four sightseeing attractions of the region Lower Austria in 2006. For 2007, Magna Racino™ has been approved for 25 days of live racing between mid-March and November and 51 show days with national and international show acts like Vonda Shepard or the Shaolin Monks with their impressive martial arts show.

        Magna Racino™ features both thoroughbred and standardbred racing on three different tracks, a ⁵/8-mile sand track, a one-mile sand track and a one-mile turf course. During 2005, Magna Racino's™ facilities included 61 paddocks, 608 stalls, parking for approximately 2,400 cars, a grandstand that also houses a 150,000 square foot entertainment center, three restaurants, a simulcast center and a sportsbook/gaming facility that opened in September 2004. In March 2006, Magna Racino™ added another 18 paddocks for a total number of 79 paddocks. Magna Racino's™ sportsbook facility is operated by Admiral Sportwetten AG under an agreement that entitles Magna Racino™ to receive a percentage of all wagers placed with Admiral at Magna Racino™. Magna Racino's™ 150 video lottery terminals are operated by the Austrian Lottery, a division of Casinos Austria AG, under an agreement that entitles Magna Racino™ to receive a percentage of the gross profit and recovery of certain costs from the video lottery terminal operations located at Magna Racino™.

        Magna Racino's™ handle was approximately $4.4 million in 2006 including wagers made at Magna Racino™ on its races, wagers made at other wagering venues and through account wagering operations on Magna Racino™ races and wagers made at Magna Racino™ on imported races. Magna Racino™ exports its simulcast signal to various off-track and inter-track wagering facilities in Germany and Austria. Throughout the year, Magna Racino™ operates as an inter-track wagering facility on show days where customers can wager on races that are imported to Magna Racino™ from other racetracks around the world.

        On February 19, 2007, we announced that we recorded a non-cash impairment charge related to Magna Racino™, net of income taxes, of approximately $59.7 million ($0.56 per share) in the fourth quarter of 2006.

Training Centers

Palm Meadows®

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

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Gulfstream Park. On this land, we believe that Palm Meadows® will help us to continue to attract high-quality horses to Gulfstream Park. 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 facility opened in November 2002 and currently includes a 1¹/8-mile dirt track, a one-mile turf course, stalls for up to 1,440 horses, administrative offices, dormitories, a viewing stand and a 60,000 square foot compost building. In November 2005, one of our subsidiaries that owns approximately 157 acres of excess real estate in Palm Beach County, Florida, entered into an agreement to sell the real property to Toll Bros, Inc., a Pennsylvania real estate development company for $51.0 million in cash. In April 2006, the agreement was terminated as certain aspects of the purchaser's development plan had faced opposition from within Palm Beach County.

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, horse trails and related facilities and equipment. Due to its proximity to Santa Anita Park, San Luis Rey Downs supplements Santa Anita Park's stabling facilities, which we believe enables us to continue to attract some of the top horses in North America.

Bowie Training Center

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

Account Wagering Operations

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

PariMax

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

TrackNet Media

        TrackNet Media is the vehicle through which MEC and Churchill Downs horse racing content will be made available to third parties, including racetracks, off-track betting facilities, casinos and advance deposit wagering companies. TrackNet Media will also purchase horse racing content from third parties to be made available through MEC's and Churchill Downs' respective outlets. Under the reciprocal content swap agreement MEC and CDI will exchange their respective horse racing signals. Churchill Downs racing content will be available for

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wagering through MEC-owned tracks and simulcast-wagering facilities and through our advance deposit wagering platform, XpressBet®, and, similarly, our racing content will be available for wagering through CDI tracks and off-track betting facilities and through a CDI-owned advance deposit wagering platform that is under development and is expected to launch later this year. For additional details on the formation and role of TrackNet Media see "Our Business" and "Our Strategy — Further Developing Our In-Home Simulcasting and Wagering Services".

XpressBet®

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

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

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

        The primary source of revenue for XpressBet® is the takeout on the handle wagered by its customers through advance deposit wagering accounts. The takeout revenue is reduced by host track fees, purse account funds, source market fees and other operating expenses. For the year ended December 31, 2006, total handle wagered through XpressBet® was approximately $150.1 million.

MagnaBet™

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

        We launched MagnaBet™ in Austria in September 2004, where its operations are located, in Germany in December 2004 and in Spain in April 2005. Wagering through a MagnaBet™ account is permitted only after

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MagnaBet™ has verified the account holder's identity, address and age and the account has been funded. MagnaBet™ account holders can wager on thoroughbred and harness races at Magna Racino™, on races at Krieau and Baden, Austrian standardbred racetracks, and internationally on over 70 North American thoroughbred and standardbred racetracks, 35 German thoroughbred standardbred racetracks, 31 UK, 12 South African and 2 South American thoroughbred racetracks and the Singapore thoroughbred racetrack. The MagnaBet™ service provides up-to-the-minute racing information, including live odds and results, race program and past performance information, real-time audio and video streaming and an easy-to-use betting screen.

        On December 31, 2006 MagnaBet™ terminated its cooperation with PremiereWin, MEC's television partner in Germany and Austria.

        The primary source of revenue for MagnaBet™ is the takeout on the handle wagered by its customers through advance deposit accounts. The takeout revenue is reduced by host track fees, totalisator purse account funds, source market fees and other operating expenses. For the year ended December 31, 2006, total handle wagered through MagnaBet™ was approximately $25.4 million.

Television Distribution

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

HorseRacing TV™

        HorseRacing TV™ is a television network focused on horse racing. HorseRacing TV™ carries horse racing from racetracks located throughout North America as well as commentary and related content, combined into a single signal produced by Santa Anita Park's award-winning television department. In January 2003, we launched HorseRacing TV™ on our first cable television system (Time Warner San Diego) and we have quickly grown the network's distribution to over 13 million cable and satellite subscribers nationally. HorseRacing TV™ has entered into a national distribution agreement with Dish Network™ (Echostar Communications Corp.) that makes HRTV™ available in all 50 U.S. states. Additionally, HorseRacing TV™ has entered into agreements with certain national/regional cable television operators, including Comcast, to make HorseRacing TV™ available via cable distribution in 18 states. HorseRacing TV™ is also available on RTN (see below).

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

RTN

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

RaceONTV™

        We provide broadcast and wagering services under the brand RaceONTV™ to off-track betting facilities and racetracks outside the United States, subject to legal and governmental restrictions. RaceONTV™ services include the supply of decoders to receive an encoded satellite channel featuring live horse racing, wagering terminals to allow pari-mutuel wagering, an internet-based customer service center for downloading racecard

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information and marketing materials as well as totalisator and wagering pool settlement services. RaceONTV™ launched in early 2004 and currently has customers in Austria.

        RaceONTV™'s primary source of revenues are the service fees it receives as a percentage of handle generated at its customers' physical locations and rent for decoders and wagering equipment and services. This is reduced by host track fees, totalisator service fees, costs for signal transmission and distribution and other operating expenses.

        Possible methods for potentially expanding the geographic scope of services provided by RaceONTV™ are currently under consideration.

Racing World

        In April 2006, we entered into a shareholders agreement with Churchill Downs and Racing UK, a media rights company and subscription television channel owned by thirty leading British racecourses, to establish Racing World Ltd., a company registered in England and Wales. Racing World is a distribution vehicle for account wagering rights and audio-visual signals in the United Kingdom and Ireland from MEC, CDI, and most other North American racetracks. Racing World operates a television channel which is available to customers who receive Sky satellite service and subscribe to the Setanta Sports Pack (of which Racing UK is also a member).

        Racing World has to date entered into definitive agreements with two account wagering providers to take wagers on the Racing World content in the U.K. and Ireland: RacingUS.com, an affiliate of XpressBet®, and Newcote Service Ltd, which is part of the Victor Chandler Group of Companies and owns www.vcbet.com.

Other Television Distribution

        From time to time, we seek exclusive and non-exclusive television distribution agreements with television networks and other distribution outlets to cover horse racing events from our tracks. In 2005 we came to an agreement with NBC to extend its live broadcast of the Preakness until 2010. NBC will also carry the Santa Anita Derby and Florida Derby on one of its networks through 2010, as well as the Sunshine Millions®, which NBC has aired since its inception in 2003. Additionally, HDNet has carried live and tape-delayed, high-definition television coverage of certain horse races from Lone Star Park at Grand Prairie and Santa Anita Park. We continue to seek new outlets for national television coverage of our horse racing content in order to promote the sport of horse racing and attract additional wagering customers to our racetracks and other wagering platforms.

Magna 5 Pick 5™

        In January 2004, we introduced a new Pick 5 wager, the Magna 5™, which offers a guaranteed $500,000 minimum pool every Saturday afternoon during selected periods each year. Sponsored by XpressBet®/HRTV™, the Magna 5™ features five races in the span of about one hour from premier tracks such as Santa Anita Park, Gulfstream Park, Golden Gate Fields and Laurel Park. While the Magna 5™ features races from our tracks, the national wager is offered at pari-mutuel outlets throughout the country. Over ten weeks, the Magna 5™ drew an average pool of $547,687, $567,835, and $545,275 in 2006, 2005 and 2004, respectively.

Sunshine Millions®

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

        California breds won four out of eight races when they competed head to head against Florida breds during the fifth edition of the Sunshine Millions® held on January 27, 2007. This event was covered on a national two hour NBC broadcast. Overnight ratings for the broadcast secured a three percent share of all televisions in use. All sources of handle for Gulfstream Park and Santa Anita Park, together with on-site handle, topped

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$40 million for the 2007 edition of the Sunshine Millions®. Santa Anita reported that attendance on Saturday was 36,355, the highest in the five-year history of the Sunshine Millions, compared to 17,533 in 2005.

StreuFex™

        In 2002, we purchased FEX ÖKO Faserverarbeitungs-GMBH ("FOF"), an Austrian company that manufactures and sells StreuFex™, a horse bedding product made from straw that is ground and turned into pellets. With the purchase of FOF, we acquired a StreuFex™ manufacturing plant in Neusied/Zaya, Austria. In 2003, we purchased approximately 80 acres of land in Lumberton, North Carolina on which we have built a StreuFex™ manufacturing facility. The Lumberton facility commenced operations and we introduced StreuFex™ to the North American market in the first quarter of 2004 and currently supplies both Gulfstream Park and Palm Meadows Training Center with horse bedding.

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 to be constructed on a 260-acre site in Dixon's Northeast Quadrant, approximately 20 miles from Sacramento. Portions of the proposed site were purchased in 2001 and 2002. The Dixon City Council approved the project in October 2006, but opponents gathered sufficient signatures on petitions to force an election in which Dixon residents will vote on four measures aimed at overturning the City Council's various votes approving the project. The election is scheduled for April 17, 2007 and will affect our future plans for the property.

Michigan Racetrack Development

        On May 17, 2005, we were awarded a license to construct and operate a horse racetrack in the Greater Detroit area. The license is subject to a number of conditions, including among others, the commencement of construction of a racetrack at a proposed site no later than September 1, 2007 and the commencement of live racing no later than October 1, 2009. 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 and less than 25 miles from the center of the business districts of both Detroit and Ann Arbor. In October 2003, a subsidiary of MI Developments Inc. purchased vacant land in Romulus, Michigan, which could have served as the site of the proposed racetrack. In September 2004, one of our subsidiaries entered into an option agreement with MI Developments Inc. and one of its subsidiaries to acquire 100% of the shares of the MI Developments Inc. subsidiary that owns land in Romulus, Michigan, which option agreement was extended several times. On November 6, 2006, the option agreement was extended to December 15, 2006 and was amended to cover only a portion of the lands held by the MI Developments Inc.'s subsidiary, with the exercise price reduced accordingly. The option expired on December 15, 2006.

Recent Developments

        For a summary of certain transactions and other projects that were underway in 2006 in addition to the foregoing, please see "Management Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments and Current Initiatives".

Competition

        We face numerous sources of competition. We compete with other racetracks for customers both with respect to attendance at our racetracks and in the simulcast wagering markets. We also compete with other racetracks for horses, jockeys and backstretch personnel. Certain of our competitors operate in jurisdictions which permit alternative gaming at racetracks, which enhances their ability to compete for horsemen by offering larger purses and attracts additional potential customers to their facilities. One of our competitors, Churchill Downs Incorporated, 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

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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.

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

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

Government Regulation

Horse Racing

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

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

        We currently satisfy the applicable licensing requirements of the racing and gambling regulatory authorities in each state or province where we maintain racetracks and/or carry on business, including the California Horse Racing Board, the Florida Department of Business and Professional Regulation Division of Pari-Mutuel Wagering, the Texas Racing Commission, the Maryland Racing Commission, the Virginia Racing Commission, the Oklahoma Horse Racing Commission, the Ohio State Racing Commission, the Office of the Racing Commissioner of the Michigan Department of Agriculture, the Pennsylvania State Harness Racing Commission, the Pennsylvania Gaming Control Board, the Nevada Gaming Commission, the New Jersey Casino Control Commission, the Oregon Racing Commission and the Government of the Province of Lower Austria. Please see our discussion of our wholly-owned subsidiary, XpressBet, Inc., for a list of the jurisdictions where it is licensed

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or has received regulatory approval to conduct interstate account wagering. With respect to our racetracks, licenses to conduct live horse racing and to participate in simulcast wagering are required, and there is no assurance that these licenses will be granted, renewed or maintained in good standing, as applicable.

        In California, the California Horse Racing Board ("CHRB") is responsible for regulating the form of wagering, the length and conduct of meets and the allocation and distribution of pari-mutuel wagers within the limits set by the California legislature. The CHRB has annually licensed one of our subsidiaries, Los Angeles Turf Club, Inc. as well as The Oak Tree Racing Association to conduct separate racing meets at Santa Anita Park. At present, the CHRB has not licensed other thoroughbred racetracks in Southern California to conduct racing during these meets. However, night quarter horse racing is conducted at Los Alamitos Race Course in Southern California during portions of these meets. The CHRB also annually licenses the operations of Golden Gate Fields in respect of the two racing meets that it conducts each year. As with the Southern California market, the CHRB has not licensed other thoroughbred racetracks in Northern California to conduct racing during these meets. The CHRB also has licensed XpressBet, Inc., as an out-of-state account wagering hub, to place wagers on behalf of California residents as described more fully below. Currently, there are two other licensees in California that are licensed to conduct account wagering in that state. Our financial condition and operating results could be materially adversely affected by legislative changes or action by the CHRB that would increase the number of competitive racing days, reduce the number of racing days available to us and The Oak Tree Racing Association, authorize other forms of wagering, grant additional licenses authorizing competitors to conduct account wagering, or remove or limit our authority to conduct account wagering in California as it is currently being conducted. In the first quarter of 2006, the CHRB passed a motion to require all California thoroughbred racetracks to install a synthetic racing surface, commonly referred to as "Polytrack", by the end of 2007 or face a loss of dates. We are currently evaluating the Polytrack surfaces and have commenced discussions with the CHRB about the timing of a resurfacing of Santa Anita and Golden Gate Fields but anticipate this regulatory requirement could have a material effect on the financial condition and operating results of our California operations.

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

        In Florida, the Division of Pari-Mutuel Wagering considers applications for annual licenses for thoroughbred, standardbred and quarter horse meetings with pari-mutuel wagering. 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 eliminated this deterrent. While a revised tax structure has enabled Gulfstream Park to apply for and receive additional race days since 2002, the deregulation of the race day allocation process may, in the future, cause an overlap in racing seasons which could result in Gulfstream Park facing direct competition from other Miami-area racetracks. Gulfstream Park is currently in a dispute with the Division of Pari-Mutual Wagering over Gulfstream Park's ability to conduct simulcast wagering while it is not running its meet. In July 2004, a court ruling was made in Gulfstream Park's favor and found that Section 550.615(6) of the Florida Statutes, which prohibited such form of simulcasting, was unconstitutional and struck the statute down. In September 2005, the ruling was appealed and the appeal court affirmed the trial court ruling in favor of Gulfstream Park. Currently an injunction is in place which has prevented Gulfstream Park from conducting simulcast wagering since its meet ended in April 2006 and an appeal by the Division of Pari-Mutuel Wagering is with the Florida Supreme Court and it is expected that a decision is likely to be reached in 2007.

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

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

        In Oklahoma, the Oklahoma Horse Racing Commission regulates all aspects of live thoroughbred and mixed breed (quarter horse, paint horse and appaloosa) horse racing with pari-mutuel wagering, as well as alternative gaming operations by licensed tracks, as will be discussed in more detail below. The Commission considers and approves annual licenses for thoroughbred and mixed breed race meetings. Currently, there are four racetracks in Oklahoma that are licensed to offer a live race meet with pari-mutuel wagering. Since it opened in 1988, Remington Park has been the only racetrack 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 with pari-mutuel wagering. In 2004, the Office of Racing Commissioner issued a racetrack license to a party seeking to construct a thoroughbred racetrack east of Lansing, Michigan. To date, construction on that track has not begun. In addition, on May 17, 2005, the Office of Racing Commissioner issued a racetrack license to our wholly-owned subsidiary, Michigan Racing, Inc. for it to construct and conduct thoroughbred racing at a proposed racetrack to be located in Romulus, Michigan. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments and Current Initiatives" for an update as to the status of that license. Other than the two recently licensed but not-yet-constructed racetracks described in the preceding sentences, 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 at four existing racetracks in Michigan and one mixed breed (thoroughbred, quarter horse, paint horse, appaloosa and Arabian) race meeting at existing racetrack in central Michigan.

        In Pennsylvania, the Pennsylvania State Harness Racing Commission approves annual licenses for standardbred racetracks, while the Pennsylvania State Horse Racing Commission approves annual licenses for thoroughbred racetracks. Neither the Pennsylvania State Harness Racing Commission nor the Pennsylvania State Horse Racing Commission has licensed any operators of horse racetracks, other than The Meadows, which we currently manage in the Pittsburgh area; however, on September 26, 2002, the Pennsylvania State Horse Racing Commission approved an application for a thoroughbred racing license for an operation to be located near Erie, Pennsylvania, which is approximately 100 miles from The Meadows. Two parties applied for the sole remaining harness racetrack license available in Pennsylvania. While the Pennsylvania State Harness Commission denied each of these parties' application in the fall of 2005, each party has sought an appeal of these rulings. It is difficult to predict when either of these two appeals will be resolved. If either party ultimately receives the license, each of these parties' proposed sites are located within approximately sixty miles of The Meadows harness racetrack.

        In Oregon, the Oregon Racing Commission approves annual licenses for horse and greyhound racetracks, and, as discussed below, multi-jurisdictional account wagering hubs. The Oregon Racing Commission has not licensed any operators of horse racetracks in the Portland area, other than Portland Meadows. The Oregon Racing Commission has, however, licensed five other account wagering operators who compete with XpressBet, Inc. for account wagering customers.

        In Austria, horse race meets are conducted at the Magna Racino™ by the Austrian Race Horse Owners Club under agreement with us. The Austrian Race Horse Owners Club conducts standardbred (harness) and thoroughbred horse race meets pursuant to licenses issued by the Direktorium des Jockeyclub für Österreich (thoroughbred) and the Zentrale für Traberzucht und Rennen in Österreich (standardbred harness). There is no

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limitation as to the number of racing days that can be conducted under these licenses. We offer pari-mutuel wagering on the horse races conducted at the Magna Racino™ and through our MagnaBet™ account wagering service pursuant to totalisator licenses issued by the Government of the Province of Lower Austria.

        In addition to conducting live horse racing with pari-mutuel wagering at our various tracks in the United States, we conduct telephone and Internet account wagering through our subsidiary, XpressBet, Inc., and the entities that hold the licenses to conduct horseracing and pari-mutuel wagering at The Meadows. XpressBet, Inc. currently holds a license to serve as a multi-jurisdictional account wagering hub by the Oregon Racing Commission which expires June 30, 2007. The Oregon license enables XpressBet, Inc. to open accounts and accept wagering instructions on behalf of U.S citizens in respect of horse and dog races and to open accounts and accept wagering instructions on behalf of non-U.S. citizens in respect of horse races. XpressBet, Inc. also holds account wagering licenses issued by the California Horse Racing Board, the Idaho Racing Commission, the Virginia Racing Commission and the Washington Horse Racing Commission. XpressBet, Inc. also has received regulatory approvals from the Massachusetts Racing Commission and the Maryland Racing Commission to open accounts and place wagers on behalf of residents from those states. The two entities that conduct horseracing and pari-mutuel wagering at The Meadows are entitled to serve as a Pennsylvania-based account wagering hub by virtue of their annual licenses to conduct standardbred racing and pari-mutuel wagering. XpressBet, Inc. has an agreement with the entities that conduct horseracing and pari-mutuel wagering at The Meadows to provide account wagering services to those entities' account holders and to conduct their respective account wagering operations under the trade name XpressBet®. In accordance with its multi-jurisdictional hub license from Oregon and, to the extent applicable, state-based requirements imposed by states where it is licensed or otherwise approved, XpressBet, Inc. opens wagering accounts on behalf of residents from various states and countries and processes wagering instructions from those account holders in respect of races conducted throughout the United States and in other countries.

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

        On September 30, 2006, President George W. Bush signed into law the Unlawful Internet Gambling Enforcement Act, which prohibits the use of credit cards, checks, electronic funds transfers and certain other funding methods for most forms of Internet gambling. The new law contains an exemption for pari-mutuel wagers placed pursuant to the Federal Interstate Horseracing Act. It is unclear, however, whether and to what extent we will be able to utilize this exemption in respect to all of our account wagering operations as they are currently being conducted. The new law requires the U.S. Treasury Department, in consultation with the U.S. Federal Reserve Board and the U.S. Department of Justice, to promulgate regulations giving effect to Congress' intent under this new law on or before July 7, 2007. At this time it is difficult to predict whether or to what extent we may need to curtail any or all of our account wagering operations to comply with any restrictions imposed by such regulations or interpretations by U.S. Federal law enforcement authorities.

        In addition to placing account wagers on behalf of U.S. residents, we also place wagers on behalf of account holders who reside in countries other than the United States. In the case of foreign-based account wagers, we place them either through our Oregon-licensed XpressBet, Inc. subsidiary or through our Austrian — and

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German-licensed MagnaBet™ account wagering service. Whether a wager is placed through XpressBet® or through MagnaBet™, we comply with the regulatory requirements imposed by each of the jurisdictions that have licensed us to accept wagers from non-U.S. residents. The laws regarding account wagering by residents of countries other than the United States vary from country to country, and we seek to understand and comply with those laws to the greatest extent possible. As with any issue that turns on the interpretation of legal requirements, it is possible that law enforcement authorities from these foreign jurisdictions may disagree with our interpretation of their laws in respect of account wagering and seek to challenge our ability to place account wagers on behalf of their residents. In certain cases, such challenges could have a material adverse effect on our business, financial conditions, operating results and prospects, including the licenses we hold to conduct horse racing and pari-mutuel wagering (including account wagering) in the U.S.

Alternative Gaming

Pennsylvania

        In Pennsylvania, the Pennsylvania State Harness Racing Commission approves annual licenses for standardbred racetracks, while the Pennsylvania State Horse Racing Commission approves annual licenses for thoroughbred racetracks. Neither the Pennsylvania State Harness Racing Commission nor the Pennsylvania State Horse Racing Commission has licensed any operators of horse racetracks, other than The Meadows, which we currently manage, in the Pittsburgh area; however, on September 26, 2002, the Pennsylvania State Horse Racing Commission approved an application for a thoroughbred racing license for an operation to be located near Erie, Pennsylvania, which is approximately 100 miles from The Meadows. Two parties applied for the sole remaining harness racetrack license available in Pennsylvania. While the Pennsylvania State Harness Commission denied each of these parties' application in the fall of 2005, each party appealed these rulings. The Pennsylvania Supreme Court has agreed to hear appeals from both parties. It is difficult to predict when either of these two appeals will be resolved. If either party ultimately receives the license, each of these parties' proposed sites are located within approximately sixty miles of The Meadows harness racetrack.

Oklahoma

        Under legislation approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park, our Oklahoma City racetrack, was permitted to operate 650 electronic gaming machines, subject to increases of an additional 50 machines in each of the third and fifth years after the issuance of the applicable license. The Oklahoma Horse Racing Commission was empowered under the legislation to oversee licensees' licenses and operations. The Commission promulgated temporary regulations regarding the licensure of electronic gaming operators and the operation of the electronic gaming machines, and subsequently adopted permanent regulations on June 25, 2006. On August 11, 2005, we received our license to operate 650 electronic gaming machines in 2005 and we opened for business on November 21, 2005. On November 16, 2006, we received our 2007 license.

Florida

        On November 2, 2004, Amendment 4 to the Florida State Constitution was approved, permitting the governing bodies of Broward and Miami-Dade counties to each hold a county-wide referendum on whether to authorize slot machines within existing, licensed pari-mutuel facilities that have conducted live racing during each of the last two years. On March 9, 2005, voters in Broward County, where Gulfstream Park is located, approved the referendum by a majority vote. Subsequently, on December 8, 2005, the state legislature adopted legislation to allow for and govern the slot machine operators of Gulfstream Park and the three other qualifying Broward County pari-mutuel facilities. Under the terms of this legislation, Florida Statutes Chapter 551, Gulfstream Park and the three other pari-mutuel facilities in Broward County are permitted to operate up to 1,500 slot machines at each of their gaming facilities. The slot machine nonrefundable, annual license fee is $3.0 million and there is a required $250,000 annual minimum contributions to responsible gaming. We are permitted to offer gaming for a maximum of 16 hours per day, 365 days a year. The tax payable to the state is 50% of Gulfstream Park's gross gaming revenues. In addition, under the legislation, we are required to have written agreements with the Florida Horsemen's Benevolent and Protective Associations and the Florida Thoroughbred Breeders' Association, Inc. prior to the renewal of a gaming license. We currently have

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

        The Legislation required the Division of Pari-Mutuel Wagering to promulgate regulations regarding the licensure and regulation of slot machine operators at the four qualifying pari-mutuel facilities in Broward County. The Division of Pari-Mutuel Wagering adopted rules on June 25, 2006. On October 13, 2006, we received a license to conduct slot machine gaming at Gulfstream Park. On November 16, 2006, we opened the Gulfstream Park Racing & Casino slots facility with 516 slot machines. We filed our renewal application for our gaming license on January 3, 2007.

        On December 22, 2006, we announced that we are proceeding with the design and construction of phase two of the slots facility located on the first floor of the existing Gulfstream Park clubhouse building, to include the installation of an additional 700 slot machines which will be operational in the first half of 2007.

Austria

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

Our Real Estate Portfolio

        As of December 31, 2006, the aggregate net book values of our real estate properties are as follows:

	($ millions)
Revenue-Producing Racing Real Estate	688.2
Excess Racing Real Estate	97.0
Development Real Estate	50.8
Revenue-Producing Non-Racing Real Estate	9.9
Non-Core Real Estate	—
Total	845.9

        Included in our Excess Racing Real Estate is land adjacent to several of our racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park at Grand Prairie, Laurel Park (in respect of which we disposed of a portion of the excess land, a 64 acre parcel, subsequent to December 31, 2006), Pimlico Race Course and Magna Racino™. We are considering a variety of options with respect to this excess land, including entertainment and retail-based developments that could be undertaken in conjunction with business partners who could be expected to provide the necessary marketing and development expertise, as well as the necessary financing.

        Our Development Real Estate, which is largely undeveloped, includes: approximately 27 acres of land in Oberwaltersdorf, Austria, located approximately 20 miles south of Vienna, Austria; approximately 800 acres of land in upstate New York; approximately 260 acres of land in Dixon, California, located approximately 20 miles southwest of Sacramento; approximately 491 acres of land in Ocala, Florida; approximately 157 acres of land in Palm Beach County, Florida, adjacent to our training centre, which is currently under development for a residential community; and approximately 34 acres of land in Aurora, Ontario, Canada (of which all of our interests and rights were disposed of subsequent to December 31, 2006).

        Our revenue-producing non-racing real estate includes our European residential development.

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Environmental Matters

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

        With respect to significant capital expenditures, the Water Quality Board Permit for the discharge of surface waste water at Santa Anita Park is currently being renewed. In order to renew the permit, Santa Anita Park will be required to perform certain remedial work to its existing barns and uncovered backstretch areas. Such remediation shall cost several million dollars over four years. The final estimate shall be contingent on finalizing a compliance plan with the local Water Board. Consideration is also being given to incorporate the need for environmental remediation with other capital improvements to the backstretch. No citations on violations are contemplated provided that Santa Anita Park proceeds with the remediation work.

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

Employees

        As of December 31, 2006, we employed approximately 5,300 employees, approximately 3,000 of whom were represented by unions. Due to the seasonal nature of the live horse racing industry, the number of our seasonal and part-time employees will vary considerably throughout the year.

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

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Item 1A. Risk Factors

RISK FACTORS

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

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

Risks Regarding Our Company

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

        We have incurred net losses in each fiscal year since the year ended December 31, 2002. For our fiscal year ended December 31, 2006, we incurred a net loss of $87.4 million. As of December 31, 2006, our accumulated deficit was $396.3 million. We expect to continue to incur additional operating losses in the future and there is no assurance that we will be profitable in any future period.

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

        Our interim unaudited quarterly financial statements for the periods ending March 31, 2006, June 30, 2006 and September 30, 2006 and our year ended December 31, 2006 financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. Our financial statements do not give effect to any adjustments which would be necessary should MEC be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements. Due to our recurring losses from operations, working capital deficiency and accumulated deficit as at December 31, 2006, there is substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to generate cash flows that are adequate to sustain the operations of the business, renew or extend current financing arrangements and maintain our obligations with regard to secured and unsecured creditors, none of which is assured. If we are unable to meet our on-going obligations, we may have to consolidate operations, reduce operating expenditures, sell assets, suspend marketing efforts or terminate our operations.

We expect that during 2007 we will require additional financing to fund our current planned operations and the implementation of our strategic plan, but we may not be able to obtain such financing on satisfactory terms, if at all.

        We expect that during 2007, we will be required to seek additional debt and/or equity financing in order to fund our current planned operations and the implementation of our strategic plan, including capitalizing on future growth opportunities. We also intend to generate cash by selling some of our real estate holdings and other assets in order to fund our current planned operations and certain portions of our strategic plan. If additional financing or other sources of funds are not available to us as needed, or are not available on terms that are acceptable to us, our business, operations and financial condition may be materially adversely affected, including, among other things, our ability to add alternative gaming to our racetracks where permitted or improve or expand our operations as planned.

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

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

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

        Our senior revolving credit facility, which matures on March 30, 2007, requires us to maintain aggregate earnings before interest, taxes, depreciation and amortization from operations at Santa Anita Park and Golden Gate Fields, calculated on a rolling 12 month basis of not less than $15.0 million. This revolving credit facility is secured by a first charge on the assets of Golden Gate Fields and a second charge on the assets of Santa Anita Park and are guaranteed by certain of our subsidiaries which own and operate Golden Gate Fields and Santa Anita Park. The credit agreement contains customary covenants relating to our ability to incur additional indebtedness, make future acquisitions, enter into certain related party transactions, consummate asset dispositions, incur capital expenditures and make restricted payments. These restrictions may limit our ability to expand, pursue our business strategies and obtain additional funds. Our ability to meet these financial covenants may be adversely affected by a deterioration in business conditions or our results of operations, adverse regulatory developments and other events beyond our control. At December 31, 2005, we were not in compliance with one of the financial covenants contained in the credit agreement. A waiver was obtained from the lender for the financial covenant breach at December 31, 2005. At December 31, 2006, we are in compliance with the financial covenant, which had been amended as described above. Failure to comply with these restrictions may result in the occurrence of an event of default under the senior, revolving credit facility and trigger a cross-default under certain of our other credit facilities. Upon the occurrence of an event of default, the lender may terminate the senior, revolving credit facility, demand immediate payment of all amounts borrowed by us and require adequate security or collateral for all outstanding letters of credit outstanding under the facility, which could adversely affect our ability to repay our debt securities and would adversely affect the trading price of our Class A Subordinate Voting Stock.

Repayments under our Gulfstream Park Construction Loan and Remington Park Construction Loan impose limitations on the amount of funds available to grow those business.

        Each of our Gulfstream Park Construction Loan, which matures in 2016, and Remington Park Construction Loan, which matures in 2015, require that repayment of interest on the amounts outstanding commence on January 1, 2007. These interest payments will limit the amount of funds available to invest back into these properties. In addition, each of these loans provide that certain cash from the respective operations of Gulfstream Park and Remington Park must be used to pay deferred interest on the loans. This requirement will further limit the funds available to grow our business.

Our operating income includes gains from the sale of real estate, which sales may soon cease, causing our future operating income and cash flow to decrease.

        We generated earnings before income taxes of approximately $0 in the year ended December 31, 2006 $0, $9.6 million, $0 and $2.2 million, for the years ended December 31, 2005, 2004, 2003 and 2002, respectively, from non-core real estate sales. Although we may realize some gains from sales of our surplus real estate, we expect those gains to eventually be reduced to zero as the balance of our surplus real estate portfolio is sold. As a result, our short-term and annual operating income and cash flow may be adversely affected by decreases in real estate sales. If we do not replace these gains or offset these decreases with additional operating income and cash flow from our racetrack operations and other sources, our future operating income and cash flow will decline.

Our business is heavily concentrated at certain of our racetracks.

        Six of our racetracks, Santa Anita Park, Laurel Park, Pimlico Race Course, Gulfstream Park, Lone Star Park and Golden Gate Fields accounted for approximately 66.8% of our revenue for the year ended December 31, 2006. If a business interruption were to occur and continue for a significant length of time at any of these racetracks, it could adversely affect our operating results. Additionally, certain of our other racetrack

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properties have experienced operating losses before interest, income taxes, depreciation and amortization over the past three years. The operating performance of these racetracks may not improve in the future.

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

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

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

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

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

        Our future success depends in part on our continued ability to hire, assimilate in a timely manner and retain qualified personnel. The loss of key managers could have a material adverse effect on our business, results of operations and financial condition.

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

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

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

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

Risks Relating to Our Wagering and Gaming Operations

The passage of legislation permitting alternative gaming at racetracks, such as slot machines, video lottery terminals and other forms of non-pari-mutuel gaming, can be a long and uncertain process. A decision to

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prohibit, delay or remove alternative gaming rights at racetracks by the government or the citizens of a state, or other jurisdiction, in which we own or operate a racetrack, could adversely affect our business or prospects.

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

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

        The regulatory risks and uncertainties that are inherent in the conduct of alternative gaming also apply in other jurisdictions outside the United States. The Magna Racino™, located approximately 20 miles south of Vienna, Austria, serves as landlord to video lottery terminal operations conducted by a licensed casino operator. Under that arrangement, the racetrack retains 50% of the gross profit (excluding certain costs). This arrangement has an indefinite term (with a minimum 5 year term ending in September 2009) and is terminable by either party on 12 months prior notice. There can be no assurance as to how long this arrangement will continue, and if it does, whether the terms will remain the same.

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

        The continued popularity of horse racing is important to our growth plans and our operating results. Our business plan anticipates our attracting new customers to our racetracks, off-track betting facilities and account wagering operations. Even if we are successful in making acquisitions and expanding and improving our current operations, we may not be able to attract a sufficient number of new customers to achieve our business plan. Public tastes are unpredictable and subject to change. Any decline in interest in horse racing or any change in public tastes may adversely affect our revenues and, therefore, our operating results.

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

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

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

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

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state law and horse industry regulations, which means those operators are able to attract U.S. based customers that might otherwise use our services by offering rebates we cannot afford to offer.

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

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

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

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

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

A potential change in California state legislation may adversely affect our ability to provide advance deposit wagering services to customers in that state.

        Current California state legislation which expressly permits our subsidiary XpressBet, Inc. to seek and receive a license to provide advance deposit wagering services to customers in that state is due to expire at the end of 2007. It is unclear at this point whether this advance deposit wagering enabling legislation will be extended, or replaced by similar enabling legislation. As a result, it is not certain that XpressBet, Inc. will be able to provide ADW services to California residents beyond 2007, either at all or on terms and conditions similar to those that currently apply. It is also unclear whether, in the absence of this legislation being renewed in some form, the California Attorney General will take the position that the absence of such enabling legislation makes the provision of advance deposit wagering services to residents of that state illegal. It is difficult at this time, therefore, to determine whether and to what extent XpressBet, Inc. will be permitted to provide advance deposit wagering services to California residents beyond 2007. If advance deposit wagering enabling legislation is not enacted this year, continuing to provide advance deposit wagering services to California residents beyond 2007 in the absence of enabling legislation may mean we would be exposed to significant risk of fines and other penalties if the state Attorney General later determines such activity to be illegal.

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

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

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

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

        On September 30, 2006, President George W. Bush signed into law the Unlawful Internet Gambling Enforcement Act, which prohibits the use of credit cards, checks, electronic funds transfers and certain other funding methods for most forms of Internet gambling. The new law contains an exemption which, at the very least, permits such funding for pari-mutuel account wagering conducted in compliance with the "Interstate Horseracing Act." It is unclear at this time, however, how U.S. law enforcement authorities, including the U.S. Department of Justice, will interpret the application of this new law. Furthermore, the Unlawful Internet Gambling Enforcement Act, requires the U.S. Treasury Department, in consultation with the U.S. Federal Reserve Board and the U.S. Department of Justice, to promulgate regulations giving effect to Congress' intent under this new law on or before July 7, 2007. Because of these two facts, it is unclear at this time whether or to what extent we may need to curtail "our account wagering operations" to comply with any restrictions imposed by such regulations or interpretations by U.S. Federal law enforcement authorities. If such restrictions are imposed, they could have a materially adverse impact on our account wagering business which, in turn could have a materially adverse impact on our business, financial condition, operating results and financial performance. Since the passage of the federal Unlawful Gambling Enforcement Act in the United States, it is unclear just how federal and/or state prosecutors will address wagers that involve parties from outside the United States. If this new act is interpreted as prohibiting international wagers, it will have a material adverse effect on our business, financial condition, operating results and financial performance.

        Even before the passage of the Unlawful Internet Gambling Enforcement Act, certain financial institutions have begun to block the use of credit cards issued by them for Internet gambling, either voluntarily or as part of a settlement with the office of the Attorney General for New York. Legislation or actions of this nature, if enacted or implemented without providing for a meaningful exception to allow account wagering to be conducted as it is currently being conducted by the U.S. horse racing industry, could inhibit account wagering by restricting or prohibiting its use altogether or, at a minimum, by restricting or prohibiting the use of credit cards and other commonly used financial instruments to fund wagering accounts. If enacted or implemented, these or any other forms of legislation or practices restricting account wagering could cause our business and its growth to suffer.

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

        In the spring of 2005, the World Trade Organization Appellate Body ruled that a claim from the island country of Antigua regarding U.S. Federal policy on international gambling may have merit due to an apparent inconsistency in how the U.S. treats interstate pari-mutuel wagers under the Interstate Horseracing Act and all other sports wagers, both on an interstate and international basis. The WTO Appellate Body ruled that the Interstate Horseracing Act raised questions regarding whether the U.S. has taken a consistently negative position regarding Internet wagering across state and international boundaries. As a part of its ruling, the WTO Appellate Body ordered the U.S. to clarify its position on interstate pari-mutuel wagering on or before April 3, 2006. The Federal government elected to file no response, preferring to rely, instead on its historical position that interstate account wagering violates the U.S. Federal Wire Act. To the extent Federal authorities are successful in any effort to prosecute account wagering operators based in the United States or that take wagers from United States residents, it will have a material adverse effect on our revenues, business, financial condition, operating results and financial performance. Alternatively, if, as a result of the U.S.'s position, offshore wagering is permitted into the United States, that also could have a material adverse effect on our revenues and financial performance.

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

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

We may not be able to continue to operate our slot facility at Gulfstream Park in the long term if the constitutional amendment adopting the slots initiative is determined to be invalid.

        We have proceeded with the development of the slot facility at Gulfstream Park despite an early August 2006 decision rendered by the Florida District Court of Appeals that reversed a lower court decision granting summary judgment in favour of "Floridians for a Level Playing Field" ("FLPF"), a group in which Gulfstream Park is a member. The First District Court of Appeals ruled that a trial is necessary to determine whether the constitutional amendment adopting the slots initiative, approved by Floridians in the November 2004 election, was invalid because the petitions bringing the initiative forward did not contain the minimum number of valid signatures. FLPF filed an application for a re-hearing, rehearing en banc before the full panel of the First District Court of Appeals and Certification by the Florida Supreme Court. On November 30, 2006, in a split decision, the en banc court affirmed the early August 2006 panel decision and certified the matter to the Florida Supreme Court, which stayed the appellate court ruling pending its jurisdictional review of the matter. As of March 8, 2006 the Florida Supreme Court had not confirmed whether it will hear the matter. We believe that the August 2006 decision rendered by the Florida District Court of Appeals is incorrect and, accordingly, are proceeding with the slots facility development. In the event the November 2004 election results are ultimately held to be invalid, we could experience a material adverse impact on our Florida operations.

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Ongoing litigation and changes in the real estate option concerning our proposed facility in Romulus, Michigan, could threaten the license issued for that facility or cause us to expend greater sums to defend or maintain it, as the case may be.

        On May 17, 2005, the Michigan Office of Racing Commissioner awarded a racetrack license to our subsidiary, Michigan Racing, Inc., that would allow us to construct and operate a thoroughbred racetrack in Romulus, Michigan. An appeal to this award was filed by a competing applicant who proposed an alternative site in the Detroit metropolitan area. The court hearing the appeal effectively terminated the matter by requesting the Michigan Office of Racing Commissioner to supplement her May 17, 2005 order with additional findings. The Racing Commissioner issued her additional findings in December, 2006, from which the original appealing party has sought a further appeal. If this later appeal succeeds in reversing or negating the license awarded to us, we could face either substantial losses associated with the unsuccessful efforts to secure and maintain this license or additional costs associated with re-establishing our right to receive this license. In addition, as our option to acquire 100% of the shares of the MI Developments Inc. subsidiary that owns the Romulus lands expired December 15, 2006, after having been extended several times, we could lose our Michigan license. See "Our Properties — Great Lakes Downs" and "Michigan Racetrack Development".

We may not be able to install synthetic racing surfaces at our California tracks on the timeline set out by the California Horse Racing Board (CHRB).

        In February 2006, the CHRB passed a motion which would require all thoroughbred racetracks in California to install synthetic racing surfaces by the end of 2007 or lose race dates. We have selected a synthetic racing surface to be installed at our Golden Gate Fields racetrack where construction is scheduled to begin in May 2007 and we are currently evaluating the options available at Santa Anita Park, with it being our intention to have a synthetic surface installed for the Oak Tree meeting scheduled to open September 26, 2007. In the event synthetic surface installations experience delays, it is possible that this could put our 2008 racing meets at Golden Gate Fields and Santa Anita in jeopardy and this would have a material adverse effect on our financial conditions and operating results.

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

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

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

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

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

        Internet and other account wagering gaming services allow their customers to wager on a wide variety of sporting events and casino games from home. Christiansen Capital Advisors LLC estimated global consumer spending on Internet gaming in 2004 at $8.2 billion and in the United States alone this spending amounted to

42

$4.2 billion in 2004. Although many on-line wagering services are operating from offshore locations in violation of U.S. law by accepting wagers from U.S. residents, they may divert wagering dollars from legitimate wagering venues such as our racetracks and account wagering operations. Moreover, our racetrack operations generally require greater ongoing capital expenditures in order to expand our business than the capital expenditures required by Internet and other account wagering gaming operators. Currently, we cannot offer the diverse gaming options provided by many Internet and other account wagering gaming operators and may face significantly greater costs in operating our business. Our inability to compete successfully with these operators could be materially adverse to our business. It is anticipated that the passage of the Unlawful Internet Gambling Funding Prohibition Act will reduce the amount of competition from non-pari-mutuel account wagering operations, however, it is unclear at this time whether this new law will indeed curtail this type of wagering activity.

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

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

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

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

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

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

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

        Several Native American groups in Florida have previously expressed interest in opening or expanding existing casinos in southern Florida, which could compete with Gulfstream Park and reduce its profitability. For example, the Seminole Tribe of Florida has partnered with Hard Rock International to open hotel and casino operations in Tampa and Hollywood, Florida.

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

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

        We believe that the prospect of raising significant additional revenue through taxes and fees is one of the primary reasons that certain jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant taxes and fees in addition to the normal federal, state, provincial and local income taxes, and such taxes and fees may be increased at any time. From time to time, legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. For instance,

43

U.S. legislators have proposed the imposition of a U.S. federal tax on gross gaming revenues. It is not possible to determine with certainty the likelihood of any such changes in tax laws or their administration; however, if enacted, such changes could have a material adverse effect on our business.

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

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

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

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

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

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

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

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

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

        Since horse racing is conducted outdoors, unfavourable weather conditions, including extremely high or low temperatures, excessive precipitation, storms or hurricanes, may cause races to be cancelled or may reduce

44

attendance and wagering. Since a substantial portion of our operating expenses is fixed, a reduction in the number of races held or the number of horses racing due to unfavourable weather would reduce our revenues and cause our business to suffer.

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

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

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

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

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

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

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

        As of December 31, 2006, we employed approximately 5,300 employees, approximately 3,000 of whom were represented by unions. A strike or other work stoppage by our employees could lead to lost revenues and have a material adverse effect on our business, financial condition, operating results and prospects.

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

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

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

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

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

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

Real Estate Ownership and Development Risks

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

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

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

        We have completed the redevelopment of the racing surfaces, the grandstand and the backstretch facilities at Gulfstream Park in Florida. We have also completed the redevelopment of the dirt racing surfaces and the turf track at Laurel Park. These redevelopments resulted in write-downs in 2004 of $26.3 million and $0.4 million, respectively. The redevelopment at Gulfstream Park resulted in a racing meet using temporary facilities for 2005 and the re-opening of Laurel Park for its 2004 — 2005 meet was delayed due to construction delays, which also resulted in a loss of a number of racing days. Additional construction and remodelling has taken place at Gulfstream Park in respect of the November 16, 2006 opening of a slots facility with 516 slot machines and the expected addition, in the first half of 2007, of an additional 700 slot machines. Also, in October 2006, we announced our decision to install a new synthetic racing surface at Golden Gate Fields, as is required by a California Horse Racing Board mandate that, effective January 1, 2008, thoroughbred facing facilities in California must install a polymer type racing surface. Construction is expected to commence in May 2007. The California mandate also applies to Santa Anita Park. In February 2007, we indicated our intention to have a synthetic surface installed at Santa Anita Park for the Oak Tree meeting scheduled to open September 26, 2007.

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

        We intend to further develop our racetracks and expand our gaming activities. Numerous factors, including regulatory and financial constraints, could cause us to alter, delay or abandon our existing plans. If we proceed to develop new facilities or enhance our existing facilities, we face numerous risks that could require substantial changes to our plans. These risks include the inability to secure all required permits and the failure to resolve

46

potential land use issues, as well as risks typically associated with any construction project, including possible shortages of materials or skilled labour, unforeseen engineering or environmental problems, delays and work stoppages, weather interference and unanticipated cost overruns. For example, Gulfstream Park was forced to run its 2005 meet from temporary facilities which reduced total on-track wagering at Gulfstream Park and attendance in 2005. In addition, we encountered delays in the rebuilding of the racetrack surfaces at Laurel Park, which resulted in a late re-opening of Laurel Park for its 2004 — 2005 meet and a loss of certain race dates. Even if completed in a timely manner, our expansion projects may not be successful, which would affect our growth and could have a material adverse effect on our future profitability. If the installation of additional slot machines at Gulfstream Park encounters any significant delay, the results of operations may be materially adversely affected.

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

        We are subject to a wide range of requirements under environmental laws and regulations relating to waste water discharge, waste management and storage of hazardous substances. Compliance with environmental laws and regulations can, in some circumstances, require significant capital expenditures. Moreover, violations can result in significant penalties and, in some cases, interruption or cessation of operations. For example, the Water Quality Board Permit issued in November 2006 for the discharge of surface waste water at Santa Anita Park will require certain remedial work to its existing barns and uncovered backstretch areas. Such remediation shall cost several million dollars over four years. The final estimate shall be contingent on finalizing a compliance plan with the local Water Board. No citations on violations are contemplated, provided that Santa Anita Park proceeds with the remediation work.

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

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

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

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

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

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

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

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

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Risks Relating to Our Securities

NASDAQ Delisting

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

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

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

•

our historical and anticipated operating results;



•

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



•

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



•

developments affecting the horse racing or gaming industries generally;



•

sales or other issuances or the perception of potential sales or issuances, including in connection with our past and future acquisitions, of substantial amounts of our shares. We have an effective shelf registration statement outstanding that permits us to sell up to $300 million of certain types of debt and/or equity securities. As of March 8, 2007, we have not sold any securities registered under this shelf registration statement;



•

on February 21, 2007, we announced that we have filed a shelf registration statement on Form S-3 (the "U.S. Registration Statement") with the United States Securities and Exchange Commission (the "SEC") and a preliminary short form base shelf prospectus (the "Canadian Prospectus") with the securities commissions in each of the Provinces of Canada (collectively, the "Canadian Securities Commissions"). If the U.S. Registration Statement is declared effective by the SEC and the Canadian Prospectus receives a final receipt by the Canadian Securities Commissions, MEC will be able to offer and sell up to U.S. $500 million of its equity securities (including stock, warrants, units and, subject to filing a Canadian rights offering circular or prospectus with the Canadian Securities Commissions, rights) from time to time in one or more public offerings or other offerings. The terms of any such future offerings would be established at the time of such offering. The U.S. Registration Statement and Canadian Prospectus are intended to give MEC the flexibility to take advantage of financing opportunities when and if deemed appropriate by MEC. As of March 8, 2007 the U.S. Registration Statement has not yet become effective, and the Canadian Prospectus has not yet received a final receipt. Securities may not be sold nor may offers to buy be accepted prior to the time the U.S. Registration Statement becomes effective and the final Canadian Prospectus is receipted, nor may sales be effected in the absence of a prospectus supplement setting forth the terms and conditions of any specific offering of securities;



•

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



•

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

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

The trading price of our Class A Subordinate Voting Stock could decrease as a result of our issuing additional shares as consideration for future acquisitions.

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

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

        As of March 8, 2007, MI Developments Inc. owned, directly or indirectly, 4,362,328 shares of our Class A Subordinate Voting Stock and 58,466,056 shares of our Class B Stock (which are convertible into shares of our Class A Subordinate Voting Stock on a one-for-one basis). In addition, we have an effective registration statement that permits the secondary sale of shares of our Class A Subordinate Voting Stock by some of our stockholders who received those shares in connection with our past acquisitions. A total of 4,793,043 shares were initially registered pursuant to that registration statement. In December 2002, we issued $75.0 million aggregate principal amount of our 7¹/4% convertible Subordinated Notes due December 15, 2009 that are currently convertible into 8,823,529 shares of our Class A Subordinate Voting Stock (subject to certain potential adjustments). In June 2003, we issued $150.0 million aggregate principal amount of our 8.55% Convertible Subordinated Notes due June 15, 2010 that are convertible into 21,276,595 shares of our Class A Subordinate Voting Stock. We have effective registration statements filed with the SEC covering all such shares of our Class A Subordinate Voting Stock issuable upon the conversion of such notes. Sales of a substantial number of shares of our Class A Subordinate Voting Stock, either by MI Developments Inc. or upon conversion of our Convertible Notes could depress the prevailing market price of our Class A Subordinate Voting Stock.

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

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

Item 1B. Unresolved Staff Comments.

        None.

Item 2. Properties

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

Item 3. Legal Proceedings

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

        In August 2006 a decision was rendered by the Florida District Court of Appeals that reversed a lower court decision granting summary judgment in favour of "Floridians for a Level Playing Field" ("FLPF"), a group in which Gulfstream Park is a member. The First District Court of Appeals ruled that a trial is necessary to determine whether the constitutional amendment adopting the slots initiative, approved by Floridians in the November 2004 election, was invalid because the petitions bringing the initiative forward did not contain the minimum number of valid signatures. FLPF filed an application for a re-hearing, rehearing en banc before the full panel of the First District Court of Appeals and Certification by the Florida Supreme Court. On November 30, 2006, in a split decision, the en banc court affirmed the early August 2006 panel decision and certified the matter to the Florida Supreme Court, which stayed the appellate court ruling pending its jurisdictional review of the matter. As of March 8, 2006 the Florida Supreme Court had not confirmed whether it will hear the matter. We believe that the August 2006 decision rendered by the Florida District Court of Appeals is incorrect and, accordingly, are proceeding with the slots facility development.

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

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

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Part II

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

Trading History

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

		Nasdaq				TSX
		High		Low		High	Low
2005:
	First Quarter	$	7.12	$	5.35	Cdn. $8.75	Cdn. $6.51
	Second Quarter	$	6.36	$	4.85	Cdn. $7.80	Cdn. $6.06
	Third Quarter	$	7.19	$	5.52	Cdn. $8.56	Cdn. $6.78
	Fourth Quarter	$	7.91	$	5.86	Cdn. $9.25	Cdn. $7.04
2006:
	First Quarter	$	7.55	$	6.21	Cdn. $8.64	Cdn. $7.13
	Second Quarter	$	6.89	$	4.85	Cdn. $8.00	Cdn. $5.25
	Third Quarter	$	5.84	$	3.75	Cdn. $6.50	Cdn. $4.20
	Fourth Quarter	$	5.58	$	4.21	Cdn. $6.30	Cdn. $4.71
2007:
	First Quarter (through March 8, 2007)	$	4.57	$	3.39	Cdn. $5.68	Cdn. $4.02

        On March 8, 2007, the last sale price of the Class A Subordinate Voting Stock as reported by Nasdaq was $3.54 and by the TSX was Cdn. $4.18.

        Our Class B Stock is unlisted and not actively traded.

        The number of security holders of record as of March 8, 2007 was as follows: Class A Subordinate Voting Stock: 592; Class B Stock: two.

Dividends and Dividend Policy

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

Recent Sales of Unregistered Securities

        None.

Issuer Purchases of Equity Securities

        None.

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Item 6. Selected Financial Data

        The following tables set forth our selected consolidated financial and operating data for the periods indicated. The selected consolidated financial and operating data as at and for the years ended December 31, 2002, 2003, 2004, 2005 and 2006 have been derived from and should be read in conjunction with our audited Consolidated Financial Statements as at and for the years ended December 31, 2002 (as filed with our Annual Report for the fiscal year ended December 31, 2002), December 31, 2003 (as filed with our Annual Report for the year ended December 31, 2003), December 31, 2004 (as filed with our Annual Report for the year ended December 31, 2004), December 31, 2005 (as filed with our Annual Report for the year ended December 31, 2005) and December 31, 2006 (included in this Report). The selected financial and operating information should also be read in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Annual Report.

	Years Ended December 31,
Income Statement Data(1):
	2002			2003			2004			2005			2006
	(U.S. dollars in thousands, except per share figures)
Racing and Gaming Revenues	$	522,562		$	664,828		$	662,456		$	599,785		$	697,193
Real Estate and Other Revenues		14,403			6,206			20,937			4,643			4,946
Total Revenues	$	536,965		$	671,034		$	683,393		$	604,428		$	702,139
Racing and Gaming Costs and Expenses	$	500,874		$	648,372		$	673,832		$	622,938		$	708,907
Real Estate and Other Costs and Expenses		12,655			9,781			13,247			4,867			4,030
Pre-development, pre-opening and other		2,299			8,767			20,508			11,882			14,159
Depreciation and amortization		20,653			28,497			33,662			36,240			43,902
Write-down of long-lived and intangible assets		17,493			134,856			26,685			—			88,627
Write-down of excess real estate		5,823			—			—			—			—
Equity loss (income)		—			(161	)		(635	)		(1,122	)		493
Gain on sale of intangible assets related to The Meadows		—			—			—			—			(126,374	)
Interest expense, net		670			12,174			21,950			32,826			60,702
Loss from continuing operations before income taxes	$	(23,502	)	$	(171,252	)	$	(105,856	)	$	(103,203	)	$	(92,307	)
Income tax benefit		(8,632	)		(64,058	)		(4,939	)		(1,239	)		(7,124	)
Net loss from continuing operations	$	(14,870	)	$	(107,194	)	$	(100,917	)	$	(101,964	)	$	(85,183	)
Net income (loss) from discontinued operations		475			2,097			5,281			(3,329	)		(2,168	)
Net loss	$	(14,395	)	$	(105,097	)	$	(95,636	)	$	(105,293	)	$	(87,351	)
Earnings (loss) per share for Class A Subordinate Voting Stock, Class B Stock and Exchangeable Share:
Basic and Diluted
Continuing operations	$	(0.15	)	$	(1.00	)	$	(0.94	)	$	(0.95	)	$	(0.79	)
Discontinued operations		0.01			0.02			0.05			(0.03	)		(0.02	)
Loss per share	$	(0.14	)	$	(0.98	)	$	(0.89	)	$	(0.98	)	$	(0.81	)
Average number of shares of Class A Subordinate Voting Stock, Class B Stock and Exchangeable Shares outstanding during the year (in thousands):
Basic and Diluted		100,674			107,143			107,323			107,356			107,461

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	Years Ended December 31,
Other Data(2):
	2002			2003			2004			2005			2006
EBITDA(3)	$	(2,179	)	$	(130,581	)	$	(50,244	)	$	(34,137	)	$	12,297
Capital expenditures(4)		89,287			100,507			135,905			149,170			89,448
Cash provided from (used for)
Operating activities		17,595			7,406			(56,507	)		(57,598	)		(61,642	)
Investing activities		(216,825	)		(107,528	)		(118,706	)		(144,700	)		87,527
Financing activities		249,145			102,669			95,533			143,888			(51,306	)

	At December 31,
Balance Sheet Data(1)(2):
	2002		2003		2004		2005		2006
Cash and cash equivalents	$	87,635	$	95,602	$	60,005	$	50,882	$	58,291
Real estate properties and fixed assets,
net		681,755		771,608		860,214		962,652		939,035
Total assets		1,256,805		1,322,940		1,403,353		1,414,644		1,246,885
Total debt(5)		254,527		362,539		462,178		606,820		587,923
Shareholders' equity		720,902		657,054		578,680		459,594		400,618

(1)

We prepare our financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.

(2)

Represents financial information from continuing operations only.

(3)

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

(4)

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

(5)

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

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GAAP and Non-GAAP Financial Measures

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

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

Reconciliation of Non-GAAP to GAAP Financial Measures

	Years Ended December 31,
	2002			2003			2004			2005			2006
	(U.S. dollars in thousands) (unaudited)
Earnings (Loss) Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA")
Loss before income taxes from continuing operations	$	(23,502	)	$	(171,252	)	$	(105,856	)	$	(103,203	)	$	(92,307	)
Interest expense, net		670			12,174			21,950			32,826			60,702
Depreciation and amortization		20,653			28,497			33,662			36,240			43,902
EBITDA from continuing operations	$	(2,179	)	$	(130,581	)	$	(50,244	)	$	(34,137	)	$	12,297

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

        The following discussion of our results of operations and financial position should be read in conjunction with our consolidated financial statements for the year ended December 31, 2006.

Overview

        Magna Entertainment Corp. ("MEC", "we" or the "Company") owns and operates horse racetracks in California, Florida, Maryland, Texas, Oklahoma, Ohio, Michigan, Oregon and Ebreichsdorf, Austria and, under a management agreement, operates a Pennsylvania racetrack previously owned by the Company. Based on revenues, MEC is North America's number one owner and operator of horse racetracks, and is a leading supplier, via simulcasting, of live racing content to the growing inter-track, off-track and account wagering markets. We currently operate or manage eight thoroughbred racetracks, one standardbred (harness racing) racetrack, two racetracks that run both thoroughbred and quarterhorse meets and one racetrack that runs both thoroughbred and standardbred meets, as well as the simulcast wagering venues at these tracks. Three of our racetracks, Gulfstream Park, Remington Park and Magna Racino™, include casino operations with alternative gaming machines. In addition, we operate off-track betting ("OTB") facilities, a United States national account wagering business known as XpressBet®, which permits customers to place wagers by telephone and over the Internet on horse races at over 100 North American racetracks and internationally on races in Australia, South Africa and Dubai, and a European account wagering service known as MagnaBet™. Pursuant to a joint venture with Churchill Downs Incorporated ("CDI"), we also own a 50% interest in HorseRacing TV™ ("HRTV™"), a television network focused on horse racing that we initially launched on the Racetrack Television Network ("RTN"). HRTV™ is currently distributed to more than 13 million cable and satellite TV subscribers. RTN, in which we have a minority interest, was formed to telecast races from our racetracks and other racetracks to paying subscribers, via private direct to home satellite. In April 2006, we entered into an agreement with CDI and Racing UK Limited ("Racing UK") to partner in a subscription television channel called "Racing World" that broadcasts races from the Company's and CDI's racetracks, as well as other North American and international racetracks, into the United Kingdom and Ireland. We also own AmTote International, Inc. ("AmTote"), a provider of totalisator services to the pari-mutuel industry. To support certain of our thoroughbred racetracks, we own and operate thoroughbred training centers situated near San Diego,

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California, in Palm Beach County, Florida and in the Baltimore, Maryland area. We also own and operate production facilities in Austria and in North Carolina for StreuFex™, a straw-based horse bedding product.

        At December 31, 2006, in addition to our racetracks, our real estate portfolio included three residential developments in various stages of development in Austria, the United States and Canada. All of our interests and rights in the Canadian residential development were disposed of subsequent to December 31, 2006. We may sell our residential developments and other real estate in order to generate additional capital for our racing and gaming business. We are also working with potential developers and strategic partners on proposals for developing leisure and entertainment or retail-based projects on excess land surrounding, or adjacent to, certain of our premier racetracks.

        The amounts described below are based on our consolidated financial statements, which we prepare in accordance with United States generally accepted accounting principles ("U.S. GAAP").

Recent Developments and Current Initiatives

        On March 4, 2007, we entered into a series of customer-focused agreements with CDI in order to enhance wagering integrity and security, to own and operate HRTV™, to buy and sell horse racing content, and to promote the availability of horse racing signals to customers worldwide. These agreements involved the formation of a joint venture, TrackNet Media Group ("TrackNet Media"), the finalization of a reciprocal content swap agreement and the purchase by CDI from MEC of a 50% interest in HRTV™. TrackNet Media is the vehicle through which MEC and CDI horse racing content will be made available to third parties, including racetracks, off-track betting ("OTB") facilities, casinos and advance deposit wagering ("ADW") companies. TrackNet Media will also purchase horse racing content from third parties to be made available through CDI's and MEC's respective outlets. Under the reciprocal content swap agreement MEC and CDI will exchange their respective horse racing signals. CDI racing content will be available for wagering through MEC-owned tracks and simulcast-wagering facilities and through our ADW platform, XpressBet® and, similarly, our racing content will be available for wagering through CDI tracks and OTBs and through a CDI-owned ADW platform that is under development and is expected to launch later this year. Both CDI and MEC intend to work to offer as much of their respective live export simulcast content as possible on HRTV™ and will actively explore how the television medium can be used to more effectively serve horse racing customers. HRTV will seek additional content providers who wish to televise their horse racing content alongside the CDI and MEC content.

        On February 27, 2007, we announced the appointment of Michael Neuman to our Board of Directors and as Chief Executive Officer. Mr. Neuman succeeds Mr. Frank Stronach, our Chairman, who has been our Interim Chief Executive Officer since March 2006. We also announced the appointment to our Board of Directors of Charlie J. Williams, a new independent director who also agreed to serve as a member of our audit committee.

        On February 21, 2007, we filed a shelf registration statement on Form S-3 (the "U.S. Registration Statement") with the United States Securities and Exchange Commission (the "SEC") and a preliminary short form base shelf prospectus (the "Canadian Prospectus") with the securities commissions in each of the Provinces in Canada (collectively, the "Canadian Securities Commissions"). After the U.S. Registration Statement is declared effective by the SEC and the Canadian Prospectus receives a final receipt by the Canadian Securities Commissions, we will be able to offer to sell up to $500.0 million of our equity securities (including stock, warrants, units and, subject to filing a Canadian rights offering circular or prospectus with the Canadian Securities Commissions, rights) from time to time in one or more public offerings or other offerings. The U.S. Registration Statement and Canadian Prospectus are intended to give us the flexibility to take advantage of financing opportunities when and if deemed appropriate.

        On February 7, 2007, our parent company, MI Developments Inc. ("MID"), acquired all of our interests and rights in two non-core real estate properties, a 34 acre parcel of residential development land in Aurora, Ontario, Canada and a 64 acre parcel of excess land at Laurel Park in Howard County, Maryland for cash consideration of Cdn. $12.0 million (U.S. $10.1 million) and $20.0 million, respectively. The proceeds from these transactions were used to pay down debt. As part of these transactions, we were also granted a profit participation right in respect of each property under which we are entitled to receive 15% of net proceeds from any sale or development of the property after MID achieves a 15% internal rate of return. We recognized an impairment loss on the residential development land in Aurora, Ontario, Canada in the year ended

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December 31, 2006 of $1.3 million (Cdn. $1.5 million) equal to the excess of our carrying value of the property over its fair value determined by this transaction.

        On November 9, 2005, we entered into a share purchase agreement with PA Meadows, LLC, a company jointly owned by William Paulos and William Wortman, controlling shareholders of Millennium Gaming, Inc. and a fund managed by Oaktree Capital Management, LLC ("Oaktree" and together with PA Meadows, LLC, "Millennium-Oaktree"), providing for the acquisition by Millennium-Oaktree of all of the outstanding shares of Washington Trotting Association, Inc., Mountain Laurel Racing, Inc. and MEC Pennsylvania Racing, Inc. (collectively "The Meadows Entities"), each wholly-owned subsidiaries through which we owned and operated The Meadows, a standardbred racetrack in Pennsylvania. On July 26, 2006, we entered into an amended share purchase agreement, which modified the original agreement. As a result of regulatory requirements relating to the approval of the issuance of a gaming license by the Pennsylvania Gaming Control Board ("PGCB"), as well as significant changes in the economic and regulatory environment in Pennsylvania since the date of the original share purchase agreement, including regulations adopted by the Pennsylvania Department of Revenue in respect of the amount of local share assessment taxes payable to North Strabane Township and Washington County, the parties agreed to revise the terms of the original share purchase agreement. The $225.0 million purchase price in the original share purchase agreement, which included a $39.0 million holdback note, was reduced to $200.0 million, with a $25.0 million holdback note, payable to us over a five-year period, subject to offset for certain indemnification obligations. In exchange for the shares of The Meadows Entities, we received two notes representing the purchase price in the amounts of $175.0 million (the "First Note") and $25.0 million (the "Second Note"). On September 27, 2006, the PGCB granted approval to Washington Trotting Association, Inc. of a Conditional Category 1 Gaming License (the "Gaming License"). On November 14, 2006, we completed The Meadows transaction and received payment of the First Note and received a $25.0 million holdback note. Payments under the holdback agreement will be deferred until the opening of the permanent casino at The Meadows. Pursuant to a racing services agreement entered into on July 26, 2006, we will continue to manage the racing operations at The Meadows on behalf of Millennium-Oaktree, for at least five years. Of the proceeds on the collection of the First Note, $111.8 million was used to pay the full amount of indebtedness outstanding under the bridge loan with MID, $39.0 million was used to pay down our senior secured revolving bank credit facility, $2.0 million was used to pay down the loan from BE&K, Inc. ("BE&K"), the parent company of Suitt Construction Co. Inc., the general contractor for the Gulfstream Park redevelopment project and $15.0 million was put into escrow with MID to ensure adequate funding to fully repay the BE&K loan. This transaction established fair values of the assets of The Meadows and accordingly, we performed impairment testing of these assets as of the date immediately prior to completion of the transaction. Based on this analysis, we recognized a non-cash impairment loss of $11.2 million related to the long-lived assets and a gain of $126.4 million related to the disposition of the intangible assets, representing the racing/gaming license. Based on the terms of various agreements to the transaction, for accounting purposes, The Meadows real estate properties and fixed assets were not accounted for as a sale and leaseback, but rather using the financing method under U.S. GAAP as a result of continuing interest in the transaction. Accordingly, for accounting purposes, $12.8 million of the proceeds have been deferred and recorded as a long-term liability on the consolidated balance sheet at December 31, 2006. The deferred proceeds will be recognized over the five-year term of the racing services agreement and/or at the point when the sale leaseback subsequently qualifies for sales recognition. Given the indemnification obligations and other terms contained in the holdback agreement, the Second Note will be recognized in the financial statements upon the settlement of the indemnification obligations and as payments are received.

        On November 16, 2006, we opened the Gulfstream Park Racing & Casino slots facility. The new casino facility currently offers guests access to 516 slot machines, as well as poker. We have commenced phase two of the slots facility and plan to have an additional 700 slot machines installed and operational in the first half of 2007. Under the existing slots legislation, a qualifying facility is entitled to offer up to 1,500 Class III slot machines, subject to a state tax rate of 50% on gross gaming revenues ("GGR"). All proceeds from that tax will be used to supplement Florida education. Each facility is also subject to a $3.0 million annual license fee intended to cover administrative costs. In addition, each facility has entered into separate contracts under which Broward County and the city in which the facility conducts pari-mutuel gaming will receive an aggregate of 3.2% of that facility's GGR not exceeding $250.0 million and 4.5% of that facility's GGR in excess of $250.0 million. After negotiating with the Florida Horsemen's Benevolent and Protective Association ("FHBPA") during the

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first half of 2006 to secure a purse agreement, on August 9, 2006, we reached an agreement with the FHBPA, which entitles the horsemen to purse contributions equal to 7.5% of GGR on the first 500 gaming machines installed at Gulfstream Park. As additional machines are installed, the percentage of GGR will decline. Once 1,500 gaming machines are installed, purse contributions will be equal to 6.75% of GGR less than $200.0 million and 12.6% of GGR in excess of $200.0 million. Funding for the two phases of the slots facility is being provided by two tranches of debt under the existing Gulfstream Park construction financing arrangement with MID. We have proceeded with the development of the slots facility at Gulfstream Park despite an August 2006 decision rendered by the Florida District Court of Appeals First District that reversed a lower court decision granting summary judgment in favor of "Floridians for a Level Playing Field" ("FLPF"), a group in which Gulfstream Park is a member. The Court ruled that a trial is necessary to determine whether the constitutional amendment adopting the slots initiative, approved by Floridians in the November 2004 election, was invalid because the petitions bringing the initiative forward did not contain the minimum number of valid signatures. FLPF filed an application for a rehearing, rehearing en banc before the full panel of the First District Court of Appeals and Certification by the Florida Supreme Court. On November 30, 2006, in a split decision, the en banc court affirmed the August 2006 panel decision and certified the matter to the Florida Supreme Court, which stayed the appellate court ruling pending its jurisdictional review of the matter. As of March 8, 2007, the Florida Supreme Court had not confirmed whether it will hear the matter. We believe that the August 2006 decision rendered by the Florida District Court of Appeals is incorrect and accordingly, we are proceeding with the slots facility development.

        After repaying $39.0 million on our senior secured revolving bank credit facility using proceeds on the collection of the First Note on The Meadows transaction, on December 22, 2006, we amended and extended this bank credit facility. The facility's maturity date was extended to March 30, 2007, the maximum permitted borrowings for general corporate purposes under this facility was increased by $15.0 million resulting in an aggregate commitment of $40.0 million under the credit facility and the applicable interest rate was increased. Certain financial performance covenants were also revised in this amendment.

        On November 1, 2006, one of our wholly-owned subsidiaries sold its interest in the entity that owns and operates the Fontana Golf Club located in Oberwaltersdorf, Austria to a subsidiary of Magna International Inc. for a sale value of Euros 30.0 million (U.S. $38.3 million). We received cash proceeds of Euros 13.2 million (U.S. $16.9 million), net of transaction costs, and Euros 16.8 million (U.S. $21.4 million) of debt, including accrued interest, was assumed by the purchaser. The proceeds were used for general corporate purposes both in Austria and North America. We recognized a gain of approximately $20.9 million, net of tax, which was recorded as a contribution to equity given the sale to a related party. A subsidiary of MID received a fee of $0.2 million from us (1% of the net sale proceeds) as consideration for waiving repayment rights under the bridge loan facility with MID.

        In October 2003, we signed a Letter of Intent to explore the possibility of a joint venture between Forest City Enterprises, Inc., ("Forest City") and various MEC affiliates, anticipating the development of a portion of the Gulfstream Park racetrack property. Forest City paid $2.0 million to MEC in consideration for their right to work exclusively with MEC on this project. This deposit is included in "other accrued liabilities" on our consolidated balance sheets. In May 2005, a Limited Liability Company Agreement was entered into with Forest City concerning the planned development of "The Village at Gulfstream Park™". On November 15, 2006, we received approval from the City of Hallandale Beach, Florida for the development of The Village at Gulfstream Park™, with a planned spring 2007 groundbreaking for Phase 1 of the 60 acre, master planned lifestyle destination. The Village at Gulfstream Park™, to be built around our Gulfstream Park racetrack, will offer world class shops, destination retailers, signature restaurants, unique entertainment options and an appealing residential live/work environment. The first phase is expected to include 375,000 square feet of lifestyle retail, featuring 70 upscale shops and 70,000 square feet of office space. Under the Limited Liability Company Agreement, Forest City is required to contribute up to a maximum of $15.0 million as an initial capital contribution. The $2.0 million deposit received to date from Forest City shall constitute the final $2.0 million of the initial capital contribution. We are obligated to contribute 50% of any equity amounts in excess of $15.0 million as and when needed, however, to December 31, 2006, we have not made any such contributions. In the event the development does not proceed, we may have an obligation to fund a portion of those pre-development costs incurred to that point in time. As at December 31, 2006, approximately $13.9 million of

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costs have been incurred by The Village at Gulfstream Park, LLC, which have been funded entirely by Forest City. The Limited Liability Company Agreement also contemplates additional agreements, including a ground lease, a reciprocal easement agreement, a development agreement, a leasing agreement and a management agreement to be executed in due course and upon satisfaction of certain conditions.

        In April 2004, we signed a Letter of Intent to explore the possibility of joint ventures between Caruso Affiliated and certain of our subsidiaries to develop certain undeveloped lands surrounding Santa Anita Park and Golden Gate Fields racetracks. Upon execution of this Letter of Intent, we agreed to fund 50% of approved pre-development costs in accordance with a preliminary business plan for each of these projects, with the goal of entering into operating agreements. As at December 31, 2006, we have expended approximately $6.3 million on this initiative, of which $4.2 million was paid during 2006. These amounts have been recorded in "real estate properties, net" on our consolidated balance sheets. Under the terms of the Letter of Intent, we may be responsible to fund additional costs, however to December 31, 2006, no such payments have been made. On September 28, 2006, certain of our affiliates entered into definitive operating agreements with certain Caruso Affiliated affiliates regarding the proposed development of approximately 51 acres of undeveloped lands surrounding Santa Anita Park. This development project contemplates a mixed-use development with approximately 800,000 square feet of retail, entertainment and restaurants as well as 4,000 parking spaces.

        On August 25, 2006, one of our wholly-owned subsidiaries sold the Magna Golf Club located in Aurora, Ontario, Canada to Magna International Inc. for cash consideration of Cdn. $51.8 million (U.S. $46.4 million), net of transaction costs. We recognized an impairment loss of $1.2 million at the date of disposition equal to the excess of our carrying value of the assets disposed over their fair values at the date of disposition. Of the sale proceeds, Cdn. $32.6 million (U.S. $29.3 million) was used to pay all amounts owing under certain loan agreements with Bank Austria Creditanstalt AG related to the Magna Golf Club and the remainder was used for general corporate purposes. A subsidiary of MID also received a fee of Cdn. $0.2 million (1% of the net sale proceeds) as consideration for waiving repayment rights under the bridge loan agreement with a subsidiary of MID.

        On August 16, 2006, along with CDI, we joined the Empire Racing team ("Empire") that is bidding to operate New York State's thoroughbred racetracks including Saratoga, Belmont and Aqueduct. Empire is a group of New York horsemen and breeders seeking to revitalize racing in New York by securing the exclusive right to operate the three New York thoroughbred racetracks. An application was submitted on August 29, 2006 by Empire to acquire ownership of the New York Racing Association franchise upon its expiry at the end of 2007. On November 21, 2006, the Ad Hoc Committee on the Future of Racing recommended that Excelsior Racing Associates be granted the franchise to operate the racetracks and on February 21, 2007 the Committee released its final report. Recently, New York State's new governor decided to create a panel to evaluate groups interested in taking over the franchise. It is expected that the creation of the panel will lead to the consideration of additional parties. During the year ended December 31, 2006, we paid $0.3 million to join Empire and have one seat on Empire's 15-member board of directors.

        On July 26, 2006, the existing project financing facility with a subsidiary of MID for the reconstruction of facilities at Gulfstream Park was amended by adding a new tranche of $25.8 million, plus lender costs and capitalized interest, to fund the design and construction of phase one of the slots facility located in the existing Gulfstream Park clubhouse building, as well as related capital expenditures and start-up costs, including the acquisition and installation of approximately 500 slot machines. On December 22, 2006, a new tranche of debt of $21.5 million, plus lender costs and capitalized interest, was added to the existing Gulfstream Park facility to fund the design and construction of phase two of the slots facility, including the related capital expenditures, start-up costs and the acquisition and installation of an additional 700 slot machines.

        Also, on July 26, 2006, MEC Maryland Investments Inc., one of our wholly-owned subsidiaries, acquired the remaining 70% equity interest of AmTote for a total cash purchase price of $9.3 million, including transaction costs of $0.1 million, net of cash acquired of $5.5 million. The purchase was financed through an amendment to our senior secured revolving credit facility and completed our full ownership of AmTote under terms of a stockholders' agreement executed when we acquired our initial 30% equity interest in AmTote.

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        On May 26, 2006, we completed the sale of a restaurant and related real estate in the United States and received cash consideration of $2.0 million, net of transaction costs, and recognized a gain on disposition of approximately $1.5 million.

        On April 7, 2006, we reached a definitive agreement with CDI and Racing UK, a media rights company and subscription television channel owned by 31 British racecourses, to partner in a subscription television channel called "Racing World". Racing World, which launched on March 8, 2006, broadcasts races from MEC and CDI racetracks, as well as other North American and international racetracks, into the United Kingdom and Ireland. Under the terms of the agreement, MEC, CDI and Racing UK have taken ownership positions in Racing World with MEC and CDI contributing their respective in-home video and wagering rights in the United Kingdom and Ireland and Racing UK managing the day-to-day channel operations.

        On April 3, 2006, an agreement previously entered into by one of our subsidiaries to sell 157 acres of excess real estate in Palm Beach County, Florida to Toll Bros., Inc., a Pennsylvania real estate development company, was terminated. Certain aspects of the purchaser's development plan had faced opposition from within Palm Beach County.

        On March 14, 2006, we reached an agreement under which one of our Austrian subsidiaries distributes premium North American horse racing content directly to Ladbrokes' licensed betting shops throughout the United Kingdom and Ireland. The service, which is being provided to Ladbrokes Xtra, a new betting environment being rolled out to approximately 2,000 Ladbrokes shops across the United Kingdom and Ireland, features premier racing content from both MEC and other quality North American tracks.

        In late February 2006, we announced the formation of PariMax Inc., a new company to oversee the development of our various electronic distribution platforms including XpressBet®, HRTV™, MagnaBet™ and AmTote. PariMax will focus on the development of complete wagering solutions and will concentrate on serving the global wagering market by developing product lines to meet the needs of both distribution partners and end consumers worldwide.

        On November 21, 2005, we opened a gaming facility with 650 electronic gaming machines at Remington Park, our Oklahoma City racetrack. Under the terms of the legislation, gaming operations at the racetrack are permitted for up to 18 hours per day, not to exceed 106 hours per week. The distribution of revenues from the racetrack's electronic gaming operations will vary based on the annual gross revenues of the racetrack from gaming less all monetary payouts ("Adjusted Gross Revenues"). The legislation allocates between 10% and 30% of the Adjusted Gross Revenues to the State, primarily for the funding of education, between 20% and 30% for the benefit of the horsemen and the remaining 50% to 60% to the racetrack, out of which the racetrack operator will pay its capital and operating costs. Remington Park may be eligible for an additional 50 machines in each of 2008 and 2010. Since its opening, the gaming facility has significantly improved Remington Park's operating results and has contributed to the horse racing industry through increased purses.

        On July 22, 2005, we announced that our Board of Directors approved a Recapitalization Plan intended to recapitalize our balance sheet through the sale of certain non-strategic assets and possibly equity, with proceeds realized from those asset sales being applied to reduce debt. To date, we have completed sales of non-strategic assets that have generated aggregate consideration of approximately $400.0 million. These transactions include the sale of Flamboro Downs, a harness track in Canada and management control over the Colonial Downs racetrack in Virginia, both of which were sold in 2005 for gross proceeds of approximately $76.0 million, the sale of a Non-Core Real Estate property located in the United States to a related party for net cash proceeds of approximately $5.6 million in March 2006, the sale of a restaurant and related real estate in the United States for proceeds of approximately $2.0 million in May 2006, the sale of the Magna Golf Club in Canada for consideration of approximately $46.4 million in August 2006, the sale of the Fontana Golf Club in Austria for a sale value of approximately $38.3 million and the sale of The Meadows to Millennium-Oaktree, for consideration of $200.0 million (comprised of $175.0 million in cash and the $25.0 million holdback note), both in November 2006, and most recently we disposed of all of our interests and rights in two non-core real estate properties for proceeds of approximately $30.1 million in February 2007.

        Initiatives related to the passage of legislation permitting alternative gaming at racetracks, such as slot machines, video lottery terminals and other forms of non-pari-mutuel gaming, are underway in a number of states in which we operate. The passage of such legislation can be a long and uncertain process. In addition,

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should alternative gaming legislation be enacted in any jurisdiction in which we operate, there are a number of factors which will determine the viability and profitability of such an operation at our racetracks. These factors include, without limitation, the income or revenue sharing terms contained in the legislation and applicable licenses, the conditions governing the operation of the gaming facility, the number, size and location of the competitor sites which are also licensed to offer alternative gaming, the availability of financing on acceptable terms and the provisions of any ongoing agreements with the parties from whom we purchased the racetrack in question.

        The redevelopment of Gulfstream Park, which commenced in 2004, was completed in 2006. The project included significant modifications and enhancements to the racing surfaces and stable area, including the construction of a new, wider turf course, which was completed prior to the start of the 2005 race meet. The project also included the construction of a modern clubhouse/grandstand offering an array of restaurants and entertainment facilities. The capital budget for the redevelopment of Gulfstream Park was $176.5 million. The project is financed through a $115.0 million Gulfstream Park project financing facility from MID, a loan of up to $16.6 million from BE&K and from our general corporate funds. Since the project included the demolition of a substantial portion of the existing buildings and related structures, temporary facilities were erected to house the 2005 race meet and best efforts were made to minimize the disruption to the live racing operations; however, as with any disruption to the racing operations during a race meet, revenues and earnings generated during the 2005 race meet were negatively impacted. Although racing and patron areas were sufficiently complete to open the 2006 live race meet, construction continued through the race meet and best efforts were made to complete the facility and minimize interference with the race meet. However, as a result of on-going construction, revenues and earnings generated during the 2006 race meet were also negatively impacted.

        On May 17, 2005, one of our wholly-owned subsidiaries was awarded a license to construct and operate a horse racetrack in the Greater Detroit area. The license is subject to a number of conditions, including among others, the commencement of construction of a racetrack at a proposed site no later than September 1, 2007 and the commencement of live racing no later than October 1, 2009. 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 and less than 25 miles from the center of the business districts of both Detroit and Ann Arbor. In October 2003, a subsidiary of MID purchased vacant land in Romulus, Michigan, which could have served as the site of the proposed racetrack. In September 2004, one of our subsidiaries entered into an option agreement with MID and one of its subsidiaries to acquire 100% of the shares of the MID subsidiary that owns land in Romulus, Michigan for $33.5 million, which option agreement was extended several times until November 6, 2006. On November 6, 2006, the option agreement was extended to December 15, 2006 and was amended to cover only a portion of the lands held by the MID subsidiary, with the exercise price reduced accordingly to approximately $19.9 million. The option agreement expired on December 15, 2006 and accordingly, we have expensed approximately $3.0 million of costs incurred with respect to the horse racetrack license. On January 18, 2007, we announced that the 2007 race meet will be the last meet that will be held under our ownership at Great Lakes Downs, our thoroughbred racetrack located in Muskegon, Michigan. The decision to cease operations was based on continuing and forecasted operational losses at the racetrack.

        On March 28, 2006, The Maryland Jockey Club entered into a memorandum of understanding, with an effective date of April 9, 2006 (the "Cross-Breed Agreement"), with Cloverleaf Enterprises, Inc., the owner of Rosecroft Raceway, a standardbred track located in Prince George's County, Maryland. The Cross-Breed Agreement replaced a previous agreement (the "Maryland Operating Agreement"), which was effective as of June 9, 2004 and expired on April 30, 2005, however, both parties continued to informally operate under its terms until April 9, 2006. Under the 15-year Cross-Breed Agreement, the parties agree to conduct cross-breed simulcasting at The Maryland Jockey Club locations and at Rosecroft Raceway, to operate the existing OTB facilities, to develop new OTB facilities within the state of Maryland and to allocate any future legislative authorized purse subsidies. The Cross-Breed Agreement has reduced The Maryland Jockey Club's revenues by approximately $1.4 million and earnings before income taxes by approximately $0.7 million in 2006 compared to 2005 and $1.7 million and $0.8 million, respectively, when compared to 2004.

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        We are exploring the possibility of the future development of a thoroughbred racetrack with an associated retail shopping and entertainment complex, on vacant land that we own in Dixon, California. The Dixon City Council approved the project in October 2006, but opponents gathered sufficient signatures on petitions to force an election in which Dixon residents will vote on four measures aimed at overturning the City Council's various votes approving the project. The election is scheduled for April 17, 2007 and will affect our future plans for the property.

Our Operations

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

			Year ended December 31, 2006
Track/Operation	Date Acquired	Local Market Population(1)	Racing Season	Live Racing Days	Total Handle(2)			Revenue(2)(3)
		(in millions)			(in millions)			(in millions)
Santa Anita Park  — Los Angeles	Dec. 1998	10.9	Jan. 1 to Apr. 23 and Dec. 26 to 31	86	$	1,069.0		$	145.5
			The Oak Tree Meet Sep. 27 to Oct. 29	26		216.2	(4)
Gulfstream Park  — Miami	Sep. 1999	4.3	Jan. 4 to Apr. 23	87		800.7			88.4
Laurel Park — Baltimore	Nov. 2002	6.6	Jan. 1 to Apr. 15 and Sep. 8 to Dec. 31	152		570.0			60.5
Golden Gate Fields — San Francisco	Dec. 1999	5.2	Feb. 8 to May 7 and Aug. 24 to Oct. 15	106		442.1			58.5
Pimlico Race Course — Baltimore	Nov. 2002	5.2	Apr. 22 to Jun. 10	31		313.9			56.0
Lone Star Park — Dallas	Oct. 2002	5.1	Apr. 13 to Jul. 23 and Oct. 6 to Dec. 2	97		302.7			60.3
The Meadows — Pittsburgh	Apr. 2001	2.8	All year	208		230.3			38.6
Thistledown  — Cleveland	Nov. 1999	3.0	Apr. 14 to Nov. 27	156		208.7			29.2
XpressBet® — National	Apr. 2001	N/A	All year	N/A		150.1			30.7
Remington Park — Oklahoma City	Nov. 1999	1.1	Mar. 10 to Jun. 4 and Aug. 4 to Nov. 28	118		138.7			78.2
Portland Meadows — Portland	Jul. 2001	2.0	Jan. 1 to May 7 and Oct. 22 to Dec. 31	86		76.3			15.3
Great Lakes Downs — Muskegon, Michigan	Feb. 2000	1.2	May 6 to Oct. 31	101		57.2			5.8
MagnaBet™	Apr. 2004	N/A	All year	N/A		25.4			5.5
Magna Racino™ — Ebreichsdorf, Austria	Apr. 2004	2.5	Mar. 13 to Nov. 20	40		4.4			9.2
Total								$	681.7

(1)

Population residing within 40 miles of each of our racetracks, except for Santa Anita Park and Magna Racino™ (30 miles), The Meadows (50 miles) and Great Lakes Downs (50 miles). Data from Urban Systems Inc.

(2)

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

(3)

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

(4)

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

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

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

•

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



•

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



•

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



•

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

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

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

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

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

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        Set forth below is a list of the total live race days by racetrack for the years ended December 31, 2006, 2005 and 2004:

	Years ended December 31,
	2006	2005	2004
Largest Racetracks
Santa Anita Park(1)	86	85	84
Gulfstream Park	87	86	91
Golden Gate Fields	106	96	105
Bay Meadows(2)	—	—	104
Laurel Park(3)	152	135	58
Lone Star Park	97	100	81
Pimlico Race Course(3)	31	59	137
	559	561	660
Other Racetracks(4)
The Meadows	208	206	206
Thistledown	156	185	183
Remington Park	118	98	93
Portland Meadows	86	70	78
Great Lakes Downs	101	100	118
Magna Racino™	40	45	50
	709	704	728
Total	1,268	1,265	1,388

(1)

Excludes The Oak Tree Meet which consisted of 26 days in 2006, 31 days in 2005 and 26 days in 2004.

(2)

The lease on the Bay Meadows site expired December 31, 2004.

(3)

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

(4)

Flamboro Downs had 203 live race days in 2005 to the date of its sale on October 19, 2005, compared to 258 live race days in the full year 2004. The results of Flamboro Downs in 2004 and 2005 have been reported as discontinued operations in our consolidated financial statements.

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

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

Seasonality

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

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the year, with our third quarter generating the largest operating loss. This seasonality has resulted in large quarterly fluctuations in revenue and operating results.

Real Estate and Other Operations

        Our real estate and other revenues represent revenues earned from our European residential development. This segment excludes the operations and results of the Magna Golf Club and Fontana Golf Club, which were sold in August and November 2006, respectively, as these are reported as discontinued operations.

        We characterize our real estate as follows:

Revenue-Producing Racing Real Estate

•

real estate at our racetracks used in our racing operations;

Excess Racing Real Estate

•

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

Development Real Estate

•

real estate not at our racetracks that is under development, or that we are holding for development, either as a racetrack or other project;

Revenue-Producing Non-Racing Real Estate

•

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

Non-Core Real Estate

•

real estate that is available for sale.

        As of December 31, 2006, the aggregate net book values of our real estate properties are as follows:

	$ millions
Revenue-Producing Racing Real Estate	688.2
Excess Racing Real Estate	97.0
Development Real Estate	50.8
Revenue-Producing Non-Racing Real Estate	9.9
Non-Core Real Estate	—
	845.9

        Included in our Excess Racing Real Estate is land adjacent to several of our racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park at Grand Prairie, Laurel Park (in respect of which we disposed of a portion of the excess land, a 64 acre parcel, subsequent to December 31, 2006), Pimlico Race Course and Magna Racino™. We are considering a variety of options with respect to this excess land, including entertainment and retail-based developments that could be undertaken in conjunction with business partners who could be expected to provide the necessary financing.

        Our Development Real Estate, which is largely undeveloped, includes approximately 27 acres of land in Oberwaltersdorf, Austria, located approximately 20 miles south of Vienna, Austria; approximately 800 acres of land in upstate New York; approximately 260 acres of land in Dixon, California, located approximately 20 miles southwest of Sacramento; approximately 491 acres of land in Ocala, Florida; approximately 157 acres of land in Palm Beach County, Florida, adjacent to our training center, which is currently under development for a residential community; and approximately 34 acres of land in Aurora, Ontario, Canada (of which all of our interests and rights were disposed of subsequent to December 31, 2006).

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

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Critical Accounting Policies

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

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

Impairment of Intangible and Long-Lived Assets

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

        Under Financial Accounting Standards Board Statement No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-lived Assets", our long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If such events or changes in circumstances are present, we assess the recoverability of the long-lived assets by determining whether the carrying value of such assets can be recovered through projected undiscounted cash flows. If the sum of expected future cash flows, undiscounted and without interest charges, is less than net book value, the excess of the net book value over the estimated fair value, based on discounted future cash flows and appraisals, is charged to operations in the period in which such impairment is determined by management.

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

Future Income Tax Assets

        At December 31, 2006, we recorded future tax assets (net of related valuation allowances) in respect of loss carryforwards and other deductible temporary differences. We evaluate quarterly the realizability of our future tax assets by assessing our valuation allowance and by adjusting the allowance as necessary. The assessment considers forecasts of future taxable income and tax planning strategies that could be implemented to realize the future tax assets. Should operations not yield future taxable income or if tax planning strategies could not be implemented, then there could be a material impact on our consolidated tax expense or recovery and on the amount of future tax assets reported on our consolidated balance sheets.

Stock-Based Compensation

        Prior to January 1, 2006, we accounted for stock-based compensation under the recognition and measurement provisions of APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and related Interpretations, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), "Share-Based Payment" ("SFAS 123(R)"), using the modified-prospective method. Under the modified-

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prospective method, compensation expense recognized includes: (a) compensation expense for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).

Revenue Recognition

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

Employee Defined Benefit and Postretirement Plans

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

Litigation

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

Off-Balance Sheet Arrangements

        At December 31, 2006, we do not have any material off-balance sheet arrangements that have not been disclosed in either our consolidated financial statements or in this Report.

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Related Party Transactions

        Refer to Note 20 to our consolidated financial statements which describes all material related party transactions.

Results of Operations

        The following is a discussion and comparison of our results of operations and financial position for the years ended December 31, 2006, 2005 and 2004.

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

Racing and gaming operations

        In 2006, we operated our largest racetracks for two fewer live race days compared to the prior year primarily due to a change in the racing calendar at the Maryland Jockey Club, partially offset by an increase in awarded live race days at Golden Gate Fields. Our other racetracks operated for five additional live race days in 2006, compared to the prior year, primarily due to additional live race days awarded at Remington Park and Portland Meadows, partially offset by a planned reduction in live race days at Thistledown.

        In 2006, revenues from our racing and gaming operations increased $97.4 million or 16.2% to $697.2 million, compared to $599.8 million in 2005, primarily due to:

•

Southern U.S. operations above the prior year by $48.7 million or 54.2% due to gaming revenues at the Remington Park casino facility, which opened in November 2005 and generated $55.8 million of gaming revenues in 2006, with an average daily net win per machine of $236 compared to gaming revenues of $6.1 million in 2005, with an average daily net win per machine of $225, partially offset by decreased handle and revenues at Lone Star Park due to three fewer live race days in 2006 compared to 2005 and increased competition from racetracks in surrounding states and internet wagering operations;



•

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



•

Florida revenues above the prior year by $16.4 million or 22.0% due to the opening of the slots facility on November 16, 2006 as well as increased racing revenues due to the opening of the new clubhouse facility at Gulfstream Park. The Gulfstream Park slots facility generated $9.0 million of gaming revenues in 2006 with an average daily net win per machine of $373. The live race meet conducted in the first half of 2005 operated out of temporary facilities which affected 2005 revenues despite best efforts to minimize the disruption's negative impact;



•

California revenues above the prior year by $11.2 million or 5.7% due to:



•

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



•

a change in the racing calendar at Golden Gate Fields, whereby live race days were increased from 96 days in 2005 to 106 days in 2006.



•

Maryland operations above the prior year by $5.2 million or 4.6% due to increased food and beverage revenues from Maryland Turf Caterers, the food and beverage operations at Laurel Park and Pimlico, which was acquired in September 2005. These operations are now being consolidated into the Maryland operations, whereas previously the operations were accounted for on an equity basis. The increase is also attributable to increased wagering on Laurel Park racing content as a result of the new turf course at Laurel Park, which has resulted in increased field sizes and handle. Average daily export handle on

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Laurel Park racing content was up significantly in 2006 compared to 2005, evidencing higher quality racing that has generated increased wagering activity;

•

Northern U.S. operations below the prior year by $2.0 million or 2.1% due primarily to a planned change in the racing calendar at Thistledown whereby live race days were decreased from 185 days in 2005 to 156 days in 2006.

        Pari-mutuel purses, awards and other increased $8.4 million or 2.8% to $312.0 million in 2006, from $303.6 million in 2005, primarily due to increased wagering at Santa Anita Park, Golden Gate Fields and Gulfstream Park for reasons noted above. As a percentage of pari-mutuel wagering revenues, pari-mutuel purses, awards and other remained consistent at 62.2% in 2006 and 2005.

        Gaming taxes, purses and other increased $30.3 million from $2.6 million in 2005 to $32.9 million in 2006 as 2005 included only Remington Park's casino facility from its opening in late November 2005 compared to a full year of operations in 2006, as well as Gulfstream Park's casino facility from its opening in mid November 2006.

        Operating costs in our racing and gaming operations increased $36.9 million to $290.4 million in 2006, from $253.5 million in 2005, primarily due to:

•

an increase of $17.1 million in our Southern U.S. operations, primarily due to operating and marketing costs at Remington Park for the new casino facility;



•

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



•

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



•

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



•

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



•

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

        As a percentage of total racing and gaming revenues, operating costs decreased from 42.3% in 2005 to 41.7% in 2006, primarily as a result of the increase in racing and gaming revenues.

        General and administrative expenses in our racing and gaming operations increased $10.4 million to $73.5 million in 2006, from $63.1 million in 2005. The increase is primarily attributable to increased costs at our Corporate office as a result of $2.7 million in severance for three senior executives at our Corporate office, which includes $0.7 million of stock-based compensation and an additional $0.7 million of costs relating to stock-based compensation for other executives and employees. With the implementation of SFAS 123(R) on January 1, 2006, we are now required to expense stock-based compensation, whereas historically, we have provided only pro-forma disclosure of stock-based compensation expense. General and administrative expenses also increased in our Technology operations with the consolidation of AmTote as previously noted.

        As a percentage of total racing and gaming revenues, general and administrative expenses remained consistent at 10.5% in 2006 and 2005 due to the increase in racing and gaming revenues, partially offset by additional costs at our Corporate office for severance and stock option arrangements and at AmTote.

Real estate and other operations

        Revenues from real estate and other operations increased $0.3 million from $4.6 million in 2005 to $4.9 million in 2006. The increase in revenues is attributable to increased housing unit sales at our European residential housing development in 2006 compared to the prior year. Earnings (loss) before interest, income taxes, depreciation and amortization from our real estate and other operations remained relatively consistent in 2006 compared to 2005 as reduced costs relating to warranty work required in 2005 on certain housing units in

67

our European residential development were offset by the non-cash write-down of long-lived assets of $1.3 million related to a 34 acre parcel of residential development land in Aurora, Ontario, Canada, which was disposed of subsequent to year end.

Predevelopment, pre-opening and other costs

        Predevelopment, pre-opening and other costs increased $2.3 million from $11.9 million in 2005 to $14.2 million in 2006. Predevelopment, pre-opening and other costs incurred in 2006 represent costs of $6.0 million incurred pursuing alternative gaming opportunities, $3.0 million as a result of the expensing of deferred development costs incurred related to the Romulus, Michigan racing license, $1.5 million incurred evaluating other funding sources in connection with our previously announced Recapitalization Plan, $1.4 million of costs relating to development initiatives undertaken to enhance our racing operations and $2.3 million of pre-opening costs incurred in the opening of the Gulfstream Park casino facility. In 2005, the predevelopment, pre-opening and other costs incurred represented costs of $6.3 million pursuing alternative gaming opportunities, $2.2 million of pre-opening costs incurred in the opening of the Remington Park casino facility, $1.0 million of legal costs relating to protection of our distribution rights, $0.6 million on the write-off of information technology costs which were determined to have no future benefit, $0.4 million of costs relating to the Laurel Park redevelopment and $1.4 million of costs relating to development initiatives undertaken to enhance our racing operations.

Depreciation and amortization

        Depreciation and amortization increased $7.7 million from $36.2 million in 2005 to $43.9 million in 2006, primarily due to increased depreciation on the clubhouse facility at Gulfstream Park and the casino facility at Remington Park, which were substantially completed in the first quarter of 2006 and the fourth quarter of 2005.

Interest income and expense

        Our net interest expense increased $27.9 million to $60.7 million in 2006 from $32.8 million in 2005. The higher net interest expense is primarily attributable to borrowings on the bridge loan facility and the Gulfstream Park and Remington Park project financings with MID. Prior to completion of the Gulfstream Park redevelopment and the build-out of the Remington Park casino facility, interest on these financings was capitalized to the respective redevelopment projects. In 2006, $2.6 million of interest was capitalized with respect to projects under development, compared to $5.9 million in 2005.

Write-down of long-lived assets

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

Equity loss (income)

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

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Gain on sale of intangible assets related to The Meadows

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

Income tax benefit

        We recorded an income tax benefit of $7.1 million on a loss before income taxes of $92.3 million in 2006, whereas in 2005, we recorded an income tax benefit of $1.2 million on a loss before income taxes of $103.2 million. The income tax benefit in 2006 of $7.1 million represents the reversal of net future tax liabilities associated with temporary differences related to Magna Racino™'s long-lived assets which were written down, partially offset by income tax expense recognized in certain U.S. operations. The income tax benefit in 2005 of $1.2 million represents primarily certain Austrian income tax losses benefited, partially offset by income tax expense recognized by certain U.S. operations.

Discontinued operations

        Discontinued operations in 2006 include the Fontana Golf Club, the sale of which was completed on November 1, 2006, the Magna Golf Club, the sale of which was completed on August 25, 2006, the operations of a restaurant and related real estate in the United States, the sale of which was completed on May 26, 2006. In addition to the Fontana Golf Club, the Magna Golf Club and the operations of the restaurant and related real estate in the United States, discontinued operations in 2005, also include Flamboro Downs, the sale of which was completed on October 19, 2005, and the Maryland-Virginia Racing Circuit, Inc., the sale of which was completed on September 30, 2005. The following table presents the results of operations from discontinued operations for 2006 and 2005:

	Years ended December 31,
	2006			2005
Revenues	$	14,593		$	42,710
Costs and expenses		11,205			32,786
		3,388			9,924
Depreciation and amortization		2,156			3,765
Interest expense, net		2,040			3,872
Impairment loss recorded on disposition (i)		1,202			14,961
Loss before gain on disposition		(2,010	)		(12,674	)
Gain on disposition (ii)		1,495			9,837
Loss before income taxes		(515	)		(2,837	)
Income tax expense		1,653			492
Net loss	$	(2,168	)	$	(3,329	)

(i)

Given that the sale of the Magna Golf Club on August 25, 2006 established fair values for certain assets, we performed impairment testing of these assets. Based on this analysis, a non-cash impairment loss of $1.2 million was required, which was equal to the excess of our carrying value of the assets disposed over their fair values at the date of disposition.

(ii)

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

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

Racing and gaming operations

        In 2005, we operated our largest racetracks for 99 fewer live race days compared to the prior year, primarily due to the expiration of the Bay Meadows lease and fewer live race days at Golden Gate Fields and Gulfstream Park due to reductions in awarded live race days, partially offset by the resumption of the quarter horse meet at Lone Star Park in 2005, which was cancelled in the prior year as the track hosted the Breeders' Cup™ in 2004. Our other racetracks operated for 24 fewer live race days in 2005, compared to the prior year, primarily due to a desired reduction in race days at Great Lakes Downs.

        In 2005, revenues from our racing and gaming operations decreased $62.7 million or 9.5% to $599.8 million, compared to $662.5 million in 2004, primarily due to:

•

California revenues below the prior year by $69.3 million or 26.2% due to:



•

the expiry of the Bay Meadows lease on December 31, 2004;



•

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



•

lower levels of handle and gross wagering at Santa Anita Park as a result of significant rainfall in Southern California in the first quarter of 2005, which resulted in the cancellation of a live race day and significantly reduced the number of races on the turf course. Turf course races typically generate higher levels of wagering;



•

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



•

Northern U.S. operations below the prior year by $1.5 million or 1.6% due primarily to the expiry of the Multnomah Greyhound Park lease on December 31, 2004;



•

Southern U.S. operations below the prior year by $1.2 million or 1.3% due to reductions in attendance and wagering at Lone Star Park due to increased competition from nearby casinos, decreased horse population as a result of intense competition for horses and higher purse offerings at neighbouring tracks, partially offset by $6.1 million of gaming revenues at Remington Park with the opening of its casino facility in November 2005;



•

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



•

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



•

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

        Pari-mutuel purses, awards and other decreased $28.1 million or 8.5% to $303.6 million in 2005, from $331.8 million in 2004, primarily due to the expiry of the Bay Meadows and Multnomah Greyhound Park leases, fewer live race days at Golden Gate Fields and decreased wagering at Santa Anita Park, Gulfstream Park and Lone Star Park for reasons noted above, partially offset by an increase in pari-mutuel taxes at XpressBet® as a result of a $1.6 million provision for state pari-mutuel taxes for 2003, 2004 and 2005, which was recorded in 2005. As a percentage of pari-mutuel wagering revenues, pari-mutuel purses, awards and other increased from 60.7% in 2004 to 62.2% in 2005, primarily due to lower pari-mutuel wagering revenues and the increase in pari-mutuel taxes at XpressBet® as noted above.

70

        Gaming taxes, purses and other were $2.6 million in 2005 with no prior year comparative due to the opening of the casino facility at Remington Park in late November 2005.

        Operating costs in our racing and gaming operations decreased $22.8 million to $253.5 million in 2005, from $276.3 million in 2004, primarily due to:

•

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



•

a decrease of $2.9 million in our Northern U.S. operations primarily due to the expiry of the Multnomah Greyhound Park lease on December 31, 2004;



•

a decrease of $1.7 million in our Southern U.S. operations primarily due to reduced marketing costs and other expense reductions at Lone Star Park, partially offset by increases in operating costs related to the casino facility at Remington Park which opened in late November 2005; partially offset by



•

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



•

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

        As a percentage of total racing and gaming revenues, operating costs increased from 41.7% in 2004 to 42.3% in 2005, primarily as a result of the decline in racing revenues.

        General and administrative expenses in our racing and gaming operations decreased $2.6 million to $63.1 million in 2005, from $65.7 million in 2004, primarily due to:

•

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



•

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



•

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

        As a percentage of total racing and gaming revenues, general and administrative expenses increased from 9.9% in 2004 to 10.5% in 2005 due primarily to the decline in racing revenues.

Real estate and other operations

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

Predevelopment, pre-opening and other costs

        Predevelopment, pre-opening and other costs decreased $8.6 million from $20.5 million in 2004 to $11.9 million in 2005. Predevelopment, pre-opening and other costs incurred in 2005 represent costs of $6.3 million incurred pursuing alternative gaming opportunities, $2.2 million of pre-opening costs incurred in the opening of the Remington Park casino facility, $1.0 million of legal costs relating to the protection of our distribution rights, $0.6 million on the write-off of information technology costs which were determined to have no future benefit, $0.4 million of costs relating to the Laurel Park redevelopment and $1.4 million of costs relating to development initiatives undertaken to enhance our racing operations. In 2004, the predevelopment, pre-opening and other costs incurred represented costs of $13.5 million pursuing alternative gaming opportunities, $2.7 million on the development of a simplified wagering machine, $1.3 million of costs relating to the Laurel Park redevelopment and $3.0 million of costs relating to developmental initiatives undertaken to enhance our racing operations.

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Depreciation and amortization

        Depreciation and amortization increased $2.6 million from $33.7 million in 2004 to $36.2 million in 2005, primarily due to increased depreciation in our European operations primarily at the Magna Racino™, which commenced operations and depreciation of fixed assets on April 4, 2004 and increased depreciation at certain of our facilities on recent fixed asset additions.

Interest income and expense

        Our net interest expense in 2005 increased $10.9 million to $32.8 million from $22.0 million in 2004. The higher net interest expense is primarily attributable to increased borrowings on our senior secured revolving credit facility and on our bridge loan facility with MID. In 2005, $5.9 million of interest was capitalized with respect to projects under development, compared to $4.0 million in 2004.

Write-down of long-lived assets

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

Income tax benefit

        We recorded an income tax benefit of $1.2 million on a loss before income taxes of $103.2 million in 2005, whereas in 2004, we recorded an income tax benefit of $4.9 million on a loss before income taxes of $105.9 million. The income tax benefit in 2005 of $1.2 million represents primarily certain Austrian income tax losses benefited, partially offset by income tax expense recognized by certain U.S. operations. The income tax benefit in 2004 of $4.9 million represents a reduction in enacted income tax rates in Austria, which resulted in a revaluation of our European net future tax liabilities, partially offset by income tax expense recognized by certain U.S. operations.

Discontinued operations

        Discontinued operations in 2005 and 2004 include the Fontana Golf Club, the Magna Golf Club, the operations of a restaurant and related real estate in the United States, Flamboro Downs and the Maryland-Virginia Racing Circuit, Inc. The following table presents the results of operations from discontinued operations for 2005 and 2004:

	Years ended December 31,
	2005			2004
Revenues	$	42,710		$	48,184
Costs and expenses		32,786			33,644
		9,924			14,540
Depreciation and amortization		3,765			3,848
Interest expense, net		3,872			2,141
Impairment loss recorded on disposition(i)		14,961			—
Income (loss) before gain on disposition		(12,674	)		8,551
Gain on disposition(ii)		9,837			—
Income (loss) before income taxes		(2,837	)		8,551
Income tax expense		492			3,270
Net income (loss)	$	(3,329	)	$	5,281

(i)

Upon entering into an agreement in principle with Great Canadian Gaming Corporation in July 2005 for the disposition of Flamboro Downs, which established fair values for certain assets, we performed impairment testing of these assets. Based on this analysis, a

72

non-cash impairment charge of $15.0 million before income taxes or $12.5 million after income taxes, was required of Flamboro Downs' racing license in the year ended December 31, 2005.

(ii)

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

Year Ended December 31, 2004 Compared to December 31, 2003

Racing and gaming operations

        In 2004, we operated our largest racetracks for 42 fewer live race days compared to the prior year, primarily due to the cancellation of the quarter horse meet at Lone Star Park and The Maryland Jockey Club's desired reduction in race days. Pimlico Race Course and Laurel Park combined had 195 live race days in 2004 as compared to 213 live race days in 2003. Our other racetracks operated an additional 47 live race days in 2004, compared to the prior year, primarily due to the opening of Magna Racino™ on April 4, 2004 which added 50 live race days, the return of the spring quarter horse meet at Remington Park which added 11 live race days, partially offset by eight fewer live race days at Portland Meadows as a result of Portland Meadows' desired reduction in race days.

        In 2004, revenues from our racing and gaming operations decreased $2.4 million or 0.4% to $662.5 million, compared to $664.8 million in 2003, primarily due to:

•

California revenues below the prior year by $12.8 million or 4.6% due to:



•

the 2003 revenues included $8.5 million of revenue generated on the sale of excess land at Golden Gate Fields; and



•

lower levels of handle and gross wagering at Santa Anita Park as a result of two less live race days coupled with lower average daily attendance. In addition, the Oak Tree meet ran only 26 days in 2004 compared to 32 days in 2003 thereby reducing rental fees earned in 2004;



•

Northern U.S. operations below the prior year by $3.6 million or 3.7% due primarily to fewer live race days at Thistledown and Portland Meadows coupled with lower average daily attendance at certain of the racetracks included in this segment and a reduction in the number of OTB locations in our Oregon operations;



•

Increased revenues in our European operations, where revenues were above the prior year by $6.3 million due to the opening of the Magna Racino™ in the second quarter of 2004;



•

Increased revenues in our Maryland operations, where revenues were above the prior year by $2.0 million or 2.0% due to increased attendance and wagering at Pimlico on the Preakness Stakes®;



•

Florida revenues above the prior year by $1.7 million or 2.2% due to increased stall rent at Palm Meadows®, our thoroughbred training center in Palm Beach County, Florida; and



•

A decrease of $2.8 million of revenues earned through inter-company transactions from our racetracks, account wagering operations and separate OTB facilities.

        Pari-mutuel purses, awards and other increased $1.1 million or 0.3% to $331.8 million in 2004, from $330.7 million in 2003, primarily due to increased wagering at Pimlico during the Preakness Stakes® and the opening of Magna Racino™ for live racing, partially offset by reduced pari-mutuel wagering revenues at several of our facilities in 2004. As a percentage of pari-mutuel wagering revenues, pari-mutuel purses, awards and other increased from 59.8% in 2003 to 60.7% in 2004, primarily due to the mix of wagers made, the states the wagers were made in and the mix of on-track versus off-track wagering.

        Operating costs in our racing and gaming operations increased $24.5 million or 9.7% to $276.3 million in 2004, from $251.9 million in 2003, primarily due to:

•

an increase of $16.2 million in our European operations due to the opening of the Magna Racino™ for live racing;

73

•

an increase of $9.0 million in our Technology operations due to additional distribution and production costs at HRTV™ as a result of the Dish Network™ carriage agreement and pre-operating and start-up costs related to RaceONTV™ and MagnaBet™;



•

an increase of $3.2 million in our Southern U.S. operations primarily due to costs incurred at Lone Star Park in connection with hosting the 2004 Breeders' Cup™; partially offset by



•

a decrease of $4.5 million in our California operations primarily as a result of the inclusion of $8.5 million with regard to the sale of the excess land at Golden Gate Fields in 2003, partially offset by increased costs in 2004 at Santa Anita Park with the opening of an entertainment facility, including a new restaurant and sports bar.

        As a percentage of total racing and gaming revenues, operating costs increased from 37.9% in 2003 to 41.7% in 2004, primarily due to increased operating costs as described above.

        General and administrative expenses in our racing and gaming operations remained consistent in both years at $65.7 million in 2004 and $65.8 million in 2003 primarily due to:

•

an increase of $2.3 million in our European operations due to the opening of the Magna Racino™ for live racing; partially offset by



•

decreases at several of our facilities as a result of focused efforts to reduce costs.

        Corporate costs included in general and administrative expenses declined approximately $0.9 million as a result of reduced salaries and wages, which were largely offset by expenses related to Sarbanes-Oxley requirements, bank service charges, increased rent at our head office and costs incurred in connection with MID's decision not to proceed with an unsolicited offer to take MEC private. As a percentage of total racing and gaming revenues, general and administrative expenses remained constant at 9.9% in 2004 and 2003.

Real estate and other operations

        Revenues from real estate and other operations increased $14.7 million from $6.2 million in 2003 to $20.9 million in 2004. The increase in revenues is primarily attributable to the fact that in 2004, four Non-Core Real Estate properties were sold which generated revenues of $16.4 million and income before income taxes of $9.6 million, whereas in 2003, there was only one sale of Non-Core Real Estate which generated revenues of $2.6 million which was equal to the carrying value of the property.

Predevelopment, pre-opening and other costs

        Predevelopment, pre-opening and other costs increased $11.7 million from $8.8 million in 2003 to $20.5 million in 2004. Predevelopment, pre-opening and other costs incurred in 2004 represent $13.5 million incurred pursuing alternative gaming opportunities, $2.7 million on the development of a simplified wagering machine, $1.3 million of costs relating to the Laurel Park redevelopment and $3.0 million of costs relating to development initiatives undertaken to enhance our racing operations. In 2003, the predevelopment, pre-opening and other costs incurred represented costs of $4.2 million pursuing alternative gaming opportunities, $0.8 million of information technology costs which were determined to have no future benefit, $0.7 million of disposal costs related to excess real estate at Golden Gate Fields and $3.1 million of costs relating to developmental initiatives undertaken to enhance our racing operations.

Depreciation and amortization

        Depreciation and amortization increased $5.2 million from $28.5 million in 2003 to $33.7 million in 2004, primarily due to depreciation at Magna Racino™, which commenced operations on April 4, 2004 and increased depreciation at our Palm Meadows® training center related to additional stall and dormitory construction, partially offset by reduced depreciation at Gulfstream Park as a result of the write-down of long-lived assets recorded in the second quarter of 2004 and at Remington Park as a result of the write-down of long-lived assets recorded in the fourth quarter of 2003.

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Interest income and expense

        Our net interest expense in 2004 increased $9.8 million to $22.0 million in 2004 from $12.2 million in 2003. The higher net interest expense is primarily attributable to the issuance of $150.0 million of convertible subordinated notes in June 2003, the issuance of a Euros 15 million term loan facility in the first quarter of 2004, borrowings on our Corporate revolving credit facility as well as less interest being capitalized with respect to projects under development. In 2004, $4.0 million of interest was capitalized with respect to projects under development, compared to $7.3 million in 2003.

Write-down of long-lived assets

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

Income tax benefit

        We recorded an income tax benefit of $4.9 million on a loss before income taxes of $105.9 million in 2004, whereas in 2003 we recorded an income tax benefit of $64.1 million on a loss before income taxes of $171.3 million. The income tax benefit in 2004 of $4.9 million represents a reduction in enacted income tax rates in Austria, which resulted in a revaluation of our European net future tax liabilities, partially offset by income tax expense recognized by certain U.S. operations. Our effective income tax rate for 2003 was 37.4%.

Discontinued operations

        Discontinued operations include the Fontana Golf Club, the Magna Golf Club, the operations of a restaurant and related real estate in the United States, Flamboro Downs and the Maryland-Virginia Racing Circuit, Inc. The following table presents the results of operations from discontinued operations for 2004 and 2003:

	Years ended December 31,
	2004		2003
Revenues	$	48,184	$	37,901
Costs and expenses		33,644		26,248
		14,540		11,653
Depreciation and amortization		3,848		3,400
Interest expense, net		2,141		1,446
Equity income		—		(992	)
Income before income taxes		8,551		7,799
Income tax expense		3,270		5,702
Net income	$	5,281	$	2,097

Liquidity and Capital Resources

Year Ended December 31, 2006

Operating activities

        Cash used in operations before changes in non-cash working capital decreased $2.6 million from a use of cash of $68.9 million in 2005 to a use of cash of $66.3 million in 2006, due primarily to an improvement in net loss from continuing operations, partially offset by an increase in items adjusting net loss to net cash. In 2006, cash provided from non-cash working capital balances was $4.7 million compared to cash provided from non-cash working capital balances of $11.4 million in 2005. Cash provided from non-cash working capital balances of $4.7 million in 2006 is primarily due to a decrease in accounts receivable and amounts due from parent and an increase in accounts payable, partially offset by an increase in restricted cash and a decrease in other accrued liabilities at December 31, 2006 compared to the respective balances at December 31, 2005.

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Investing activities

        Cash provided from investing activities in 2006 was $87.5 million, and included $171.8 million of net proceeds on The Meadows transaction and $14.5 million of net proceeds received on the disposal of real estate properties, fixed and other assets, partially offset by expenditures of $89.4 million on real estate property and fixed assets and $9.3 million on the acquisition of AmTote. Expenditures on real estate property and fixed asset additions in 2006 of $89.4 million consisted of $43.5 million on the Gulfstream Park redevelopment, $15.8 million on the Gulfstream Park gaming facility, $7.6 million on maintenance capital improvements, $7.5 million on the Remington Park gaming facility and $15.0 million of expenditures related to other racetrack property enhancements, infrastructure and development costs on certain of our properties and technology operations.

Financing activities

        Cash used in financing activities was $51.3 million in 2006, and included repayment of advances and long-term debt with parent of $116.8 million, repayment of bank indebtedness of $20.8 million and repayment of long-term debt of $15.8 million, partially offset by proceeds of $89.5 million from advances and long-term debt with our parent company and the issuance of long-term debt of $12.6 million. The advances and long-term debt from our parent company of $89.5 million consists of $34.6 million on the bridge loan, $24.6 million on the first tranche of the Gulfstream Park project financing arrangement, $18.1 million on the second tranche of the Gulfstream Park project financing arrangement and $12.2 million on the Remington Park project financing arrangement.

Year Ended December 31, 2005

Operating activities

        Cash used in operations before changes in non-cash working capital increased $13.5 million to a use of cash of $69.0 million in 2005 from a use of cash of $55.4 million in 2004, primarily due to a decrease in items adjusting net loss to net cash. In 2005, cash provided from non-cash working capital balances was $11.4 million, compared to cash used for non-cash working capital balances of $1.1 million in 2004. Cash provided from non-cash working capital balances of $11.4 million in 2005 is primarily due to a net increase in accounts payable, other accrued liabilities and amounts due from parent, partially offset by a decrease in accounts receivable and income taxes receivable at December 31, 2005 compared to the respective balances at December 31, 2004.

Investing activities

        Cash used for investing activities in 2005 was $144.7 million, including expenditures of $149.2 million on real estate property and fixed asset additions and $1.3 million on other asset additions, partially offset by $5.8 million of net proceeds received on the disposal of real estate properties and fixed assets. Expenditures on real estate property and fixed asset additions in 2005 of $149.2 million consisted of $91.0 million on the Gulfstream Park redevelopment, $25.6 million on the Remington Park gaming facility, $11.0 million at The Maryland Jockey Club, $8.4 million on maintenance capital improvements and $13.2 million of expenditures related to other racetrack property enhancements, infrastructure and development costs on certain of our properties and technology operations.

Financing activities

        Cash provided from financing activities was $143.9 million in 2005 arising from advances and long-term debt from our parent company of $156.5 million, net advances on our bank indebtedness of $2.8 million and an issuance of long-term debt of $0.2 million, partially offset by repayment of long-term debt of $15.6 million. The advances and long-term debt from our parent company of $156.5 million consists of $70.6 million on the bridge loan, $66.2 million on the first tranche of the Gulfstream Park project financing arrangement and $19.7 million on the Remington Park project financing arrangement. The issuance of debt of $0.2 million represents an equipment loan at The Maryland Jockey Club. The net advances of $2.8 million on our bank indebtedness relates to a $3.0 million bank term line of credit at one of our European subsidiaries.

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Year Ended December 31, 2004

Operating activities

        Cash used in operations before changes in non-cash working capital increased $48.8 million to a use of cash of $55.4 million in 2004 from a use of cash of $6.7 million in 2003, primarily due to decreased earnings in 2004 adjusted for the write-downs of long-lived and intangible assets. In 2004, cash used for non-cash working capital balances was $1.1 million compared to cash provided from non-cash working capital balances of $14.1 million in 2003. Cash used for non-cash working capital balances of $1.1 million in 2004 is primarily due to an increase in accounts receivable, partially offset by increases in accounts payable, accrued salaries and wages, other accrued liabilities and deferred revenues at December 31, 2004 compared to the respective balances at December 31, 2003.

Investing activities

        Cash used for investing activities in 2004 was $118.7 million, including expenditures of $138.1 million on real estate property and fixed asset additions and $0.4 million on other asset additions, partially offset by $19.7 million of net proceeds received on the disposal of real estate properties and fixed assets. Expenditures on real estate property and fixed asset additions in 2004 consisted of $41.7 million on the Gulfstream Park redevelopment, $36.6 million on Magna Racino™, $19.4 million at The Maryland Jockey Club, $12.1 million for construction at our Palm Meadows training center, $7.9 million on maintenance capital improvements, $4.0 million on the entertainment facility, including a new restaurant and sports bar at Santa Anita Park, $0.8 million for the purchase of land in Ocala, Florida and $15.6 million of expenditures related to other racetrack property enhancements, infrastructure and development costs on certain of our properties and technology operations.

Financing activities

        Cash provided from financing activities was $95.5 million in 2004 arising from the issuance of long-term debt of $95.6 million, $23.4 million from long-term debt from our parent company related to the first tranche of the Gulfstream Park project financing arrangement, the utilization of our credit facilities of $29.5 million and the issuance of $0.9 million of share capital on the exercise of stock options, partially offset by repayment of long-term debt of $53.8 million. The issuance of debt of $95.6 million is comprised of $75.0 million of debt incurred by The Santa Anita Companies, Inc., debt incurred by one of our European subsidiaries of $18.4 million, $1.3 million of debt incurred by Pimlico Racing Association, Inc. and debt incurred to fund the purchase of a mobile video screen that will be used at our racetracks of $0.9 million.

Working Capital, Cash and Other Resources

        Our net working capital deficiency, excluding assets and liabilities held for sale was $94.2 million at December 31, 2006, compared to $160.9 million at December 31, 2005.

Bank indebtedness

        On July 26, 2006, we amended our senior secured revolving credit facility by increasing the maximum permitted borrowings for general corporate purposes to $50.0 million and providing for an additional $14.0 million to finance the purchase of the remaining 70% equity interest in AmTote. On November 14, 2006, as required under this amended credit facility, we permanently reduced the outstanding borrowings by repaying $39.0 million from The Meadows transaction, such that the remaining maximum permitted borrowings were $25.0 million. On December 22, 2006, we further amended the credit facility to extend the maturity date to March 30, 2007, to make an additional $15.0 million available, to revise certain financial performance covenants and to increase the applicable interest rate. With the additional amount available, the maximum permitted borrowings under the credit facility is $40.0 million. The credit facility is available by way of U.S. Base rate loans plus 5% or the London Interbank Offered Rate ("LIBOR") plus 6%. Loans under the facility are secured by a first charge on the assets of Golden Gate Fields and a second charge on the assets of Santa Anita Park, and are guaranteed by certain of our subsidiaries. In addition, we have pledged the shares of the wholly-owned subsidiary that owns AmTote. At December 31, 2006, we had no borrowings under the credit facility, but had issued letters of credit totaling $24.7 million, such that $15.3 million of the loan facility was unused and available.

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        On December 4, 2006, one of our subsidiaries, The Santa Anita Companies, Inc. ("SAC") entered into a $10.0 million revolving loan arrangement under its existing credit facility. The revolving loan agreement matures on October 8, 2007, is guaranteed by our wholly-owned subsidiary, the Los Angeles Turf Club, Incorporated ("LATC") and is secured by a first deed of trust on Santa Anita Park and the surrounding real property, an assignment of the lease between LATC, the racetrack operator and SAC and a pledge of all of the outstanding capital stock of LATC and SAC. Loans under the agreement bear interest at the U.S. Prime rate. At December 31, 2006, we had borrowings under the agreement of $6.5 million, such that $3.5 million of the facility was unused and available.

Long-term and Related Party Debt

        On November 1, 2006, one of our wholly-owned subsidiaries completed the sale of the Fontana Golf Club to a subsidiary of Magna International Inc. In connection with this sale, Euros 16.8 million (U.S. $21.4 million) of debt, including accrued interest, was assumed by the purchaser.

        On August 25, 2006, one of our wholly-owned subsidiaries completed the sale of the Magna Golf Club to Magna International Inc. In connection with this sale, Cdn. $32.6 million (U.S. $29.3 million) of the net sale proceeds were used to pay all amounts owing under certain loan agreements with Bank Austria Creditanstalt AG related to the Magna Golf Club.

        In December 2004, certain of our subsidiaries entered into a $115.0 million project financing arrangement with a subsidiary of MID for the reconstruction of facilities at Gulfstream Park. This project financing arrangement was amended on July 22, 2005 in connection with the Remington Park loan as described below. The project financing was made by way of progress draw advances to fund reconstruction. The loan has a ten-year term from the completion date of the reconstruction project, which was February 1, 2006. Prior to the completion date, amounts outstanding under the loan bore interest at a floating rate equal to 2.55% per annum above MID's notional cost of borrowing under its floating rate credit facility, compounded monthly. After the completion date, amounts outstanding under the loan bear interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, payment of interest was deferred. Commencing January 1, 2007, we will make monthly blended payments of principal and interest based on a 25-year amortization period commencing on the completion date. The loan contains cross-guarantee, cross-default and cross-collateralization provisions. The loan is guaranteed by our subsidiaries that own and operate Remington Park and the Palm Meadows Training Center and is collateralized principally by security over the lands forming part of the operations at Gulfstream Park, Remington Park and Palm Meadows and over all other assets of Gulfstream Park Racing Association, Inc. ("GPRA"), Remington Park and Palm Meadows, excluding licenses and permits. During 2006, $24.9 million was advanced and $12.8 million of interest was accrued on this loan, such that at December 31, 2006, $134.8 million was outstanding under the Gulfstream Park loan, including $16.5 million of accrued interest. Net loan origination expenses of $3.5 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

        On July 26, 2006, the Gulfstream Park project financing arrangement was amended to add a new tranche of $25.8 million, plus lender costs and capitalized interest, to fund the design and construction of phase one of the slots facility to be located in the existing Gulfstream Park clubhouse building, as well as related capital expenditures and start-up costs, including the acquisition and installation of approximately 500 slot machines. The new Gulfstream Park financing has a five-year term and, consistent with the existing Gulfstream Park facility, bears interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, interest on the new tranche was capitalized. Beginning January 1, 2007, the new tranche provides for blended payments of principal and interest based on a 25-year amortization period commencing on that date. Advances related to the slot facility were made available by way of progress draw advances and there is no prepayment penalty associated with the new tranche. The Gulfstream Park project financing facility was further amended to introduce a mandatory annual cash flow sweep of not less than 75% of GPRA's total excess cash flow, after permitted capital expenditures and debt service, to be used to repay the additional principal amount being made available under the new tranche. A lender fee of $0.3 million (1% of the amount of the new tranche) was added to the principal amount of the loan as consideration for the amendments. During 2006, $18.8 million was advanced and $0.4 million of interest was accrued on this loan, such that at December 31, 2006, $19.4 million was outstanding under this tranche, including $0.4 million of accrued interest. Net loan origination expenses of

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$0.8 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

        On December 22, 2006, the Gulfstream Park project financing arrangement was further amended to add a new tranche of $21.5 million, plus lender costs and capitalized interest, to fund the design and construction of phase two of the slots facility, as well as related capital expenditures and start-up costs, including the acquisition and installation of approximately 700 slot machines. To December 31, 2006 there were no drawings on this tranche.

        To assist in financing additional material and labor costs and changes in scope of work related to the reconstruction of the Gulfstream Park racing facilities, GPRA has a $16.6 million loan arrangement with BE&K. The loan matures on April 14, 2007 and may be extended at the lender's option to July 31, 2008. The loan bears interest at the U.S. Prime rate plus 0.40% per annum and may be repaid at any time, in whole or in part, without penalty. Loans under the facility are secured by a mortgage over land in Ocala, Florida and a guarantee of $5.0 million by the Company. We repaid $2.0 million of this loan directly to BE&K, upon closing of The Meadows transaction, and have placed $15.0 million into escrow with MID to ensure full repayment of the loan facility. MID has allowed us to access such funds for limited purposes other than the repayment of the BE&K loan on an as-needed basis. As at December 31, 2006, $10.6 million was outstanding under the loan facility.

        A subsidiary of MID provided project financing of $34.2 million to finance the build-out of the casino facility at Remington Park. Advances under the loan were made by way of progress draw advances to fund the capital expenditures relating to the development, design and construction of the casino facility, including the purchase and installation of electronic gaming machines. The loan has a ten-year term from the completion date of the reconstruction project, which was November 28, 2005. Prior to the completion date, amounts outstanding under the loan bore interest at a floating rate equal to 2.55% per annum above MID's notional cost of LIBOR borrowing under its floating rate credit facility, compounded monthly. After the completion date, amounts outstanding under the loan bear interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, payment of interest was deferred. Commencing January 1, 2007, we will make monthly blended payments of principal and interest based on a 25-year amortization period commencing on the completion date. Certain cash from the operations of Remington Park must be used to pay deferred interest on the loan plus a portion of the principal under the loan equal to the deferred interest on the Gulfstream Park construction loan. The loan is secured by all assets of Remington Park, excluding licenses and permits. The loan is also secured by a charge over the lands owned by GPRA and a charge over the Palm Meadows Training Center and contains cross-guarantee, cross-default and cross-collateralization provisions. During 2006, $12.5 million was advanced, $3.2 million of interest was accrued on the loan and $5.0 million was repaid on this loan, such that at December 31, 2006, $31.7 million was outstanding under the loan, including $0.4 million of accrued interest. Net loan origination expenses of $1.3 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

        Throughout 2006, MID made available to us a non-revolving bridge loan of up to $119.0 million. The loan was repaid in full using proceeds from the collection of the First Note on The Meadows transaction. In 2006, $37.7 million was advanced under the bridge loan, $111.8 million was repaid and $5.7 million of net loan origination cost was amortized, such that at December 31, 2006, no amounts remained outstanding under the bridge loan. In addition, in 2006, $9.7 million of commitment fees and interest expense were incurred related to the bridge loan, of which no amounts remained outstanding at December 31, 2006.

        At December 31, 2006, $6.5 million of the funds the Company placed into escrow with MID remains in escrow, which is included in "due from parent" on the consolidated balance sheets.

        One of our subsidiaries, SAC, is party to a secured term loan facility that matures on October 7, 2007, subject to SAC's option to extend the maturity to October 7, 2009. Under the facility, SAC is entitled to borrow up to a maximum of $75.0 million. Borrowings under the facility bear interest at LIBOR plus 2.0% per annum. Effective November 1, 2004, we have entered into an interest rate swap contract and fixed the rate of interest at 5.38% per annum to October 31, 2007 on a notional amount of 40% of the outstanding balance under this loan facility. Effective November 30, 2005, we have entered into an additional interest rate swap contract and fixed the rate of interest at 7.05% per annum to October 7, 2007 on a notional amount of $10.0 million. The loan facility is guaranteed by LATC, our wholly-owned subsidiary, and is secured by a first deed of trust on Santa Anita Park and the surrounding real property, an assignment of the lease between LATC, the racetrack

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operator, and SAC and a pledge of all of the outstanding capital stock of LATC and SAC. The loan contains cross-default provisions with respect to our senior secured revolving credit facility. At December 31, 2006, $64.2 million was outstanding under this fully drawn facility.

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

        In December 2002, we issued $75.0 million of 7.25% convertible subordinated notes, which are convertible at any time at the option of the holders into shares of our Class A Subordinate Voting Stock at a conversion price of $8.50 per share, subject to adjustment under certain circumstances, and mature on December 15, 2009. The notes are redeemable at the principal amount together with accrued and unpaid interest, at our option, under certain conditions in the period from December 21, 2005 to December 14, 2007. At December 31, 2006, all of the notes remained outstanding.

        One of our European subsidiaries is party to a Euros 15.0 million term loan facility, secured by a pledge of land and a guarantee by MEC, which bears interest at 4% per annum. At December 31, 2006, Euros 15.0 million (U.S. $19.8 million) was outstanding on this fully drawn facility, which was due to mature on February 9, 2007. This debt was repaid in full subsequent to year end. The same European subsidiary also has another Euros 15.0 million denominated term loan facility, secured by a first and second mortgage on land in Austria owned by the European subsidiary, which bears interest at the European Interbank Offered Rate ("EURIBOR") plus 2% per annum. At December 31, 2006, Euros 15.0 million (U.S. $19.8 million) was outstanding under this fully drawn facility, which matures on December 31, 2007.

        On November 27, 2002, contemporaneous with our acquisition of The Maryland Jockey Club, we granted the remaining minority interest shareholders of The Maryland Jockey Club the option to sell such interest to us, at any time during the first five years after closing of the acquisition. A cash payment of $18.3 million plus interest will be required on exercise of the option. At December 31, 2006, this obligation is secured by letters of credit under the senior secured credit facility and has been reflected on our balance sheet as long-term debt due within one year.

        Also, two of our subsidiaries, which are part of The Maryland Jockey Club, are party to secured term loan facilities that bear interest at the U.S. Prime rate or LIBOR plus 2.6% and 7.0% per annum, respectively. Both term loans have interest rate adjustment clauses that reset to the market rate for U.S. Treasury security of an equivalent term plus 2.6% at set dates prescribed in the agreements. At December 31, 2006, $6.9 million and $4.0 million, respectively, were outstanding under these fully drawn term loan facilities which mature on December 1, 2013 and June 7, 2017, respectively. Subsequent to year end, with the sale of a 64 acre parcel of excess land at Laurel Park in Howard County, Maryland, $9.8 million of the proceeds were used to repay in part these term loan facilities. Both loan facilities are secured by deeds of trust on land, buildings and improvements and security interests in all other assets of certain affiliates of The Maryland Jockey Club.

        One of our subsidiaries, Pimlico Racing Association, Inc., has a $10.0 million term loan facility, which matures on December 15, 2019. The term loan facility, which bears interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum, is secured by deeds of trust on land, buildings and improvements and security interests in all other assets of the subsidiary and certain affiliates of The Maryland Jockey Club. At December 31, 2006, $9.2 million was outstanding under this term loan facility.

        One of our European subsidiaries, who previously had a term loan of Euros 2.9 million and a term line of credit of Euros 2.5 million, amended these facilities on July 31, 2006. These two facilities were consolidated into one bank term loan with a maturity date of July 31, 2007. A repayment of Euros 0.9 million was made on July 31, 2006 and a further repayment of Euros 0.7 million was made on January 31, 2007. The bank term loan bears interest at the Euro Overnight Index Average ("EONIA") plus 1.1% per annum. A European subsidiary has provided two first mortgages on real estate properties as security for this bank term loan. At December 31, 2006, Euros 4.5 million (U.S. $5.9 million) was outstanding under the fully drawn bank term loan facility.

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        One of our subsidiaries, AmTote, has three term loan facilities, which mature on April 30, 2007. The loan facilities bear interest at the U.S. Prime rate plus 1.0% to 1.25% per annum and are secured by all of AmTote's assets up to a total of $6.0 million. At December 31, 2006, $4.4 million was outstanding under these three term loan facilities.

        At December 31, 2006 we had cash and cash equivalents of $58.3 million, bank indebtedness of $6.5 million and total shareholders' equity of $400.6 million. At December 31, 2006, we were in compliance with all of our debt agreements and related covenants.

        The financial statements included with this report have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. We have incurred net losses of $87.4 million, $105.3 million and $95.6 million for the years ended December 31, 2006, 2005 and 2004, respectively, have an accumulated deficit of $396.3 million and a working capital deficiency of $94.2 million as at December 31, 2006. Accordingly, our ability to continue as a going concern is in substantial doubt and is dependent on our ability to generate cash flows that are adequate to sustain the operations of the business, renew or extend current financing arrangements and maintain our obligations with respect to secured and unsecured creditors, none of which is assured. Since July 2005, as part of our strategic plan and under our Recapitalization Plan, we have completed sales of non-strategic assets that have generated aggregate consideration of approximately $400.0 million. These proceeds have been largely used to repay debt and for general corporate purposes. We are continuing to pursue other funding sources in connection with the Recapitalization Plan, which may include further asset sales, partnerships, and raising capital through equity offerings under the U.S. Registration Statement and the Canadian Prospectus filed February 21, 2007, however, the successful realization of these efforts is not determinable at this time. The financial statements included with this report do not give effect to any adjustments which would be necessary should we be unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in the financial statements.

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

Contractual Obligations and Commitments

        Our commitments to make future payments consist primarily of repayments of long-term debt including capital lease obligations, amounts due to our parent, obligations under operating and facility leases, construction commitments and other long-term liabilities. Our contractual obligations and commitments at December 31, 2006 are as follows:

($ thousands)	Less than 1 year	1 to 3 years	3 to 5 years	More than 5 years	Total
Long-term debt	85,754	62,593	6,152	25,114	179,613
Amounts due to Parent	3,108	3,875	4,755	168,620	180,358
Convertible subordinated notes	—	75,000	150,000	—	225,000
Capital lease obligations(i)	1,452	2,904	2,904	27,060	34,320
Operating leases(ii)	3,820	5,288	3,311	234	12,653
Facility leases(iii)	2,548	4,176	3,081	6,212	16,017
Construction and development project commitments	5,708	—	—	—	5,708
Other liabilities(iv)	1,152	—	—	—	1,152
	103,542	153,836	170,203	227,240	654,821

(i)

The racetrack and associated land under capital lease at Lone Star Park at Grand Prairie is included in the Grand Prairie Metropolitan Utility and Reclamation District ("GPMURD"). Lone Star Park entered into an agreement with GPMURD whereby it is required to

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make certain payments to GPMURD in lieu of property taxes. Such payments include amounts necessary to cover GPMURD operating expenses and debt service for certain bonds issued by GPMURD to fund improvements on the land up to the debt service requirements. Lone Star Park incurred $2.1 million in regards to this arrangement in 2006. The capital lease has an imputed interest rate of 8.5%, matures on April 1, 2027 and is secured by the buildings and improvements at Lone Star Park.

(ii)

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

(iii)

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

(iv)

Other liabilities includes our expected 2007 pension and post retirement benefit contributions. Required contributions for future years depend on certain factors that cannot be reasonably determined at this time.

Qualitative and Quantitative Disclosures About Market Risk

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

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

        Our future earnings, cash flows and fair values relating to financial instruments are primarily dependent upon prevalent market rates of interest, such as LIBOR and EURIBOR. Based on interest rates at December 31, 2006 and our current credit and debt facilities, a 1% per annum increase or decrease in interest rates on our short-term credit facility and other variable rate borrowings would not materially affect our annual future earnings and cash flows. Based on borrowing rates currently available to us, the carrying amount of our debt approximates its fair value.

        In order to mitigate a portion of the interest rate risk associated with the SAC term loan facility, we have entered into two interest rate swap contracts. Effective November 1, 2004, we have entered into an interest rate swap contract and fixed the rate of interest at 5.38% per annum to October 31, 2007 on a notional amount of 40% of the outstanding balance under this secured term loan facility, which is $64.2 million as at December 31, 2006. Effective November 30, 2005, we have entered into an interest rate swap contract and fixed the rate of interest at 7.05% per annum to October 7, 2007 on a notional amount of $10.0 million.

Impact of Recently Issued Accounting Standards

        Under Staff Accounting Bulletin 74, we are required to disclose certain information related to new accounting standards, which have not yet been adopted due to delayed effective dates.

        In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company's consolidated financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes", and prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision taken or expected to be taken in a tax return. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We are currently reviewing FIN 48, but have not yet determined the impact on our consolidated financial statements.

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

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Forward-looking Statements

        This Report contains "forward-looking statements" within the meaning of applicable securities legislation, including Section 27A of the United States Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act") and forward-looking information as defined in the Securities Act (Ontario) (collectively referred to as forward-looking statements). These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the Securities Act (Ontario) and include, among others, statements regarding: strategies and plans; our potential future ability to offer and sell securities under the U.S. Registration Statement and the Canadian Prospectus; expectations as to the use of proceeds of a given offering; expectations as to financing and liquidity requirements and arrangements; expectations as to operational improvements; expectations as to cost savings, revenue growth and earnings; the time by which certain redevelopment projects, transactions or other objectives will be achieved; estimates of costs relating to environmental remediation and restoration; proposed new racetracks or other developments, products and services; expectations as to the timing and receipt of government approvals and regulatory changes in gaming and other racing laws and regulations; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidated financial position, operating results, prospects or liquidity; projections, predictions, expectations, estimates, beliefs or forecasts as to our financial and operating results and future economic performance; and other matters that are not historical facts.

        Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or the times at or by which such performance or results will be achieved. Undue reliance should not be placed on such statements. Forward-looking statements are based on information available at the time and/or management's good faith assumptions and analyses made in light of our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances and are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control, that could cause actual events or results to differ materially from such forward-looking statements.

        Important factors that could cause actual results to differ materially from our forward-looking statements include, but may not be limited to, material adverse changes in: general economic conditions; the popularity of racing and other gaming activities as recreational activities; the regulatory environment affecting the horse racing and gaming industries; our ability to obtain or maintain government and other regulatory approvals necessary or desirable to proceed with proposed real estate developments; increased regulation affecting certain of our non-racetrack operations, such as broadcasting ventures; and our ability to develop, execute or finance our strategies and plans within expected timelines or budgets. In drawing conclusions set out in our forward-looking statements above, we have assumed, among other things, that there will not be any material adverse changes in: general economic conditions; the popularity of horse racing and other gaming activities; the regulatory environment; and our ability to develop, execute or finance our strategies and plans as anticipated. Other factors that could cause such differences include, but are not limited to, the factors discussed in the "Management's Discussion and Analysis of Results of Operations and Financial Position" and "Risk Factors" sections of our SEC filings, including, but not limited to, our Annual Report on Form 10-K and our quarterly reports on Form 10-Q.

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

        Information required by this item is contained in this Annual Report under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.

83

Item 8. Financial Statements and Supplementary Data

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

        We have audited the accompanying consolidated balance sheets of Magna Entertainment Corp. as of December 31, 2006 and 2005, the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2006. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Magna Entertainment Corp. at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

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

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Magna Entertainment Corp.'s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report, dated March 7, 2007, expressed an unqualified opinion thereon.

        As described in Note 3 to these consolidated financial statements, the Company changed its accounting policies in regards to the recognition and disclosure of their employee defined benefit plans and the fair value recognition provisions of accounting for stock-based compensation.

Toronto, Canada
March 7, 2007	Chartered Accountants

84

MAGNA ENTERTAINMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(U.S. dollars in thousands, except per share figures)

				Years ended December 31,
			Note	2006			2005			2004
							(restated — note 6)			(restated — note 6)
Revenues			19,20
Racing and gaming
	Pari-mutuel wagering			$	501,300		$	488,480		$	546,784
	Gaming				64,824			6,132			—
	Non-wagering				131,069			105,173			115,672
					697,193			599,785			662,456
Real estate and other
	Sale of real estate				—			—			16,387
	Other				4,946			4,643			4,550
					4,946			4,643			20,937
					702,139			604,428			683,393
Costs, expenses and other income
Racing and gaming
	Pari-mutuel purses, awards and other				312,009			303,638			331,755
	Gaming taxes, purses and other				32,939			2,630			—
	Operating costs				290,426			253,535			276,335
	General and administrative				73,533			63,135			65,742
Real estate and other
	Cost of real estate sold				—			—			6,762
	Operating costs				3,839			4,831			5,675
	General and administrative				191			36			810
Predevelopment, pre-opening and other costs					14,159			11,882			20,508
Depreciation and amortization					43,902			36,240			33,662
Interest expense, net			14		60,702			32,826			21,950
Write-down of long-lived assets			8		88,627			—			26,685
Equity loss (income)					493			(1,122	)		(635	)
Gain on sale of intangible assets related to The Meadows			5		(126,374	)		—			—
					794,446			707,631			789,249
Loss from continuing operations before income taxes					(92,307	)		(103,203	)		(105,856	)
Income tax benefit			12		(7,124	)		(1,239	)		(4,939	)
Net loss from continuing operations					(85,183	)		(101,964	)		(100,917	)
Net income (loss) from discontinued operations			6		(2,168	)		(3,329	)		5,281
Net loss					(87,351	)		(105,293	)		(95,636	)
Other comprehensive income (loss)
	Foreign currency translation adjustment		17		3,104			(14,971	)		15,627
	Change in fair value of interest rate swap		18		(88	)		415			660
Comprehensive loss				$	(84,335	)	$	(119,849	)	$	(79,349	)
Earnings (loss) per share for Class A Subordinate
	Voting Stock or Class B Stock
	Basic and Diluted
		Continuing operations	16	$	(0.79	)	$	(0.95	)	$	(0.94	)
		Discontinued operations	16		(0.02	)		(0.03	)		0.05
Loss per share				$	(0.81	)	$	(0.98	)	$	(0.89	)
Average number of shares of Class A Subordinate
	Voting Stock or Class B Stock outstanding
	during the year (in thousands):
	Basic and Diluted		16		107,461			107,356			107,323

See accompanying notes

85

MAGNA ENTERTAINMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

				Years ended December 31,
			Note	2006			2005			2004
							(restated — note 6)			(restated — note 6)
Cash provided from (used for):
OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Net loss from continuing operations				$	(85,183	)	$	(101,964	)	$	(100,917	)
	Adjustments to reconcile net loss to net cash provided from (used for) operating activities:
		Depreciation and amortization			43,902			36,240			33,662
		Future income taxes	12		(11,980	)		(2,232	)		(5,904	)
		Amortization of loan origination costs			6,236			1,541			—
		Amortization of convertible subordinated notes issue costs	15		1,090			1,090			1,090
		Deferred interest expense	20		15,353			—			—
		Write-down of long-lived assets	8		88,627			—			26,685
		Write-down of development costs	20		3,048			—			—
		Equity loss (income)			493			(1,122	)		(635	)
		Gain on sale of intangible assets related to The Meadows	5		(126,374	)		—			—
		Gain on disposal of real estate properties			(1,181	)		—			(9,625	)
		(Gain) loss on disposal of fixed assets			(2,733	)		(2,612	)		96
		Stock-based compensation expense	3		1,410			—			—
		Issuance of Class A Subordinate Voting Stock under the Long-term Incentive Plan	16		982			102			123
					(66,310	)		(68,957	)		(55,425	)
Changes in non-cash working capital balances:
		Restricted cash			(8,975	)		(1,796	)		455
		Accounts receivable			8,662			9,780			(13,946	)
		Due from parent			7,020			(13,668	)		—
		Income taxes receivable			923			2,372			352
		Inventories			364			(342	)		(245	)
		Prepaid expenses and other			(2,405	)		779			789
		Accounts payable			5,207			(22,864	)		4,918
		Accrued salaries and wages			901			(1,928	)		2,643
		Customer deposits			(18	)		(356	)		337
		Other accrued liabilities			(5,219	)		39,367			2,320
		Deferred revenue			(1,792	)		15			1,295
					4,668			11,359			(1,082	)
					(61,642	)		(57,598	)		(56,507	)
INVESTING ACTIVITIES OF CONTINUING OPERATIONS:
Acquisition of business, net of cash acquired			4		(9,347	)		—			—
Proceeds on The Meadows transaction			5		171,777			—			—
Real estate property additions					(82,329	)		(143,407	)		(129,102	)
Fixed asset additions					(7,119	)		(5,763	)		(8,952	)
Other asset disposals (additions)					2,539			(1,333	)		(383	)
Proceeds on real estate sold to a related party			20		5,578			1,400			—
Proceeds on disposal of real estate properties					2,100			4,403			18,691
Proceeds on disposal of fixed assets					4,328			—			1,040
					87,527			(144,700	)		(118,706	)
FINANCING ACTIVITIES OF CONTINUING OPERATIONS:
Net increase (decrease) in bank indebtedness			13		(20,785	)		2,760			29,500
Proceeds from advances and long-term debt with parent			20		89,513			156,519			23,408
Issuance of long-term debt					12,582			209			95,565
Repayment of advances and long-term debt with parent			20		(116,800	)		—			—
Repayment of long-term debt					(15,816	)		(15,600	)		(53,792	)
Issuance of share capital			16		—			—			852
					(51,306	)		143,888			95,533
Effect of exchange rate changes on cash and cash equivalents					(104	)		1,141			3,064
Net cash flows used for continuing operations					(25,525	)		(57,269	)		(76,616	)
Cash provided from (used for) discontinued operations:
Cash flows provided from (used for) operating activities of discontinued operations					1,372			(8,502	)		17,641
Cash flows provided from (used for) investing activities of discontinued operations					63,989			35,149			(1,975	)
Cash flows provided from (used for) financing activities of discontinued operations					(32,427	)		20,863			21,784
Net cash flows provided from discontinued operations					32,934			47,510			37,450
Net increase (decrease) in cash and cash equivalents during the year					7,409			(9,759	)		(39,166	)
Cash and cash equivalents, beginning of year					50,882			60,641			99,807
Cash and cash equivalents, end of year					58,291			50,882			60,641
Less: cash and cash equivalents, end of year of discontinued operations					—			—			(636	)
Cash and cash equivalents, end of year of continuing operations				$	58,291		$	50,882		$	60,005

See accompanying notes

86

MAGNA ENTERTAINMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Refer to Note 1 — Going Concern)
(U.S. dollars and share amounts in thousands)

			December 31,
		Note	2006			2005
						(restated — notes 5 & 6)
ASSETS
Current assets:
	Cash and cash equivalents		$	58,291		$	50,882
	Restricted cash			34,194			24,776
	Accounts receivable			35,949			36,473
	Due from parent	20		6,648			13,668
	Income taxes receivable			580			396
	Inventories			6,384			2,618
	Prepaid expenses and other			8,884			4,030
	Assets held for sale	5		—			61,185
	Discontinued operations	6		—			2,723
				150,930			196,751
Real estate properties, net		9		845,894			903,413
Fixed assets, net		10		93,141			59,239
Racing licenses				109,868			109,868
Other assets, net		11		4,664			14,002
Future tax assets		12		42,388			45,012
Discontinued operations		6		—			86,359
			$	1,246,885		$	1,414,644
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Bank indebtedness	13	$	6,515		$	30,260
	Accounts payable			76,105			62,935
	Accrued salaries and wages			8,792			7,798
	Customer deposits			2,531			2,549
	Other accrued liabilities			56,228			66,081
	Long-term debt due within one year	14		85,754			32,382
	Due to parent	20		3,108			72,060
	Deferred revenue			6,098			6,789
	Liabilities related to assets held for sale	5		—			27,436
	Discontinued operations	6		—			15,609
				245,131			323,899
Long-term debt		14		93,859			138,271
Long-term debt due to parent		20		177,250			113,500
Convertible subordinated notes		15		221,437			220,347
Other long-term liabilities		22		17,484			1,702
Future tax liabilities		12		91,106			101,602
Discontinued operations		6		—			55,729
				846,267			955,050
Commitments and contingencies		20,21
Shareholders' equity:
	Class A Subordinate Voting Stock (Issued: 2006 — 49,055; 2005 — 48,895)	16		319,087			318,105
Class B Stock
	(Convertible into Class A Subordinate Voting Stock) (Issued: 2006 and 2005 — 58,466)	16		394,094			394,094
Contributed surplus		20		41,718			17,943
Other paid-in-capital		3		1,410			—
Deficit				(396,298	)		(308,947	)
Accumulated comprehensive income		17,18		40,607			38,399
				400,618			459,594
			$	1,246,885		$	1,414,644

On behalf of the Board:

See accompanying notes

(Signed) WILLIAM J. MENEAR
Director (Signed) MICHAEL NEUMAN
Director

87

MAGNA ENTERTAINMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(U.S. dollars in thousands)

	Class A Subordinate Voting Stock		Class B Stock		Contributed Surplus		Other Paid-in-Capital		Deficit			Accumulated Comprehensive Income (Loss)
Balances at December 31, 2003	$	317,028	$	394,094	$	17,282	$	—	$	(108,018	)	$	36,668
Activity for the year ended December 31, 2004:
Net loss										(95,636	)
Foreign currency translation adjustment (note 17)													15,627
Change in fair value of interest rate swap (note 18)													660
Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 16)		123
Issue of Class A Subordinate Voting Stock on exercise of stock options (note 16)		852
Balances at December 31, 2004		318,003		394,094		17,282		—		(203,654	)		52,955
Activity for the year ended December 31, 2005:
Net loss										(105,293	)
Foreign currency translation adjustment (note 17)													(14,971	)
Change in fair value of interest rate swap (note 18)													415
Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 16)		102
Net gain on sale of real estate to a related party (note 20)						661
Balances at December 31, 2005		318,105		394,094		17,943		—		(308,947	)		38,399
Activity for the year ended December 31, 2006:
Net loss										(87,351	)
Foreign currency translation adjustment (note 17)													3,104
Change in fair value of interest rate swap (note 18)													(88	)
Adjustment, net of tax, for change in accounting policy related to Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans (note 3)													(808	)
Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 16)		982
Net gain on sale of real estate to a related party (note 20)						23,775
Adjustment, net of tax, for change in accounting policy related to stock option compensation expense (note 3)								1,410
Balances at December 31, 2006	$	319,087	$	394,094	$	41,718	$	1,410	$	(396,298	)	$	40,607

See accompanying notes

88

MAGNA ENTERTAINMENT CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all amounts in U.S. dollars unless otherwise noted and
all tabular amounts in thousands, except per share figures)

1.     GOING CONCERN

These consolidated financial statements of Magna Entertainment Corp. (the "Company") have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company has incurred net losses of $87.4 million, $105.3 million and $95.6 million for the years ended December 31, 2006, 2005 and 2004, respectively, and has an accumulated deficit of $396.3 million and a working capital deficiency of $94.2 million at December 31, 2006. Accordingly, the Company's ability to continue as a going concern is in substantial doubt and is dependent on the Company generating cash flows that are adequate to sustain the operations of the business, renew or extend current financing arrangements and maintain its obligations with respect to secured and unsecured creditors, none of which is assured. During the year ended December 31, 2006, the Company completed asset sale transactions for proceeds totaling $269.4 million. On February 7, 2007 (refer to Note 23), MI Developments Inc. ("MID") acquired all of the Company's interests and rights in two real estate properties, a 34 acre parcel of residential development land in Aurora, Ontario, Canada and a 64 acre parcel of excess land at Laurel Park in Howard County, Maryland, in return for cash consideration of Cdn. $12.0 million (U.S. $10.1 million) and U.S. $20.0 million, respectively. The Company is continuing to pursue other funding sources, which may include further asset sales, partnerships and raising capital through equity offerings, however, the successful realization of these efforts is not determinable at this time. These consolidated financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the consolidated financial statements.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

The Company owns and operates horse racetracks in California, Florida, Maryland, Texas, Oklahoma, Ohio, Michigan, Oregon and Ebreichsdorf, Austria and, under a management agreement, operates a Pennsylvania racetrack previously owned by the Company, and supplies, via simulcasting, live racing content to the growing inter-track, off-track and account wagering markets. The Company operates or manages eight thoroughbred racetracks, one standardbred (harness racing) racetrack, two racetracks that run both thoroughbred and quarterhorse meets and one racetrack that runs both thoroughbred and standardbred meets, as well as the simulcast wagering venues at these tracks. Three of our racetracks, Gulfstream Park in Florida, Remington Park in Oklahoma and Magna Racino™ in Austria, include casino operations with alternative gaming machines. In addition, the Company operates off-track betting facilities, a United States national account wagering business known as XpressBet®, which permits customers to place wagers by telephone and over the Internet on horse races at over 100 North American racetracks and internationally on races in Australia, South Africa and Dubai and a European account wagering service known as MagnaBet™. The Company also owns and operates HorseRacing TV™ ("HRTV™"), a television network focused on horse racing that was initially launched on the Racetrack Television Network ("RTN"). RTN, in which the Company has a minority interest, was formed to telecast races from the Company's racetracks and other racetracks to paying subscribers, via private direct to home satellite. In April 2006, the Company entered into an agreement with Churchill Downs Incorporated ("CDI") and Racing UK Limited ("Racing UK") to partner in a subscription television channel called "Racing World" that broadcasts races from the Company's and CDI's racetracks, as well as other North American and international racetracks, into the United Kingdom and Ireland. The Company also owns AmTote International, Inc. ("AmTote"), a provider of totalisator services to the pari-mutuel industry. To support certain of the Company's thoroughbred racetracks, the Company also owns and operates thoroughbred training centers situated near San Diego, California, in Palm Beach County, Florida and in the Baltimore, Maryland area. The Company also owns and operates production facilities in Austria and in North Carolina for StreuFex™, a straw-based horse bedding product.

At December 31, 2006, in addition to racetracks, the Company's real estate portfolio includes three residential developments in various stages of development in Austria, the United States and Canada. All of the Company's interests and rights in the Canadian residential development were disposed of subsequent to December 31, 2006 (refer to Note 23).

These consolidated financial statements have been prepared in U.S. dollars following United States generally accepted accounting principles ("U.S. GAAP").

Principles of Consolidation

These consolidated financial statements include the accounts of Magna Entertainment Corp. and its subsidiaries (collectively the "Company"). All significant intercompany balances and transactions have been eliminated. Investments in entities in which the Company does not control, but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Investments in which the Company does not have the ability to exercise significant influence over operating and financial policies are accounted for under the cost method.

89

Cash and Cash Equivalents

Cash and cash equivalents include cash on account, demand deposits and short-term investments with remaining maturities of less than three months at acquisition and exclude restricted cash, which represents segregated cash accounts held by the Company on behalf of others, primarily horse owners.

Inventories

Inventories, consisting primarily of totalisator terminal components and food and beverage supplies, are stated at the lower of cost (first-in, first-out) or market.

Real Estate Properties

Revenue-Producing Racing Real Estate

Revenue-producing racing real estate is valued at cost, which includes acquisition and development costs. Development costs include all direct construction costs, capitalized interest and indirect costs wholly attributable to development. Buildings are depreciated on a straight-line basis over periods ranging from 20 to 40 years.

Excess Racing Real Estate

Excess racing real estate is real estate at the Company's racetracks that is being considered for development with potential strategic partners or otherwise. Excess racing real estate currently consists of land adjacent to certain of the Company's racetracks including Santa Anita Park, Gulfstream Park, Lone Star Park at Grand Prairie, Laurel Park, Pimlico Race Course and Magna Racino™. Excess racing real estate is valued at cost, which includes acquisition and development costs. Development costs include all direct construction costs, capitalized interest and indirect costs wholly attributable to development.

Development Real Estate

Development real estate is valued at cost, which includes acquisition and development costs. Development costs include all direct construction costs, capitalized interest and indirect costs wholly attributable to development.

Revenue-Producing Non-Racing Real Estate

Revenue-producing non-racing real estate includes residential development real estate. Revenue-producing non-racing real estate is valued at cost, which includes acquisition and development costs. Development costs include all direct construction costs, capitalized interest and indirect costs wholly attributable to development. Buildings are depreciated on a straight-line basis over periods ranging from 20 to 40 years.

Non-Core Real Estate

Non-core real estate includes properties available for sale. Properties available for sale are valued at the lower of cost, which includes acquisition and development costs, and fair value less costs of disposal. The Company evaluates the lower of cost and fair value less costs of disposal whenever events or changes in circumstance indicate possible impairment.

Fixed Assets

Fixed assets are recorded at cost, less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the fixed assets as follows: machinery and equipment over 3 to 15 years, computer hardware and software (which is included within furniture and fixtures) over 3 to 5 years and furniture and fixtures over 5 to 7 years.

Government grants and tax credits received for capital expenditures are reflected as a reduction of the cost of the related asset.

Impairment of Long-Lived Assets

Long-lived assets not available for sale are tested for recoverability whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If such events or changes in circumstances are present, the Company assesses the recoverability of the long-lived assets by determining whether the carrying value of such assets can be recovered through projected undiscounted cash

90

flows. If the sum of expected future cash flows, undiscounted and without interest charges, is less than net book value, the excess of the net book value over the estimated fair value, based on discounted future cash flows and appraisals, is charged to operations in the period in which such impairment is determined by management.

When long-lived assets are identified by the Company as available for sale, if necessary, the carrying value is reduced to the estimated fair value less costs of disposal. Fair value is determined based upon discounted cash flows of the assets, appraisals and, if appropriate, current estimated net sales proceeds from pending offers.

Goodwill

Goodwill represents the excess of the cost of an acquired enterprise over the net of the amounts assigned to assets acquired and liabilities assumed. Goodwill is evaluated for impairment on an annual basis or when impairment indicators are present. Goodwill impairment is assessed based on a comparison of the fair value of a reporting unit to the underlying carrying value of the reporting unit's net assets, including goodwill. When the carrying amount of the reporting unit exceeds its fair value, the reporting unit's goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The fair value of goodwill is determined using the estimated discounted future cash flows of the reporting unit.

Racing Licenses

Racing licenses, which were acquired through the Company's acquisition of racetracks, represent the value attributed to licenses to conduct race meets. Racing licenses are intangible assets that meet the definition of an indefinite life intangible and are not subject to amortization, but are evaluated for impairment on an annual basis or when impairment indicators are present. Racing license impairment is assessed based on a comparison of the fair value of an individual reporting unit's racing license to its carrying value. An impairment write-down to fair value would occur if the estimated discounted cash flows from operations less charges for contributory assets assumed to be owned by third parties is less than the carrying value of the racing license.

Revenue Recognition

The Company records operating revenues associated with horse racing on a daily basis. Pari-mutuel wagering revenues are recognized gross of purses, stakes and awards and pari-mutuel wagering taxes. The costs relating to these amounts are shown as "pari-mutuel purses, awards and other".

Gaming revenues represent the net win earned on slot wagers. Net win is the difference between wagers placed and winning payouts to patrons, and is recorded at the time wagers are made. Gaming taxes, purses and other represent statutory required amounts to be distributed to the state as tax and to the horsemen to supplement purses.

Non-wagering revenues include totalisator equipment sales and service revenues from AmTote earned in the provision of totalisator services to racetracks, food and beverage sales, program sales, admissions, parking, sponsorship, rental fees and other revenues. Revenues derived principally from totalisator equipment sales are recognized upon shipment or acceptance of the equipment by the customer depending on the terms of the underlying contracts. Revenues generated from service contracts in the provision of totalisator services are recognized when earned based on the stipulations contained in the contract. Revenues from food and beverage and program sales are recorded at the time of sale. Revenues from admissions and parking are recorded on a daily basis, except for seasonal amounts which are recorded ratably over the racing season. Revenues from sponsorship and rental fees are recorded ratably over the terms of the respective agreements or when the related event occurs.

Revenues from the sale of residential development inventory are recognized when title passes to the purchaser and collection is reasonably assured. Properties which have been sold, but for which these criteria have not been satisfied, are included in development real estate.

Golf course annual membership fee revenues included in discontinued operations are recognized as revenue ratably over the applicable season.

Deferred Revenues

Deferred revenues associated with racing operations consist primarily of prepaid box seats, admission tickets and parking, which are recognized as revenue ratably over the period of the related race meet or when the related racing event occurs.

Golf membership initiation fees included in discontinued operations are deferred and amortized over the expected membership life.

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Seasonality

The Company's racing business is seasonal in nature. The Company's racing revenues and operating results for any quarter will not be indicative of the racing revenues and operating results for the year. The Company's racing operations have historically operated at a loss in the second half of the year, with the third quarter generating the largest operating loss. This seasonality has resulted in large quarterly fluctuations in revenue and operating results.

Advertising

Costs incurred for producing advertising associated with horse racing are generally expensed when the advertising program commences. Costs incurred with respect to promotions for specific live race days are expensed on the applicable race day.

Player Slots Rewards

The Company provides slot patrons with rewards based on the dollar amount of play on slot machines. The corresponding liability is based on an estimate of the value of expected redemption, determined using redemption experience and reward values.

Foreign Currency Translation

Assets and liabilities of self-sustaining foreign operations are translated using the exchange rate in effect at the year-end and revenues and expenses are translated at the average rate during the year. The accumulated exchange gain or loss resulting from translating each foreign subsidiary's financial statements from its functional currency to U.S. dollars is included in accumulated comprehensive income in shareholders' equity. The appropriate amounts of exchange gains or losses included in accumulated comprehensive income are reflected in operations when there is a sale or partial sale of the Company's investment in these operations or upon a complete or substantially complete liquidation of the investment.

Income Taxes

The Company follows the liability method of tax allocation for accounting for income taxes. Under the liability method of tax allocation, future tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided to the extent that it is more likely than not that future tax assets will not be realized.

Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of shares of Class A Subordinate Voting Stock and Class B Stock outstanding during the year. Diluted earnings (loss) per share reflects the assumed conversion of all dilutive securities using the "if converted" method for convertible debentures and the "treasury stock" method for options.

Under the "if converted" method:

•

The convertible subordinated notes are assumed to be converted at the beginning of the period (or at the issuance, if later) and net income (loss) is increased (decreased) by related interest.

Under the "treasury stock" method:

•

The exercise of options is assumed to be at the beginning of the period (or at the time of issuance, if later);



•

The proceeds from the exercise of options are assumed to be used to purchase Class A Subordinate Voting Stock at the average market price during the period; and



•

The incremental number of shares of Class A Subordinate Voting Stock (the difference between the number of shares assumed issued and the number of shares assumed purchased) is included in the denominator of the diluted earnings (loss) per share calculation.

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Interest Rate Swaps

The Company utilizes, on occasion, interest rate swap contracts to hedge exposure to interest rate fluctuations on its variable rate debt. The fair value of the swaps is recorded on the consolidated balance sheets as an asset or liability with the offset recorded in other comprehensive income (loss), net of income taxes. Any changes in the market value of the swaps are adjusted to the asset or liability account and recorded net of income taxes in other comprehensive income (loss). The Company formally assesses, at the swap's inception and on an on-going basis, whether the swap used in the hedging transaction has been highly effective in offsetting changes in the cash flows of the hedged item and whether the swap may be expected to remain highly effective in future periods. When it is determined that the swap is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge accounting prospectively.

Deferred Financing Costs

The costs of issuing long-term debt are capitalized and amortized over the term of the related debt.

Self Insurance

The Company self-insures for employee medical and dental coverages up to $125 thousand per incident. Self-insurance reserves include known claims and estimates of incurred but not reported claims based upon the Company's claims experience. The Company also maintains stop-loss insurance coverage for medical claims that exceed $125 thousand per incident.

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect: the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management believes that the estimates utilized in preparing the consolidated financial statements are reasonable and prudent, however, actual results could differ from those estimates.

Comparative Amounts

Certain of the comparative amounts have been reclassified to conform to the current year's method of presentation and to reflect discontinued operations and changes in assets held for sale.

Impact of Recently Issued Accounting Standards

Under Staff Accounting Bulletin 74, the Company is required to disclose certain information related to new accounting standards, which have not yet been adopted due to delayed effective dates.

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company's consolidated financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes", and prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision taken or expected to be taken in a tax return. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently reviewing FIN 48, but has not yet determined the impact on the Company's consolidated financial statements.

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

3.     ACCOUNTING CHANGES

(a)

Employee Defined Benefit and Postretirement Plans

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS 158"). SFAS 158 requires employers to recognize the funded status (the difference between the fair

93

value of plan assets and the projected benefit obligations) of a defined benefit postretirement plan as an asset or liability on the consolidated balance sheet with a corresponding adjustment to accumulated comprehensive income (loss), net of tax, measure the fair value of plan assets and benefit obligations as of the balance sheet date and provide additional disclosures about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations.

On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS 158. The adjustment to accumulated comprehensive income (loss) upon adoption represents the net unrecognized actuarial gain or loss determined in accordance with SFAS No. 87, "Employers' Accounting for Pension" ("SFAS 87"), which was previously netted against the plan's funded status pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as net periodic pension cost pursuant to the Company's historical accounting policy for amortizing such amounts. Actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of other comprehensive income (loss). Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated comprehensive income (loss) upon adoption of SFAS 158.

The effect of adopting SFAS 158 on the Company's consolidated balance sheets at December 31, 2006 is presented in the following table. The adoption of SFAS 158 had no effect on the Company's consolidated balance sheet at December 31, 2005 and on the consolidated statements of operations for the years ended December 31, 2006, 2005 and 2004.

	December 31, 2006
	Prior to Adoption		Effect of Adoption			As Reported
Accrued pension and postretirement liability	$	1,827	$	1,347		$	3,174
Future tax liability (asset), net	$	49,257	$	(539	)	$	48,718
Accumulated comprehensive income (loss)	$	41,415	$	(808	)	$	40,607

Included in accumulated comprehensive income at December 31, 2006 is an unrecognized actuarial gain of $0.8 million, net of tax, that has not yet been recognized in net periodic pension cost. The actuarial gain included in accumulated comprehensive income and expected to be recognized in net periodic pension cost during the year ended December 31, 2007 is $0.1 million, net of tax.

SFAS 158's provisions regarding the change in the measurement date of postretirement benefit plans are not applicable as the Company currently uses a measurement date of December 31 for its pension and postretirement plans.

(b)

Stock-Based Compensation

Prior to January 1, 2006, the Company accounted for stock-based compensation under the recognition and measurement provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). No stock-based compensation expense was recognized in the consolidated statements of operations and comprehensive loss related to stock options for the years ended December 31, 2005 and 2004 as all options granted had an exercise price no less than the fair market value of the Company's Class A Subordinate Voting Stock at the date of grant.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), "Share-Based Payment" ("SFAS 123(R)"), using the modified-prospective method. Under the modified-prospective method, compensation expense recognized in the year ended December 31, 2006 includes: (a) compensation expense for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Results for the years ended December 31, 2005 and 2004 have not been restated.

The Company's loss from continuing operations before income taxes, net loss from continuing operations and net loss for the year ended December 31, 2006 increased $1.4 million and basic and diluted loss per share increased $0.01 per share as a result of adopting SFAS 123(R) on January 1, 2006.

As a result of the adoption of SFAS 123(R), for the year ended December 31, 2006, the Company recognized $1.4 million of stock-based compensation expense related to stock options which has been recorded on the consolidated balance sheets as "paid-in-capital". The adoption of SFAS 123(R) for the year ended December 31, 2006 had no impact on cash flows. The Company

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has estimated a nominal annual effective tax rate for the year ended December 31, 2006 and accordingly has applied this effective tax rate to the stock-based compensation expense recognized for the year ended December 31, 2006 resulting in a nominal income tax impact related to stock-based compensation expense.

The pro-forma impact on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based compensation for the years ended December 31, 2005 and 2004 is as follows:

		Years ended December 31,
		2005			2004
Net loss, as reported		$	(105,293	)	$	(95,636	)
Pro-forma stock compensation expense determined under the fair value method, net of tax			(877	)		(972	)
Pro-forma net loss		$	(106,170	)	$	(96,608	)
Loss per share
	Basic — as reported	$	(0.98	)	$	(0.89	)
	Basic — pro-forma	$	(0.99	)	$	(0.90	)
	Diluted — as reported	$	(0.98	)	$	(0.89	)
	Diluted — pro-forma	$	(0.99	)	$	(0.90	)

(c)

Intangible Assets

In accordance with a United States Securities and Exchange Commission staff announcement, effective January 1, 2005, the Company changed its method of performing its annual impairment test for its racing licenses from a residual method to a direct value method. This change had no impact on the results of operations for the years ended December 31, 2005 and 2004.

4.     ACQUISITION

On August 22, 2003, MEC Maryland Investments Inc. ("MEC Maryland"), a wholly-owned subsidiary of the Company, acquired a 30% equity interest in AmTote for a total cash purchase price, including transaction costs, of $4.3 million. MEC Maryland had a purchase option (the "First Option") to acquire an additional 30% equity interest in AmTote, exercisable at any time during the three-year period commencing after the date of acquisition. If MEC Maryland exercised the First Option, it had a second purchase option (the "Second Option") to acquire the remaining 40% equity interest in AmTote, exercisable at any time during the three-year period commencing after the date that the First Option was exercised. In addition, if the Company exercised the First Option, the holders of the AmTote shares had a put option, exercisable within 120 days of the exercise date of the First Option whereby MEC Maryland could have been required to purchase the remaining 40% equity interest on 60 days notice.

On July 26, 2006, MEC Maryland acquired the remaining 70% equity interest of AmTote for a total cash purchase price of $9.3 million, including transaction costs of $0.1 million, net of cash acquired of $5.5 million. AmTote is a leading provider of totalisator services to the North American pari-mutuel industry with service contracts with over 70 North American racetracks and other wagering entities. The results of AmTote have been consolidated from July 26, 2006 and are included in the racing and gaming — Technology operations segment. Prior to July 26, 2006, the results of AmTote were accounted for on an equity basis (refer to Note 11).

The purchase price has been allocated to the assets and liabilities acquired as follows:

Non-cash working capital	$	1,203
Fixed assets		12,008
Other assets		127
Goodwill		683
Long-term debt		(1,470	)
Other long-term liabilities		(980	)
Future tax liabilities		(2,224	)
Net assets acquired and total purchase price, net of cash acquired	$	9,347

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The purchase price allocation for this acquisition and the impact of any preexisting relationship per EITF 04-1, "Accounting for Preexisting Relationships between the Parties to a Business Combination", is preliminary and may be adjusted further as a result of obtaining additional information regarding preliminary estimates of fair values made at the date of purchase.

5.     ASSETS HELD FOR SALE

(a)

On November 3, 2005, the Company announced that one of its subsidiaries that owns approximately 157 acres of excess real estate in Palm Beach County, Florida had entered into an agreement to sell the real property to Toll Bros., Inc. (the "purchaser"), a Pennsylvania real estate development company for $51.0 million in cash. The proposed sale was subject to the completion of due diligence by the purchaser by April 3, 2006 and a closing by April 28, 2006. Accordingly, the excess real estate was classified as "assets held for sale" at December 31, 2005. On April 3, 2006, the Company announced the termination of the sale agreement and, as such, the purchaser did not proceed with the proposed sale as stipulated in the agreement. With the termination of the sale agreement, the Company determined that the plan of sale criteria under SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", are no longer met and accordingly, the property has been reclassified to reflect the carrying amount of the property in "real estate properties, net" rather than in "assets held for sale" on the consolidated balance sheets.



(b)

On November 9, 2005, the Company announced that it had entered into a share purchase agreement (the "Initial SPA") with PA Meadows, LLC, a company jointly owned by William Paulos and William Wortman, controlling shareholders of Millennium Gaming, Inc. and a fund managed by Oaktree Capital Management, LLC ("Oaktree" and together, with PA Meadows, LLC, "Millennium-Oaktree"), providing for the acquisition by Millennium-Oaktree of all of the outstanding shares of Washington Trotting Association, Inc., Mountain Laurel Racing, Inc. and MEC Pennsylvania Racing, Inc. (collectively "The Meadows"), each wholly-owned subsidiaries of the Company, through which the Company owned and operated The Meadows, a standardbred racetrack in Pennsylvania. On July 26, 2006, the Company announced that it had entered into an amended share purchase agreement, which modified the Initial SPA with respect to the sale of The Meadows. As a result of regulatory requirements relating to the approval of the issuance of a gaming license by the Pennsylvania Gaming Control Board, as well as significant changes in the economic and regulatory environment in Pennsylvania since the date of the Initial SPA, including regulations adopted by the Pennsylvania Department of Revenue in respect of the amount of local share assessment taxes payable to North Strabane Township and Washington County, the parties agreed to revise the terms of the Initial SPA. The $225.0 million purchase price in the Initial SPA, which included a $39.0 million holdback note, was reduced to $200.0 million, with a $25.0 million holdback note, payable to the Company over a five-year period, subject to offset for certain indemnification obligations. Concurrently with entering into the amended share purchase agreement, the parties entered into a racing services agreement whereby the Company will pay $50 thousand per annum and will continue to operate for its own account, the racing operations at The Meadows, for at least five years. On November 14, 2006, the Company completed The Meadows transaction and received cash consideration of $171.8 million, net of transaction costs of $3.2 million, and the holdback note in the amount of $25.0 million. Also, on November 14, 2006, the holdback note agreement was amended such that the Company agreed to release the security requirement for the holdback amount, defer subordinate payments under the holdback, defer receipt of holdback payments until the opening of the permanent casino at The Meadows and defer receipt of holdback payments to the extent of available cash flows as defined in the holdback agreement, in exchange for Millennium-Oaktree providing an additional $25.0 million of equity support for PA Meadows, LLC. This transaction established fair values of the assets of The Meadows and accordingly, the Company performed impairment testing of these assets as of the date immediately prior to completion of the transaction. Based on this analysis, the Company recognized a non-cash impairment loss of $11.2 million related to the long-lived assets and a gain of $126.4 million related to the disposition of the intangible assets, representing the racing/gaming licenses. Based on the terms of the racing services agreement and the holdback note agreement, the sale of The Meadows' real estate properties and fixed assets were not accounted for as a sale and leaseback, but rather using the financing method of accounting under U.S. GAAP as the Company was deemed to have a continuing interest in the transaction. Accordingly, for accounting purposes, $12.8 million of the proceeds were deferred and recorded as "other long-term liabilities" on the consolidated balance sheet at December 31, 2006. The deferred proceeds will be recognized in the consolidated statements of operations and comprehensive loss over the five-year term of the racing services agreement and/or at the point when the sale leaseback subsequently qualifies for sales recognition. As a result of the real estate properties and fixed assets being accounted for using the financing method of accounting, $17.7 million of these assets that were previously classified as "assets held for sale" (refer to Note 5(c)) have been reclassified to "real estate properties, net" and "fixed assets, net" at December 31, 2006. Given the indemnification obligations and other terms contained in the holdback agreement, the $25.0 million holdback note is considered continuing involvement and will be recognized in the consolidated financial statements upon the settlement of indemnification obligations and as payments are received.

In accordance with the terms of the senior secured revolving credit facility and the Company's bridge loan agreement with MID, the Company used the net proceeds from The Meadows transaction to fully pay down principal amounts outstanding under the

96

bridge loan and to permanently pay down $39.0 million of the principal amounts outstanding under the senior secured revolving credit facility. The Company also repaid $2.0 million of a construction loan and placed $15.0 million into escrow with MID.

(c)

The Company's assets held for sale and related liabilities at December 31, 2005 are shown below. The Company did not have any assets held for sale and related liabilities at December 31, 2006. All assets held for sale and related liabilities were classified as current at December 31, 2005 as the assets and related liabilities described in section (b) above were sold within one year from the balance sheet date.

		December 31, 2005
		(restated notes 5(a) and (b))
ASSETS
Current assets:
	Restricted cash	$	443
	Accounts receivable		450
	Income taxes receivable		857
	Inventories		157
	Prepaid expenses and other		812
	Racing license		58,266
	Other assets, net		200
		$	61,185
LIABILITIES
Current liabilities:
	Accounts payable	$	2,012
	Accrued salaries and wages		44
	Other accrued liabilities		623
	Deferred revenue		312
	Future tax liabilities		24,445
		$	27,436

6.     DISCONTINUED OPERATIONS

(a)

On November 1, 2006, a wholly-owned subsidiary of the Company completed the sale of the Fontana Golf Club located in Oberwaltersdorf, Austria to a subsidiary of Magna International Inc. ("Magna"), a related party, for a sale value of Euros 30.0 million (U.S. $38.3 million), which included cash consideration of Euros 13.2 million (U.S. $16.9 million), net of transaction costs, and approximately Euros 16.8 million (U.S. $21.4 million) of debt assumed by Magna. The Company recognized a gain on disposition of approximately $20.9 million, net of tax, which was recorded as a contribution of equity on the consolidated balance sheets.



(b)

On August 25, 2006, a wholly-owned subsidiary of the Company completed the sale of the Magna Golf Club located in Aurora, Ontario, Canada to Magna, for cash consideration of Cdn. $51.8 million (U.S. $46.4 million), net of transaction costs. The Company recognized an impairment loss of $1.2 million at the date of disposition equal to the excess of the Company's carrying value of the assets disposed over their fair values at the date of disposition. Of the sale proceeds, Cdn. $32.6 million (U.S. $29.3 million) was used to pay all amounts owing under certain loan agreements with Bank Austria Creditanstalt AG related to the Magna Golf Club.



(c)

On May 26, 2006, the Company completed the sale of a restaurant and related real estate in the United States and received cash consideration of $2.0 million, net of transaction costs, and recognized a gain on disposition of approximately $1.5 million.



(d)

On August 16, 2005, the Company and Great Canadian Gaming Corporation ("GCGC") entered into a share purchase agreement under which GCGC acquired all of the outstanding shares of Ontario Racing, Inc. ("ORI"). Required regulatory approval for the sale transaction was obtained on October 17, 2005 and the Company completed the transaction on October 19, 2005. On closing, GCGC paid Cdn. $50.7 million (U.S. $43.1 million) and U.S. $23.6 million, in cash and assumed ORI's existing debt.

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As required under U.S. GAAP, the Company's long-lived assets and racing licenses are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The sale transaction described above established fair values of certain assets of Flamboro Downs and accordingly, the Company performed impairment testing of these assets at June 30, 2005. Based on this analysis, the Company recognized a non-cash impairment loss of $15.0 million before income taxes or $12.5 million after income taxes of Flamboro Downs' racing license.

(e)

On August 18, 2005, three subsidiaries of the Company entered into a share purchase agreement with Colonial Downs, L.P. ("Colonial LP") pursuant to which Colonial LP purchased all of the outstanding shares of Maryland-Virginia Racing Circuit, Inc. ("MVRC"). MVRC was an indirect subsidiary of the Company that managed the operations of Colonial Downs, a thoroughbred and standardbred horse racetrack located in New Kent, Virginia, pursuant to a management agreement with Colonial LP, the owner of Colonial Downs. Required regulatory approval for the sale transaction was obtained on September 28, 2005 and the Company completed the transaction on September 30, 2005. On closing, the Company received cash consideration of $6.8 million, net of transaction costs, and a one-year interest-bearing note in the principal amount of $3.0 million, which was repaid during the year ended December 31, 2006. The Company recognized a gain on disposition of approximately $9.8 million.



(f)

The Company's results of operations related to discontinued operations for the years ended December 31, 2006, 2005 and 2004 are as follows:

	Years ended December 31,
	2006			2005			2004
Results of Operations
Revenues	$	14,593		$	42,710		$	48,184
Costs and expenses		11,205			32,786			33,644
		3,388			9,924			14,540
Depreciation and amortization		2,156			3,765			3,848
Interest expense, net		2,040			3,872			2,141
Impairment loss recorded on disposition		1,202			14,961			—
Income (loss) before gain on disposition		(2,010	)		(12,674	)		8,551
Gain on disposition		1,495			9,837			—
Income (loss) before income taxes		(515	)		(2,837	)		8,551
Income tax expense		1,653			492			3,270
Net income (loss)	$	(2,168	)	$	(3,329	)	$	5,281

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The Company's assets and liabilities related to discontinued operations at December 31, 2005 are shown below. The Company did not have any assets or liabilities related to discontinued operations at December 31, 2006.

	December 31, 2005
ASSETS
Current assets:
Accounts receivable	$	1,777
Income taxes receivable		3
Inventories		919
Prepaid expenses and other		24
		2,723
Real estate properties, net		73,106
Fixed assets, net		4,437
Other assets, net		974
Future tax assets		7,842
		86,359
	$	89,082
LIABILITIES
Current liabilities:
Accounts payable	$	447
Accrued salaries and wages		456
Other accrued liabilities		2,806
Income taxes payable		4,192
Long-term debt due within one year		5,651
Deferred revenue		2,057
		15,609
Long-term debt		44,559
Other long-term liabilities		11,170
		55,729
	$	71,338

7.     SALE AND LEASE ARRANGEMENT OF GREAT LAKES DOWNS

On August 24, 2004, MI Racing Inc., a wholly-owned subsidiary of the Company, sold the real property and associated racetrack license of Great Lakes Downs to Richmond Racing Co., LLC ("Richmond Racing") for approximately $4.2 million. The consideration included cash of $0.2 million and the issuance of a 20-year promissory note with a principal amount of $4.0 million.

The promissory note, which bears interest at 5% per annum, is repayable by Richmond Racing in monthly principal and interest payments of $26 thousand until maturity. MI Racing Inc. also has an option to repurchase the property and associated racetrack license of Great Lakes Downs from Richmond Racing in the event the Company is unsuccessful in obtaining a racetrack license for a proposed racetrack in Romulus, Michigan or in the event that state law in Michigan is amended to allow an entity to hold more than one racetrack license.

MI Racing Inc. has also entered into a lease agreement with Richmond Racing, which gives MI Racing Inc. the conditional right to continue operating Great Lakes Downs and conducting thoroughbred race meetings at the racetrack. The lease is for an initial term of five years with an option to renew the lease for up to three additional periods of five years each. The lease requires MI Racing Inc. to make monthly rental payments of $30 thousand to Richmond Racing.

99

Based on the terms contained in the sale and lease arrangement between MI Racing Inc. and Richmond Racing, for accounting purposes, the transaction has not been accounted for as a sale and leaseback, but rather using the financing method of accounting under U.S. GAAP.

On January 18, 2007, the Company announced that the 2007 race meet will be the last meet that MI Racing, Inc. will run at Great Lakes Downs.

8.     WRITE-DOWN OF LONG-LIVED ASSETS

The Company's long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If such events or changes in circumstances are present, the Company assesses the recoverability of the long-lived assets by determining whether the carrying value of such assets can be recovered through projected undiscounted cash flows. If the sum of expected future cash flows, undiscounted and without interest charges, is less than net book value, the excess of the net book value over the estimated fair value, based on discounted future cash flows and appraisals, is charged to operations in the period in which such impairment is determined by management. The long-lived assets consist of fixed assets and real estate properties.

Write-downs and impairment losses relating to long-lived assets recognized are as follows:

	Years ended December 31,
	2006(i)		2005		2004(ii)
Magna Racino™	$	76,166	$	—	$	—
Residential development real estate		1,279		—		—
The Meadows		11,182		—		—
Gulfstream Park		—		—		26,252
The Maryland Jockey Club		—		—		433
	$	88,627	$	—	$	26,685

(i)

The Company tested Magna Racino™'s long-lived assets for impairment upon completion of its 2007 business plan. The Company used an expected present value approach of estimated future cash flows, including a probability-weighted approach in considering the likelihood of possible outcomes, and external valuation reports to determine the fair value of the long-lived assets. Based on this analysis, a non-cash impairment charge of $76.2 million was required of the long-lived assets for the year ended December 31, 2006, which is included in the racing and gaming — European operations segment.

On February 7, 2007 (refer to Note 23(d)), MID acquired all of the Company's interests and rights in a 34 acre parcel of residential development land in Aurora, Ontario, Canada for cash consideration of Cdn. $12.0 million (U.S. $10.1 million). Based on this transaction, which established a fair value for the land, the Company recognized a non-cash impairment loss of $1.3 million related to this parcel of residential development land for the year ended December 31, 2006, which is included in the real estate and other operations segment.

On November 14, 2006, the Company completed The Meadows transaction, which established fair values of certain assets of The Meadows. Accordingly, the Company performed impairment testing of these assets as of the date immediately prior to completion of the transaction. Based on this analysis, the Company recognized a non-cash impairment loss of $11.2 million of The Meadows' long-lived assets for the year ended December 31, 2006, which is included in the racing and gaming — Northern U.S. operations segment (refer to Note 5(b)).

(ii)

During the year ended December 31, 2004, the Company commenced a major redevelopment of its Gulfstream Park racetrack and demolished certain long-lived assets. As a result, the Company recognized a non-cash write-down of $26.3 million related to Gulfstream Park's long-lived assets in connection with the redevelopment, which is included in the racing and gaming — Florida operations segment.

During the year ended December 31, 2004, the Company also commenced the redevelopment of the racing surfaces at Laurel Park. As a result, the Company recognized a non-cash write-down of $0.4 million related to Laurel Park's long-lived assets in connection with the redevelopment, which is included in the racing and gaming — Maryland operations segment.

100

9.     REAL ESTATE PROPERTIES

Real estate properties consist of the following:

		December 31,
		2006			2005
Revenue-producing racing real estate
Cost
	Land and improvements	$	213,070		$	213,321
	Buildings		634,667			509,057
	Construction in progress		19,024			119,247
			866,761			841,625
Accumulated depreciation
	Buildings		(178,510	)		(95,338	)
Revenue-producing racing real estate, net			688,251			746,287
Excess racing real estate			96,951			96,303
Development real estate
Cost
	Land and improvements		45,737			45,332
	Construction in progress		5,096			3,155
Development real estate			50,833			48,487
Revenue-producing non-racing real estate
Cost
	Land and improvements		6,521			6,187
	Buildings		3,410			3,723
			9,931			9,910
Accumulated depreciation
	Buildings		(72	)		(74	)
Revenue-producing non-racing real estate, net			9,859			9,836
Non-core real estate
Cost
	Land and improvements		—			2,482
	Buildings		—			71
			—			2,553
Accumulated depreciation
	Buildings		—			(53	)
Non-core real estate, net			—			2,500
		$	845,894		$	903,413

Included in revenue-producing racing real estate properties are land and improvements and buildings under capital leases with a cost of $45.6 million (December 31, 2005 — $45.6 million) and accumulated depreciation of $8.9 million (December 31, 2005 — $6.8 million). Also, included in revenue-producing racing real estate properties are land and improvements and buildings related to The Meadows that are being accounted for using the financing method of accounting (refer to Note 5(b)) with a cost of $7.9 million (December 31, 2005 — $20.5 million) and accumulated depreciation of $1.0 million (December 31, 2005 — $4.3 million).

The classifications of properties above represent the Company's current intentions with respect to future use (e.g. development or sale).

101

10.   FIXED ASSETS

Fixed assets consist of the following:

		December 31,
		2006			2005
Revenue-producing racing fixed assets
Cost
	Machinery and equipment	$	96,526		$	65,046
	Furniture and fixtures		77,263			50,723
			173,789			115,769
Accumulated depreciation
	Machinery and equipment		(36,387	)		(26,286	)
	Furniture and fixtures		(44,325	)		(30,327	)
Revenue-producing racing fixed assets, net			93,077			59,156
Revenue-producing non-racing fixed assets
Cost
	Furniture and fixtures		584			236
			584			236
Accumulated depreciation
	Furniture and fixtures		(520	)		(153	)
Revenue-producing non-racing fixed assets, net			64			83
		$	93,141		$	59,239

Included in revenue-producing racing fixed assets are machinery and equipment and furniture and fixtures under capital leases with a cost of $1.9 million (December 31, 2005 — $1.9 million) and accumulated depreciation of $1.7 million (December 31, 2005 — $1.6 million). Also, included in revenue-producing racing fixed assets are machinery and equipment and furniture and fixtures related to The Meadows that are being accounted for using the financing method of accounting (refer to Note 5(b)) with a cost of $1.0 million (December 31, 2005 — $3.4 million) and accumulated depreciation of $0.7 million (December 31, 2005 — $1.8 million).

11.   OTHER ASSETS

Other assets consist of the following:

	December 31,
	2006		2005
Deferred development costs	$	1,026	$	5,356
Goodwill		1,706		413
Fair value of interest rate swaps (note 18(c))		439		586
Long-term receivables		379		1,036
Equity investments		233		5,878
Other		881		733
	$	4,664	$	14,002

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12.   INCOME TAXES

(a)

The provision (benefit) for income taxes differs from the expense that would be obtained by applying the United States federal statutory rate as a result of the following:

	Years ended December 31,
	2006			2005			2004
Expected provision:
Federal statutory income tax rate (35%)	$	(32,308	)	$	(36,121	)	$	(37,047	)
State income tax, net of federal benefit		287			314			586
Tax losses not benefited (utilized)		6,439			28,969			30,760
Foreign rate differentials		9,230			848			58
Change in enacted income tax rates		—			—			(5,225	)
Foreign dividends		1,255			1,599			1,894
Non-deductible expenses		2,847			2,980			4,524
Tax on capital gain on like-kind exchange of property		2,853			—			—
Taxable gain on related party property sale		3,351			—			—
Other		(1,078	)		172			(489	)
Income tax benefit	$	(7,124	)	$	(1,239	)	$	(4,939	)

At December 31, 2006, the Company had United States and Austrian federal income tax loss carry-forwards totaling approximately $242.2 million. Of the $242.2 million in loss carry-forwards at December 31, 2006, $78.8 million have no expiration date and the remainder expire as follows:

Years:
2008 to 2010	$	3,100
2012 to 2018		4,700
2020 to 2026		155,600
	$	163,400

There are annual limitations on the utilization of certain loss carry-forwards subject to expiration.

The Company also has U.S. state income tax loss carry-forwards available.

(b)

The details of the earnings (loss) from continuing operations before income taxes by jurisdiction are as follows:

	Years ended December 31,
	2006			2005			2004
United States	$	702		$	(77,307	)	$	(84,940	)
Foreign		(93,009	)		(25,896	)		(20,916	)
	$	(92,307	)	$	(103,203	)	$	(105,856	)

103

(c)

The details of the income tax provision (benefit) are as follows:

	Years ended December 31,
	2006			2005			2004
Current income tax provision
United States	$	1,651		$	774		$	663
Foreign		3,205			219			302
		4,856			993			965
Future income tax provision (benefit)
United States		(180	)		(76	)		42
Foreign		(11,800	)		(2,156	)		(5,946	)
		(11,980	)		(2,232	)		(5,904	)
	$	(7,124	)	$	(1,239	)	$	(4,939	)

(d)

Future income taxes have been provided on temporary differences, which consist of the following:

	Years ended December 31,
	2006			2005			2004
Tax deferral on sale of real estate	$	—		$	(570	)	$	1,956
Amortization of purchase accounting fair value increments, for tax purposes in excess of book		1,134			1,131			1,928
Non-deductibility of interest expense		(4,196	)		—			—
Tax gain in excess of book gain on disposal of real estate property		(3,502	)		(198	)		(1,635	)
Tax benefit of loss carry-forwards		(3,528	)		(28,948	)		(31,269	)
Asset impairment write-down		(14,602	)		—			—
Increase in valuation allowance		9,615			27,553			30,902
Change in enacted income tax rates		—			—			(5,225	)
Other		3,099			(1,200	)		(2,561	)
	$	(11,980	)	$	(2,232	)	$	(5,904	)

104

(e)

Future tax assets and liabilities consist of the following temporary differences:

		December 31,
		2006			2005
Assets
Real estate properties tax value in excess of book value		$	22,671		$	13,269
Tax benefit of loss carry-forwards
	Pre-acquisition		3,525			3,525
	Post-acquisition		95,726			96,863
Tax benefit of charitable contribution carry-forward			1,629			1,400
Benefit of various tax credit carry-forwards			3,682			2,749
			127,233			117,806
Valuation allowance
Valuation allowance against tax basis of loss carry-forwards
	Pre-acquisition		(3,349	)		(3,349	)
	Post-acquisition		(70,670	)		(59,451	)
Valuation allowance against tax basis of real estate properties in excess of book value			(9,994	)		(9,994	)
Valuation allowance against tax benefit of credit carry-forwards			(832	)		—
Future tax assets		$	42,388		$	45,012
Liabilities
Real estate properties book basis in excess of tax basis		$	55,684		$	69,043
Other assets book basis in excess of tax basis			25,415			20,553
Foreign branch tax deferral and other			10,007			12,006
Future tax liabilities		$	91,106		$	101,602

(f)

Income taxes paid in cash were $5.4 million for the year ended December 31, 2006 (for the year ended December 31, 2005 — $4.2 million; for the year ended December 31, 2004 — $2.9 million).

13.   BANK INDEBTEDNESS

(a)

On July 26, 2006, the Company amended its senior secured revolving credit facility by increasing the maximum permitted borrowings for general corporate purposes to $50.0 million and providing for an additional $14.0 million to finance the Company's purchase of the remaining 70% equity interest of AmTote (refer to Note 4). On November 14, 2006, as required under this amended credit facility, the Company permanently reduced the outstanding borrowings by repaying $39.0 million from proceeds on The Meadows transaction, such that the remaining maximum permitted borrowings were $25.0 million. On December 22, 2006, the Company further amended the credit facility to extend the maturity date to March 30, 2007, to make an additional $15.0 million available, to revise certain financial performance covenants and to increase the applicable interest rate. With the additional amount available, the maximum permitted borrowings under the credit facility is $40.0 million.

The credit facility is available by way of U.S. dollar loans and letters of credit. Loans under the facility are secured by a first charge on the assets of Golden Gate Fields and a second charge on the assets of Santa Anita Park, and are guaranteed by certain subsidiaries of the Company. In addition, the Company has pledged the shares of its wholly-owned subsidiary that owns AmTote. At December 31, 2006, the Company had no borrowings under the credit facility (December 31, 2005 — $27.3 million) but had issued letters of credit totaling $24.7 million (December 31, 2005 — $21.7 million), such that $15.3 million was unused and available.

The loans under the facility bear interest at the U.S. Base rate plus 5% or the London Interbank Offered Rate ("LIBOR") plus 6%. The weighted average interest rate on the loans outstanding under the credit facility at December 31, 2006 was nil given no outstanding borrowings (December 31, 2005 — 9.3%).

(b)

On December 4, 2006, a wholly-owned subsidiary of the Company that owns and operates Santa Anita Park entered into a $10.0 million revolving loan arrangement under its existing credit facility. The revolving loan agreement matures on October 8, 2007. The revolving loan agreement is guaranteed by the Company's wholly-owned subsidiary, the Los Angeles Turf Club,

105

Incorporated ("LATC") and is secured by a first deed of trust on Santa Anita Park and the surrounding real property, an assignment of the lease between LATC, the racetrack operator, and The Santa Anita Companies, Inc. ("SAC") and a pledge of all of the outstanding capital stock of LATC and SAC. At December 31, 2006, the Company had borrowings under the revolving loan agreement of $6.5 million (December 31, 2005 — nil) such that $3.5 million was unused and available. Borrowings under the revolving loan agreement bear interest at the U.S. Prime rate. The weighted average interest rate on the borrowings outstanding under the revolving loan agreement at December 31, 2006 was 8.25% (December 31, 2005 — nil).

(c)

On July 31, 2006, one of the Company's European subsidiaries amended and extended its bank term line of credit of Euros 2.5 million and its bank term loan of Euros 2.9 million. The amendments to the agreement included converting the two facilities into one bank term loan, requiring the repayment of Euros 0.9 million on July 31, 2006, extending the term to July 31, 2007 and requiring a further repayment of Euros 0.7 million on January 31, 2007. The bank term loan bears interest at the Euro Overnight Index Average ("EONIA") rate plus 1.1% per annum, which was 4.8% at December 31, 2006. A European subsidiary has provided two first mortgages on real estate as security for this bank term loan. At December 31, 2006, the amount outstanding under the fully drawn bank term loan is Euros 4.5 million (U.S. $5.9 million) and is included in "long-term debt due within one year" on the consolidated balance sheets. At December 31, 2005, the amount outstanding under the bank term line of credit of Euros 2.5 million (U.S. $3.0 million) is included in "bank indebtedness" on the consolidated balance sheets.

14.   DEBT AND COMMITMENTS

(a)

The Company's long-term debt consists of the following:

	December 31,
	2006		2005
Term loan facility, bearing interest at LIBOR plus 2.0% per annum (6.7% at December 31, 2006; 6.3% at December 31, 2005) with a maturity date of October 7, 2007, subject to a further extension at the Company's option to October 7, 2009. The facility is guaranteed by LATC and is secured by a first deed of trust on Santa Anita Park and the surrounding real property, an assignment of the lease between LATC, the racetrack operator, and SAC and a pledge of all of the outstanding capital stock of LATC and SAC. At December 31, 2006, the term loan is fully drawn and is repayable in monthly principal amounts of $417 thousand until maturity.	$	64,167	$	69,167
Term loan facility of Euros 15.0 million, bearing interest at 4.0% per annum with a maturity date of February 9, 2007, secured by a pledge of land and a guarantee by the Company (refer to Note 23(c) ).		19,794		17,761
Term loan facility of Euros 15.0 million, bearing interest at the three-month Euro Interbank Offered Rate ("EURIBOR") plus 2.0% per annum (5.5% at December 31, 2006; 4.3% at December 31, 2005) with a maturity date of December 31, 2007, secured by a first and second mortgage on land in Austria owned by the European subsidiary.		19,794		17,761
Obligation to pay $18.3 million on exercise of either the put or call option to acquire the remaining voting and equity interests in The Maryland Jockey Club ("MJC"), bearing interest at the six-month LIBOR (5.4% at December 31, 2006; 4.6% at December 31, 2005). The Company can exercise the call option at any time during the period starting 48 months and ending 60 months after November 27, 2002 (the date on which MJC was acquired), and the put option can be exercised by the other party at any time during the first five years after November 27, 2002.		18,312		18,312
Capital leases (imputed interest rate of 8.5%) maturing April 1, 2027, secured by buildings and improvements at Lone Star Park at Grand Prairie.		15,519		15,520
Construction loan facility of up to $16.6 million with the general contractor for the reconstruction of the racetrack facilities at Gulfstream Park. The loan matures on April 14, 2007 and may be extended at the lender's option to July 31, 2008. The loan bears interest at the U.S. Prime rate plus 0.40% per annum (8.65% at December 31, 2006) and may be repaid at any time, in whole or in part without penalty. Loans under the facility are secured by a mortgage over land in Ocala, Florida and a guarantee of $5.0 million by the Company. The Company repaid $2.0 million using proceeds from The Meadows transaction on November 14, 2006.		10,617		—

106

Term loan facility, bearing interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum (8.0% at December 31, 2006; 7.0% at December 31, 2005), with a maturity date of December 15, 2019. The term loan is repayable in quarterly principal and interest payments. The loan is secured by deeds of trust on land, buildings and improvements and security interests in all other assets of certain affiliates of MJC.		9,187			9,608
Term loan facilities, bearing interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum (8.0% at December 31, 2006; 7.0% at December 31, 2005) until December 1, 2008, with a maturity date of December 1, 2013. On December 1, 2008, the interest rate is reset to the market rate for a United States Treasury security of an equivalent term plus 2.6%. The term loans are repayable in quarterly principal and interest payments. The loans are secured by deeds of trust on land, buildings and improvements and security interests in all other assets of certain affiliates of MJC.		6,874			13,698
Bank term loan of Euros 2.9 million at December 31, 2005, bearing interest at EURIBOR plus 0.625% per annum (3.1% at December 31, 2005). The term loan was due July 2006, but was amended and extended in conjunction with the bank term line of credit of Euros 2.5 million (refer to Note 13(c)). The amendments included converting the two facilities into one bank term loan, requiring the repayment of Euros 0.9 million on July 31, 2006, extending the term to July 31, 2007 and requiring a further repayment of Euros 0.7 million on January 31, 2007. Bank term loan at December 31, 2006 bears interest at EONIA rate plus 1.1% per annum (4.8% at December 31, 2006). A European subsidiary has provided two first mortgages on real estate properties as security for this facility.		5,938			3,442
Term loan facility, bearing interest at 7.0% per annum until June 7, 2007, with a maturity date of June 7, 2017. On June 7, 2007 and June 7, 2012, the interest rate is reset to the market rate for a United States Treasury security of an equivalent term plus 2.6%. The term loan is repayable in quarterly principal and interest payments. The term loan is callable on December 31, 2011. The loan is secured by a deed of trust on land, buildings and improvements and security interests in all other assets of certain affiliates of MJC.		4,030			4,274
Term loan facilities of $1.75 million and $1.25 million bearing interest at the U.S. Prime rate plus 1.25% per annum (9.5% at December 31, 2006) with monthly principal repayments of $29 thousand and $21 thousand, respectively. The term loan facilities are due April 30, 2007. The loans are secured by all of AmTote's assets up to $1.75 million and $1.25 million, respectively.		2,448			—
Revolving term loan facility of $3.0 million, bearing interest at the U.S. Prime rate plus 1.0% per annum (9.25% at December 31, 2006) with interest payable monthly. The revolving term loan facility is due April 30, 2007. The loan is secured by all of AmTote's assets up to $3.0 million.		1,957			—
Other loans to various subsidiaries from various banks and city governments, including equipment loans and a term loan, with interest rates ranging from 4.0% to 8.1%.		976			1,110
	$	179,613		$	170,653
Less: due within one year		(85,754	)		(32,382	)
	$	93,859		$	138,271

At December 31, 2006, the Company is in compliance with all of these long-term debt agreements and related financial covenants.

The overall weighted average interest rate on long-term debt, long-term debt due to parent and convertible subordinated notes at December 31, 2006 was 8.3% (December 31, 2005 — 7.4%; December 31, 2004 — 6.6%).

107

(b)

Future principal repayments on long-term debt at December 31, 2006 are as follows:

2007	$	85,754
2008		6,720
2009		55,873
2010		1,786
2011		4,366
Thereafter		25,114
	$	179,613

(c)

Included within the above schedule of future principal repayments of long-term debt (Note 14(b)) are obligations under capital leases. Future minimum annual lease payments under the capital leases in effect at December 31, 2006 are as follows:

2007	$	1,452
2008		1,452
2009		1,452
2010		1,452
2011		1,452
Thereafter		27,060
Total payments		34,320
Less: capital lease minimum payments representing interest		(18,801	)
Present value of lease payments	$	15,519

(d)

Interest expense and interest income include:

	Years ended December 31,
	2006			2005			2004
Interest cost, gross	$	65,828		$	39,639		$	26,747
Less: Interest capitalized		(2,633	)		(5,864	)		(4,043	)
Interest expense		63,195			33,775			22,704
Interest income		(2,493	)		(949	)		(754	)
Interest expense, net	$	60,702		$	32,826		$	21,950

Interest capitalized relates to real estate properties under development.

Interest paid in cash for the year ended December 31, 2006 was $39.1 million (for the year ended December 31, 2005 — $29.9 million; for the year ended December 31, 2004 — $25.1 million).

15.   CONVERTIBLE SUBORDINATED NOTES

(a)

8.55% Convertible Subordinated Notes

In June 2003, the Company issued $150.0 million of 8.55% convertible subordinated notes which mature on June 15, 2010. The unsecured notes are convertible at any time at the option of the holders into shares of Class A Subordinate Voting Stock at a conversion price of $7.05 per share. The conversion price may be adjusted under certain circumstances. The notes are redeemable in whole or in part, at the Company's option, on or after June 2, 2006, at the principal amount plus accrued and unpaid interest, provided that, in connection with any redemption occurring on or after June 2, 2006 and before June 2, 2008, the closing price of the Class A Subordinate Voting Stock has exceeded 125% of the conversion price for at least 20 trading days in the 30 consecutive trading day period ending on the trading day prior to mailing of the notice of redemption. At December 31, 2006, all the notes remained outstanding.

108

The Company incurred issue expenses of $5.0 million, which have been recorded as a reduction of the outstanding notes balance. The notes balance will be accreted to its face value over the term to maturity.

(b)

7.25% Convertible Subordinated Notes

In December 2002, the Company issued $75.0 million of 7.25% convertible subordinated notes which mature on December 15, 2009. The unsecured notes are convertible at any time at the option of the holders into shares of Class A Subordinate Voting Stock at a conversion price of $8.50 per share. The conversion price may be adjusted under certain circumstances. The notes are redeemable in whole or in part, at the Company's option, on or after December 21, 2005, at the principal amount plus accrued and unpaid interest, provided that, in connection with any redemption occurring on or after December 21, 2005 and before December 15, 2007, the closing price of the Class A Subordinate Voting Stock has exceeded 125% of the conversion price for at least 20 trading days in the 30 consecutive trading day period ending on the trading day prior to mailing of the notice of redemption. At December 31, 2006, all the notes remained outstanding.

The Company incurred issue expenses of $2.8 million, which have been recorded as a reduction of the outstanding notes balance. The notes balance will be accreted to its face value over the term to maturity.

16.   CAPITAL STOCK AND LONG-TERM INCENTIVE PLAN

Capital Stock

(a)

The Company's authorized, issued and outstanding capital stock is as follows:

Class A Subordinate Voting Stock with a par value of $0.01 per share (authorized — 310,000,000) have the following attributes:

(i)

Each share is entitled to one vote per share at all meetings of stockholders.



(ii)

Each share shall participate equally as to dividends with each share of Class B Stock.

Class B Stock with a par value of $0.01 per share (authorized — 90,000,000) have the following attributes:

(i)

Each share is entitled to 20 votes per share at all meetings of stockholders.



(ii)

Each share shall participate equally as to dividends with each share of Class A Subordinate Voting Stock.



(iii)

Each share may be converted at any time into a fully-paid share of Class A Subordinate Voting Stock.

In the event that the Class A Subordinate Voting Stock or Class B Stock are subdivided or consolidated, the other class shall be similarly changed to preserve the relative position of each class.

(b)

Changes in the Class A Subordinate Voting Stock and Class B Stock for the years ended December 31, 2006, 2005 and 2004 are shown in the following table (number of shares in the following table are expressed in whole numbers and have not been rounded to the nearest thousand):

	Class A Subordinate Voting Stock			Class B Stock			Total
	Number of shares	Stated value		Number of shares	Stated value		Number of shares	Stated value
Issued and outstanding at December 31, 2003	48,679,796	$	317,028	58,466,056	$	394,094	107,145,852	$	711,122
Issued on exercise of stock options	175,000		852	—		—	175,000		852
Issued under the Long-term Incentive Plan	24,000		123	—		—	24,000		123
Issued and outstanding at December 31, 2004	48,878,796		318,003	58,466,056		394,094	107,344,852		712,097
Issued under the Long-term Incentive Plan	16,567		102	—		—	16,567		102
Issued and outstanding at December 31, 2005	48,895,363		318,105	58,466,056		394,094	107,361,419		712,199
Issued under the Long-term Incentive Plan	159,264		982	—		—	159,264		982
Issued and outstanding at December 31, 2006	49,054,627	$	319,087	58,466,056	$	394,094	107,520,683	$	713,181

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Loss Per Share

(c)

The following table is a summary of the elements used in calculating basic and diluted loss per share (number of shares in the following table are expressed in whole numbers and have not been rounded to the nearest thousand):

		Years ended December 31,
		2006			2005			2004
Net loss from continuing operations		$	(85,183	)	$	(101,964	)	$	(100,917	)
Net income (loss) from discontinued operations			(2,168	)		(3,329	)		5,281
Net loss		$	(87,351	)	$	(105,293	)	$	(95,636	)
Weighted average shares outstanding			107,461,394			107,356,108			107,323,300
Net effect of dilutive instruments(i)			—			—			—
Diluted weighted average shares outstanding			107,461,394			107,356,108			107,323,300
Earnings (loss) per share:
Basic and Diluted
	Continuing operations	$	(0.79	)	$	(0.95	)	$	(0.94	)
	Discontinued operations		(0.02	)		(0.03	)		0.05
Loss per share		$	(0.81	)	$	(0.98	)	$	(0.89	)

(i)

As a result of the net loss for the years ended December 31, 2006, 2005 and 2004, options to purchase 4,905,000 shares (for the year ended December 31, 2005 — 4,827,500; for the year ended December 31, 2004 — 4,500,500), notes convertible into 30,100,124 shares (for the years ended December 31, 2005 and 2004 — 30,100,124) and 179,769 performance share awards (for the year ended December 31, 2005 — 199,471; for the year ended December 31, 2004 — nil) have been excluded from the computation of diluted earnings (loss) per share since their effect is anti-dilutive.

Maximum Shares

(d)

The following table (number of shares have been rounded to the nearest thousand) presents the maximum number of shares of Class A Subordinate Voting Stock and Class B Stock that would be outstanding if all of the outstanding options, convertible subordinated notes and performance shares issued and outstanding as at December 31, 2006 were exercised or converted:

	Number of Shares
Class A Subordinate Voting Stock outstanding	49,055
Class B Stock outstanding	58,466
Options to purchase Class A Subordinate Voting Stock	4,905
8.55% Convertible Subordinated Notes, convertible at $7.05 per share	21,276
7.25% Convertible Subordinated Notes, convertible at $8.50 per share	8,824
Performance share awards of Class A Subordinate Voting Stock	180
	142,706

Long-term Incentive Plan

(e)

The Company's Long-term Incentive Plan (the "Plan") adopted in 2000 allows for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, bonus stock and performance shares to directors, officers, employees, consultants, independent contractors and agents. A maximum of 7.6 million shares of Class A Subordinate Voting Stock remain available to be issued under the Plan, of which 6.3 million are available for issuance pursuant to stock options and tandem stock appreciation rights and 1.3 million are available for issuance pursuant to any other type of award under the Plan.

During 2005, the Company introduced an incentive compensation program for certain officers and key employees, which awards performance shares of Class A Subordinate Voting Stock under the Plan. The number of shares of Class A Subordinate Voting Stock underlying the performance share awards is based either on a percentage of a guaranteed bonus or a percentage of total 2005

110

compensation divided by the market value of the Class A Subordinate Voting Stock on the date the program was approved by the Compensation Committee of the Board of Directors. These performance shares vested over a six or eight month period to December 31, 2005 and are distributable, subject to certain conditions, in two equal installments. The first distribution occurred prior to March 31, 2006 and the second distribution is to occur on or about March 31, 2007. During the year ended December 31, 2005, 201,863 performance share awards were granted under the Plan with a weighted average grant-date market value of either U.S. $6.26 or Cdn. $7.61 per share and 2,392 performance share awards were issued with a nominal stated value. At December 31, 2005, there were 199,471 performance share awards vested with a weighted average grant-date market value of either U.S. $6.26 or Cdn. $7.61 per share and no non-vested performance share awards. For the year ended December 31, 2006, 131,751 of these vested performance awards were issued with a stated value of $0.8 million and 4,812 were forfeited. Accordingly, there are 62,908 vested performance shares remaining to be issued under this 2005 incentive compensation arrangement. The compensation expense related to these performance shares was approximately $1.3 million for the year ended December 31, 2005.

For 2006, the Company continued the incentive compensation program as described in the immediately preceding paragraph. The program is similar in all respects except that the 2006 performance shares vest over a 12 month period to December 31, 2006 and will be distributed, subject to certain conditions, on or about March 31, 2007. For the year ended December 31, 2006, 161,099 performance share awards were granted under the Plan with a weighted average grant-date market value of either U.S. $6.80 or Cdn. $7.63 per share, 1,616 performance share awards were issued with a nominal stated value and 42,622 performance share awards were forfeited. At December 31, 2006, there were 116,861 performance share awards vested with an average grant-date market value of either U.S. $6.80 or Cdn. $7.63 per share and no non-vested performance share awards. The compensation expense related to these performance shares was approximately $0.8 million for the year ended December 31, 2006. At December 31, 2006, there is no unrecognized compensation expense related to these performance shares as all the performance share awards were vested.

For the year ended December 31, 2006, 25,896 shares (for the year ended December 31, 2005 — 14,175 shares; for the year ended December 31, 2004 — 24,000 shares) with a stated value of $0.2 million (for the year ended December 31, 2005 — $0.1 million; for the year ended December 31, 2004 — $0.1 million) were issued to Company directors in payment of services rendered.

The Company grants stock options to certain directors, officers, key employees and consultants to purchase shares of the Company's Class A Subordinate Voting Stock. All of such stock options give the grantee the right to purchase Class A Subordinate Voting Stock of the Company at a price no less than the fair market value of such stock at the date of grant. Generally, stock options under the Plan vest over a period of two to six years from the date of grant at rates of 1/7^th to 1/3^rd per year and expire on or before the tenth anniversary of the date of grant, subject to earlier cancellation upon the occurrence of certain events specified in the stock option agreements entered into by the Company with each recipient of options.

Information with respect to shares under option is as follows (number of shares subject to option in the following table are expressed in whole numbers and have not been rounded to the nearest thousand):

	Shares Subject to Option						Weighted Average Exercise Price
	2006		2005		2004		2006		2005		2004
Balance, Beginning of Year	4,827,500		4,500,500		4,841,500		$	6.14	$	6.18	$	6.14
Granted	200,000		720,000		200,000			5.25		6.55		6.41
Exercised	—		—		(175,000	)		—		—		4.87
Forfeited(i)	(122,500	)	(393,000	)	(366,000	)		6.96		7.39		6.30
Balance, End of Year	4,905,000		4,827,500		4,500,500		$	6.08	$	6.14	$	6.18

(i)

For the years ended December 31, 2006, 2005 and 2004, options forfeited were primarily as a result of employment contracts being terminated and voluntary employee resignations. No options that were forfeited for the years ended December 31, 2006, 2005 and 2004 were subsequently reissued.

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Information regarding stock options outstanding is as follows:

	Options Outstanding			Options Exercisable
	2006	2005	2004	2006	2005	2004
Number	4,905,000	4,827,500	4,500,500	4,412,968	4,127,715	3,909,430
Weighted average exercise price	$6.08	$6.14	$6.18	$6.08	$6.07	$6.14
Weighted average remaining contractual life (years)	4.2	5.1	5.6	3.8	4.5	5.3

At December 31, 2006, the 4,905,000 stock options outstanding had exercise prices ranging from $3.91 to $7.24 per share. The average fair value of the stock option grants for the year ended December 31, 2006 was $2.26 (for the year ended December 31, 2005 — $2.94; for the year ended December 31, 2004 — $2.38) using the Black-Scholes option valuation model. The fair value of stock option grants was estimated at the date of grant using the following assumptions:

	Years ended December 31,
	2006		2005		2004
Risk free interest rates	4.4	%	4.0	%	3.0	%
Dividend yields	—		—		0.84	%
Volatility factor of expected market price of Class A Subordinate Voting Stock	0.510		0.547		0.574
Weighted average expected life (years)	4.00		4.00		4.00

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options.

The compensation expense recognized for the year ended December 31, 2006 related to stock options was approximately $1.4 million (for the years ended December 31, 2005 and 2004 — nil). At December 31, 2006, the total unrecognized compensation expense related to stock options is $0.7 million, which is expected to be recognized into expense over a period of 3.8 years.

Prior to implementation of SFAS 123(R) on January 1, 2006, pro-forma information regarding net loss and loss per share was required under SFAS 123 and was determined as if the Company had accounted for its stock options under the fair value method under SFAS 123. The Company's SFAS 123 pro-forma net loss and the related per share amounts for the years ended December 31, 2005 and 2004 are as follows:

		Years ended December 31,
		2005			2004
Net loss, as reported		$	(105,293	)	$	(95,636	)
Pro-forma stock compensation expense determined under the fair value method, net of tax			(877	)		(972	)
Pro-forma net loss		$	(106,170	)	$	(96,608	)
Loss per share
	Basic — as reported	$	(0.98	)	$	(0.89	)
	Basic — pro-forma	$	(0.99	)	$	(0.90	)
	Diluted — as reported	$	(0.98	)	$	(0.89	)
	Diluted — pro-forma	$	(0.99	)	$	(0.90	)

For purposes of pro-forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period.

For the year ended December 31, 2006, the Company recognized total compensation expense of $2.3 million (for the year ended December 31, 2005 — $1.4 million; for the year ended December 31, 2004 — $0.1 million) relating to performance share awards, director compensation and stock options under the Plan.

112

17.   FOREIGN CURRENCY TRANSLATION ADJUSTMENT

Unrealized translation adjustments arise on the translation to U.S. dollars of assets and liabilities of the Company's self-sustaining foreign operations. During the year ended December 31, 2006, the Company incurred unrealized foreign currency translation gains of $3.1 million, primarily from the strengthening of the Euro and Canadian dollar against the U.S. dollar (an unrealized loss of $15.0 million for the year ended December 31, 2005; an unrealized gain of $15.6 million for the year ended December 31, 2004).

18.   FINANCIAL INSTRUMENTS

(a)

Fair Value

The methods and assumptions used to estimate the fair value of financial instruments are described below. Management has estimated the fair value of its financial instruments using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, estimated fair values are not necessarily indicative of the amounts that could be realized in current market exchanges.

Cash and cash equivalents, restricted cash, accounts receivable, due from parent, bank indebtedness, accounts payable, accrued salaries and wages, customer deposits, other accrued liabilities and due to parent

Due to the short period to maturity of these instruments, the carrying values as presented in the consolidated balance sheets are reasonable estimates of fair value.

Long-term debt, long-term debt due to parent and convertible subordinated notes

The fair value of the Company's long-term debt, long-term debt due to parent and convertible subordinated notes is estimated using discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of arrangements. Based on current rates for debt with similar terms and maturities, the fair values of the Company's long-term debt, long-term debt due to parent and convertible subordinated notes are not materially different from their carrying values.

(b)

Credit Risk

The Company's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents and accounts receivable.

Cash and cash equivalents, which include short-term investments, including commercial paper, are only invested in entities with an investment grade credit rating. Credit risk is further reduced by limiting the amount which is invested in any one government or corporation.

The Company, in the normal course of business, settles wagers for other racetracks and is thereby exposed to credit risk. However, these receivables are generally not a significant portion of the Company's total assets and are comprised of a large number of accounts.

(c)

Interest Rate Risk

The Company utilizes, on occasion, interest rate swap contracts to hedge exposure to interest rate fluctuations on variable rate debt.

During the year ended December 31, 2005, the Company entered into an interest rate swap contract with a major financial institution. Under the terms of the contract, the Company receives a LIBOR based variable interest rate and pays a fixed rate of 7.05% on a notional amount of $10.0 million under the SAC facility, reduced by monthly amounts of $60 thousand until maturity. The maturity date of the contract is October 7, 2007.

During the year ended December 31, 2004, the Company entered into an interest rate swap contract with the same major financial institution. Under the terms of the contract, the Company receives a LIBOR based variable interest rate and pays a fixed rate of 5.38% on a notional amount of 40% of the outstanding balance under the SAC facility, reduced by monthly amounts of $167 thousand until maturity. The maturity date of the contract is October 31, 2007.

U.S. GAAP requires companies to recognize all of their derivative instruments at fair value. Gains or losses related to changes in fair value of derivative instruments designated as cash flow hedges are recorded in accumulated comprehensive income (loss) if certain hedge criteria are met, and recognized in the statement of operations along with the related results of the hedged item. The Company formally documents, designates and assesses the effectiveness of such transactions.

113

The Company has designated its interest rate swap contracts as a cash flow hedge of anticipated interest payments under its variable rate debt agreement. Accordingly, gains and losses on the swaps that are recorded in accumulated comprehensive income (loss) will be recorded in the statement of operations as net interest expense in the periods in which the related variable interest is paid.

The Company's interest rate swaps are an asset of approximately $0.4 million at December 31, 2006 (December 31, 2005 — $0.6 million), which is included in "other assets, net" (refer to Note 11) in the consolidated financial statements, using current interest rates.

The Company expects to reclassify approximately $0.4 million before income taxes, or $0.3 million after income taxes, of the amount included in accumulated comprehensive income (loss) as of December 31, 2006, into net interest expense over the next twelve months.

Otherwise, the Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities.

19.   SEGMENT INFORMATION

Operating Segments

The Company's reportable segments reflect how the Company is organized and managed by senior management. The Company has two principal operating segments: racing and gaming operations and real estate and other operations. The racing and gaming segment has been further segmented to reflect geographical and other operations as follows: (1) California operations include Santa Anita Park, Golden Gate Fields, Bay Meadows and San Luis Rey Downs; (2) Florida operations include Gulfstream Park's racing and gaming operations and the Palm Meadows Training Center; (3) Maryland operations include Laurel Park, Pimlico Race Course, Bowie Training Center and the Maryland OTB network; (4) Southern United States operations include Lone Star Park, Remington Park's racing and gaming operations and its OTB network; (5) Northern United States operations include The Meadows and its OTB network, Thistledown, Great Lakes Downs, Portland Meadows, Multnomah Greyhound Park and the Oregon OTB network and the North American production and sales operations for StreuFex™; (6) European operations include Magna Racino™ and the European production and sales operations for StreuFex™; and (7) Technology operations include XpressBet®, HorseRacing TV™, MagnaBet™, RaceONTV™, AmTote and the Company's equity investment in Racing World Limited. The Corporate and other segment includes costs related to the Company's corporate head office, cash and other corporate office assets and investments in racing related real estate held for development. Eliminations reflect the elimination of revenues between business units. The real estate and other operations segment has also been further segmented to reflect the sale of Non-Core Real Estate and other real estate operations which includes the Company's residential housing development. Comparative amounts reflected in segment information for the years ended December 31, 2005 and 2004 and as of December 31, 2005 for MagnaBet™ and RaceONTV™ have been reclassified from European operations to Technology operations.

The Company uses revenues and earnings (loss) before interest, income taxes, depreciation and amortization ("EBITDA") as key performance measures of results of operations for purposes of evaluating operating and financial performance internally. Management believes that the use of these measures enables management and investors to evaluate and compare, from period to period, operating and financial performance of companies within the horse racing industry in a meaningful and consistent manner as EBITDA eliminates the effects of financing and capital structures, which vary between companies. Because the Company uses EBITDA as a key measure of financial performance, the Company is required by U.S. GAAP to provide the information in this note concerning EBITDA. However, these measures should not be considered as an alternative to, or more meaningful than, net income (loss) as a measure of the Company's operating results or cash flows, or as a measure of liquidity.

114

The accounting policies of each segment are the same as those described in note 2 to these consolidated financial statements. The following summary presents key information by operating segment:

		Years ended December 31,
		2006			2005			2004
Revenues
	California operations(i)	$	206,745		$	195,527		$	264,777
	Florida operations		90,962			74,542			80,035
	Maryland operations		116,412			111,252			102,521
	Southern U.S. operations		138,472			89,793			91,008
	Northern U.S. operations(i)		90,562			92,532			94,039
	European operations		10,525			9,708			7,146
	Technology operations		51,522			34,196			29,920
			705,200			607,550			669,446
	Corporate and other		339			116			936
	Eliminations		(8,346	)		(7,881	)		(7,926	)
	Total racing and gaming operations		697,193			599,785			662,456
	Sale of real estate		—			—			16,387
	Other		4,946			4,643			4,550
	Total real estate and other operations		4,946			4,643			20,937
Total revenues		$	702,139		$	604,428		$	683,393

		Years ended December 31,
		2006(ii)			2005			2004(iii)
Earnings (loss) before interest, income taxes, depreciation and amortization ("EBITDA")
	California operations(i)	$	18,012		$	16,674		$	25,366
	Florida operations		(81	)		(254	)		(17,987	)
	Maryland operations		7,605			4,956			4,903
	Southern U.S. operations		12,784			4,665			3,915
	Northern U.S. operations(i)		(13,140	)		(191	)		(2,265	)
	European operations		(86,923	)		(15,153	)		(15,411	)
	Technology operations		(10,114	)		(8,657	)		(8,350	)
			(71,857	)		2,040			(9,829	)
	Corporate and other		(27,698	)		(24,071	)		(27,597	)
	Predevelopment, pre-opening and other costs		(14,159	)		(11,882	)		(20,508	)
	Gain on sale of intangible assets related to The Meadows		126,374			—			—
	Total racing and gaming operations		12,660			(33,913	)		(57,934	)
	Sale of real estate		—			—			9,625
	Other		(363	)		(224	)		(1,935	)
	Total real estate and other operations		(363	)		(224	)		7,690
Total EBITDA		$	12,297		$	(34,137	)	$	(50,244	)

(i)

For the year ended December 31, 2004, the California operations segment included the operations of Bay Meadows, the facility lease for which expired on December 31, 2004. Bay Meadows' revenues were $60.6 million and earnings before interest, income taxes, depreciation and amortization were $4.9 million for the year ended December 31, 2004.

For the year ended December 31, 2004, the Northern U.S. operations segment included the operations of Multnomah Greyhound Park in Portland, Oregon, the facility lease for which expired on December 31, 2004. Multnomah Greyhound

115

Park's revenues were $3.4 million and loss before interest, income taxes, depreciation and amortization was $2.4 million for the year ended December 31, 2004.

(ii)

For the year ended December 31, 2006, Northern U.S. operations includes a non-cash write-down of long-lived assets of $11.2 million related to The Meadows, European operations includes a non-cash write-down of long-lived assets of $76.2 million related to Magna Racino™ and other real estate operations includes a non-cash write-down of long-lived assets of $1.3 million related to non-core real estate in Aurora, Ontario, Canada.



(iii)

For the year ended December 31, 2004, the Florida operations segment includes a non-cash write-down of long-lived assets of $26.3 million and the Maryland operations segment includes a non-cash write-down of long-lived assets of $0.4 million.

		December 31,
		2006		2005
Total Assets
	California operations	$	309,443	$	295,066
	Florida operations		361,550		303,069
	Maryland operations		171,135		178,022
	Southern U.S. operations		141,213		140,786
	Northern U.S. operations		46,913		58,037
	European operations		55,624		132,021
	Technology operations		41,625		18,198
			1,127,503		1,125,199
	Corporate and other		85,498		108,606
	Total racing and gaming operations		1,213,001		1,233,805
	Non-Core Real Estate		—		2,500
	Other		33,884		28,072
	Total real estate and other operations		33,884		30,572
Total assets from continuing operations			1,246,885		1,264,377
Total assets held for sale			—		61,185
Total assets from discontinued operations			—		89,082
Total assets		$	1,246,885	$	1,414,644

		Years ended December 31,
		2006		2005		2004
Real estate properties and fixed asset additions
	Racing and gaming operations	$	88,548	$	148,548	$	136,238
	Real estate and other operations		900		622		1,816
Total real estate properties and fixed asset additions		$	89,448	$	149,170	$	138,054

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Reconciliation of EBITDA to Net Loss

	Year ended December 31, 2006
	Racing and Gaming Operations			Real Estate and Other Operations			Total
EBITDA (loss) from continuing operations	$	12,660		$	(363	)	$	12,297
Interest expense (income), net		61,241			(539	)		60,702
Depreciation and amortization		43,703			199			43,902
Loss from continuing operations before income taxes	$	(92,284	)	$	(23	)		(92,307	)
Income tax benefit								(7,124	)
Net loss from continuing operations								(85,183	)
Net loss from discontinued operations								(2,168	)
Net loss							$	(87,351	)

	Year ended December 31, 2005
	Racing and Gaming Operations			Real Estate and Other Operations			Total
EBITDA loss from continuing operations	$	(33,913	)	$	(224	)	$	(34,137	)
Interest expense (income), net		33,274			(448	)		32,826
Depreciation and amortization		36,017			223			36,240
Income (loss) from continuing operations before income taxes	$	(103,204	)	$	1			(103,203	)
Income tax benefit								(1,239	)
Net loss from continuing operations								(101,964	)
Net loss from discontinued operations								(3,329	)
Net loss							$	(105,293	)

	Year ended December 31, 2004
	Racing and Gaming Operations			Real Estate and Other Operations			Total
EBITDA (loss) from continuing operations	$	(57,934	)	$	7,690		$	(50,244	)
Interest expense (income), net		23,040			(1,090	)		21,950
Depreciation and amortization		33,601			61			33,662
Income (loss) from continuing operations before income taxes	$	(114,575	)	$	8,719			(105,856	)
Income tax benefit								(4,939	)
Net loss from continuing operations								(100,917	)
Net income from discontinued operations								5,281
Net loss							$	(95,636	)

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Geographic Segments

Revenues by geographic segment of the Company are as follows:

	Years ended December 31,
	2006		2005		2004
United States	$	680,917	$	586,970	$	659,186
Canada		110		—		4,128
Europe		21,112		17,458		20,079
	$	702,139	$	604,428	$	683,393

Real estate properties, fixed assets, racing licenses and other assets, net of accumulated depreciation and amortization, by geographic segment are as follows:

	December 31,
	2006		2005
United States	$	983,071	$	947,765
Canada		10,312		10,944
Europe		60,184		127,813
Total from continuing operations		1,053,567		1,086,522
Total assets held for sale		—		58,466
Total from discontinued operations		—		78,517
	$	1,053,567	$	1,223,505

20.   TRANSACTIONS WITH RELATED PARTIES

(a)

The Company's indebtedness and long-term debt due to parent consists of the following:

	December 31,
	2006			2005
Bridge loan facility, including accrued interest and commitment fees payable of nil (December 31, 2005 — $0.6 million)(i)	$	—		$	72,060
Gulfstream Park project financing-Tranche 1, including long-term accrued interest payable of $16.5 million (December 31, 2005 — $3.7 million)(ii)		131,350			93,646
Gulfstream Park project financing-Tranche 2, including long-term accrued interest payable of $0.4 million (December 31, 2005 — nil)(iii)		18,617			—
Remington Park project financing, including long-term accrued interest payable of $0.4 million (December 31, 2005 — $0.3 million)(iv)		30,391			19,854
	$	180,358		$	185,560
Less: due within one year		(3,108	)		(72,060	)
	$	177,250		$	113,500

(i)

Bridge Loan Facility

In July 2005, a subsidiary of MID provided to the Company a non-revolving bridge loan facility of up to $100.0 million available in three tranches. An arrangement fee of $1.0 million was paid on closing, a second arrangement fee of $0.5 million was paid when the second tranche was made available to the Company and a third arrangement fee of $0.5 million was paid when the third tranche was made available to the Company. On July 26, 2006, the Company amended and extended the facility and the bridge loan maturity date was extended from August 31, 2006 to December 5, 2006. In connection with the amendments on July 26, 2006, there was an extension fee of $0.5 million (0.5% of the amount of the bridge loan). There was a commitment fee of 1.0% per year on the undrawn portion of the maximum amount of the loan commitment, payable quarterly in arrears. At the Company's option, the loan bore interest either at: (1) floating rate, with annual interest equal to the greater of (a) U.S. Base rate, as announced from time to time, plus 5.5% and (b) 9.0% (with interest in each case payable monthly in arrears); or (2) fixed rate, with annual interest equal to the greater of: (a) LIBOR plus 6.5% and (b) 9.0%, subject to certain conditions. The overall weighted average interest rate on the advances under the bridge loan at December 31, 2006 was nil as

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no amounts remained outstanding under the bridge loan facility (December 31, 2005 — 10.9%). The bridge loan was secured by substantially all of the assets of the Company and guaranteed by certain subsidiaries of the Company. The guarantees were secured by first ranking security over the lands owned by The Meadows (ahead of the Gulfstream Park project financing as described in Note 20(a)(ii) and (iii) below), second ranking security over the lands owned by Golden Gate Fields (behind an existing third party lender) and third ranking security over the lands owned by Santa Anita Park (behind existing third party lenders). In addition, the Company had pledged the shares and licenses of certain subsidiaries (or provided negative pledges where a pledge was not available due to regulatory constraints or due to a prior pledge to an existing third party lender). As security for the loan, the Company had also assigned all inter-company loans made between the Company and its subsidiaries and all insurance proceeds to the lender, and taken out title insurance for all real property subject to registered security. The bridge loan was cross-defaulted to all other obligations of the Company and its subsidiaries to the lender and to the Company's other principal indebtedness. The security over the lands owned by The Meadows had the same rank in priority as to the same types of security provided for in the loan related to the reconstruction of facilities at Gulfstream Park.

On September 29, 2006, the Company further amended the bridge loan. The maximum permitted borrowings under the bridge loan were increased by $19.0 million to a total of $119.0 million. An arrangement fee of $0.2 million was paid in connection with these amendments to the bridge loan.

For the year ended December 31, 2006, $37.7 million was advanced under the bridge loan, $111.8 million was repaid and $5.7 million of net loan origination costs were amortized, such that at December 31, 2006 no amounts remained outstanding under the bridge loan. In addition, for the year ended December 31, 2006, $9.7 million (for the year ended December 31, 2005 — $2.5 million) of commitment fees and interest expense were incurred related to the bridge loan, of which no amounts (December 31, 2005 — $0.6 million) remained outstanding at December 31, 2006.

Under an amendment to the bridge loan, the Company was required to place $13.0 million from the Flamboro Downs sale proceeds, and such additional amounts as necessary to ensure that future Gulfstream Park construction costs can be funded, into escrow with MID.

In accordance with the terms of the senior secured revolving credit facility and the bridge loan agreement, the Company was required to use the net proceeds from the sale of Flamboro Downs to pay down the principal amount owing under the two loans in equal portions. However, both MID and the lender under the senior secured revolving credit facility agreed to mutually waive this repayment requirement, subject to certain other amendments, including provisions for repayment upon closing of certain future asset sales.

(ii)

Gulfstream Park Project Financing — Tranche 1

In December 2004, certain of the Company's subsidiaries entered into a $115.0 million project financing arrangement with a subsidiary of MID for the reconstruction of facilities at Gulfstream Park. This project financing arrangement was amended on July 22, 2005 in connection with the Remington Park loan as described in Note 20(a)(iv) below. The project financing was made by way of progress draw advances to fund reconstruction. The loan has a ten-year term from the completion date of the reconstruction project, which was February 1, 2006. Prior to the completion date, amounts outstanding under the loan bore interest at a floating rate equal to 2.55% per annum above MID's notional cost of borrowing under its floating rate credit facility, compounded monthly. After the completion date, amounts outstanding under the loan bear interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, payment of interest was deferred. Commencing January 1, 2007, the Company will make monthly blended payments of principal and interest based on a 25-year amortization period commencing on the completion date. The loan contains cross-guarantee, cross-default and cross-collateralization provisions. The loan is guaranteed by the Company's subsidiaries that own and operate Remington Park and the Palm Meadows Training Center and is collateralized principally by security over the lands forming part of the operations at Gulfstream Park, Remington Park and Palm Meadows and over all other assets of Gulfstream Park, Remington Park and Palm Meadows, excluding licenses and permits. For the year ended December 31, 2006, $24.9 million (for the year ended December 31, 2005 — $67.0 million; for the year ended December 31, 2004 — $26.4 million) was advanced and $12.8 million (for the year ended December 31, 2005 — $3.6 million; for the year ended December 31, 2004 — $0.1 million) of interest was accrued on this loan, such that at December 31, 2006, $134.8 million was outstanding under the Gulfstream Park loan, including $16.5 million of accrued interest (December 31, 2005 — $3.7 million). Net loan origination expenses of $3.5 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

(iii)

Gulfstream Park Project Financing — Tranche 2

On July 26, 2006, certain of the Company's subsidiaries that own and operate Gulfstream Park entered into an amending agreement relating to the existing Gulfstream Park project financing arrangement with a subsidiary of MID by adding a new

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tranche of $25.8 million, plus lender costs and capitalized interest, to fund the design and construction of phase one of the slots facility to be located in the existing Gulfstream Park clubhouse building, as well as related capital expenditures and start-up costs, including the acquisition and installation of approximately 500 slot machines. The new Gulfstream Park financing has a five-year term and, consistent with the existing Gulfstream Park facility, bears interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, interest on this tranche was capitalized. Beginning January 1, 2007, this tranche provides for blended payments of principal and interest based on a 25-year amortization period commencing on that date. Advances related to the slots facility were made available by way of progress draw advances and there is no prepayment penalty associated with this tranche. The Gulfstream Park project financing facility was further amended to introduce a mandatory annual cash flow sweep of not less than 75% of Gulfstream Park's total excess cash flow, after permitted capital expenditures and debt service, to be used to repay the additional principal amount being made available under this tranche. A lender fee of $0.3 million (1% of the amount of this tranche) was added to the principal amount of the loan as consideration for the amendments. For the year ended December 31, 2006, $18.8 million (for the years ended December 31, 2005 and 2004 — nil) was advanced and $0.4 million (for the years ended December 31, 2005 and 2004 — nil) of interest was accrued on this loan, such that at December 31, 2006, $19.4 million was outstanding under this tranche, including $0.4 million (December 31, 2005 — nil) of accrued interest. Net loan origination expenses of $0.8 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

On December 22, 2006, the Gulfstream Park project financing agreement was further amended to add a new tranche of $21.5 million, plus lender costs and capitalized interest, to fund the design and construction of phase two of the slots facility, as well as related capital expenditures and start-up costs, including the acquisition and installation of approximately 700 slot machines. To December 31, 2006, there were no drawings on this tranche.

(iv)

Remington Park Project Financing

In July 2005, the Company's subsidiary that owns and operates Remington Park entered into a $34.2 million project financing arrangement with a subsidiary of MID for the build-out of the casino facility at Remington Park. Advances under the loan were made by way of progress draw advances to fund the capital expenditures relating to the development, design and construction of the casino facility, including the purchase and installation of electronic gaming machines. The loan has a ten-year term from the completion date of the reconstruction project, which was November 28, 2005. Prior to the completion date, amounts outstanding under the loan bore interest at a floating rate equal to 2.55% per annum above MID's notional cost of LIBOR borrowing under its floating rate credit facility, compounded monthly. After the completion date, amounts outstanding under the loan bear interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, payment of interest was deferred. Commencing January 1, 2007, the Company will make monthly blended payments of principal and interest based on a 25-year amortization period commencing on the completion date. Certain cash from the operations of Remington Park must be used to pay deferred interest on the loan plus a portion of the principal under the loan equal to the deferred interest on the Gulfstream Park construction loan. The loan is secured by all assets of Remington Park, excluding licenses and permits. The loan is also secured by a charge over the lands owned by Gulfstream Park and a charge over the Palm Meadows Training Center and contains cross-guarantee, cross-default and cross-collateralization provisions. For the year ended December 31, 2006, $12.5 million (for the year ended December 31, 2005 — $20.7 million; for the year ended December 31, 2004 — nil) was advanced, $3.2 million (for the year ended December 31, 2005 — $0.3 million; for the year ended December 31, 2004 — nil) of interest was accrued and $5.0 million was repaid on this loan, such that at December 31, 2006, $31.7 million was outstanding under the Remington Park loan, including $0.4 million (December 31, 2005 — $0.3 million) of accrued interest. Net loan origination expenses of $1.3 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

(v)

Future principal repayments on the indebtedness and long-term debt due to parent at December 31, 2006 are expected to occur as follows:

2007	$	3,108
2008		1,838
2009		2,037
2010		2,256
2011		2,499
Thereafter		168,620
	$	180,358

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(b)

At December 31, 2006, $6.5 million (December 31, 2005 — $13.7 million) of the funds the Company placed into escrow with MID remains in escrow.



(c)

A subsidiary of the Company had an option agreement with MID to acquire 100% of the shares of the MID subsidiary that owns land in Romulus, Michigan. The option agreement expired on December 15, 2006, and accordingly, the Company expensed approximately $3.0 million of deferred development costs incurred in pursuit of the Romulus, Michigan racing license.



(d)

On November 1, 2006, a wholly-owned subsidiary of the Company sold its interest in the entity that owns and operates the Fontana Golf Club located in Oberwaltersdorf, Austria to a subsidiary of Magna for a sale value of Euros 30.0 million (U.S. $38.3 million). The Company received cash proceeds of approximately Euros 13.2 million (U.S. $16.9 million), net of transaction costs, and approximately Euros 16.8 million (U.S. $21.4 million) of debt was assumed by Magna. The gain on sale of Fontana Golf Club of approximately $20.9 million, net of tax, is reported as a contribution of equity. A subsidiary of MID received a fee of $0.2 million (1% of the net sale proceeds) as consideration for waiving repayment rights under the bridge loan agreement with MID.



(e)

On August 25, 2006, a wholly-owned subsidiary of the Company completed the sale of the Magna Golf Club located in Aurora, Ontario, Canada to Magna for cash consideration of Cdn. $51.8 million (U.S. $46.4 million), net of transaction costs. The Company recognized an impairment loss of $1.2 million at the date of disposition equal to the excess of the Company's carrying value of the assets disposed over their fair values at the date of disposition. A subsidiary of MID received a fee of Cdn. $0.2 million (1% of the net sale proceeds) as consideration for waiving repayment rights under the bridge loan agreement with MID.

On August 25, 2006, in conjunction with the sale of the Magna Golf Club, the Company entered into an access agreement with Magna for the use of the Magna Golf Club's golf course and the clubhouse meeting, dining and other facilities. The agreement, which expires on August 25, 2011, required a payment of $0.3 million.

(f)

On March 31, 2006, the Company sold a non-core real estate property located in the United States to Magna for total proceeds of $5.6 million, net of transaction costs. The gain on sale of the property of approximately $2.9 million, net of tax, is reported as a contribution of equity. In accordance with the terms of the senior secured revolving credit facility, the Company used the net proceeds from this transaction to repay principal amounts outstanding under this credit facility.



(g)

During the year ended December 31, 2005, a wholly-owned subsidiary of the Company sold to Mr. Frank Stronach, the Chairman of the Board and a Director of the Company, two housing lots and a housing unit. These sales were in the normal course of operations of the Company and the total sales price for these properties was $1.4 million. The gain on the sale of the properties of approximately $0.7 million, net of tax, is reported as a contribution of equity.



(h)

On November 1, 2004, a wholly-owned subsidiary of the Company entered into an access agreement with Magna and one of its subsidiaries for their use of the golf course and the clubhouse meeting, dining and other facilities at the Magna Golf Club in Aurora, Ontario, Canada. The agreement, which was retroactive to January 1, 2004, ended on August 25, 2006 as a result of the sale of the Magna Golf Club (refer to Note 20(e)) and stipulated an annual fee of Cdn. $5.0 million. For the year ended December 31, 2006, $2.9 million (for the year ended December 31, 2005 — $4.1 million; for the year ended December 31, 2004 — $3.9 million) has been recognized in discontinued operations related to this agreement.



(i)

On November 1, 2004, a wholly-owned subsidiary of the Company entered into an access agreement with Magna and one of its subsidiaries for their use of the golf course and the clubhouse meeting, dining and other facilities at the Fontana Golf Club in Oberwaltersdorf, Austria. The agreement, which was retroactive to March 1, 2004, ended on November 1, 2006 as a result of the sale of the Fontana Golf Club (refer to Note 20(d)) and stipulated an annual fee of Euros 2.5 million. For the year ended December 31, 2006, $2.6 million (for the year ended December 31, 2005 — $3.1 million; for the year ended December 31, 2004 — $3.2 million) has been recognized in discontinued operations related to this agreement.



(j)

During the period from January 1, 2006 to July 26, 2006, the Company paid $2.1 million (for the year ended December 31, 2005 — $2.4 million; for the year ended December 31, 2004 — $1.8 million) of rent for totalisator equipment and fees for totalisator services to AmTote, a company in which the Company had a 30% equity interest up to July 26, 2006.



(k)

During the year ended December 31, 2006, the Company incurred $3.8 million (for the year ended December 31, 2005 — $4.5 million; for the year ended December 31, 2004 — $4.3 million) of rent for facilities and central shared and other services to Magna and its subsidiaries.

21.   COMMITMENTS AND CONTINGENCIES

(a)

The Company generates a substantial amount of its revenues from wagering activities and, therefore, it is subject to the risks inherent in the ownership and operation of a racetrack. These include, among others, the risks normally associated with changes in

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the general economic climate, trends in the gaming industry, including competition from other gaming institutions and state lottery commissions, and changes in tax laws and gaming laws.

(b)

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



(c)

The Company has letters of credit issued with various financial institutions of $2.0 million to guarantee various construction projects related to activity of the Company. These letters of credit are secured by cash deposits of the Company. The Company also has letters of credit issued under its senior secured revolving credit facility of $24.7 million.



(d)

The Company has provided indemnities related to surety bonds and letters of credit issued in the process of obtaining licenses and permits at certain racetracks and to guarantee various construction projects related to activity of its subsidiaries. At December 31, 2006, these indemnities amounted to $9.4 million with expiration dates through 2007.



(e)

At December 31, 2006, the Company had commitments under operating leases requiring minimum annual rental payments for the years ending December 31 as follows:

2007	$	6,368
2008		5,074
2009		4,390
2010		4,130
2011		2,262
Thereafter		6,446
	$	28,670

Commitments under operating leases do not include contingent rental payments.

For the year ended December 31, 2006, payments under these operating leases amounted to approximately $9.4 million (for the year ended December 31, 2005 — $4.2 million; for the year ended December 31, 2004 — $9.1 million). The Company also rents or leases certain totalisator equipment and services, for which the annual payments are contingent upon handle, live race days and other factors. The Company's rent expense relating to the totalisator equipment and services was $5.0 million for the year ended December 31, 2006 (for the year ended December 31, 2005 — $5.2 million; for the year ended December 31, 2004 — $5.5 million).

The Company occupies land for the Remington Park racing facility under an operating lease that extends through 2013. The lease also contains options to renew for five 10-year periods after the initial term. The Company is obligated to pay rent based on minimum annual rental payments ranging from $470 thousand to $503 thousand plus one-half of one percent of the pari-mutuel wagers made at the track in excess of $187.0 million during the racing season and one percent of gaming revenue in excess of $60.0 million. The percentage rent was not applicable for the years ended December 31, 2006, 2005 and 2004.

The Company owns an approximate 22% interest in the real property upon which Portland Meadows is located, and also owns the long-term rights to operate the facility pursuant to an operating lease. The operating lease requires the Company to pay rent equal to one percent of the wagers made at the track (including wagers on both live and import races), and also an additional percentage of revenues for other activities as follows: (a) one percent of revenues for horse-related activities, including simulcasting of horse races during the non-live season, (b) five percent of revenues not related to horse racing up to $800 thousand, and (c) three percent of revenues not related to horse racing in excess of $800 thousand. As the owner of approximately 22% interest in the real property, the Company receives approximately 22% of the rent payments, which are applied to the rental payments made by the Company in order to reduce rent expense which is reflected in racing and gaming operating costs on the consolidated statements of operations and comprehensive loss.

The racetrack and associated land under capital leases at Lone Star Park are included in the Grand Prairie Metropolitan Utility and Reclamation District ("GPMURD"). MEC Lone Star, L.P., a wholly-owned subsidiary of the Company, entered into an agreement with GPMURD, whereby it is required to make certain payments to GPMURD in lieu of property taxes. Such payments include amounts necessary to cover GPMURD operating expenses and debt service for certain bonds issued by GPMURD to fund improvements on the land up to the debt service requirements. The Company expensed $2.1 million of such payments for the year ended December 31, 2006 (for the year ended December 31, 2005 — $1.8 million; for the year ended December 31, 2004 — $2.0 million).

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(f)

Contractual commitments outstanding at December 31, 2006, which related to construction and development projects, amounted to approximately $5.7 million.



(g)

On November 16, 2006, we opened the slots facility at Gulfstream Park and are proceeding with plans to make additional slot machines available in 2007. The Company proceeded with the development of the slots facility at Gulfstream Park despite an August 2006 decision rendered by the Florida District Court of Appeals First District that reversed a lower court decision granting summary judgment in favor of "Floridians for a Level Playing Field" ("FLPF"), a group in which Gulfstream Park is a member. The Court ruled that a trial is necessary to determine whether the constitutional amendment adopting the slots initiative, approved by Floridians in the November 2004 election, was invalid because the petitions bringing the initiative forward did not contain the minimum number of valid signatures. FLPF filed an application for a rehearing, rehearing en banc before the full panel of the First District Court of Appeals and Certification by the Florida Supreme Court. On November 30, 2006, in a split decision, the en banc court affirmed the August 2006 panel decision and certified the matter to the Florida Supreme Court, which stayed the appellate court ruling pending its jurisdictional review of the matter. The Florida Supreme Court has yet to confirm whether it will hear the matter. The Company believes that the August 2006 decision rendered by the Florida District Court of Appeals is incorrect, and accordingly, the Company is proceeding with the slots facility development.



(h)

In October 2003, the Company signed a Letter of Intent to explore the possibility of a joint venture between Forest City Enterprises, Inc. ("Forest City") and various affiliates of the Company, anticipating the development of a portion of the Gulfstream Park racetrack property. Forest City paid $2.0 million to the Company in consideration for its right to work exclusively with the Company on this project. This deposit has been included in "other accrued liabilities" on the Company's consolidated balance sheets. In May 2005, a Limited Liability Company Agreement was entered into with Forest City concerning the planned development of "The Village at Gulfstream Park™". That agreement contemplates the development of a mixed-use project consisting of residential units, parking, restaurants, hotels, entertainment, retail outlets and other commercial use projects on a portion of the Gulfstream Park property. Forest City is required to contribute up to a maximum of $15.0 million as an initial capital contribution. The $2.0 million deposit received to date from Forest City shall constitute the final $2.0 million of the initial capital contribution. The Company is obligated to contribute 50% of any equity amounts in excess of $15.0 million as and when needed, however, to December 31, 2006, the Company has not made any such contributions. In the event the development does not proceed, the Company may have an obligation to fund a portion of those pre-development costs incurred to that point in time. As at December 31, 2006, approximately $13.9 million of costs have been incurred by The Village at Gulfstream Park, LLC, which have been funded entirely by Forest City. The Limited Liability Company Agreement also contemplates additional agreements, including a ground lease, a reciprocal easement agreement, a development agreement, a leasing agreement and a management agreement to be executed in due course and upon satisfaction of certain conditions.



(i)

In April 2004, the Company signed a Letter of Intent to explore the possibility of joint ventures between Caruso Affiliated and certain affiliates of the Company to develop certain undeveloped lands surrounding Santa Anita Park and Golden Gate Fields racetracks. Upon execution of this Letter of Intent, the Company agreed to fund 50% of approved pre-development costs in accordance with a preliminary business plan for each of these projects, with the goal of entering into operating agreements. As at December 31, 2006, the Company has expended approximately $6.3 million on this initiative, of which $4.2 million was paid during the year ended December 31, 2006. These amounts have been recorded as "real estate properties, net" on the Company's consolidated balance sheets. Under the terms of the Letter of Intent, the Company may be responsible to fund additional costs, however to December 31, 2006, the Company has not made any such payments. On September 28, 2006, certain of the Company's affiliates entered into definitive operating agreements with certain Caruso Affiliated affiliates regarding the proposed development of approximately 51 acres of undeveloped lands surrounding Santa Anita Park. This development project contemplates a mixed-use development with approximately 800,000 square feet of retail, entertainment and restaurants as well as 4,000 parking spaces.

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22.   OTHER LONG-TERM LIABILITIES

(a)

Other long-term liabilities consist of the following:

	December 31,
	2006		2005
Finance obligation (note 5(b))	$	12,816	$	—
Pension liability		2,714		453
Postretirement liability		460		—
Deferred gain		220		210
Other		1,274		1,039
	$	17,484	$	1,702

(b)

Employee Defined Benefit Pension Plans

The Company's Santa Anita Park racetrack has a pension plan that consists of a non-contributory defined benefit retirement plan for year-round employees who are at least 21 years of age, have one or more years of service, and are not covered by collective bargaining agreements. Plan assets consist of a group of annuity contracts with a life insurance company. Plan benefits are based primarily on years of service and qualifying compensation during the final years of employment. Funding requirements comply with federal requirements that are imposed by law.

The Company's subsidiary, AmTote, which is consolidated in the Company's results from July 26, 2006 (refer to Note 4) sponsors two pension plans for union employees. Retirement benefits for the pension plans are funded entirely by AmTote. Normal retirement for one of the pension plans is age 65 with at least 30 years of service and normal retirement for the other pension plan is age 65 with at least five years of service. Funding requirements comply with federal requirements that are imposed by law.

The net periodic pension cost of the Company includes the following components:

	Years ended December 31,
	2006			2005			2004
Components of net periodic pension cost:
Service cost	$	588		$	532		$	437
Interest cost on projected benefit obligation		837			690			685
Expected return on plan assets		(807	)		(631	)		(600	)
Amortization of prior service cost		18			18			18
Amortization of net loss		87			115			28
Net periodic pension cost	$	723		$	724		$	568

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The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans:

	Years ended December 31,
	2006			2005			2004
Change in benefit obligation:
Benefit obligation at beginning of year	$	14,592		$	14,104		$	11,711
Plans acquired through acquisition of AmTote		4,971			—			—
Service cost		588			532			437
Interest cost		837			690			685
Benefits paid		(643	)		(623	)		(569	)
Actuarial (gains) losses		(993	)		(111	)		1,840
Settlements		(285	)		—			—
Benefit obligation at end of year		19,067			14,592			14,104
Change in plan assets:
Fair value of plan assets at beginning of year		11,349			10,688			9,962
Plans acquired through acquisition of AmTote		4,091			—			—
Actual return on plan assets		1,159			840			825
Company contributions		682			444			470
Benefits paid		(643	)		(623	)		(569	)
Settlements		(285	)		—			—
Fair value of plan assets at end of year		16,353			11,349			10,688
Funded status of plan (underfunded)		(2,714	)		(3,243	)		(3,416	)
Unrecognized net gain		—			2,790			3,243
Net pension liability	$	(2,714	)	$	(453	)	$	(173	)

The asset allocation for the Company's defined benefit pension plans at the end of December 31, 2006, 2005 and 2004 are as follows:

	December 31,
	2006	2005	2004
Debt securities	51%	64%	67%
Equity securities	46%	36%	33%
Real estate	3%	—	—
	100%	100%	100%

Assumptions used in determining the funded status of the defined benefit pension plans are as follows:

	Years ended December 31,
	2006	2005	2004
Weighted average discount rate	5.0 – 6.5%	5.0%	5.0%
Weighted average rate of increase in compensation levels	4.0%	4.0%	4.0%
Expected long-term rate of return	6.0 – 9.0%	6.0%	6.0%

The expected rate of return on plan assets was determined by considering the Company's current investment mix and the historical and expected future performance of these investment categories.

The measurement date and related assumptions for the funded status of the Company's pension plans are as of December 31.

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(c)

Postretirement Benefit Plan

One of the Company's subsidiaries, AmTote, which is consolidated in the Company's results from July 26, 2006 (refer to Note 4) also sponsors a postretirement group medical plan for Tier 1 union employees who retire after the age of 53 with 13 years of service. The coverage terminates at age 65. For union plan participants who retired prior to September 1, 1994, coverage is fully provided by AmTote, whereas union plan participants retiring subsequent to September 1, 1994, are required to make certain contributions to obtain coverage. For Tier 1 employees retiring between April 15, 2004 and June 30, 2006, the coverage is replaced by a Company contribution towards the cost of private insurance. For Tier 1 employees retiring after June 30, 2006, postretirement will no longer be available.

The net periodic benefit cost of the Company for the year ended December 31, 2006 is shown below. The Company did not have any postretirement benefit plans for the years ended December 31, 2005 and 2004.

	Year ended December 31, 2006
Components of net periodic benefit cost:
Service cost	$	1
Interest cost on projected benefit obligation		13
Amortization of net loss		63
Net periodic benefit cost	$	77

The following provides a reconciliation of benefit obligations, plan assets and funded status of the plan:

	Year ended December 31, 2006
Change in benefit obligation:
Benefit obligation at beginning of year	$	—
Plan acquired through acquisition of AmTote		495
Service cost		1
Interest cost		13
Benefits paid		(52	)
Actuarial gains		3
Benefit obligation at end of year		460
Change in plan assets:
Fair value of plan assets at beginning of year		—
Company contributions		52
Benefits paid		(52	)
Fair value of plan assets at end of year		—
Funded status of plan (underfunded) and net postretirement liability	$	(460	)

Assumptions used in determining the funded status of the postretirement plan are as follows:

	Year ended December 31, 2006
Weighted average discount rate	6.5%
Health care cost trend assumed for next year	7.0%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)	5.0%
Year that the rate reaches the ultimate trend rate	2009

The measurement date and related assumptions for the underfunded status of the Company's postretirement plan are as of December 31.

126

(d)

Expected Contributions and Future Benefit Payments

The expected contributions and future benefit payments of the Company's defined benefit pension plans and postretirement plan are as follows:

	Defined Benefit Pension Plans		Postretirement Plan		Total
Expected employer contributions — 2007	$	1,043	$	109	$	1,152
Expected benefit payments
2007	$	1,255	$	109	$	1,364
2008		1,328		89		1,417
2009		1,088		82		1,170
2010		1,100		61		1,161
2011		922		46		968
2012-2016		6,299		103		6,402
	$	11,992	$	490	$	12,482

(e)

The Company also participates in several multi-employer benefit plans on behalf of its employees who are union members. Company contributions to these plans were $4.9 million in the year ended December 31, 2006 (year ended December 31, 2005 — $4.0 million; year ended December 31, 2004 — $5.0 million). The data available from administrators of the multi-employer pension plans is not sufficient to determine the accumulated benefit obligations, nor the net assets attributable to the multi-employer plans in which the Company's employees participate.

A subsidiary of the Company participates in a multi-employer defined benefit pension plan for which the pension plan's total vested liabilities exceed its assets. Based on allocation information provided by the plan, the portion of the estimated unfunded liability for vested benefits attributable to the Company's subsidiary is approximately $3.7 million. Under specific circumstances, a "withdrawal liability" may be triggered by certain actions, which includes withdrawal from the pension plan. The Company does not have any present intention to withdraw from the pension plan.

(f)

The Company offers a 401(k) plan (the "401(k) Plan") to provide retirement benefits for employees. All employees who meet certain eligibility requirements are able to participate in the 401(k) Plan. Discretionary matching contributions are determined each year by the Company. The Company contributed $1.2 million in the year ended December 31, 2006 (year ended December 31, 2005 — $0.8 million; year ended December 31, 2004 — $1.5 million) to the 401(k) Plan.

23.   SUBSEQUENT EVENTS

(a)

On March 4, 2007, the Company entered into a series of customer-focused agreements with CDI in order to enhance wagering integrity and security, to own and operate HRTV™, to buy and sell horse racing content and to promote the availability of horse racing signals to customers worldwide. These agreements involved the formation of a joint venture, TrackNet Media Group LLC ("TrackNet Media"), the finalization of a reciprocal content swap agreement and the purchase by CDI from the Company of a 50% interest in HRTV™. TrackNet Media is the vehicle through which the Company's and CDI's horse racing content will be made available to third parties, including racetracks, off-track betting facilities, casinos and advance deposit wagering companies. TrackNet Media will also purchase horse racing content from third parties to be made available through the Company's and CDI's respective outlets. Under the reciprocal content swap agreement, the Company and CDI will exchange their respective horse racing signals.



(b)

On February 21, 2007, the Company filed a shelf registration statement on Form S-3 (the "U.S. Registration Statement") with the United States Securities and Exchange Commission (the "SEC") and a preliminary short form base shelf prospectus (the "Canadian Prospectus") with the securities commissions in each of the Provinces in Canada (collectively, the "Canadian Securities Commissions"). After the U.S. Registration Statement is declared effective by the SEC and the Canadian Prospectus receives a final receipt by the Canadian Securities Commissions, the Company will be able to offer to sell up to U.S. $500.0 million of equity securities (including stock, warrants, units and, subject to filing a Canadian rights offering circular or prospectus with the Canadian Securities Commissions, rights) from time to time in one or more public offerings or other offerings.



(c)

On February 9, 2007, the Company repaid in full a term loan facility of Euros 15.0 million (U.S. $19.8 million), which was scheduled to mature on that date.



(d)

On February 7, 2007, MID acquired all of the Company's interests and rights in a 34 acre parcel of residential development land in Aurora, Ontario, Canada for cash consideration of Cdn. $12.0 million (U.S. $10.1 million) and a 64 acre parcel of excess land at Laurel Park in Howard County, Maryland for cash consideration of U.S. $20.0 million. In addition, the Company has been granted a profit participation right in respect of each property under which it is entitled to receive 15% of net proceeds from any sale or development after MID achieves a 15% internal rate of return.



(e)

On January 18, 2007, the Company announced that the 2007 race meet will be the last meet that MI Racing, Inc. will run at Great Lakes Downs. For the year ended December 31, 2006, Great Lakes Downs incurred a loss before income taxes of $1.8 million.

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MAGNA ENTERTAINMENT CORP.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2006
(Amounts in thousands, U.S. dollars)

					Costs Capitalized Subsequent to Acquisition					Gross Amount at which Carried at Close of Period
			Initial Costs to Company					Foreign Exchange Impact								Life on which Depreciation in Latest Income Statement is Computed
Description		Encumbrance	Land	Building and Improvements	Land		Building and Improvements	Land	Building and Improvements	Land	Building and Improvements	Total	Accumulated Depreciation	Date of Construction	Date Acquired
EXCESS REAL ESTATE
Racing Operations
	Santa Anita Park (Arcadia, California, U.S.A.)	52,781	52,500	—	—		281	—	—	52,500	281	52,781	—	n/a	1998	n/a
	Gulfstream Park (Hallandale, Florida, U.S.A.)(i)	13,234	14,201	—	(967	)	—	—	—	13,234	—	13,234	—	n/a	1999	n/a
	Lone Star Park (Grand Prairie, Texas, U.S.A.)	—	4,245	—	—		—	—	—	4,245	—	4,245	—	n/a	2002	n/a
	Maryland Jockey Club (Baltimore, Maryland, U.S.A.)	10,900	10,900	—	—		—	—	—	10,900	—	10,900	—	n/a	2002	n/a
	MEC Grundstucksentwicklumgs GmbH (Niederoesterreich, Austria)	—	9,974	—	3,651		—	2,166	—	15,791	—	15,791	—	n/a	1996	n/a
REAL ESTATE HELD FOR DEVELOPMENT
Racing Operations
	Dixon Downs (Dixon, California, U.S.A.)	—	6,584	—	12,105		22	—	—	18,689	22	18,711	—	n/a	2001	n/a
	Ocala (Ocala, Florida, U.S.A.)	8,426	7,227	—	1,199		—	—	—	8,426	—	8,426	—	n/a	2002	n/a
Real Estate Operations
	New York, U.S.A.	—	725	—	2,265		—	—	—	2,990	—	2,990	—	n/a	1998	n/a
	Palm Meadows Estates (Boynton, Florida, U.S.A.)	—	7,488	—	2,920		—	—	—	10,408	—	10,408	—	n/a	2000	n/a
	Ontario, Canada(ii)	—	2,334	—	6,313		—	1,651	—	10,298	—	10,298	—	n/a	1997	n/a
		74,441	116,178	—	27,486		303	3,817	—	147,481	303	147,784	—
(i)    The following provides a reconciliation of the total amount at which real estate was carried at the beginning of the year to the amount shown in the column "Gross Amount at which Carried at Close of Period":

	Gulfstream Park (Hallandale, Florida, U.S.A.)
		Balance, beginning of year	$	14,201
		Deductions during the year:
		Cost of real estate sold		(967	)
		Balance, close of year	$	13,234
(ii)    On February 7, 2007, MI Developments Inc. acquired all of the Company's interests and rights in the Ontario, Canada parcel of residential development land for cash consideration of Cdn. $12.0 million (U.S. $10.1 million). Based on this transaction, which established a fair value for the land, the Company recognized a non-cash impairment loss of $1.3 million related to this parcel of residential development land for the year ended December 31, 2006.

128

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

        None.

Item 9A. Controls and Procedures

        Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process defined to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

        Based on this evaluation of the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the U.S. Securities Exchange Act of 1934) as of December 31, 2006, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that the Company maintained effective internal control over financial reporting as of December 31, 2006.

        Based on this evaluation carried out, as of December 31, 2006, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15(d)-15(e) under the U.S. Securities Exchange Act of 1934) are effective.

        There were no changes in our internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Ernst & Young LLP has audited this assessment of our internal control over financial reporting; their report is included in Item 9A.

        The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

129

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Magna Entertainment Corp.

        We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Magna Entertainment Corp. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO criteria"). Magna Entertainment Corp.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, management's assessment that Magna Entertainment Corp. maintained effective internal control over financial reporting as at December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Magna Entertainment Corp. maintained, in all material respects, effective internal control over financial reporting as at December 31, 2006, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Magna Entertainment Corp. as of December 31, 2006 and 2005, and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2006, and our report dated March 7, 2007 expressed an unqualified opinion thereon. Our audits also included the financial statement schedule listed in the Index at Item 15(a).

Toronto, Canada
March 7, 2007	Chartered Accountants

130

Part III

Item 10. Directors and Executive Officers of the Registrant

        The information required herein is incorporated by reference from sections of our Proxy Statement titled "Nominees", "Management — Executive Officers", "The Board of Directors and Committees of the Board — Audit Committee", "Section 16(a) Beneficial Ownership Reporting Compliance" and "Code of Conduct", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31, 2006.

Item 11. Executive Compensation

        The information required herein is incorporated by reference from sections of our Proxy Statement titled "The Board of Directors and Committees of the Board — Directors' Compensation", "The Board of Directors and Committees of the Board — Compensation Committee Interlocks and Insider Participation", "Executive Compensation" and "Corporate Governance, Human Resources and Compensation Committee Report", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31, 2006.

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

        The information required herein is incorporated by reference from the sections of our Proxy Statement titled "Equity-Based Compensation Plan Information" and "Security Ownership", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31, 2006.

Item 13. Certain Relationships and Related Transactions

        The information required herein is incorporated by reference from the section of our Proxy Statement titled "Certain Relationships and Related Transactions", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31, 2006.

Item 14. Principal Accountant Fees and Services

        The information required herein is incorporated by reference from the section of our Proxy Statement titled "Principal Accountant Fees and Services", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31, 2006.

131

Part IV

Item 15. Exhibits, Financial Statement Schedules

(a)

Financial Statements and Schedule

        The following Consolidated Financial Statements of Magna Entertainment Corp. as at or for the year ended December 31, 2006 are included in Part II, Item 8 of this Annual Report:

Report of the Independent Auditors
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Cash Flows
Consolidated Balance Sheets
Consolidated Statements of Changes in Shareholders' Equity
Notes to the Consolidated Financial Statements
Schedule III — Real Estate and Accumulated Depreciation

(b)

Exhibits

        Please refer to the exhibit index below.

132

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 14th day of March, 2007.

MAGNA ENTERTAINMENT CORP.
By:	/s/  MICHAEL NEUMAN Michael Neuman Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title	Date
By:	/s/  MICHAEL NEUMAN Michael Neuman	Chief Executive Officer and Director (Principal Executive Officer)	March 14, 2007
By:	/s/  BLAKE TOHANA Blake Tohana	Executive Vice-President and Chief Financial Officer (Principal Financial Officer)	March 14, 2007
By:	/s/  MARY LYN SEYMOUR Mary Lyn Seymour	Vice-President and Controller (Principal Accounting Officer)	March 14, 2007
By:	/s/  JERRY D. CAMPBELL Jerry D. Campbell	Director	March 14, 2007
By:	/s/  JOSEPH DE FRANCIS Joseph De Francis	Director	March 14, 2007
By:	/s/  LOUIS E. LATAIF Louis E. Lataif	Director	March 14, 2007
By:	/s/  WILLIAM J. MENEAR William J. Menear	Director	March 14, 2007
By:	/s/  DENNIS MILLS Dennis Mills	Director	March 14, 2007
By:	/s/  FRANK STRONACH Frank Stronach	Chairman and Director	March 14, 2007
By:	/s/  CHARLIE J. WILLIAMS Charlie J. Williams	Director	March 14, 2007

133

EXHIBIT INDEX

        The following documents are filed as part of this Annual Report.

Exhibit No.	Description of Document
3.1	Restated Certificate of Incorporation of Magna Entertainment Corp. (incorporated herein by reference to exhibit 3.1 of the registrant's Report on Form 8-K filed on March 16, 2000).
3.2	By-Laws of Magna Entertainment Corp. (incorporated herein by reference to the corresponding exhibit number of the registrant's Report on Form 10-Q filed on May 10, 2004).
4.1	Form of Stock Certificate for Class A Subordinate Voting Stock (incorporated by reference to exhibit 4 of the registrant's Registration Statement on Form S-1 originally filed on January 14, 2000 (File number 333-94791).
4.2	Indenture dated as of December 2, 2002, between Magna Entertainment Corp. and The Bank of New York, as trustee, including the form of 71/4% Convertible Subordinated Notes due December 15, 2009. (incorporated herein by reference to exhibit 4.1 to registrant's registration statement on Form S-3 filed January 31, 2003 (File number 333-102889)).
4.3	Indenture dated as of June 2, 2003, between Magna Entertainment Corp. and the Bank of New York, as trustee, including the form of 8.55% Convertible Subordinated Notes due June 15, 2010 (incorporated herein by reference to exhibit 4.1 of the registrant's Registration Statement on Form S-3 filed July 25, 2003 (file number 333-107368)).
10.1	Term Loan Credit Agreement dated as of November 15, 1999, as amended from time to time, between The Santa Anita Companies, Inc. and Wells Fargo Bank, National Association (incorporated herein by reference to the exhibit 10.7 of the registrant's Registration Statement on Form S-1/A originally filed on February 14, 2000 (File number 333-94791)).
10.2	Magna Entertainment Corp. Long-Term Incentive Plan (incorporated herein by reference to exhibit 10.11 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999).
10.3	Amendment No. 1 to the Term Loan Credit Agreement dated as of November 15, 1999, between The Santa Anita Companies, Inc. and Wells Fargo Bank, National Association (incorporated herein by reference to exhibit 10.21 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).
10.4	Amendment No. 2 to the Term Loan Credit Agreement dated as of November 15, 1999, between The Santa Anita Companies, Inc. and Wells Fargo Bank, National Association (incorporated herein by reference to exhibit 10.22 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).
10.5	Amendment No. 3 to the Term Loan Credit Agreement dated as of November 1, 2001, between The Santa Anita Companies, Inc. and Wells Fargo Bank, National Association (incorporated herein by reference to exhibit 10.16 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).
10.6	Option Agreement dated November 27, 2002 by and among the Company, Joseph LLC, Karin LLC, Joseph A. De Francis and Karin M. De Francis (incorporated herein by reference to exhibit 2.2 to registrant's Report on Form 8-K filed on December 12, 2002). (Exhibit A to this Agreement has been omitted but will be furnished supplementally to the Commission upon request.)
10.7	Employment Agreement between the Company and Blake Tohana dated July 1, 2003 (incorporated herein by reference to exhibit 10.29 to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003).

134

10.8	Loan Agreement dated March 5, 2004 between MEC Grundstucksentwicklungs GmbH and Raiffeisenlandesbank Niederosterreich-Wien AG in the amount of Euro 15,000,000 (incorporated herein by reference to exhibit 10.1 to the registrant's Form 10-Q for the Quarter ended March 31, 2004).
10.9	Term Loan Credit Agreement dated as of October 8, 2004 between Wells Fargo Bank, National Association and The Santa Anita Companies, Inc. (incorporated herein by reference to exhibit 10.1 to the registrant's Report on Form 8-K filed on October 14, 2004).
10.10	Form of Election for Performance Shares in Lieu of Guaranteed Bonus for W. Thomas Hodgson, Jim McAlpine, Donald Amos, Paul Cellucci, Blake Tohana and certain other employees of the Registrant (incorporated herein by reference to exhibit 10.1 of the Registrant's Report on Form 8-K filed on May 9, 2005).
10.11	Form of Indemnity Agreement dated as of October 31, 2005 (incorporated herein by reference to exhibit 10.1 of the registrant's Report on Form 8-K filed on November 2, 2005).
10.12	Amended and Restated Credit Agreement between the Registrant and the Bank of Montreal, et al., dated as of July 22, 2005 (incorporated herein by reference to exhibit 10.5 to the registrant's Report on Form 10-Q filed on November 9, 2005).
10.13	First Amending Agreement made as of the 1st day of February, 2006 between the registrant and MID Islandi SF, et al (incorporated herein by reference to exhibit 10.1 of the registrant's Report on Form 8-K filed on February 9, 2006).
10.14	Separation Agreement between the registrant and W. Thomas Hodgson dated March 31, 2006 (incorporated herein by reference to exhibit 10.3 of the registrant's Report on Form 10-Q filed on May 9, 2006).
10.15	Consulting Agreement made as of April 30, 2006 among MEC Holdings (Canada) Inc., the registrant, McAlpine Capital Advisors Inc. and Jim McAlpine (incorporated herein by reference to exhibit 10.2 of the registrant's Report on Form 10-Q filed on August 9, 2006).
10.16	First Amending Agreement to the Amended and Restated Credit Agreement, dated as of July 22, 2005, between the registrant and the Bank of Montreal, et al, made as of July 26, 2006. (incorporated herein by reference to exhibit 10.1 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.17	Second Amending Agreement to the Amended and Restated Credit Agreement, dated as of July 22, 2005, between the registrant and the Bank of Montreal, et al, made as of November 6, 2006. (incorporated herein by reference to exhibit 10.2 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.18	Second Amending Agreement made as of July 26, 2006 between the registrant and MID Islandi, sf., et al. (incorporated herein by reference to exhibit 10.3 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.19	Third Amending Agreement made as of September 26, 2006 between the registrant and MID Islandi SF, et al. (incorporated herein by reference to exhibit 10.4 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.20	Fourth Amending Agreement made as of September 29, 2006 between the registrant and MID Islandi SF, et al. (incorporated herein by reference to exhibit 10.5 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.21	Fifth Amending Agreement made as of November 6, 2006 between the registrant and MID Islandi SF, et al. (incorporated herein by reference to exhibit 10.6 of the registrant's Report on Form 10-Q filed on November 9, 2006).

135

10.22	Limited Liability Company Agreement of Santa Anita Associates, LLC between Santa Anita Commercial Enterprises, Inc. and Santa Anita Associates Holding Co., LLC, effective as of September 28, 2006 (incorporated herein by reference to exhibit 10.7 of the registrant's Report on Form 10-Q filed on November 9, 2006). (Portions of exhibit 10.7 marked with "xxx" are subject to a pending Confidential Treatment Request filed with the Secretary of the Securities and Exchange Commission and have been filed separately with the Securities and Exchange Commission.)
10.23	Letter Agreement between the Registrant and Donald Amos dated October 13, 2006. (incorporated herein by reference to Exhibit 10.8 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.24	Second Amended and Restated Loan Agreement made as of the 26th day of July, 2006 between Gulfstream Park Racing Association, Inc. and MID Islandi sf., et al. (incorporated herein by reference to Exhibit 10.9 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.25	Amended Stock Purchase Agreement dated as of July 26, 2006 amending the Stock Purchase Agreement, dated November 8, 2005 between the registrant and PA Meadows, LLC. (incorporated herein by reference to Exhibit 10.10 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.26	Post-Closing and Note Issuance Agreement, dated as of July 26, 2006 between the registrant and PA Meadows LLC. (incorporated herein by reference to Exhibit 10.11 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.27	Racing Services Agreement entered into as of July 26, 2006 by and among the registrant, MEC Pennsylvania Racing Services, Inc., Mountain Laurel Racing, Inc., Washington Trotting Association, Inc., MEC Pennsylvania Racing, Inc., MEC Pennsylvania Food Service, Inc., and MEC Racing Management (incorporated herein by reference to Exhibit 10.12 of the registrant's Report on Form 10-Q filed on November 9, 2006).
10.28	Share Purchase Agreement made as of October 31, 2006 between Fontana Beteiligungs GmbH and Magna Steyr Metalforming AG (incorporated herein by reference to Exhibit 10.1 of the registrant's Report on Form 8-K filed on November 7, 2006). (The schedules to this agreement (Schedule A — List of Capitalized Terms; Schedule B — Net Working Capital as of September 30, 2006; and Schedule C — Demerger Agreement) have not been included and will be furnished to Securities and Exchange Commission upon request.)
10.29	Asset Purchase Agreement made August 25, 2006 between Magna International Inc. as the Purchaser and MEC Holdings (Canada) Inc. as the Vendor (incorporated herein by reference to Exhibit 10.1 of the registrant's Report on Form 8-K filed on November 8, 2006). (The schedules to this agreement, which are listed in Section 1.6 of the agreement, have not been included and will be furnished to the Securities and Exchange Commission upon request.)
10.30	Third Amended and Restated Gulfstream Loan Agreement dated December 22, 2006 between Gulfstream Park Racing Association, Inc., MID Islandi SF, Remington Park, Inc., GPRA Thoroughbred Training Center,  Inc. and the registrant (incorporated herein by reference to Exhibit 10.1 of the registrant's Report on Form 8-K filed on December 22, 2006).
10.31	Sixth Amending Agreement dated December 22, 2006 between the registrant and the Guarantors and Bank of Montreal (incorporated herein by reference to Exhibit 10.2 of the registrant's Report on Form 8-K filed on December 22, 2006).
10.32	Employment Agreement between the Company and Michael Neuman dated February 27, 2007 (incorporated herein by reference to exhibit 10.1 to the registrant's Report on Form 8-K filed on March 5, 2007).

136

10.33	March 4, 2007 Limited Liability Company Operating Agreement of HRTV, LLC between Churchill Downs Incorporated, Magna Entertainment Corp. and MEC HRTV HOLDCO LLC (incorporated herein by reference to exhibit 10.1 to the registrant's Report on Form 8-K filed on March 6, 2007).
10.34	March 4, 2007 Limited Liability Company Operating Agreement of TRACKNET MEDIA GROUP, LLC between Churchill Downs Incorporated, CD CONTENTCO HC, LLC, the registrant and MEC CONTENT HOLDCO LLC (incorporated herein by reference to exhibit 10.2 to the registrant's Report on Form 8-K filed on March 6, 2007).
10.35	Agreement of Purchase and Sale made February 7, 2007 between MI Developments (Maryland) Inc., MI Developments Inc. and Laurel Racing Association Limited Partnership.*
12	Statement re: Computation of Earnings to Fixed Charges.*
14	Code of Business Conduct.*
21	Subsidiaries of the Registrant.*
23	Consent of Ernst & Young LLP.*
24	Power of Attorney.*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.*
32.1	Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.*

*

Filed herewith.

137

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OUR BUSINESS
U.S. Thoroughbred Pari-Mutuel Wagering Handle (in Billions)
RISK FACTORS
Part II
MAGNA ENTERTAINMENT CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (U.S. dollars in thousands, except per share figures)
MAGNA ENTERTAINMENT CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands)
MAGNA ENTERTAINMENT CORP. CONSOLIDATED BALANCE SHEETS (Refer to Note 1 — Going Concern) (U.S. dollars and share amounts in thousands)
MAGNA ENTERTAINMENT CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. dollars in thousands)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Part III
Part IV
SIGNATURES
EXHIBIT INDEX

EX-10.35

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Exhibit 10.35

MI DEVELOPMENTS (MARYLAND) INC.,
a Delaware corporation

– and –

MI DEVELOPMENTS INC.

– and –

LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP,
a Maryland limited partnership

    LAUREL LANDS, HOWARD COUNTY, MARYLAND   
AGREEMENT OF PURCHASE AND SALE

TABLE OF CONTENTS

			Page
ARTICLE 1 INTERPRETATION
1.1		Definitions	1
1.2		Extended Meanings	4
1.3		Headings	4
1.4		Currency	4
1.5		Severability	4
1.6		Governing Law	4
1.7		Time	4
1.8		Schedules	5
ARTICLE 2 AGREEMENT OF PURCHASE AND SALE
2.1		Purchase and Sale	5
2.2		Initial Deliveries by Vendor	5
2.3		Physical Inspections	6
2.4		Purchaser's Investigations	7
ARTICLE 3 PURCHASE PRICE
3.1		Method of Payment of Purchase Price	8
3.2		Adjustments	8
ARTICLE 4 CONDITIONS OF CLOSING
4.1		Conditions for Vendor	9
4.2		Conditions for Purchaser	10
4.3		Non-Satisfaction of Conditions	11
4.4		Reasonable Efforts to Satisfy Conditions	11
4.5		Separate Tax Parcel	11
ARTICLE 5 TITLE
5.1		Search of Title	12
	ARTICLE 6 CLOSING MATTERS
6.1		Closing Arrangements	12
6.2		Vendor's Documents	12
6.3		Purchaser's Documents	13
6.4		Taxes and Fees	13
6.5		Escrow Closing	14
ARTICLE 7 REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1		Representations of the Vendor	14
7.2		Representations of the Purchaser	17
7.3		Survival	17
7.4		Non-Waiver	18

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ARTICLE 8 INTERIM MATTERS
8.1	Interim Period	18
8.2	Approvals of the Purchaser	18
8.3	Notice of Default	18
8.4	Approvals	19
8.5	Risk of Condemnation and Eminent Domain	19
8.6	General Covenants of the Vendor	19
ARTICLE 9 ENVIRONMENTAL INDEMNIFICATION
9.1	Environmental Indemnification by the Vendor	20
9.2	Assignability of Environmental Indemnification	20
ARTICLE 10 PROFIT PARTICIPATION
10.1	Profit Participation	20
ARTICLE 11 GUARANTEE
11.1	Guarantee to the Vendor	22
ARTICLE 12 GENERAL
12.1	As-Is/Where-Is Transaction	23
12.2	No Registration	23
12.3	Obligations as Covenants	23
12.4	Tender	23
12.5	Relationship of the Parties	23
12.6	Amendment of Agreement	23
12.7	Notices	24
12.8	Lawyers as Agents	25
12.9	Confidentiality	25
12.10	No Solicitation	25
12.11	Further Assurances	25
12.12	Entire Agreement	25
12.13	Waiver	25
12.14	Survival after Termination	25
12.15	Survival	26
12.16	Assignment	26
12.17	Successors and Assigns	26
12.18	Counterparts	26

ii

AGREEMENT OF PURCHASE AND SALE

MEMORANDUM OF AGREEMENT made as of the 7^th day of February, 2007.

B E T W E E N:

MI DEVELOPMENTS (MARYLAND) INC.
a Delaware corporation,
(hereinafter referred to as the "Purchaser"),

OF THE FIRST PART,

– and –

MI DEVELOPMENTS INC.
(hereinafter referred to as the "Guarantor"),

OF THE SECOND PART,

– and –

LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP,
a Maryland limited partnership,
(hereinafter referred to as the "Vendor"),

OF THE THIRD PART.

        WHEREAS the Vendor is the owner of the Subject Assets (as hereinafter defined);

        AND WHEREAS the Vendor wishes to sell the Subject Assets and the Purchaser wishes to purchase the Subject Assets from the Vendor on the terms and conditions contained in this Agreement;

        AND WHEREAS the Guarantor has entered into this Agreement solely and exclusively to provide a guarantee of those obligations of the Purchaser that arise only by virtue of Section 10.1;

        NOW THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement and the sum of $10.00 paid by each of the Vendor and the Purchaser to the other and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged), the parties hereto covenant and agree as follows:

ARTICLE 1

INTERPRETATION

1.1       Definitions

        In this Agreement the terms defined in this Section 1.1 shall have the following meanings, unless the context expressly or by necessary implication otherwise requires:

"Adjustment Date" means the Closing Date;

"Adjustments" has the meaning ascribed thereto in Section 3.2;

"Agreement", "this Agreement", "the Agreement", "hereto", "hereof", "herein", "hereby", "hereunder" and similar expressions mean or refer to this Agreement, as amended or supplemented from time to time in writing by the parties hereto;

"Applicable Laws" means all statutes, laws, by-laws, regulations, ordinances and orders of governmental or other public authorities having jurisdiction;

"Approved Contracts" means any Contracts entered into after the date of this Agreement for which the Purchaser has been given its approval in accordance with Section 8.2

"Approved Leases" means any Leases entered into after the date of this Agreement for which the Purchaser has been given its approval in accordance with Section 8.2;

"Article", "Section" and "Subsection" mean and refer to the specified Article, Section and Subsection of this Agreement;

"Assignment and Assumption of Leases" means an assignment and assumption agreement pursuant to which the Vendor assigns to the Purchaser all of the Vendor's right, title and interest in and to the Existing Leases and the Approved Leases (if any), and pursuant to which the Purchaser assumes all of the Vendor's obligations under the Existing Leases and the Approved Leases (if any) so assigned to the extent they relate to the period after the Closing Date, such agreement to be substantially in the form attached hereto as Schedule B;

"Balance" has the meaning ascribed thereto in Section 3.1;

"Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized or obligated to close under the laws of the United States of America or the State of Maryland;

"Claims" means claims, suits, proceedings, liabilities, obligations, losses, damages, penalties, judgments, costs, expenses, fines, disbursements, legal fees on a substantial indemnity basis, interest, demands and actions of any nature or any kind whatsoever;

"Closing" means the closing of the Transaction;

"Closing Date" means February 7, 2007, as such date may be extended in accordance with the provisions of this Agreement, or such other date as the Vendor and the Purchaser may agree in writing;

"Closing Documents" means the agreements, instruments and other deliveries to be delivered on the Closing pursuant to Sections 6.2 and 6.3;

"Contracts" means any contracts and agreements entered into by the Vendor or by which the Vendor is bound in respect of the severance, development, construction, management, leasing, maintenance or operation of the Property;

"Deed" has the meaning ascribed thereto in Subsection 6.2(a);

"Due Diligence" has the meaning ascribed thereto in Section 2.4(a);

"Due Diligence Date" means February 6, 2007;

"Encumbrances" means all mortgages, pledges, charges, liens, debentures, trust deeds, assignments by way of security, security interests, conditional sales contracts or other title retention agreements or similar interests or instruments charging, or creating a security interest in the Subject Assets or any part thereof or interest therein, and any agreements, leases, licences, occupancy agreements, options, easements, rights of way, restrictions, executions or other encumbrances (including notices or other registrations in respect of any of the foregoing) affecting title to the Subject Assets or any part thereof or interest therein;

"Environmental Laws" means all applicable federal, state, municipal and local laws, including without limitation all statutes, by-laws and regulations and all orders, directives and decisions rendered by, and policies, instructions, guidelines and similar guidance of, any ministry, department or administrative or regulatory agency relating to the protection of the environment, occupational health and safety or the manufacture, processing, distribution, use, treatment, storage, disposal, packaging, transport, handling, containment, clean-up or other remediation or corrective action of any Hazardous Substances;

"Environmental Permits" means all licences, permits, approvals, consents, certificates, registrations and other authorizations issued pursuant to Environmental Laws;

"Environmental Reports" means reports, audits and studies of the nature described in Subsections 2.2(i);

"Escrow Agent" has the meaning ascribed thereto in Section 6.1;

"Estoppel Letters" means an estoppel letter dated on or prior the Closing Date in favour of the Vendor from each of the occupants of the Residences, such letter to be in a form mutually agreed upon by the Vendor and the Purchaser, each acting reasonably;

"Execution Date" means the date as of which this Agreement is made, as set out in the first page of this Agreement;

"Existing Contracts" means Contracts in force on the date of this Agreement, which are listed on Schedule C attached hereto;

2

"Existing Leases" means Leases in force on the date of this Agreement, which are listed on Schedule D attached hereto;

"Final Adjustment Date" means has the meaning ascribed thereto in Section 3.2;

"Governmental Authority" means any government, regulatory authority, government department, agency, commission, board, tribunal or court having jurisdiction over the property;

"Hazardous Substances" means any pollutants, contaminants, chemicals, deleterious substances, waste (including without limitation industrial, toxic or hazardous wastes), petroleum or petroleum products, asbestos, PCBs, underground storage tanks and the contents thereof, flammable materials, radioactive materials, and/or molds as defined in Environmental Laws;

"IRR" has the meaning ascribed thereto in Subsection 10.1(a);

"Indemnity Period" has the meaning ascribed thereto in Section 9.1;

"Interim Closing Documents" has the meaning ascribed thereto in Section 6.5;

"Lands" means the fee simple interest in lands and premises having an area of approximately 64 acres located adjacent to Laurel Park in Howard Country, Maryland, bounded by the CSX rail line to the South, the Patuxent River to the West, US Route 1 to the North, and Whiskey Bottom Road and Brock Bridge Road to the Northeast and East, and legally described in the attached Schedule A, together with all easements, rights-of-way and other rights and interests appurtenant thereto and any and all improvements located therein;

"Leases" means any agreements to lease, leases, renewals of leases and other rights (including licences) granted by or on behalf of the Vendor or its predecessors in title as owner of the Property which entitle any Person to possess or occupy any space within the Property, together with all security, guarantees and indemnities relating thereto, other than the oral arrangements between the Vendor and the occupants of the Residences;

"Non-Waiver Notice" has the meaning ascribed thereto in Subsection 2.4(b).

"Notice" has the meaning ascribed thereto in Section 12.7;

"Permits" means, to the extent assignable, all the right, title, benefit and interest of the Vendor in any and all licenses (other than pari mutuel or other horse racing or gaming related licenses), franchises, governmental and other approvals, development rights and permits relating to the Lands in the Vendor's possession or control;

"Permitted Encumbrances" means unregistered and registered encumbrances, liens, agreements and other instruments affecting the Property which have been accepted by the Purchaser by notice in writing to the Vendor on or before the Due Diligence Date or have been deemed to be accepted by the Purchaser as per the terms of Subsection 4.2(l);

"Person" means an individual, partnership, corporation, trust, unincorporated organization, government, or any department or agency thereof, and the successors and assigns thereof or the heirs, executors, administrators or other legal representatives of an individual;

"Profit Participation" has the meaning ascribed thereto in Subsection 10.1(a);

"Property" means the Lands and any and all improvements located on or in the Lands;

"Purchase Price" means the sum of Twenty Million Dollars (USD$20,000,000) subject to the adjustments provided for in Section 3.2;

"Purchaser's Solicitors" means Davies Ward Phillips & Vineberg LLP, Suite 4400, 1 First Canadian Place, 100 King Street West, Toronto, Ontario, Canada or such other firm or firms of solicitors acting for the Purchaser and notice of which is provided to the Vendor in accordance with this Agreement;

"Registration Documents" has the meaning ascribed thereto in Section 6.5 hereof;

"Requisitions Notice" has the meaning ascribed thereto in Section 5.1;

"Residences" means the two (2) homes located on the Property and occupied by employees of the Vendor pursuant to certain oral arrangements between such employees and the Vendor;

"Statement of Adjustments" has the meaning ascribed thereto in Section 3.2;

3

"Subject Assets" means the Property, the Existing Leases, the Existing Contracts, the Permits, the Environmental Permits and all other assets, undertaking and property, tangible or intangible, of the Vendor, if any, relating exclusively to the Property, with the exception of pari mutuel or other horse racing or gaming related licenses and any trademarks or registrations in the name "Laurel Park";

"Tenants" means all Persons having a right to possess or occupy the Property or any part thereof now or hereafter pursuant to a Lease;

"Time of Closing" means 9:00 a.m. (Toronto time) on the Closing Date, or such other time on the Closing Date as the Vendor and Purchaser may agree;

"Title Commitment" has the meaning ascribed thereto in Subsection 4.2(k);

"Title Insurer" means First American Title Insurance Company;

"Transaction" means the transaction of purchase and sale of the Subject Assets provided for in this Agreement;

"Vendor Request" has the meaning ascribed thereto in Subsection 10.1(d); and

"Vendor's Solicitors" means Dickinson Wright PLLC, 38525 Woodward Avenue, Bloomfield Hills, MI, USA 48304 or such other firm or firms of solicitors acting for the Vendor from time to time and notice of which is provided to the Purchaser in accordance with this Agreement;

1.2       Extended Meanings

        Words importing the singular include the plural and vice versa. Words importing the masculine gender include the feminine and neuter genders.

1.3       Headings

        The division of this Agreement into Articles, Sections, Subsections and other subdivisions, the insertion of headings and the inclusion of a table of contents are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

1.4       Currency

        Unless otherwise expressly stated in this Agreement, all references to money shall refer to U.S. currency.

1.5       Severability

        If any provision contained in this Agreement which is not a fundamental term hereof, or its application to any Person or circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such provision to Persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected, and each provision of this Agreement shall be separately valid and enforceable to the fullest extent permitted by law.

1.6       Governing Law

        This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland and the applicable laws of the United States of America. References to statutes shall be deemed to be references to such statutes as they exist on the date of this Agreement.

1.7       Time

        Time shall be of the essence of this Agreement. Except as expressly set out in this Agreement, the computation of any period of time referred to in this Agreement shall exclude the first day and include the last day of such period. If the time limited for the performance or completion of any matter under this Agreement expires or falls on a day that is not a Business Day, the time so limited shall extend to the next following Business Day. The time limited for performing or completing any matter under this Agreement may be extended or

4

abridged by an agreement in writing by the parties or by their respective solicitors. All references herein to time are references to Toronto time.

1.8       Schedules

        The following schedules form part of this Agreement:

Schedule A	–	Legal Description of the Lands
Schedule B	–	Form of Assignment and Assumption of Leases
Schedule C	–	List of Existing Contracts
Schedule D	–	List of Existing Leases

ARTICLE 2

AGREEMENT OF PURCHASE AND SALE

2.1       Purchase and Sale

        The Purchaser hereby offers and agrees to purchase the Subject Assets from the Vendor and the Vendor hereby agrees to sell the Subject Assets to the Purchaser, for the Purchase Price in accordance with, and subject to, the terms and conditions of this Agreement.

2.2       Initial Deliveries by Vendor

        No later than 5:00 p.m. on the Business Day prior to the Closing Date, the Vendor shall have delivered to the Purchaser the following in respect of the Subject Assets:

(a)

(i) copies of all Existing Leases; and (ii) a copy of each notice of default, if any, received or sent by or on behalf of the Vendor in respect of any Existing Lease if the default referred to in such notice is still outstanding;



(b)

(i) copies of all Existing Contracts; and (ii) a copy of each notice of default, if any, received or sent by or on behalf of the Vendor in respect of any Existing Contract if the default referred to in such notice is still outstanding;



(c)

the most current survey of the Property, if any, in the Vendor's possession, which shows the Lands, as currently constituted, together with all title deeds in respect of the Property;



(d)

all plans, specifications, drawings and operation manuals relating to the Property in the possession or control of the Vendor;



(e)

copies of realty tax assessments, notices and tax bills relating to the Property in the possession or control of the Vendor and copies of any notices of any outstanding realty tax appeals and correspondence relating thereto;



(f)

a list of outstanding work orders, notices, directives and letters of non-compliance issued by any governmental or other authority affecting the Property, if any, and a copy of each of them of which the Vendor has received written notice;



(g)

a list of all outstanding litigation, arbitration, mediation or other proceedings affecting or relating to the Property to which the Vendor is a party or in respect of which it has been formally notified and of all threatened litigation, arbitration, mediation or other proceedings affecting or relating to the Property of which the Vendor has received written notice;



(h)

a list of any third party consents, waivers or assumptions which are necessary to permit the conveyance of the Subject Assets to the Purchaser;



(i)

all reports, audits or studies relating to environmental matters in respect of the Property (including, without limitation, compliance of the Property with Environmental Laws) which is in the possession or control of the Vendor (including, without limitation, any such document prepared for any purchaser or prospective purchaser which is in the possession or control of the Vendor);

5

(j)

copies of each report, audit or study of the soil conditions of the Property, or any part thereof, prepared by a Person other than the Vendor or its manager which is in the possession or control of the Vendor;



(k)

copies of each report, audit or study relating to the physical condition of the Property, or any part thereof, prepared by a Person other than the Vendor or its manager which is in the possession or control of the Vendor (including, without limitation, any such document prepared for any purchaser or prospective purchaser which is in the possession or control of the Vendor);



(l)

copies of all architectural agreements, engineering agreements, development agreements, development permits, building permits, occupancy permits and other operating permits and licences relating to the Property and all agreements with and permits and licences from federal, state or municipal Governmental Authorities or owners of adjoining lands relating to the development or operation of the Property, in each case in the Vendor's possession or control;



(m)

evidence, reasonably satisfactory to the Purchaser, that the Lands constitute a properly subdivided, legally existing lot or parcel of land that may be legally conveyed by the Vendor to the Purchaser at Closing without any further approval by any Governmental Authority; and



(n)

such other written information, correspondence and documentation relating to the Subject Assets that is in the possession or control of the Vendor and which the Purchaser requests, acting reasonably.

        As used in this Section 2.2, the term "control of the Vendor" shall be limited to, in addition to the Vendor, materials in the possession of legal counsel to the Vendor or any consultants, advisors or other third party professionals commissioned, retained or instructed by the Vendor. Notwithstanding any other provision in this Agreement to the contrary, it is acknowledged and agreed that the Vendor has specifically excluded from the foregoing materials contemplated in Subsections 2.2(a) — (n), and thereby has not provided to the Purchaser, the Vendor's financial projections, forecasts, budgets, appraisals and internal memoranda relating to the Property.

        The Vendor will execute and deliver to the Purchaser within two (2) Business Days after receipt of a written request from the Purchaser or the Purchaser's Solicitors, authorizations that may be sent by the Purchaser or the Purchaser's Solicitors to Governmental Authorities that authorizes such Governmental Authorities to reveal to the Purchaser and the Purchaser's Solicitors all information, if any, on any files they have in respect of the Property.

        Upon compliance by the Vendor with all of its obligations set out in the preceding paragraphs of this Section 2.2, the Vendor shall deliver to the Purchaser a notice stating that it has done so.

        Any lists, documentation or other information provided by the Vendor pursuant to this Section shall be amended or supplemented, as necessary from time to time, until 5:00 p.m. on the second (2^nd) Business Day immediately preceding the Due Diligence Date. In addition, if the Vendor becomes aware of a failure to provide any document or other information that it is required to provide in accordance with this Section at any time prior to the Due Diligence Date, it shall forthwith advise the Purchaser in writing of such failure and deliver such information to the Purchaser. In the event of any such failure by the Vendor, at the Purchaser's discretion, the Due Diligence Date and the Closing Date shall each automatically be extended to the date which is five (5) Business Days after the Purchaser receives such document or information from the Vendor.

2.3       Physical Inspections

(a)

At any time and from time to time prior to Closing, and upon prior notice in writing to the Vendor from the Purchaser of at least one (1) Business Day (or, in respect of the physical inspections of particular premises that are leased in the Property, such longer notice period as the Vendor advises the Purchaser is necessary to comply with the terms of the relevant Existing Leases or the Approved Leases (if any)), the Purchaser and/or its representatives shall be entitled to enter the Property on any Business Day, at the Purchaser's sole risk and expense, for the purpose of conducting examinations, investigations, inspections, tests and audits relating to the Subject Assets. Without

6

limiting the generality of the foregoing, such examinations, investigations, inspections, tests and audits may include:

(i)

environmental audits, assessments or inspections of the Property; and



(ii)

tests relating to soil, groundwater and underground conditions of the Property.

        Notwithstanding the foregoing, the Purchaser agrees not to conduct any invasive tests relating to soil, groundwater and underground conditions of the Property.

(b)

The Vendor shall execute such authorizations as are submitted by the Purchaser's Solicitors to the Vendor's Solicitors in order to enable the Purchaser's Solicitors to obtain information from Governmental Authorities concerning the Property, which authorizations are to be executed and delivered within two (2) Business Days after submission to the Vendor's Solicitors, and which authorizations may request information but shall not request or suggest inspections by any Authority.



(c)

Unless the Vendor otherwise agrees in writing, the Purchaser and its representatives shall not enter the Property and perform such investigations, inspections, tests or audits unless accompanied by a representative of the Vendor, provided that the Vendor shall make a representative available on a reasonable basis upon receiving such notice. For greater certainty, nothing herein shall restrict the Purchaser from enjoying the same access to the Property as would any other member of the public enjoying lawful access to the Property. The Purchaser shall pay all costs of any repairs required to be made to the Property as a result of the aforesaid investigations, inspections, tests and audits, and shall fully indemnify the Vendor from all costs of repairing any damage caused by such inspections, tests or audits and all Claims relating to any such inspections, tests and audits and from all Claims incurred by the Vendor as a result thereof including, without limitation, any builders' liens registered against the Property as a result thereof. This indemnity shall survive termination of this Agreement regardless of the cause of such termination. If the Purchaser does not perform such repairs, the Vendor shall have the right to perform, or cause to be performed, such work and to obtain reimbursement for the reasonable, out-of-pocket costs of such work from the Purchaser, provided that the Vendor shall, if possible in the circumstances, provide the Purchaser with advance written notice of the work to be done, but the failure to give such notice shall not affect the rights of the Vendor hereunder or otherwise render the Vendor liable to the Purchaser.

        The provisions of this Section 2.3 shall survive the termination of this Agreement.

2.4       Purchaser's Investigations

(a)

On or before 5:00 p.m. on the Due Diligence Date the Purchaser may conduct (subject to compliance with other relevant provisions of this Agreement) all investigations, inspections, reviews, tests and audits relating to the Property (including, without limitation, title to the Subject Assets and compliance with Applicable Laws) and the Transaction (collectively referred to herein as the "Due Diligence") which the Purchaser deems necessary or desirable in its discretion.



(b)

The obligation of the Purchaser to complete the Transaction pursuant to this Agreement is subject to the condition that the Purchaser is satisfied with the Due Diligence in its sole and absolute discretion on or before 5:00 p.m. on the Due Diligence Date. The Purchaser shall be deemed to be satisfied with the results of its Due Diligence unless it delivers to the Vendor on or before 5:00 p.m. on the Due Diligence Date a written notice (the "Non-Waiver Notice") stating that it does not waive the condition contained in this Subsection 2.4(b). If the Purchaser delivers the Non-Waiver Notice to the Vendor prior to 5:00 p.m. on the Due Diligence Date, then this Agreement shall automatically terminate at such time and, upon such termination, the Purchaser and the Vendor shall be released from all obligations under this Agreement (except for those obligations which are expressly stated to survive the termination of this Agreement).

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ARTICLE 3

PURCHASE PRICE

3.1       Method of Payment of Purchase Price

        On Closing, the Purchase Price shall be satisfied by payment to the Vendor, or as the Vendor directs in writing, by wire transfer of an amount (the "Balance") equal to the Purchase Price, as adjusted pursuant to Section 3.2.

3.2       Adjustments

(a)

The Purchase Price shall be adjusted as set out in this Section (such adjustments being referred to herein as the "Adjustments"). Adjustments shall be made as of the Adjustment Date and the Adjustment Date itself shall be for the account of the Purchaser, such that except as herein otherwise provided: (i) the Vendor shall be responsible for all expenses and entitled to all revenues accrued from the Lands for the period ending on the day prior to the Adjustment Date; and (ii) the Purchaser shall be responsible for all expenses and shall be entitled to all revenues accruing from the Lands from and including the Adjustment Date.



(b)

The Vendor (or its or the Purchaser's agent) shall prepare and deliver to the Purchaser at least one (1) Business Day prior to Closing a statement (the "Statement of Adjustments") of the Adjustments to be made on Closing with all Adjustments made as of the Closing Date. The Statement of Adjustments shall have annexed to it complete details of the calculations used by the Vendor to arrive at all debits and credits on the Statement of Adjustments. The Vendor shall give to the Purchaser access to the Vendor's working papers and back up materials in order to confirm the Statement of Adjustments.

        If the final cost or amount of any item which is to be adjusted on Closing cannot be determined at Closing, then an initial Adjustment for such item shall be made at Closing, such amount to be estimated by the Vendor and the Purchaser, each acting reasonably, on the basis of the best evidence available at the Closing as to what the final cost or amount of such item will be. In each case when such cost or amount is determined the Vendor or the Purchaser, as the case may be, shall within thirty (30) days thereafter provide a complete statement of such final determination to the other and within thirty (30) days thereafter (or if there is a dispute over such amount, within thirty (30) days after the matter is determined by the accountants pursuant to Subsection 3.2(d)) the necessary adjusting payment shall be made.

(c)

The Purchaser shall provide the Vendor and its auditors, during normal business hours at any time and from time to time after Closing upon reasonable prior notice to the Purchaser, access to the books, files and records of the Purchaser, for the purpose of calculating or verifying the amount of any Adjustments. In the absence of agreement by the parties hereto, the final cost or amount of an item shall be determined by a firm of chartered accountants appointed jointly by the Vendor and the Purchaser within ten (10) Business Days after the issue is referred by one of the parties to the accountants for such determination. The cost of such accountants' determination shall be shared equally between the parties hereto.



(d)

No Adjustments (including readjustments of amounts initially adjusted for at Closing) may be claimed by either party after the first anniversary of the Closing (the "Final Adjustment Date"). Based solely upon the Adjustments (including readjustments) claimed by either party before the Final Adjustment Date, the Purchaser shall prepare and deliver to the Vendor on or before the twentieth 20^th day of the calendar month following the month in which the Final Adjustment Date occurs (or, if such day is not a Business Day on the next following Business Day) a statement of Readjustments which shall set out all final Adjustments (including readjustments) that have not previously been determined and paid and also setting out the amount of the adjusting payment to be made by the Vendor or the Purchaser, as the case may be, within thirty (30) days after such statement of Readjustments is delivered to the Vendor (or if there is a dispute over such statement, within thirty (30) days after all disputes with respect to such statement are determined by the

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accountants pursuant to Subsection 3.2(c)) the necessary adjusting payment shall be made by the Vendor or the Purchaser, as the case may be.

(e)

The Vendor shall assign to the Purchaser on Closing all of the Vendor's rights, title and benefit to all existing realty tax appeals and reassessments and all refunds of realty taxes for the Property, if any, together with a direction to the municipality to pay any refund of realty taxes to the Purchaser and, if any appeal is pending, the authorization and appointment of the Purchaser to continue such pending appeal; provided that:



(i)

any refund of realty taxes for the Property in respect of the period ending on the day preceding the Closing Date shall remain the property of the Vendor;



(ii)

the Vendor shall make any payments in respect of realty or business taxes for the period prior to the Closing Date arising from such reassessments or appeals to the applicable Governmental Authorities;



(iii)

any refund or reassessment for the 2007 calendar year (after deduction of out-of-pocket expenses in conducting any such appeal or reassessment, including any commissions payable to agents or consultants) shall be readjusted as of the Closing Date after the conclusion of any assessment appeal and notwithstanding such readjustment occurs after the Final Adjustment Date;



(iv)

to the extent the Purchaser receives payment of any refund or reassessment for the period prior to the Closing Date, the Purchaser shall hold such refund or reassessment payment in trust for the Vendor and shall pay to the Vendor the amount of any such refund or reassessment after deducting all reasonable costs and expenses incurred by the Purchaser in connection with such appeal or reassessment; and



(v)

if, after Closing, the Purchaser wishes to discontinue any realty tax appeal or reassessment in respect of realty taxes paid or payable for the Property during the period ending on the day preceding the Closing Date, the Purchaser shall give notice to the Vendor and if requested by the Vendor, the Purchaser shall re-assign to the Vendor all of the Purchaser's right, title and benefit to such appeals and reassessments with a direction to the municipality to pay any resulting rebate of realty taxes to the Vendor.

        Notwithstanding any other provision in this Agreement to the contrary, in the event the Vendor pursues any realty tax appeals and/or reassessments in respect of the Property on or after the Closing Date, any payments received by the Vendor in connection with such appeals and/or reassessments that relate to the period prior to the Closing Date shall be for the account of the Vendor. To the extent the Vendor receives any payments in connection with such appeals and/or reassessments that relate to the period from and after the Closing Date, the Vendor shall hold such payments in trust for the Purchaser and forthwith remit them to the Purchaser.

ARTICLE 4

CONDITIONS OF CLOSING

4.1       Conditions for Vendor

        The obligation of the Vendor to complete the Transaction shall be subject to the satisfaction of the following conditions:

(a)

by Closing, all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Purchaser shall have been complied with or performed in all material respects;



(b)

on the Closing Date, the representations, warranties and covenants of the Purchaser set out in Section 7.2 shall be true or fulfilled, as the case may be; and



(c)

by Closing, the Vendor shall have obtained the approval of the Board of Directors of Magna Entertainment Corp.

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        The conditions set forth in this Section 4.1 are for the sole benefit of the Vendor and each condition may be waived in whole or in part by the Vendor by notice to the Purchaser on or before the applicable date referred to above.

4.2       Conditions for Purchaser

        The obligation of the Purchaser to complete the Transaction shall be subject to the satisfaction of the following conditions:

(a)

by 5:00 p.m. on the Due Diligence Date, the Purchaser shall not have delivered a Non-Waiver Notice, it being agreed that the decision of the Purchaser to deliver such Non-Waiver Notice shall be made by the Purchaser in its sole and absolute discretion;



(b)

by Closing, the Vendor shall have obtained the approval of the Board of Directors of Magna Entertainment Corp. and the Purchaser shall have obtained the approval of the Board of Director of MI Developments Inc.;



(c)

by Closing, all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Vendor shall have been complied with or performed in all material respects;



(d)

on Closing, the representations, warranties and covenants of the Vendor set out in Section 7.1 shall be true or fulfilled, as the case may be, in all material respects;



(e)

on the Closing Date, no material adverse change shall have occurred with respect to the financial, legal or physical condition of the Subject Assets prior to the Due Diligence Date;



(f)

on or before the Closing Date, the Vendor shall have caused the delivery of all consents and approvals and execution of all assumptions required in connection with the Transaction under the Permitted Encumbrances, the Existing Leases, the Approved Leases (if any), the Existing Contracts and the Approved Contracts (if any);



(g)

by the Closing Date, no action or proceeding, at law or in equity, shall have been commenced by any Person to enjoin, restrict or prohibit the Closing which has not, by the Closing Date, been dismissed, quashed or permanently stayed without any further right of appeal or right to seek leave to appeal;



(h)

on the Closing Date there shall not exist any default or any event which, with the passage of time or the giving of notice or both, would constitute a default in the performance observance of the obligations on the part of the Vendor under any of the Existing Leases, the Approved Leases (if any), the Existing Contracts, the Approved Contracts (if any) or the Permitted Encumbrances;



(i)

on Closing there shall not exist:



(i)

any information or documentation relating to the Property which was not disclosed or made available by the Vendor to the Purchaser as required by Section 2.2; or



(ii)

any incompleteness of the information or documentation provided to the Purchaser pursuant to Section 2.2 with respect to the subject matter of such information or documentation; or



(iii)

any inaccuracy in any of the information or documentation provided to the Purchaser pursuant to Section 2.2,

the effect of which lack of disclosure, incompleteness or inaccuracy is that the Purchaser was not aware of facts or circumstances which result, or could be reasonably be expected to result, in a material adverse change in the value of the Property;

(j)

the Purchaser shall have received evidence that the Lands constitute a properly subdivided, legally existing lot or parcel of land that may be legally conveyed by the Vendor to the Purchaser at Closing without any further approval by any Governmental Authority;



(k)

on Closing the Vendor shall have delivered vacant possession of the Property to the Purchaser, subject to the rights of the Tenants under the Existing Leases and the Approved Leases (if any); and

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(l)

on Closing, the Vendor shall transfer to the Purchaser good and marketable title in fee simple to the Property, and the Purchaser shall have obtained a title insurance commitment (the "Title Commitment") in favour of the Purchaser, in form and content satisfactory to the Purchaser, each free from any Encumbrances, other than Permitted Encumbrances, it being understood that an owner's title insurance policy (the "Title Policy") in favour of the Purchaser for the full amount of the Purchase Price will be issued as soon as practical thereafter. For greater certainty, to the extent the Vendor is unable or unwilling to cure, prior to Closing, any objection to the title exceptions raised in the draft Title Commitment delivered to the Purchaser, and the Transaction contemplated hereunder is nevertheless completed, the Purchaser shall be conclusively deemed to have accepted such exceptions as Permitted Encumbrances. Notwithstanding the foregoing, the Vendor covenants and agrees that it shall, as soon as reasonably practicable after the Closing Date, use all reasonable efforts to obtain good and valid discharges or releases of all items listed in Schedule B, Section 1, Item 4 of the Title Commitment.

        The conditions set forth in this Section 4.2 are for the sole benefit of the Purchaser and each condition may be waived in whole or in part by the Purchaser by notice to the Vendor on or before the applicable date referred to above.

4.3       Non-Satisfaction of Conditions

        In the event any condition set forth in Section 4.1 or 4.2 is not satisfied or waived on or before the applicable date and time referred to therein, then this Agreement shall be terminated and of no further force or effect whatsoever without any further action by either party hereto, and neither party to this Agreement shall have a Claim against any other party hereto with respect to this Agreement unless the reason for the condition not being satisfied is the breach by such other party of an obligation under this Agreement, in which case a Claim may be made against such other party. Notwithstanding any other provisions of this Agreement, if by 5:00 p.m. on the applicable date referred to in Section 4.1 or 4.2, as the case may be, the party having the benefit of the relevant condition has not given notice to the other party that such condition has been satisfied or waived, then it shall be conclusively deemed for the purpose of this Agreement to have neither been satisfied nor waived.

4.4       Reasonable Efforts to Satisfy Conditions

        The Vendor shall act in good faith and use reasonable efforts in the circumstances to satisfy or cause to be satisfied those conditions set out in Section 2.3 and 4.2 which are within its reasonable control and the Purchaser shall act in good faith and use reasonable efforts in the circumstances to satisfy or cause to be satisfied those conditions set out in Sections 4.1 that are within its reasonable control.

4.5       Separate Tax Parcel

        In the event that on Closing the Lands do not constitute a separate tax parcel, the Transaction shall be completed and the parties shall pro rate the realty taxes with the Purchaser providing a cheque payable to the taxing authority for its pro rata share of realty taxes in respect of the Lands accruing after the Closing Date to the Vendor within ten (10) Business Days of the receipt of an invoice from the Vendor for such amount. The Vendor undertakes to forward such cheque, along with its pro rata share of the taxes, to the taxing authority on or before the date such taxes are due. The parties agree to cooperate with each other in order to have the separate tax parcel for the Lands created, if it is not already a separate tax parcel at the Closing Date, as soon as reasonably possible after the Closing Date.

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ARTICLE 5

TITLE

5.1       Search of Title

        The Purchaser shall be allowed until 5:00 p.m. on the Due Diligence Date, at its own expense, to examine title to the Property and the other matters referred to in the next paragraph and to submit to the Vendor its objections to the title to the Property and such matters.

        If the Purchaser has any valid objections based on, if applicable: (a) title to the Property, (b) the Property not complying with all Applicable Laws (including Environmental Laws and zoning and building laws, by-laws and codes), or (c) the existence of any outstanding municipal or other governmental work orders or deficiency notices relating to the Property, then the Purchaser shall deliver a notice in writing to the Vendor (the "Requisitions Notice") listing any and all such objections in reasonable detail on or before 5:00 p.m. on the Due Diligence Date. If any such objections cannot be satisfied or corrected prior to the Closing Date, then the Purchaser may, by written notice to the Vendor, waive such objections; and if such waiver is not so made then either party may terminate this Agreement by delivering notice to the other party to such effect and this Agreement, notwithstanding any intermediate act or negotiations in respect of such objection, shall be terminated, upon delivery of notice by either party.

        Except for any valid objection so made, and except for any objection going to the root of title or for any other matter or thing arising on or before the Due Diligence Date, the Purchaser shall be conclusively deemed to have accepted the Vendor's title to the Property and satisfied itself with respect to the other matters referred to in this Section 5.1.

ARTICLE 6

CLOSING MATTERS

6.1       Closing Arrangements

        Provided that all conditions precedent to the Purchaser's obligations to close as set forth in this Agreement have been satisfied and fulfilled, or waived by the Purchaser, as the case may be, the Purchaser shall pay the Purchase Price, subject to the pro-rations adjustments described in Section 3.2 herein, in cash by wire transfer of immediately available U.S. currency to the Title Insurer, acting as Escrow Agent (the "Escrow Agent"), in accordance with the terms and conditions of this Agreement. The Purchaser shall deposit the Purchase Price with the Escrow Agent, to be held in escrow, as early as reasonably practicable on the Closing Date. The Escrow Agent shall hold and disburse the Purchase Price per the terms of this Agreement and pursuant to and in accordance with the Statement of Adjustments mutually agreed to and executed by the Vendor and the Purchaser.

6.2       Vendor's Documents

        The Vendor shall deliver or cause to be delivered at the Closing the following:

(a)

a special warranty deed containing covenants of further assurance (the "Deed") in respect of the Property, in favour of the Purchaser, duly executed by the Vendor;



(b)

the Assignment and Assumption of Leases, duly executed by the Vendor;



(c)

such notices as the Purchaser may reasonably require be given to the Tenants under the Existing Leases and the Approved Leases (if any) and other parties to the assigned Existing Contracts and the Approved Contracts (if any) of their assignment to the Purchaser, together with directions relating to the payment of rent under the Existing Leases and the Approved Leases (if any), and payment of other amounts under the assigned Existing Contracts and the Approved Contracts (if any), all executed by the Vendor in such form as the Purchaser may reasonably require;



(d)

a direction of the Vendor as to the payment of the Balance, if there is any payee other than the Vendor;

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(e)

an undertaking by the Vendor to re-adjust the Adjustments as provided in Section 3.2;



(f)

subject to the terms of Subsection 4.2(l), good and valid discharges or releases in registrable form of all Encumbrances, other than Permitted Encumbrances;



(g)

all agreements, notices and other documents required to be executed and delivered by the Vendor pursuant to the terms of the Existing Leases, the Approved Leases (if any), the Existing Contracts, the Approved Contracts (if any), the Permitted Encumbrances and all consents and approvals from, and notifications to, any other Persons required thereunder in connection with this Transaction;



(h)

the Estoppel Letters;



(i)

copies of all records (including computer records), documents, information and data (including computer data) relating to the Property in the possession or control of the Vendor, including without limitation, all title documents and accounting and payment records;



(j)

the assignment of realty tax appeals contemplated in Subsection 3.2(e);



(k)

if so requested by the Purchaser, reliance letters, in form and content acceptable to the Purchaser, acting reasonably, from each Person who has issued the reports delivered pursuant to Subsection 2.2;



(l)

affidavits in favour of the Title Insurer, in form and content satisfactory to the Title Insurer, to remove standard exceptions in the Title Commitment, or as may otherwise be required by the Title Insurer; and



(m)

all other conveyances and other documents which are required and which the Purchaser has reasonably requested to give effect to this Transaction, including the proper transfer, assignment and conveyance of the Subject Assets by the Vendor to the Purchaser, subject to the Permitted Encumbrances.

6.3       Purchaser's Documents

        The Purchaser shall deliver or cause to be delivered at the Closing the following:

(a)

a wire transfer for the amount payable to the Vendor on Closing pursuant to Section 3.1;



(b)

the Assignment and Assumption of Leases, duly executed by the Purchaser;



(c)

an undertaking by the Purchaser to re-adjust the Adjustments as provided in Section 3.2; and



(d)

all other documents which the Vendor has reasonably requested to give effect to this Transaction.

6.4       Taxes and Fees

        On the Closing Date, the Vendor and the Purchaser shall have the responsibility of equally splitting all state or county transfer taxes and documentary stamps, if any, occasioned by the conveyance of the Property as well as any notary fees incurred in connection therein. All unpaid ad valorem taxes due and payable within the calendar year of the Closing shall be prorated between the Vendor and the Purchaser as of the Closing Date. Any deferred taxes, roll-back taxes and/or realty taxes (including local improvement charges and assessments) owing or accrued in respect of the Property that would have been due by the Vendor prior to the Closing Date shall be paid by the Vendor on or prior to the Closing Date. The Vendor agrees to promptly forward to the Purchaser any realty tax statements for the Property received by the Vendor after Closing for the period following the Closing Date, and if the Vendor fails to do so, the Vendor shall be liable for any penalties the Purchaser has to pay because of the Vendor's failure. Each party shall pay its own legal fees with respect to this Agreement and the Transaction. The Purchaser shall be responsible for costs and expenses, including the premium, incurred in connection with the Title Policy. The Vendor shall be responsible for all costs and expenses incurred in obtaining: (i) any consents or approvals required to subdivide and legally convey the Property to the Purchaser (or to confirm that the Property is presently subdivided and legally conveyable); and (ii) an updated survey of the Property, as commissioned by the Purchaser.

13

6.5       Escrow Closing

        All deliveries to be made pursuant to Section 6.2 and 6.3 on the Closing Date (with the exception of the Registration Documents (as defined below)) (the "Interim Closing Documents") shall be delivered into escrow at the offices of the Purchaser's Solicitors on or before the Closing Date. The Registration Documents shall be delivered into escrow at the offices of the Escrow Agent on or before the Closing Date. Such Closing Documents shall be held by the Purchaser's Solicitors and the Escrow Agent, as the case may be, in escrow until the Vendor and the Purchaser, each acting reasonably, are satisfied that all conditions set forth in Sections 4.1 and 4.2 to be satisfied on or before Closing have been satisfied other than the registration of the Deed and any other documents, instruments or agreements required to evidence the transfer of legal title to the Property from the Vendor in favour of the Purchaser (collectively, the "Registration Documents"). At such time as all the conditions set forth in Sections 4.1 and 4.2 to be satisfied on or before Closing have been satisfied, the Vendor and the Purchaser shall provide written instructions to the Escrow Agent confirming same and instructing the Escrow Agent to release the Registration Documents from escrow for the purposes of registration. Upon (i) such registrations being completed, or (ii) the Title Insurer receiving a gap indemnity from the Vendor in form and content satisfactory to the Title Insurer, all other Closing Documents (and funds) shall thereupon be released from escrow by the Purchaser's Solicitors and the Escrow Agent, as the case may be, and delivered to the parties entitled thereto.

ARTICLE 7

REPRESENTATIONS, WARRANTIES AND COVENANTS

7.1       Representations of the Vendor

        The Vendor hereby represents, warrants and covenants to and in favour of the Purchaser, as of the Closing Date, as follows:

(a)

the Vendor is a limited partnership duly formed and subsisting under the laws of the State of Maryland, is properly qualified to do business in the State of Maryland, and has the corporate power, authority, right and capacity to own the Property and to enter into, execute and deliver this Agreement and to carry out the transactions contemplated by this Agreement in the manner contemplated by this Agreement;



(b)

the transactions contemplated by this Agreement have been duly and validly authorized by all requisite corporate proceedings, and subject to Section 4.1(c), upon execution and delivery by the Vendor and the Purchaser, this Agreement and all other documents and agreements to be delivered by the Vendor pursuant to this Agreement shall constitute legal, valid and binding obligations of the Vendor;



(c)

neither the execution of this Agreement nor its performance by the Vendor will result in a breach of any term or provision or constitute a default under the constating documents or by-laws of the Vendor or any indenture, mortgage, deed of trust or any other agreement to which the Vendor is a party or by which it is bound and no approval or other documentation is necessary to enable the Vendor to complete the Transaction pursuant to this Agreement in compliance with all existing obligations of the Vendor and in compliance with all Permitted Encumbrances and any other obligations or agreements which affect the Property;



(d)

there are no actions, suits or proceedings pending or threatened against the Vendor which affect the Subject Assets or the occupancy or use of the Property by the Vendor or by the Tenants, in law or in equity, which could affect the validity of this Agreement or any transaction provided for in this Agreement, the title to the Subject Assets or any part of the Subject Assets, the value of the Subject Assets or the conveyance of any of the Subject Assets to the Purchaser;



(e)

no Person has any right of first refusal or option to purchase the Property, or any part of the Property; the Vendor has obtained all consents necessary to this sale of the Property and no further consents or approvals are required in connection therewith;

14

(f)

the Vendor is the sole registered owner of the Property;



(g)

to the best knowledge of the Vendor, after due inquiry of all its directors, officers and employees who could reasonably be expected to have relevant information, neither the Vendor nor any prior owner of the Property has (i) made any commitments to any Person relating to the Property that would impose an obligation on the Purchaser to make contributions of money or land, or to install or maintain any improvements thereon, or (ii) executed or caused to be executed any document with, or for the benefit of, any Governmental Authority restricting the use, development or occupancy of the Property;



(h)

subject to the terms of Subsection 4.2(l), with the exception of the Permitted Encumbrances and obligations which may arise under the Existing Leases or the Approved Leases, on the Closing Date, there will be no Encumbrances on the title to the Subject Assets or any part thereof;



(i)

(i) the Existing Leases disclosed to the Purchaser pursuant to Section 2.2 and the Approved Leases (if any) are the only Leases and constitute, in each case, the entire agreement between the Vendor and the Tenants with respect to the lease or occupancy of space in the Property; (ii) the Existing Contracts disclosed to the Purchaser pursuant to Section 2.2 and the Approved Contracts (if any) are the only Contracts relating to or affecting the Property as of the date hereof; (iii) the Existing Leases and the Approved Leases (if any) will be the only Leases affecting the Property on Closing; (iv) the Existing Contracts disclosed to the Purchaser on the list delivered pursuant to Section 2.2 and Approved Contracts (if any) will be the only Contracts affecting the Property on Closing; and (vi) each of the Existing Leases, Approved Leases (if any), Existing Contracts (including Permitted Encumbrances) and Approved Contracts (if any) is in full force and effect and there is no default under any of them other than as disclosed in writing to the Purchaser pursuant to Section 2.2;



(j)

as of the date of this Agreement, the Vendor has not received any written request from any Tenant to assign the Existing Leases, other than as disclosed in writing to the Purchaser pursuant to Section 2.2;



(k)

the documents and information delivered or made available to the Purchaser pursuant to Section 2.2 constitute all of the material documentation with respect to the Subject Assets within the Vendor's possession or control;



(l)

except as set forth in Schedule B, Section 1, Item 4 of the Title Commitment, no Person has any security interest, charge or lien upon the Subject Assets or any part thereof;



(m)

the Lands constitute a properly subdivided, legally existing lot or parcel of land that may be legally conveyed by the Vendor to the Purchaser at Closing without any further approval by any Governmental Authority;



(n)

to the best knowledge of the Vendor, after due inquiry of all its directors, officers and employees who could reasonably be expected to have relevant information, the ALTA/ACSM Land Title Survey, Drawing No. 2007001.04, prepared by Greenman-Pedersen, Inc. and dated January 26, 2007, describes the Property as it exists today, and there have been no material alterations or additions to the Property since the date of the survey which would have materially affected the outline or setbacks of same, nor have there been any buildings erected on the Lands therein;



(o)

the Vendor is not a "foreign corporation", "foreign partnership", "foreign trust", "foreign estate", "foreign person", "affiliate" of a "foreign person" or a "United States intermediary" of a "foreign person" within the meaning of the IRC, Sections 897 and 1445, the Foreign Investments in Real Property Tax Act of 1980, the International Foreign Investment Survey Act of 1976, the Agricultural Foreign Investment Disclosure Act of 1978, or the regulations promulgated pursuant to such Acts or any amendments to such Acts;



(p)

the Vendor and each Person owning an interest (directly or indirectly) in the Vendor is not: (i) identified on the "Specially Designated Nationals or Blocked Persons List" maintained by the Office of Foreign Assets Control, Department of Treasury (the "OFAC") and/or any other similar list maintained by the OFAC or the United States Department of Commerce, Bureau of Industry

15

and Security of any other United States Governmental Authority pursuant to Applicable Laws; and (ii) a person or entity with whom a United States person is prohibited to engage in transactions pursuant to any trade embargo, economic sanction, or other prohibition of Applicable Laws, or Executive Order of the President of the United States or United Nations decree or resolution, provided however that this Subsection shall not apply to any Person to the extent that such Person's interest in the Vendor is through a U.S. Publicly-Traded Entity and as used in this Agreement, "U.S. Publicly-Traded Entity" means a Person (other than an individual) whose securities are listed on a national securities exchange, or quoted on an automated quotation system, in the United States, or a wholly-owned subsidiary of such a Person;

(q)

there are no outstanding obligations relating to any written notice or order issued by any Governmental Authority in respect of the Property alleging any deficiency or non-compliance with any municipal agreements (including any development or site plan agreements), zoning laws or by-laws or Environmental Laws of which the Vendor has received written notice except as have been or will be made available to the Purchaser pursuant to Section 2.2, and other than as disclosed in writing to the Purchaser, there shall not be any such outstanding obligations as of the Closing Date, and as of the Closing Date there are no threatened nor, to the best knowledge of the Vendor, after due inquiry of all of its directors, officers and employees who could reasonably be expected to have relevant information, pending notices or orders relating to any such deficiency or non-compliance;



(r)

any fee due to any real estate broker or agent in respect of this Agreement or the Transaction shall be paid by the Vendor and the Vendor shall indemnify the Purchaser for any such fees to the extent a claim is made against the Purchaser relating thereto;



(s)

to the best knowledge of the Vendor, after due inquiry of all of its directors, officers and employees who could reasonably be expected to have relevant information, the Property and use thereof have been, are in compliance with, Environmental Laws, except as specifically disclosed in Environmental Reports delivered to the Purchaser pursuant to Section 2.2;



(t)

except as have been or will be made available to the Purchaser pursuant to Section 2.2, there are no environmental investigations, assessments or audit reports relating to the Property (including, without limiting the generality of the foregoing, any Phase I, II or III environmental assessment reports) undertaken by the Vendor or any other Person of which the Vendor has knowledge which are in the possession or control of the Vendor and, to best knowledge of the Vendor, after due inquiry of all of its directors, officers and employees who could reasonably be expected to have relevant information, except as specifically disclosed in Environmental Reports delivered to the Purchaser pursuant to Section 2.2, no underground storage tanks are or have been located on the Property;



(u)

except as specifically disclosed in Environmental Reports delivered to the Purchaser pursuant to Section 2.2: (i) the Vendor has not received any written notice from any competent authority of, or been prosecuted for, non-compliance with Environmental Laws in respect of the Property or use thereof nor has the Vendor or (to the best knowledge of the Vendor, after due inquiry of all of its directors, officers and employees who could reasonably be expected to have relevant information) any previous owner of the Lands settled any allegation of such non-compliance prior to prosecution; (ii) there are no notices, orders or directions relating to environmental matters received by the Vendor requiring, or notifying the Vendor that it is or may be responsible for, any containment, clean-up, remediation, or corrective action or any work, repairs, construction or capital expenditures to be made under any Environmental Laws with respect to the Property; and (iii) neither the Vendor nor (to the best knowledge of the Vendor, after due inquiry of all its directors, officers and employees who could reasonably be expected to have relevant information) any tenant of the Property, past or present, has caused or permitted, nor has there been, any release, emission, spill or discharge in any manner whatsoever, of any Hazardous Substance on, in, around, from or in connection with the Property, or its use or operation which would reasonably be expected to adversely affect the value of the Property or in respect of which the owner or occupant of the Property would reasonably be expected to incur any liability;

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(v)

the Vendor has not used, or permitted to be used, except in compliance with all Environmental Law, the Property to generate, manufacture, process, distribute, use, treat, store, dispose of, transport or handle any Hazardous Substance;



(w)

the Vendor has not received any written notice of any, and there is no threatened nor, to the best knowledge of the Vendor (after due inquiry of all its directors, officers and employees who could reasonably be expected to have relevant information) pending eminent domain, condemnation or rezoning proceedings with respect to the Property or any part of the Property; and



(x)

the parties signing and delivering the Estoppel Letters are the only parties having any rights of occupation to the Residences, and no other Person has any right of occupation to the Residences or any part of the Property.

7.2       Representations of the Purchaser

        The Purchaser represents and warrants to and in favour of the Vendor, as of the Closing Date, as follows:

(a)

the Purchaser is a corporation duly existing under the laws of Delaware and has the corporate power, authority, right and capacity through its general partner, to enter into this Agreement and to carry out the transactions contemplated by this Agreement in the manner contemplated by this Agreement;



(b)

the transactions contemplated by this Agreement will, by the Closing Date, have been duly and validly authorized by all requisite corporate proceedings; upon execution and delivery by the Vendor and the Purchaser, this Agreement and all other documents and agreements to be delivered by the Purchaser pursuant to this Agreement shall constitute legal, valid and binding obligations of the Purchaser; and



(c)

the Purchaser has not dealt with, used or engaged any real estate broker or agent in respect of this Agreement or the Transaction.

7.3       Survival

(a)

The representations, warranties and covenants of the Vendor set out in Section 7.1 shall be true or fulfilled, as the case may be, in all material respects on Closing. The representations, warranties and covenants of the Purchaser set out in Section 7.2 shall be true or fulfilled, as the case may be, in all material respects on Closing.



(b)

The representations, warranties and certifications contained in this Agreement or in any Closing Documents shall not merge on Closing but shall survive for a period of twelve (12) months after the Closing Date (the "Survival Period"). The representations and warranties in Subsections 7.1(s) — 7.1(x) shall survive the Closing for a period of two (2) years. The party which has received a representation, warranty or certification, whether in this Agreement or in any Closing Document, shall give written notice to the other party of each breach of the representation, warranty or certification, together with details thereof, promptly after becoming aware of the breach and no later than the last day of the Survival Period. Notwithstanding any other provision of this Agreement or of any Closing Document, no Claim may be asserted or pursued against any party hereto, or any action, suit or other proceedings commenced or pursued, for or in respect of any breach of any representation, warranty or certification made by such party in this Agreement or in any Closing Document unless written notice of such Claim is received by such party describing in detail the facts and circumstances with respect to the subject matter of such Claim on or prior to the last day of the Survival Period, irrespective of whether the subject matter of such Claim shall have occurred before or after such date; and upon the expiry of the Survival Period all such representations, warranties and certifications shall cease to have any effect except to the extent a written notice of Claim has been previously given in respect thereof in accordance with this Subsection.

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(c)

Each indemnity contained in any Closing Documents shall not merge on Closing, and there shall be no limitation upon the period for making a Claim in respect of any indemnity in any Closing Documents and such indemnities shall survive Closing for an unlimited period, unless otherwise expressly provided in this Agreement.



(d)

The provisions of this Section 7.3 shall survive and not merge upon Closing.

        Notwithstanding anything contained in this Agreement to the contrary, all of the representations, warranties and certifications (the "Representations") which are made by the Vendor and set forth in this Agreement or in any of the documents or instruments required to be delivered by the Vendor under this Agreement shall be subject to the following conditions and limitation: in the event that prior to the Closing, the Purchaser gains current actual knowledge of a fact or circumstance which, by its nature and plainly on its face, indicates that a Representation is, was or has become untrue or inaccurate, then the Purchaser shall not have the right to bring any lawsuit or other legal action against the Vendor, nor pursue any other remedies against the Vendor, as a result of the breach of the Representation caused thereby, but the Purchaser's sole right shall be to terminate this Agreement and not proceed with Closing, in which event there shall be no liability on the part of the Vendor for breaches of Representations of which the Purchaser had current actual knowledge prior to Closing. For greater certainty and notwithstanding the foregoing, the parties hereto acknowledge and agree that the mere delivery by the Vendor to the Purchaser, and possession by the Purchaser, of the documents and instruments contemplated in Section 2.2 shall not be sufficient to constitute actual knowledge on the part of the Purchaser that a Representation is, was or has become untrue or inaccurate.

7.4       Non-Waiver

        The Vendor agrees that the Purchaser's right to do searches, reviews, examinations, investigations, inspections, assessments, audits and analyses, and the exercise of such right, shall not affect, reduce or mitigate any of the representations, warranties and covenants of the Vendor contained in this Agreement or any of the damages and costs owing by the Vendor to the Purchaser as a result of any breach of such representations, warranties and covenants.

ARTICLE 8

INTERIM MATTERS

8.1       Interim Period

        Upon acceptance of this Agreement and thereafter so long as this Agreement is in effect, the Vendor shall not offer the Subject Assets or any part of the Subject Assets or any interest therein for sale to any Person other than the Purchaser nor will it solicit, directly or indirectly, or deal with any offers to purchase the Subject Assets or any part of the Subject Assets or any interest therein.

8.2       Approvals of the Purchaser

        While this Agreement is in effect, the Vendor agrees that it shall not amend, cancel or accept a surrender or forfeiture of any Leases or Contracts without the prior written approval of the Purchaser, which may arbitrarily and unreasonably withheld, and it shall not enter into any Lease or Contract without the prior written approval of the Purchaser, which may arbitrarily and unreasonably withheld.

        The Vendor shall provide the Purchaser with a complete copy of any Approved Lease or Approved Contract and of any document which creates, amends, cancels, surrenders or forfeits any Lease or Contract within three (3) Business Days after it is entered into by the parties thereto.

8.3       Notice of Default

        The Vendor shall forthwith provide to the Purchaser (i) a copy of any notices that it receives in respect of the Existing Leases, Approved Leases (if any), Existing Contracts and/or Approved Contracts (if any) alleging

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default on the part of the Vendor or requesting the Vendor to perform any obligation thereunder and any notice alleging default under the Leases, or any Contract that it sends to another Person, in either case after the date this Agreement is executed and delivered by the parties hereto; (ii) a copy of any work orders, state or federal environmental orders or deficiency notices of any nature issued by any Governmental Authorities having jurisdiction relating to the Property; and (iii) a copy of any notice from a Tenant received after the date of this Agreement by the Vendor which indicates the intention of a Tenant to vacate or assign, as the case may be, its interest in the Property prior to the scheduled expiry date of its Existing Lease or requests an abatement or deferral of rent.

8.4       Approvals

(a)

Whenever in this Agreement it is stated that the approval or consent of a party is required, it is understood that, except where otherwise specifically so stated, such approval or consent shall be in writing, and shall not be unreasonably withheld or delayed. Furthermore, with respect to such approvals or consents, unless specifically otherwise stated:



(i)

the party whose approval or consent is required shall, within three (3) Business Days after receipt of request for approval or consent, together with available background information relating to the required decision to enable an informed decision, advise the requesting party in writing either that it consents or approves, or that it withholds its consent or approval and in which case it shall set forth, in reasonable details, its reasons for such withholding; and



(ii)

in the event the notification mentioned in paragraph (i) above is not delivered within the applicable time limit, the party whose consent or approval is requested shall conclusively be deemed not to have given its consent or approval in writing.

8.5       Risk of Condemnation and Eminent Domain

        The Vendor shall promptly notify the Purchaser in the event that the Vendor receives a notice of condemnation and/or exercise of eminent domain in respect of all or any material part of the Property, and such notice shall include a copy of the notice of condemnation and/or exercise of eminent domain and copies of all correspondence relating thereto in the Vendor's possession. If notice of condemnation and/or exercise of eminent domain is given prior to Closing, the Purchaser may elect by notice in writing given to the Vendor within ten (10) Business Days after receipt from the Vendor of notice of the proposed condemnation and/or exercise eminent domain either:

(a)

to complete the Transaction, in which case the Purchaser shall continue to be bound by this Agreement except that any compensation awarded for expropriation and all right and claim of the Vendor to any such proceeds and compensation not paid by the Closing Date shall be assigned to the Purchaser; or



(b)

to terminate this Agreement, in which event neither party shall have any further liability to the other arising out of this Agreement.

        If the notice of the proposed condemnation and/or exercise of eminent domain is received by the Vendor at such time that there would be insufficient time for the Purchaser to make its election hereunder, the Closing Date shall be postponed to a date which is five (5) Business Days after the Purchaser's election.

8.6       General Covenants of the Vendor

        The Vendor covenants and agrees with the Purchaser that from and after the date hereof:

(a)

the Vendor shall diligently make all payments to be made and otherwise observe and perform or cause to be observed or performed all covenants and obligations to be observed or performed by the Vendor under the Contracts and the Leases;

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(b)

the Vendor shall not (i) create or permit to exist any encumbrance against or affecting the Property or any part thereof or interest therein or (ii) amend any of the Permitted Encumbrances, except in each case with the prior written approval of the Purchaser, which approval shall not be unreasonably withheld by the Purchaser in respect of Permitted Encumbrances; and



(c)

the Vendor shall not consent to or initiate any amalgamation, winding-up, dissolution, liquidation, reorganization, reconstruction, arrangement, consolidation, merger or other corporate procedure whatsoever without the prior written consent of the Purchaser, which consent may be withheld by the Purchaser in its sole and absolute discretion.

ARTICLE 9

ENVIRONMENTAL INDEMNIFICATION

9.1       Environmental Indemnification by the Vendor

        Subject to Section 7.3, for a period of two (2) years after the Closing Date and no longer (the "Indemnity Period") the Vendor agrees to indemnify and save harmless each of the Purchaser, its directors, officers, employees and agents and any successor to the Purchaser's interest in the Property (including, without limitation, persons to whom this indemnity is assigned) and all directors, officers, employees and agents of such successors, from and against any and all Claims suffered or incurred by any such person as a result of or arising directly or indirectly out of or in connection with any one or more of the following:

(a)

any event occurring or any condition existing on or prior to the Closing Date relating to the Property which now or hereafter constitutes a violation of, or gives rise to any liability under, Environmental Laws; and



(b)

any generation, manufacture, processing, distribution, use, presence, treatment, storage, disposal, release, transport or handling of any Hazardous Substance in, on, under or from the Property, whether by the Vendor or any tenant or any other person prior to the Time of Closing, and whether or not known at the Time of Closing.

        For greater certainty, the Vendor's obligation to indemnify and save harmless as provided above exists regardless of whether there has been a breach of any of the provisions contained in Section 7.1 hereof.

9.2       Assignability of Environmental Indemnification

        During the Indemnity Period, the Purchaser may, at any time and from time to time, assign all or any part of the benefit of the indemnity set out in Section 9.1 to any purchaser of, or lender to the Purchaser in respect of, the Property, by delivering a notice in writing to the Vendor setting out the Purchaser's intention to assign all or part of the benefit of the indemnity and the identity of the person or persons to whom the assignment is to be made. Upon any such assignment, the Vendor shall be bound to indemnify the person or persons named in such notice to the extent of the assignment of the indemnity as if such person or persons were a party to this Agreement as the Purchaser. No such assignments shall relieve the Vendor of the obligation to indemnify under Section 9.1 and such obligations shall continue unaffected by the assignment for the Indemnity Period. Any such assignee may make a further assignment during the Indemnity Period in accordance with the foregoing provisions, as if all references therein to the Purchaser were to such assignee.

ARTICLE 10

PROFIT PARTICIPATION

10.1     Profit Participation

(a)

It is acknowledged that the Purchaser is contemplating the rezoning of the Property following Closing, and may sell or develop the Property or a portion thereof (either independently for the Purchaser's own account or through a joint venture with a third party). In connection therewith, the Purchaser hereby covenants and agrees that it shall grant to the Vendor an unsecured long-term

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profit participation of fifteen percent (15%) (the "Profit Participation") of the net revenue of the Property (as calculated below), if any, after the Purchaser has achieved an internal rate of return (the "IRR") of fifteen percent (15%). The Purchaser shall be deemed to have received a fifteen percent (15%) IRR with respect to its capital contributions to the Property when the total capital contributions made from time to time by the Purchaser are returned to the Purchaser together with an annual return thereon equal to fifteen percent (15%), calculated commencing on the date such capital contributions are made or deemed to have been made and compounded annually to the extent not paid on a current basis, taking into account the timing and amounts of all capital contributions by the Purchaser and all revenues of any kind (including "net revenue" as discussed below) derived from or attributable to the Property and paid (or treated as paid) to the Purchaser. For greater certainty, (i) the capital contributions by the Purchaser shall include (without limitation), the Purchase Price, all costs incurred by the Purchaser to rezone or redevelop the Property, and any and all carrying costs derived from the Closing and (ii) any and all internal Purchaser fees, charges, allocations or overheads shall be excluded from any calculation of the IRR.

(b)

For the purposes hereof, in the event the Purchaser sells the Property, "net revenue" shall mean the net cash proceeds received (or treated as received) by the Purchaser (or, as provided for in paragraph (g) below, one or more of its affiliates) from such sale, less all third party costs arising in connection therewith. In the event the Purchaser determines not to sell the Property, but instead either (i) transfers the Property to a joint venture or (ii) develops the Property, "net revenue" shall mean the value attributed to the Property at the time of transfer to the joint venture, in the former case, or the value attributed to the lands by a third party independent appraisal, in the latter case.



(c)

The Purchaser shall deliver to the Vendor Profit Participation calculations not later than February 15 of each fiscal year commencing with fiscal year 2008 if so requested in writing by the Vendor prior to January 1 of the applicable fiscal year. In addition, the Purchaser shall (i) deliver to the Vendor Profit Participation calculations not later than forty-five (45) days after the final parcel of the Property has been sold, transferred or developed and appraised and (ii) pay to the Vendor the Profit Participation, if any, sixty (60) days after the final parcel of the Property has been sold, transferred or developed and appraised.



(d)

In the event the Purchaser has only partially sold, transferred or developed the Property, the Vendor may make a one-time request of payment (the "Vendor Request") based on a Profit Participation to be calculated using the net revenue, if any, derived to such date from that portion of the Property sold, transferred or developed, together with the value of the remaining portion of the Property on the basis of an appraisal of such portion of the Property with any then-existing improvements and entitlements. The Vendor Request may be made at any point six (6) months following the Closing Date. The Purchaser shall deliver to the Vendor Profit Participation calculations not later than forty-five (45) days after receipt of the Vendor Request and, where such calculations call for a payment of a Profit Participation to the Vendor, such payment shall be made no later than fifteen (15) days after delivery of the calculations.



(e)

For greater certainty, upon payment to the Vendor of Profit Participation pursuant to the terms of either of the preceding two paragraphs, the Vendor shall have no further right to any Profit Participation and no further payments shall be due to the Vendor in relation to the Property.



(f)

The Purchaser shall, upon completing any Profit Participation calculation, provide all information and materials to the Vendor in respect of such Profit Participation calculation used to determine the same in order that the Vendor may audit the calculation. The Vendor shall be entitled to conduct an audit any time within 90 days of receiving the Profit Participation calculation materials from the Purchaser and shall be entitled to audit all aspects of Profit Participation calculations completed by the Purchaser or at the Purchaser's direction. Notwithstanding the Vendor's acceptance of any payment from the Purchaser with respect to such Profit Participation calculations, in the event the Vendor completes an independent audit of the Profit Participation and it is determined by the Vendor's independent auditors that the actual calculation of Profit Participation is incorrect, then

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the Purchaser and the Vendor shall negotiate in good faith to resolve the discrepancy, failing which, the parties shall enter into binding arbitration with respect thereto.

(g)

In the event that the Purchaser transfers all or a portion of the Property to one or more of its affiliates (not including Magna Entertainment Corp. or any of its subsidiaries), the calculation of IRR shall take into account and include such transferred portion(s).



(h)

Notwithstanding the foregoing, the Purchaser does not represent or warrant that any Profit Participation will be available for payment to the Vendor following the Closing.



(i)

The provisions of this Section 10.1 shall survive the Closing.

ARTICLE 11

GUARANTEE

11.1     Guarantee to the Vendor

        For valuable consideration, the Guarantor hereby guarantees payment to the Vendor (forthwith after demand therefor as hereinafter provided) of the liabilities (if any) when due and payable (pursuant to the terms of Section 10.1 hereof) which the Purchaser or its successors and assigns has incurred or is under, to the Vendor that arise only by virtue of Section 10.1 hereof (the "Guaranteed Amounts") and Guarantor agrees that:

(a)

this shall be a continuing guarantee and shall cover all liabilities (if any) of the Purchaser to the Vendor under and in respect of the Guaranteed Amounts arising after the Closing Date and shall be binding as a continuing obligation of the Guarantor until all Guaranteed Amounts have been paid in full (by the Purchaser, the Guarantor or a combination thereof), following which, this Guarantee shall be at an end;



(b)

any change or changes in the name of the Purchaser shall not affect or in any way limit or lessen the liability of the Guarantor hereunder and this guarantee shall extend to the Person acquiring or from time to time carrying on the business of the Purchaser;



(c)

in the case of liquidation, winding-up or bankruptcy of the Purchaser (whether voluntary or compulsory) or if the Purchaser shall make any composition with creditors or scheme of arrangement, the Vendor shall have the right to rank for its full claim in respect of the Guaranteed Amounts then due and payable and receive all dividends or other payments in respect thereof until the Vendor's claim in respect of such Guaranteed Amounts then due and payable has been paid in full (by the Purchaser, the Guarantor or a combination thereof) and the Guarantor shall continue to be liable for any balance which may be owing to the Vendor by the Purchaser in respect of the Guaranteed Amounts;



(d)

notwithstanding any other provision in this Article 11 to the contrary, if, pursuant to the terms of Section 10.1 hereof, Guaranteed Amounts are due and payable to the Vendor, the accrual of the obligations of the Guarantor hereunder shall be conditional upon the Vendor having first pursued and exhausted its rights for such Guaranteed Amounts against the Purchaser. For greater certainty, before demand for payment is made by the Vendor to the Guarantor for any Guaranteed Amounts, the Vendor shall have: (i) made a request of, or demand upon, the Purchaser in writing for such Guaranteed Amounts (with a copy of such request or demand to be delivered to the Guarantor at the time of delivery of same to the Purchaser); and (ii) for a period of sixty (60) days thereafter, used reasonable commercial efforts to satisfy such claim from the Purchaser. In the event any Guaranteed Amounts remain outstanding after such sixty (60) day period, the Guarantor shall make payment to the Vendor of such Guaranteed Amounts forthwith after demand therefor is made by the Vendor in writing;



(e)

the provisions of this Article 11 shall extend to and enure to the benefit of the successors and permitted assigns of the Vendor under this Agreement and shall be binding upon the Guarantor and its successors and assigns, references herein to the "Purchaser" shall mean and refer to the Purchaser and its successors and permitted assigns under this Agreement; and

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(f)

the provisions of this Section 11.1 shall survive the Closing.

ARTICLE 12

GENERAL

12.1     As-Is/Where-Is Transaction

        The Purchaser acknowledges and agrees that except as expressly provided in this Agreement or in any Closing Documents provided by the Vendor to the Purchaser at Closing, and without derogating from any indemnities provided by the Vendor herein or in any Closing Documents, the Vendor makes no representation, warranty or covenant, express, implied or statutory, of any kind whatsoever with respect to the Subject Assets, including, without limitation, representation, warranty or covenant as to title, survey conditions, use of the Subject Assets for the Purchaser's intended use, the condition of the Subject Assets, past or present use, development, investment potential, tax ramifications or consequences, compliance with any Applicable Laws, present or future zoning, the presence or absence of Hazardous Substances, the availability of utilities, habitability, merchantability, fitness or suitability for any purpose, or any other matter with respect to the Subject Assets, all of which are (without derogating from any indemnities provided by the Vendor herein or in any Closing Documents), except as otherwise expressly provided in this Agreement or in any Closing Documents provided by the Vendor to the Purchaser at Closing, hereby expressly disclaimed by the Vendor. The provisions of this Section shall survive Closing and the delivery of the Deed or any expiration or termination of this Agreement without limitation as to time.

12.2     No Registration

        The parties hereto acknowledge and agree that none of the parties shall register, or cause to be registered, this Agreement, or any part thereof, including without limitation Section 10.1, or any instrument, agreement or other document evidencing this Agreement or the provisions of Section 10.1, against title to the Property (or any part thereof). Furthermore, the parties hereto acknowledge and agree that the Purchaser's obligations under Section 10.1 are personal to the Purchaser (and its successors and permitted assigns), and the Vendor's rights in respect thereof shall not be effective to create an interest in the Property (or any part thereof).

12.3     Obligations as Covenants

        Each agreement and obligation of each party hereto in this Agreement, even though not expressed as a covenant, shall be considered for all purposes to be a covenant.

12.4     Tender

        Any tender of documents or money may be made upon the party being tendered or upon its solicitors and money may be tendered by certified cheque or bank draft drawn on or from one of the five largest Schedule I Canadian chartered banks or a first class bank of the United States of America, or by wire transfer. All cheques to be tendered shall be drawn upon one of the five largest Schedule I Canadian chartered banks, measured by reference to authorized capital.

12.5     Relationship of the Parties

        Nothing in this Agreement shall be construed so as to make the Purchaser a partner of the Vendor and nothing in this Agreement shall be construed so as to make the Purchaser an owner of the Lands for any purpose until the Closing Date.

12.6     Amendment of Agreement

        No supplement, modification or waiver of this Agreement, or any provision thereof, shall be binding unless executed in writing by both parties hereto.

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12.7     Notices

        Any notice, request, consent, acceptance, waiver or other communication required or permitted to be given under this Agreement (the "Notice") shall be in writing and shall be given by delivery or telecopy addressed or sent as set out below:

(a)

in the case of the Purchaser addressed to it at:

c/o MI Developments Inc.
455 Magna Drive
Aurora, Ontario, Canada L4G 7A9

Attention: General Counsel
Fax:           (905) 726-2095

with a copy to:

Davies Ward Phillips & Vineberg LLP
Suite 4400
1 First Canadian Place
100 King Street West
Toronto, Ontario, Canada M5X 1B1

Attention: Kent F. Beattie
Fax:           (416) 863-0871

(b)

in the case of the Guarantor addressed to it at:

c/o MI Developments Inc.
455 Magna Drive
Aurora, Ontario, Canada L4G 7A9

Attention: General Counsel
Fax:           (905) 726-2095

with a copy to:

Davies Ward Phillips & Vineberg LLP
Suite 4400
1 First Canadian Place
100 King Street West
Toronto, Ontario, Canada M5X 1B1

Attention: Kent F. Beattie
Fax:           (416) 863-0871

(c)

and in the case of the Vendor addressed to it at:

c/o Magna Entertainment Corp.
337 Magna Drive
Aurora, Ontario, Canada L4G 7K1

Attention: Blake S. Tohana
Fax:           (905) 726-2585

        Any Notice which is delivered or is sent by telecopy in accordance with the foregoing shall be deemed to have been validly and effectively given and received on the date it is delivered or sent, unless it is delivered or sent after 5:00 p.m. on any given day or on a day which is not a Business Day, in which case it shall be deemed to have been validly and effectively given and received on the Business Day next following the day it was delivered

24

or sent, provided that in the case of a Notice sent by telecopy it shall not be deemed to have been sent unless there has been confirmation of transmission. By giving to the other party at least three Business Days' prior Notice, either party may, at any time and from time to time, change its address for delivery or communication for the purposes of this Section 12.7.

12.8     Lawyers as Agents

        Notices, approvals, waivers and other documents permitted, required or contemplated by this Agreement may be given or delivered by the parties or by their respective solicitors on their behalf.

12.9     Confidentiality

        The parties agree that this Agreement and the transaction of purchase and sale referred to herein, and any information provided by either party to the other with respect to this transaction, or the Property, shall be kept strictly confidential and no public announcements will be made in respect thereof without the prior consent of the other party, provided that the parties may give such information on a confidential basis to their advisors and consultants and as may be required by Applicable Laws. Notwithstanding any other provision of this Agreement, if the Transaction is completed, no party shall have any further rights, obligations or liability under this Section 12.9, regardless of whether any such rights, obligations or liability relate to the period prior to or after the Closing.

12.10   No Solicitation

        The Vendor agrees that during the term of this Agreement the Vendor will not solicit a possible sale of all or any part of the Property with any other party.

12.11   Further Assurances

        Each of the parties hereto shall, at its own cost, from time to time hereafter and upon any reasonable request of the other, execute and deliver, make or cause to be made all such further acts, deeds, assurances and things as may be required or necessary to more effectually implement and carry out the true intent and meaning of this Agreement.

12.12   Entire Agreement

        This Agreement constitutes the entire agreement between the parties hereto pertaining to the agreement of purchase and sale of the Property provided for herein and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, with respect thereto, and there are no other warranties or representations and no other agreements between the parties hereto in connection with the agreement of purchase and sale provided for herein except as specifically set forth in this Agreement.

12.13   Waiver

        No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision (whether or not similar) nor shall any waiver constitute a continuing waiver unless otherwise expressed or provided.

12.14   Survival after Termination

        Notwithstanding the termination of this Agreement or this Agreement becoming of no further force or effect whatsoever for any reason, the provisions of Sections 2.4 and 4.3, shall continue to be applicable.

25

12.15   Survival

        This Agreement shall survive the Closing of the Transaction and shall remain in full force and effect thereafter in accordance with its terms.

12.16   Assignment

        Neither the Vendor nor the Purchaser shall assign its rights and/or obligations hereunder (or agree to do so) without the prior written consent of the other party, which consent may be withheld by such party in its sole and absolute discretion.

12.17   Successors and Assigns

        All of the covenants and agreements in this Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall enure to the benefit of and be enforceable by the parties hereto and their respective successors and their permitted assigns pursuant to the terms and conditions of this Agreement.

12.18   Counterparts

        This Agreement may be executed in multiple counterparts, each of which shall be deemed an original hereof, and all of which shall constitute a single agreement effective as of the date hereof. Any delivery of an executed copy of this Agreement by way of telecopy shall constitute delivery hereof, provided that any party delivering by way of telecopy shall, as soon as reasonably practicable, deliver an originally executed counterpart of this Agreement to the other parties.

         [REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

26

        IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

MI DEVELOPMENTS (MARYLAND) INC.
By:
Name:	Richard J. Crofts
Title:	Executive Vice-President, Corporate Development, General Counsel and Secretary
By:	c/s
Name:	Robert Kunihiro
Title:	Executive Vice-President and Chief Financial Officer
I/We have authority to bind the Corporation.
MI DEVELOPMENTS INC.
By:
Name:	Richard J. Crofts
Title:	Executive Vice-President, Corporate Development, General Counsel and Secretary
By:	c/s
Name:	Robert Kunihiro
Title:	Executive Vice-President and Chief Financial Officer
I/We have authority to bind the Corporation.
LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP, by its general partner LAUREL RACING ASSOCIATION INC.
By:
Name:
Title:
By:	c/s
Name:
Title:
I/We have authority to bind the Corporation.

27

SCHEDULE A

LEGAL DESCRIPTION OF THE LANDS

AREA "A"

BEING A PORTION OF THE FIRST PARCEL OF THAT CONVEYANCE FROM LAUREL RACE COURSE, INC., A MARYLAND CORPORATION, TO LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, BY DEED DATED DECEMBER 10, 1984, AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 1309 FOLIO 356.

BEGINNING FOR THE SAME AT AN IRON PIPE FOUND AT THE END OF THE 24TH OR NORTH 39°14'51" EAST 219.94 FEET LINE OF THE ABOVE SAID DEED, SAID IRON PIPE BEING ON THE SOUTHEASTERN MOST RIGHT OF WAY LINE OF MARYLAND ROUTE 1, AS SHOWN ON MARYLAND STAT ROADS COMMISSION PLAT 36909; THENCE, LEAVING SAID RIGHT OF WAY AND BINDING ON PART OF THE 25TH OR SOUTH 51°05'27" EAST 577.88 FEET LINE OF SAID DEED, WITH COURSES REFERRED TO THE MARYLAND STATE PLANE COORDINATE SYSTEM (NAD 83)

1)

SOUTH 51°09'58" EAST 301.62 FEET TO A POINT ON THE NORTHEASTERN MOST RIGHT OF WAY LINE FOR THE LAUREL BY-PASS, AS SHOWN ON MARYLAND STATE ROADS COMMISSION PLAT 6774; THENCE, BINDING ON SAID RIGHT OF WAY

2)

SOUTH 41°33'58" WEST 151.15 FEET TO A POINT; THENCE,

3)

NORTH 48°26'02" WEST 35.00 FEET TO A POINT; THENCE,

4)

SOUTH 41°33'58" WEST 64.09 FEET TO A POINT AT THE END OF THE 4TH OR SOUTH 26°34'51" EAST 70.00 FEET LINE OF THE CONVEYANCE FROM LAUREL RACE COURSE, INC. TO THE HOWARD COUNTY METROPOLITAN COMISSION, BY DEED DATED JUNE 11, 1964 AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 420, FOLIO 17; THENCE, LEAVING SAID RIGHT OF WAY AND BINDING REVERSELY ON THE 4TH, 3RD AND 2ND LINES OF SAID DEED

5)

NORTH 26°34'51" WEST 70.15 FEET TO A POINT; THENCE,

6)

SOUTH 41°30'09" WEST 90.30 FEET TO A POINT; THENCE,

7)

SOUTH 77°24'49" WEST 64.68 FEET TO A POINT ON THE EASTERN BANK OF THE PATUXENT RIVER; THENCE, LEAVING SAID RIGHT OF WAY, AND BINDING ON SAID BANK;

8)

NORTH 16°03'47" WEST 139.95 FEET TO A POINT ON THE BEFORE SAID RIGHT OF WAY FOR MARYLAND ROUTE 1; THENCE, BINDING ON SAID RIGHT OF WAY

9)

NORTH 39°10'01" EAST 44.24 FEET TO A POINT; THENCE,

10)

NORTH 50°49'58" WEST 27.00 FEET TO A POINT; THENCE,

11)

NORTH 39°10'01" EAST 185.00 FEET TO A POINT; THENCE,

12)

NORTH 50°49'59" WEST 8.00 FEET TO A POINT; THENCE,

13)

NORTH 39°10'01" EAST 15.00 FEET TO THE POINT OF BEGINNING.

CONTAINING 70,018 SQUARE FEET, OR 1.607 ACRES, MORE OR LESS.

28

AREA "B"

BEING A PORTION OF THE FIRST PARCEL OF THAT CONVEYANCE FROM LAUREL RACE COURSE, INC., A MARYLAND CORPORATION, TO LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, BY DEED DATED DECEMBER 10, 1984, AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 1309 FOLIO 356.

BEGINNING FOR THE SAME AT AN IRON PIPE FOUND AT THE END OF THE 29TH OR NORTH 51°10'27" EAST 706.50 FEET LINE OF THE ABOVE SAID DEED, SAID IRON PIPE BEING ON THE EASTERLY RIGHT OF WAY LINE OF MARYLAND ROUTE 1, AS SHOWN ON MARYLAND STAT ROADS COMMISSION PLAT 36909; THENCE, BINDING ON SAID RIGHT OF WAY AND THE 30TH OR NORTH 39°17'02" EAST 100.00 FEET LINE OF SAID DEED, WITH COURSES REFERRED TO THE MARYLAND STATE PLANE COORDINATE SYSTEM (NAD 83)

1)

NORTH 38°03'10" EAST 100.01 FEET TO A POINT LOCATED 0.48 FEET FROM AN IRON PIPE FOUND; THENCE, LEAVING SAID RIGHT OF WAY, AND BINDING ON PART OF THE 31ST OR SOUTH 51°10'26" EAST 580.87 LINE OF SAID DEED

2)

SOUTH 50°39'28" WEST 319.41 FEET TO A POINT ON THE WESTERN MOST RIGHT OF WAY FOR THE LAUREL BY PASS, AS SHOWN ON STATE ROADS COMISSION PLAT 6774; THENCE, BINDING ON SAID RIGHT OF WAY

3)

SOUTH 41°33'58" WEST 100.07 FEET TO A POINT ON THE BEFORE SAID 29TH LINE; THENCE, BINDING ON PART OF SAID LINE

4)

NORTH 50°39'28" WEST 313.28 FEET TO THE POINT OF BEGINNING.

CONTAINING 31,629 SQUARE FEET, OR 0.726 ACRES, MORE OR LESS.

        SAVING AND EXCEPTING 0.005 ACRES OF LAND CONVEYED TO ALAN JEROME SOPER FROM LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP BY CONFIRMATORY QUITCLAIM DEED, DATED AUGUST 4, 2004 AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 9157, FOLIO 239.

AREA "C"

BEING A PORTION OF THAT CONVEYANCE FROM LAUREL RACE COURSE, INC., A MARYLAND CORPORATION, TO LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, BY DEED DATED DECEMBER 10, 1984, AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 1309 FOLIO 356, AND ALL OF THAT CONVEYANCE FROM ANNA MAY FADELY BROWN TO LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, BY DEED DATED NOVEMBER 6, 1985 AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 1406, FOLIO 311.

BEGINNING FOR THE SAME AT A POINT AT THE END OF THE 40th OR SOUTH 51°16'47" EAST 817.40 FOOT LINE OF THE FIRST MENTIONED DEED ABOVE, SAID POINT ALSO BEING ON THE NORTHERLY RIGHT OF WAY LINE OF THE BALTIMORE AND OHIO RAILROAD PROPERTY AS DESCRIBED IN A DEED RECORDED IN LIBER GW 89, FOLIO 218, SAID POINT ALSO BEING THE SOUTHERLY MOST CORNER OF THE PROPERTY OF 9001 WHISKEY BOTTOM ROAD, LLC AS DESCRIBED IN A DEED RECORDED IN LIBER 10207, FOLIO 356 AND RUNNING WITH AND ALONG THE SAID NORTHERLY RAILROAD RIGHT OF WAY LINE THE FOLLOWING TWENTY (20) COURSES AND DISTANCES:

1)

949.77 FEET ALONG THE ARC OF A CURVE DEFLECTING TO THE RIGHT HAVING A RADIUS OF 2192.01 FEET AND A CHORD BEARING AND DISTANCE OF SOUTH 56°01'06" WEST 942.36 FEET TO A POINT; THENCE,

29

2)

681.24 FEET ALONG THE ARC OF A CURVE DEFLECTING TO THE RIGHT HAVING A RADIUS OF 5629.65 FEET AND A CHORD BEARING AND DISTANCE OF SOUTH 71°53'52" WEST 680.83 FEET TO A POINT; THENCE,



3)

SOUTH 75°21'52" WEST 315.40 FEET TO A POINT; THENCE,



4)

370.00 FEET ALONG THE ARC OF A CURVE DEFLECTING TO THE LEFT HAVING A RADIUS OF 3919.83 FEET AND A CHORD BEARING AND DISTANCE OF SOUTH 72°39'37" WEST 369.86 FEET TO A POINT; THENCE,



5)

SOUTH 34°09'52" WEST 80.00 FEET TO A POINT; THENCE,



6)

SOUTH 67°10'52" WEST 92.00 FEET TO A POINT; THENCE,



7)

SOUTH 66°40'52" WEST 102.40 FEET TO A POINT; THENCE,



8)

SOUTH 62°25'52" WEST 101.90 FEET TO A POINT; THENCE,



9)

SOUTH 61°10'52" WEST 97.00 FEET TO A POINT; THENCE,



10)

SOUTH 61°42'52" WEST 107.90 FEET TO A POINT; THENCE,



11)

SOUTH 61°10'52" WEST 99.00 FEET TO A POINT; THENCE,



12)

SOUTH 59°25'52" WEST 99.50 FEET TO A POINT; THENCE,



13)

SOUTH 58°10'52" WEST 101.90 FEET TO A POINT; THENCE,



14)

SOUTH 54°10'52" WEST 96.00 FEET TO A POINT; THENCE,



15)

SOUTH 52°55'52" WEST 98.00 FEET TO A POINT; THENCE,



16)

SOUTH 54°25'52" WEST 102.50 FEET TO A POINT; THENCE,



17)

SOUTH 60°10'52" WEST 110.00 FEET TO A POINT; THENCE,



18)

SOUTH 50°10'52" WEST 105.90 FEET TO A POINT; THENCE,



19)

SOUTH 50°40'52" WEST 100.90 FEET TO A POINT; THENCE,



20)

SOUTH 49°50'52" WEST 34.62 FEET TO A POINT ON THE EASTERN BANK OF THE PATUXENT RIVER; THENCE RUNNING WITH AND ALONG SAID BANK THE FOLLOWING FIVE (5) COURSES AND DISTANCES:



21)

NORTH 55°53'49" WEST 42.34 FEET TO A POINT; THENCE,



22)

NORTH 28°48'29" WEST 136.95 FEET TO A POINT; THENCE,



23)

NORTH 09°31'38" WEST 277.83 FEET TO A POINT; THENCE,



24)

NORTH 36°46'19" EAST 96.39 FEET TO A POINT; THENCE,



25)

NORTH 16°03'47" WEST 54.16 FEET TO A POINT ON THE SOUTHERLY RIGHT OF WAY LINE FOR THE LAUREL BY PASS, AS SHOWN ON STATE ROADS COMMISSION PLAT 6774; THENCE, LEAVING SAID BANK AND BINDING ON SAID RIGHT OF WAY



26)

NORTH 41°33'58" EAST 87.68 FEET TO A POINT; THENCE,



27)

NORTH 48°26'02" WEST 55.00 FEET TO A POINT; THENCE,



28)

NORTH 41°33'58" EAST 111.00 FEET TO A POINT; THENCE



29)

SOUTH 48°26'02" EAST 35.00 FEET TO A POINT; THENCE



30)

NORTH 41°33'58" EAST 100.00 FEET TO A POINT; THENCE



31)

NORTH 48°26'02" WEST 35.00 FEET TO A POINT; THENCE

30

32)

NORTH 41°33'58" EAST 189.54 FEET TO A POINT ON THE 25TH OR SOUTH 51°05'27" EAST 577.83 FEET LINE OF THE BEFORE FIRST SAID CONVEYANCE; THENCE, LEAVING SAID RIGHT OF WAY AND BINDING ON PART OF SAID LINE



33)

SOUTH 51°09'58" EAST 227.39 FEET TO AN IRON PIPE FOUND; THENCE



34)

NORTH 36°01'41" EAST 148.58 FEET TO AN IRON PIPE FOUND; THENCE



35)

SOUTH 51°27'42" EAST 135.79 FEET TO AN IRON PIPE FOUND; THENCE



36)

NORTH 39°29'04" EAST 199.38 FEET TO A CONCRETE MONUMENT FOUND; THENCE, BINDING ON PART OF THE 29TH OR NORTH 51°10'27" WEST 706.50 FEET LINE OF THE FIRST SAID CONVEYANCE



37)

NORTH 50°39'28" WEST 341.41 FEET TO A POINT ON THE BEFORE SAID RIGHT OF WAY LINE FOR THE LAUREL BYPASS; THENCE, BINDING ON SAID RIGHT OF WAY



38)

NORTH 41°33'58" EAST 100.07 FEET TO A POINT ON THE 31ST OR SOUTH 51°10'26" EAST 580.87 FEET LINE OF THE FIRST SAID CONVEYANCE; THENCE, BINDING ON PART OF SAID LINE



39)

SOUTH 50°39'28" EAST 131.42 FEET TO A POINT AT THE END OF THE 3RD OR NORTH 43°55' WEST 80 FEET LINE OF THE BEFORE SAID SECOND CONVEYANCE; THENCE, BINDING ON THE 4TH AND 1ST LINES OF SAID DEED



40)

NORTH 39°51'12" EAST 70.00 FEET TO A POINT ON THE WESTERN MOST SIDE OF A 25 FEET RIGHT OF WAY; THENCE, BINDING ON SAID RIGHT OF WAY



41)

SOUTH 50°39'34" EAST 80.00 FEET TO A POINT ON THE 32nd OR NORTH 39°28'44" EAST 96.69 FEET LINE OF THE BEFORE SAID FIRST CONVEYANCE; THENCE, BINDING ON PART OF SAID LINE



42)

NORTH 39°51'12" EAST 25.13 FEET TO A POINT AT THE END THEREOF AND ON EASTERN MOST SIDE OF THE SAID 25 FEET RIGHT OF WAY; THENCE, BINDING ON THE SAID RIGHT OF WAY, AND THE 33RD THROUGH THE 47 TH LINES OF THE BEFORE SAID FIRST DEED



43)

NORTH 50°39'28" WEST 102.65 FEET TO A POINT; THENCE, LEAVING SAID RIGHT OF WAY



44)

NORTH 39°40'58" EAST 200.00 FEET TO A POINT; THENCE



45)

NORTH 51°22'37" EAST 665.06 FEET TO A POINT LOCATED 5.71 FEET FROM A PIPE FOUND; THENCE



46)

SOUTH 50°29'42" EAST 591.76 FEET TO AN IRON PIPE FOUND; THENCE



47)

NORTH 35°10'12" EAST 946.75 FEET TO A POINT; THENCE



48)

SOUTH 51°18'47" EAST 367.55 FEET TO AN IRON PIPE FOUND; THENCE



49)

NORTH 35°11'13" EAST 285.45 FEET TO A POINT; THENCE



50)

SOUTH 51°18'47" EAST 815.50 FEET TO THE POINT OF BEGINNING.

CONTAINING 2,679,441 SQUARE FEET OR 61.511 ACRES, MORE OR LESS.

31

SCHEDULE B

FORM OF ASSIGNMENT AND ASSUMPTION OF LEASES

THIS ASSIGNMENT AND ASSUMPTION OF LEASES made as of the                    day of                                      , 2007.

B E T W E E N:

LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP,
a Maryland limited partnership
(the "Vendor"),

OF THE FIRST PART,

– and –

MI DEVELOPMENTS (MARYLAND) INC.,
a Delaware corporation
(the "Purchaser"),

OF THE SECOND PART.

        WHEREAS pursuant to an agreement of purchase and sale made between the Vendor, as vendor and the Purchaser, as purchaser made as of February 7, 2007 (the "Purchase Agreement"), the Vendor agreed to sell and the Purchaser agreed to purchase, among other things, the property legally described in Schedule A hereto (the "Property");

        AND WHEREAS pursuant to the Purchase Agreement, the Vendor has agreed that the Leases (as defined below) shall be assigned to the Purchaser;

        NOW THEREFORE for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1

DEFINITIONS

        1.1Definitions:    Capitalized terms used and not defined herein shall have the respective meanings ascribed to them in the Purchase Agreement. The terms defined herein shall have, for all purposes of this Agreement, the following meanings, unless the context expressly or by necessary implication otherwise requires:

(a)

"Agreement" means this Assignment and Assumption of Leases, including the schedules attached hereto;



(b)

"Assigned Interest" means all of the Vendor's right, title and interest in and to the Assigned Leases and all rights, benefits and advantages whatsoever to be derived therefrom from and after the date hereof;



(c)

"Assigned Leases" means all agreements to lease, leases, renewals of leases, subtenancy agreements and other rights (including licences) granted by or on behalf of the Vendor or its predecessors in title as owner of the Property which entitle any Person to possess or occupy any space within the Property, which Assigned Leases are listed on the attached Schedule B, together with all security, guarantees and indemnities relating thereto.

ARTICLE 2

ASSIGNMENT

        2.1Assignment by the Vendor:    The Vendor hereby absolutely grants, transfers, assigns and sets over, as of the date of this Agreement and to the extent such Leases are assignable at law, the Assigned Interest unto the Purchaser. The parties agree that if the assignment of any Assigned Lease is prohibited at law or requires the consent of any other party or parties and such consent has not or cannot be obtained, the Vendor shall hold the

32

Assigned Interest in such Assigned Lease in trust for the benefit of the Purchaser and shall take all actions with respect thereto as the Purchaser may direct for the Purchaser's account and benefit.

        2.2Acceptance by the Purchaser:    The Purchaser hereby accepts the assignment of the Assigned Interest as of the date of this Agreement.

ARTICLE 3

ASSUMPTION AND INDEMNITY

        3.1Agreement by the Purchaser:    The Purchaser hereby agrees to be bound by, assume, comply with and be responsible for all of the obligations, covenants and liabilities of the Vendor accruing and arising from and after the date of this Agreement under or in respect of the Assigned Leases. Without limiting the generality of the foregoing, the Purchaser covenants and agrees with the Vendor:

(a)

to pay all amounts payable by the Vendor under and in respect of the Assigned Leases relating to the period from and including the date of this Agreement; and



(b)

to indemnify and save harmless the Vendor, its partners, employees and agents, from and against any and all liabilities, damages, costs, expenses, causes of action, suits, Claims, demands and judgments arising from or in connection with a breach by the Purchaser, its shareholders, directors, officers, employees, agents or those for whom it is responsible at law, from and after the date of this Agreement, of any of the covenants and obligations of the Vendor under or in respect of the Assigned Leases.

        3.2Agreement by the Vendor:    The Vendor hereby agrees to be bound by and be responsible for all of the obligations, covenants and liabilities of the Vendor accruing and arising prior to the date of this Agreement under or in respect of the Assigned Leases. Without limiting the generality of the foregoing, the Vendor covenants and agrees with the Purchaser:

(a)

to pay all amounts payable by the Vendor under and in respect of the Assigned Leases relating to the period prior to the date of this Agreement; and



(b)

to indemnify and save harmless the Purchaser and its shareholders, directors, officers, employees and agents, from and against any and all liabilities, damages, costs, expenses, causes of action, suits, Claims, demands and judgments arising from or in connection with a breach by the Vendor, its partners, employees or agents, prior to the date of this Agreement, of any of the covenants and obligations of the Vendor under or in respect of the Assigned Leases.

ARTICLE 4

MISCELLANEOUS

        4.1Governing Law:    This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland and the applicable laws of the United States of America.

        4.2Further Assurances:    Each of the parties shall execute and deliver all such further documents and do such other things as the other party may reasonably request to give full effect to this Agreement.

        4.3Successors and Assigns:    All of the covenants and agreements in this Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns.

33

        IN WITNESS WHEREOF the parties have executed this Agreement.

LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP,
by its general partner
LAUREL RACING ASSOCIATION INC.

By:

Name:

Title:

By:

Name:

Title:

I/We have authority to bind the Corporation.

MI DEVELOPMENTS (MARYLAND) INC.

By:

Name:

Title:

By:

Name:

Title:

I/We have authority to bind the Corporation.

34

SCHEDULE A

LEGAL DESCRIPTION OF THE LANDS

AREA "A"

BEING A PORTION OF THE FIRST PARCEL OF THAT CONVEYANCE FROM LAUREL RACE COURSE, INC., A MARYLAND CORPORATION, TO LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, BY DEED DATED DECEMBER 10, 1984, AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 1309 FOLIO 356.

BEGINNING FOR THE SAME AT AN IRON PIPE FOUND AT THE END OF THE 24TH OR NORTH 39°14'51" EAST 219.94 FEET LINE OF THE ABOVE SAID DEED, SAID IRON PIPE BEING ON THE SOUTHEASTERN MOST RIGHT OF WAY LINE OF MARYLAND ROUTE 1, AS SHOWN ON MARYLAND STAT ROADS COMMISSION PLAT 36909; THENCE, LEAVING SAID RIGHT OF WAY AND BINDING ON PART OF THE 25TH OR SOUTH 51°05'27" EAST 577.88 FEET LINE OF SAID DEED, WITH COURSES REFERRED TO THE MARYLAND STATE PLANE COORDINATE SYSTEM (NAD 83)

1)

SOUTH 51°09'58" EAST 301.62 FEET TO A POINT ON THE NORTHEASTERN MOST RIGHT OF WAY LINE FOR THE LAUREL BY-PASS, AS SHOWN ON MARYLAND STATE ROADS COMMISSION PLAT 6774; THENCE, BINDING ON SAID RIGHT OF WAY

2)

SOUTH 41°33'58" WEST 151.15 FEET TO A POINT; THENCE,

3)

NORTH 48°26'02" WEST 35.00 FEET TO A POINT; THENCE,

4)

SOUTH 41°33'58" WEST 64.09 FEET TO A POINT AT THE END OF THE 4TH OR SOUTH 26°34'51" EAST 70.00 FEET LINE OF THE CONVEYANCE FROM LAUREL RACE COURSE, INC. TO THE HOWARD COUNTY METROPOLITAN COMISSION, BY DEED DATED JUNE 11, 1964 AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 420, FOLIO 17; THENCE, LEAVING SAID RIGHT OF WAY AND BINDING REVERSELY ON THE 4TH, 3RD AND 2ND LINES OF SAID DEED

5)

NORTH 26°34'51" WEST 70.15 FEET TO A POINT; THENCE,

6)

SOUTH 41°30'09" WEST 90.30 FEET TO A POINT; THENCE,

7)

SOUTH 77°24'49" WEST 64.68 FEET TO A POINT ON THE EASTERN BANK OF THE PATUXENT RIVER; THENCE, LEAVING SAID RIGHT OF WAY, AND BINDING ON SAID BANK;

8)

NORTH 16°03'47" WEST 139.95 FEET TO A POINT ON THE BEFORE SAID RIGHT OF WAY FOR MARYLAND ROUTE 1; THENCE, BINDING ON SAID RIGHT OF WAY

9)

NORTH 39°10'01" EAST 44.24 FEET TO A POINT; THENCE,

10)

NORTH 50°49'58" WEST 27.00 FEET TO A POINT; THENCE,

11)

NORTH 39°10'01" EAST 185.00 FEET TO A POINT; THENCE,

12)

NORTH 50°49'59" WEST 8.00 FEET TO A POINT; THENCE,

13)

NORTH 39°10'01" EAST 15.00 FEET TO THE POINT OF BEGINNING.

CONTAINING 70,018 SQUARE FEET, OR 1.607 ACRES, MORE OR LESS.

35

AREA "B"

BEING A PORTION OF THE FIRST PARCEL OF THAT CONVEYANCE FROM LAUREL RACE COURSE, INC., A MARYLAND CORPORATION, TO LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, BY DEED DATED DECEMBER 10, 1984, AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 1309 FOLIO 356.

BEGINNING FOR THE SAME AT AN IRON PIPE FOUND AT THE END OF THE 29TH OR NORTH 51°10'27" EAST 706.50 FEET LINE OF THE ABOVE SAID DEED, SAID IRON PIPE BEING ON THE EASTERLY RIGHT OF WAY LINE OF MARYLAND ROUTE 1, AS SHOWN ON MARYLAND STAT ROADS COMMISSION PLAT 36909; THENCE, BINDING ON SAID RIGHT OF WAY AND THE 30TH OR NORTH 39°17'02" EAST 100.00 FEET LINE OF SAID DEED, WITH COURSES REFERRED TO THE MARYLAND STATE PLANE COORDINATE SYSTEM (NAD 83)

1)

NORTH 38°03'10" EAST 100.01 FEET TO A POINT LOCATED 0.48 FEET FROM AN IRON PIPE FOUND; THENCE, LEAVING SAID RIGHT OF WAY, AND BINDING ON PART OF THE 31ST OR SOUTH 51°10'26" EAST 580.87 LINE OF SAID DEED

2)

SOUTH 50°39'28" WEST 319.41 FEET TO A POINT ON THE WESTERN MOST RIGHT OF WAY FOR THE LAUREL BY PASS, AS SHOWN ON STATE ROADS COMISSION PLAT 6774; THENCE, BINDING ON SAID RIGHT OF WAY

3)

SOUTH 41°33'58" WEST 100.07 FEET TO A POINT ON THE BEFORE SAID 29TH LINE; THENCE, BINDING ON PART OF SAID LINE

4)

NORTH 50°39'28" WEST 313.28 FEET TO THE POINT OF BEGINNING.

CONTAINING 31,629 SQUARE FEET, OR 0.726 ACRES, MORE OR LESS.

        SAVING AND EXCEPTING 0.005 ACRES OF LAND CONVEYED TO ALAN JEROME SOPER FROM LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP BY CONFIRMATORY QUITCLAIM DEED, DATED AUGUST 4, 2004 AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 9157, FOLIO 239.

AREA "C"

BEING A PORTION OF THAT CONVEYANCE FROM LAUREL RACE COURSE, INC., A MARYLAND CORPORATION, TO LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, BY DEED DATED DECEMBER 10, 1984, AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 1309 FOLIO 356, AND ALL OF THAT CONVEYANCE FROM ANNA MAY FADELY BROWN TO LAUREL RACING ASSOCIATION LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, BY DEED DATED NOVEMBER 6, 1985 AND RECORDED AMONG THE LAND RECORDS OF HOWARD COUNTY, MARYLAND IN LIBER 1406, FOLIO 311.

BEGINNING FOR THE SAME AT A POINT AT THE END OF THE 40th OR SOUTH 51°16'47" EAST 817.40 FOOT LINE OF THE FIRST MENTIONED DEED ABOVE, SAID POINT ALSO BEING ON THE NORTHERLY RIGHT OF WAY LINE OF THE BALTIMORE AND OHIO RAILROAD PROPERTY AS DESCRIBED IN A DEED RECORDED IN LIBER GW 89, FOLIO 218, SAID POINT ALSO BEING THE SOUTHERLY MOST CORNER OF THE PROPERTY OF 9001 WHISKEY BOTTOM ROAD, LLC AS DESCRIBED IN A DEED RECORDED IN LIBER 10207, FOLIO 356 AND RUNNING WITH AND ALONG THE SAID NORTHERLY RAILROAD RIGHT OF WAY LINE THE FOLLOWING TWENTY (20) COURSES AND DISTANCES:

1)

949.77 FEET ALONG THE ARC OF A CURVE DEFLECTING TO THE RIGHT HAVING A RADIUS OF 2192.01 FEET AND A CHORD BEARING AND DISTANCE OF SOUTH 56°01'06" WEST 942.36 FEET TO A POINT; THENCE,

36

2)

681.24 FEET ALONG THE ARC OF A CURVE DEFLECTING TO THE RIGHT HAVING A RADIUS OF 5629.65 FEET AND A CHORD BEARING AND DISTANCE OF SOUTH 71°53'52" WEST 680.83 FEET TO A POINT; THENCE,



3)

SOUTH 75°21'52" WEST 315.40 FEET TO A POINT; THENCE,



4)

370.00 FEET ALONG THE ARC OF A CURVE DEFLECTING TO THE LEFT HAVING A RADIUS OF 3919.83 FEET AND A CHORD BEARING AND DISTANCE OF SOUTH 72°39'37" WEST 369.86 FEET TO A POINT; THENCE,



5)

SOUTH 34°09'52" WEST 80.00 FEET TO A POINT; THENCE,



6)

SOUTH 67°10'52" WEST 92.00 FEET TO A POINT; THENCE,



7)

SOUTH 66°40'52" WEST 102.40 FEET TO A POINT; THENCE,



8)

SOUTH 62°25'52" WEST 101.90 FEET TO A POINT; THENCE,



9)

SOUTH 61°10'52" WEST 97.00 FEET TO A POINT; THENCE,



10)

SOUTH 61°42'52" WEST 107.90 FEET TO A POINT; THENCE,



11)

SOUTH 61°10'52" WEST 99.00 FEET TO A POINT; THENCE,



12)

SOUTH 59°25'52" WEST 99.50 FEET TO A POINT; THENCE,



13)

SOUTH 58°10'52" WEST 101.90 FEET TO A POINT; THENCE,



14)

SOUTH 54°10'52" WEST 96.00 FEET TO A POINT; THENCE,



15)

SOUTH 52°55'52" WEST 98.00 FEET TO A POINT; THENCE,



16)

SOUTH 54°25'52" WEST 102.50 FEET TO A POINT; THENCE,



17)

SOUTH 60°10'52" WEST 110.00 FEET TO A POINT; THENCE,



18)

SOUTH 50°10'52" WEST 105.90 FEET TO A POINT; THENCE,



19)

SOUTH 50°40'52" WEST 100.90 FEET TO A POINT; THENCE,



20)

SOUTH 49°50'52" WEST 34.62 FEET TO A POINT ON THE EASTERN BANK OF THE PATUXENT RIVER; THENCE RUNNING WITH AND ALONG SAID BANK THE FOLLOWING FIVE (5) COURSES AND DISTANCES:



21)

NORTH 55°53'49" WEST 42.34 FEET TO A POINT; THENCE,



22)

NORTH 28°48'29" WEST 136.95 FEET TO A POINT; THENCE,



23)

NORTH 09°31'38" WEST 277.83 FEET TO A POINT; THENCE,



24)

NORTH 36°46'19" EAST 96.39 FEET TO A POINT; THENCE,



25)

NORTH 16°03'47" WEST 54.16 FEET TO A POINT ON THE SOUTHERLY RIGHT OF WAY LINE FOR THE LAUREL BY PASS, AS SHOWN ON STATE ROADS COMMISSION PLAT 6774; THENCE, LEAVING SAID BANK AND BINDING ON SAID RIGHT OF WAY



26)

NORTH 41°33'58" EAST 87.68 FEET TO A POINT; THENCE,



27)

NORTH 48°26'02" WEST 55.00 FEET TO A POINT; THENCE,



28)

NORTH 41°33'58" EAST 111.00 FEET TO A POINT; THENCE



29)

SOUTH 48°26'02" EAST 35.00 FEET TO A POINT; THENCE



30)

NORTH 41°33'58" EAST 100.00 FEET TO A POINT; THENCE



31)

NORTH 48°26'02" WEST 35.00 FEET TO A POINT; THENCE

37

32)

NORTH 41°33'58" EAST 189.54 FEET TO A POINT ON THE 25TH OR SOUTH 51°05'27" EAST 577.83 FEET LINE OF THE BEFORE FIRST SAID CONVEYANCE; THENCE, LEAVING SAID RIGHT OF WAY AND BINDING ON PART OF SAID LINE



33)

SOUTH 51°09'58" EAST 227.39 FEET TO AN IRON PIPE FOUND; THENCE



34)

NORTH 36°01'41" EAST 148.58 FEET TO AN IRON PIPE FOUND; THENCE



35)

SOUTH 51°27'42" EAST 135.79 FEET TO AN IRON PIPE FOUND; THENCE



36)

NORTH 39°29'04" EAST 199.38 FEET TO A CONCRETE MONUMENT FOUND; THENCE, BINDING ON PART OF THE 29TH OR NORTH 51°10'27" WEST 706.50 FEET LINE OF THE FIRST SAID CONVEYANCE



37)

NORTH 50°39'28" WEST 341.41 FEET TO A POINT ON THE BEFORE SAID RIGHT OF WAY LINE FOR THE LAUREL BYPASS; THENCE, BINDING ON SAID RIGHT OF WAY



38)

NORTH 41°33'58" EAST 100.07 FEET TO A POINT ON THE 31ST OR SOUTH 51°10'26" EAST 580.87 FEET LINE OF THE FIRST SAID CONVEYANCE; THENCE, BINDING ON PART OF SAID LINE



39)

SOUTH 50°39'28" EAST 131.42 FEET TO A POINT AT THE END OF THE 3RD OR NORTH 43°55' WEST 80 FEET LINE OF THE BEFORE SAID SECOND CONVEYANCE; THENCE, BINDING ON THE 4TH AND 1ST LINES OF SAID DEED



40)

NORTH 39°51'12" EAST 70.00 FEET TO A POINT ON THE WESTERN MOST SIDE OF A 25 FEET RIGHT OF WAY; THENCE, BINDING ON SAID RIGHT OF WAY



41)

SOUTH 50°39'34" EAST 80.00 FEET TO A POINT ON THE 32nd OR NORTH 39°28'44" EAST 96.69 FEET LINE OF THE BEFORE SAID FIRST CONVEYANCE; THENCE, BINDING ON PART OF SAID LINE



42)

NORTH 39°51'12" EAST 25.13 FEET TO A POINT AT THE END THEREOF AND ON EASTERN MOST SIDE OF THE SAID 25 FEET RIGHT OF WAY; THENCE, BINDING ON THE SAID RIGHT OF WAY, AND THE 33RD THROUGH THE 47 TH LINES OF THE BEFORE SAID FIRST DEED



43)

NORTH 50°39'28" WEST 102.65 FEET TO A POINT; THENCE, LEAVING SAID RIGHT OF WAY



44)

NORTH 39°40'58" EAST 200.00 FEET TO A POINT; THENCE



45)

NORTH 51°22'37" EAST 665.06 FEET TO A POINT LOCATED 5.71 FEET FROM A PIPE FOUND; THENCE



46)

SOUTH 50°29'42" EAST 591.76 FEET TO AN IRON PIPE FOUND; THENCE



47)

NORTH 35°10'12" EAST 946.75 FEET TO A POINT; THENCE



48)

SOUTH 51°18'47" EAST 367.55 FEET TO AN IRON PIPE FOUND; THENCE



49)

NORTH 35°11'13" EAST 285.45 FEET TO A POINT; THENCE



50)

SOUTH 51°18'47" EAST 815.50 FEET TO THE POINT OF BEGINNING.

CONTAINING 2,679,441 SQUARE FEET OR 61.511 ACRES, MORE OR LESS.

38

SCHEDULE B

LEASES

1.

Facilities use agreement made July 13, 2005 between Laurel Racing Association Limited Partnership and Ryder Truck Rental, Inc.

2.

License agreement (parking spaces) dated as of June 18, 2003 between Laurel Racing Association Limited Partnership, as licensor, and Enterprise Leasing Company, as licensee.

39

SCHEDULE C

LIST OF EXISTING CONTRACTS

None.

40

SCHEDULE D

LIST OF EXISTING LEASES

1.

Facilities use agreement made July 13, 2005 between Laurel Racing Association Limited Partnership and Ryder Truck Rental, Inc.

2.

License agreement (parking spaces) dated as of June 18, 2003 between Laurel Racing Association Limited Partnership, as licensor, and Enterprise Leasing Company, as licensee.

41

SCHEDULES

SCHEDULE A	–	LEGAL DESCRIPTION OF THE LANDS
SCHEDULE B	–	FORM OF ASSIGNMENT AND ASSUMPTION OF LEASES
SCHEDULE C	–	LIST OF EXISTING CONTRACTS
SCHEDULE D	–	LIST OF EXISTING LEASES

42

QuickLinks

TABLE OF CONTENTS
AGREEMENT OF PURCHASE AND SALE
ARTICLE 1 INTERPRETATION
ARTICLE 2 AGREEMENT OF PURCHASE AND SALE
ARTICLE 3 PURCHASE PRICE
ARTICLE 4 CONDITIONS OF CLOSING
ARTICLE 5 TITLE
ARTICLE 6 CLOSING MATTERS
ARTICLE 7 REPRESENTATIONS, WARRANTIES AND COVENANTS
ARTICLE 8 INTERIM MATTERS
ARTICLE 9 ENVIRONMENTAL INDEMNIFICATION
ARTICLE 10 PROFIT PARTICIPATION
ARTICLE 11 GUARANTEE
ARTICLE 12 GENERAL
SCHEDULE A LEGAL DESCRIPTION OF THE LANDS
SCHEDULE B FORM OF ASSIGNMENT AND ASSUMPTION OF LEASES
ARTICLE 1 DEFINITIONS
ARTICLE 2 ASSIGNMENT
ARTICLE 3 ASSUMPTION AND INDEMNITY
ARTICLE 4 MISCELLANEOUS
SCHEDULE A LEGAL DESCRIPTION OF THE LANDS
SCHEDULE B LEASES
SCHEDULE C LIST OF EXISTING CONTRACTS
SCHEDULE D LIST OF EXISTING LEASES
SCHEDULES

EX-12

Exhibit 12

MEC
Earnings to Fixed Charges Ratio

	Year ended December 31,
	2006		2005		2004		2003		2002
Part I — Earnings
Pretax loss from continuing operations	(92,307	)	(103,203	)	(105,856	)	(171,252	)	(23,502	)
Add:
Fixed Charges
Interest expense — not income	65,828		39,639		26,747		20,629		7,091
Amortization of debt issue costs and discount or premium relating to indebtedness	8,080		3,070		1,625		1,466		1,042
Interest portion of rental expense	703		267		569		523		272
Preferred stock dividends	—		—		—		—		—
Fixed Charges reduced by:
Interest capitalized during the period	2,633		5,864		4,043		7,281		2,726
Preferred stock dividends	—		—		—		—		—
Amortization related to capitalized interest	413		281		247		—		—
	(20,742	)	(66,372	)	(81,205	)	(155,915	)	(17,823	)
Part II — Fixed Charges
Interest Expense — not income	65,828		39,639		26,747		20,629		7,091
Amortization of debt issue costs and discount or premium relating to indebtedness	8,080		3,070		1,625		1,466		1,042
Interest portion of rental expense	703		267		569		523		272
Preferred stock dividends	—		—		—		—		—
	74,611		42,976		28,941		22,618		8,405
Fixed charge coverage	(0.28	)	(1.54	)	(2.81	)	(6.89	)	(2.12	)

EX-14

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 14

MAGNA ENTERTAINMENT CORP.
Code of Business Conduct

GENERAL

        This Code of Business Conduct (this "Code") is a statement of guiding principles for the conduct of all of our employees with respect to our business. This Code applies to employees of Magna Entertainment Corp. and its consolidated subsidiaries, collectively referred to in this Code as "our company" or "MEC".

        All of our employees are required to use sound judgment and to act ethically in the performance of their employment responsibilities. Specifically, each of our employees is expected to be familiar with the principles outlined in this Code and to adhere to such principles and to all applicable laws governing our company and its business.

        All employees are expected to report appropriately any indications of illegal or improper conduct of any person or entity involving our company or its business.

        This Code is only intended to be a statement of guiding principles. It is not a contract and is not intended as a detailed guide for all situations you may face.

WAIVERS OF THIS CODE

        This Code applies to our officers and our employees equally. Our directors are also required to abide by the principles of this Code, within the scope of their duties as directors of our company, as if they were employees of our company. Any waiver of this Code for any officer or director of our company must be approved in advance by the Corporate Governance, Human Resources and Compensation Committee of our Board of Directors. Any such waivers will be publicly disclosed by appropriate means and as required by applicable law.

QUESTIONS, REPORTING YOUR CONCERNS AND ENFORCEMENT

•

Questions About this Code of Conduct.  If you have questions regarding this Code or the matters addressed by this Code, please speak with your Manager or immediate Supervisor ("Supervising Manager"). If you do not wish to communicate with that person or you are uncomfortable with the guidance provided, please feel free to contact either the Corporate Secretary or the Chief Executive Officer at 905-726-2462. If you wish to remain anonymous, you may contact the MEC FYI Line with any questions by calling 1-866-9 MEC FYI (1-866-963-2394) or 905-726-7442.



•

How to Report Your Concerns.  If you wish to report or discuss any breaches of this Code or any illegal or unethical conduct relating to our business, please promptly inform your Supervising Manager. Your Supervising Manager will be responsible for resolving the issue and, if necessary, reporting the matter to senior management and our Legal Department.

            If your report involves wrongdoing by your Supervising Manager or you are uncomfortable reporting to your Supervising Manager, please promptly contact your Human Resources Department, the General Manager of your facility or MEC's Chief Executive Officer at 905-726-2462. If necessary, the person receiving the report will then contact senior management to investigate the matter or delegate its investigation to the appropriate person or committee. Generally, non-material technical violations of this Code or isolated incidents that do not have a material effect on our company should be reported to your Supervising Manager. If you are unsure who to report your concerns to, please call the MEC FYI Line at 1-866-9 MEC FYI (1-866-963-2394) or 905-726-7442.

            If you wish to communicate anonymously, you are free to do so, and we will maintain the confidentiality of your communication to the extent possible under applicable laws. Communications intended to be confidential can be made in one of two ways. You may communicate in writing without indicating your name or address by writing to: Magna Entertainment Corp., 337 Magna Drive, Aurora, Ontario, L4G 7K1, Attention: Chief Executive Officer. Please write "CONFIDENTIAL" conspicuously on the front of the envelope. Alternatively, you can call the MEC FYI Line anonymously at 1-866-9 MEC FYI (1-866-963-2394) or 905-726-7442 to report any violations of this Code or to seek guidance on matters involving this Code.

            If you have concerns about accounting, internal accounting controls, or auditing matters relating to our company or your report involves senior management of our company, in addition to making a report as described above, you may also contact the Audit Committee of our Board of Directors directly. Inquiries or communications intended to be anonymous should be mailed in writing without indicating your name or address to Magna Entertainment Corp., 337 Magna Drive, Aurora, Ontario, L4G 7K1, Attention: Chairman, Audit Committee. Please write "CONFIDENTIAL" conspicuously on the front of the envelope.

•

No Retaliation for Reports.  We encourage our employees to report any concerns about breaches of this Code or any illegal or unethical conduct relating to our business. We do not retaliate or discriminate against employees who honestly report their concerns to us.



•

Do Not Make False Claims.  It is a violation of this Code for any employee knowingly to make false reports of illegal or unethical conduct.



•

Enforcement.  We are committed to enforcing this Code consistently with respect to all of our employees, regardless of title or position. Our officers and other supervising employees are expected to be leaders in demonstrating this personal commitment to the standards outlined in this Code and recognizing indications of illegal or unethical conduct. We will not tolerate violation or circumvention of any laws applicable to our business by any employee during the course of his/her employment or by any agent or representative acting on behalf of our company. We will not tolerate the disregard or circumvention of this Code, any other policies of our company or the engagement in unethical dealings in connection with our company's business. Employees who fail to comply with this Code or to cooperate with any investigation will be subject to disciplinary action, the nature and severity of which will depend upon the violation. Disciplinary action may include termination, referral for criminal prosecution and actions to seek reimbursement of our company or others for any losses or damages resulting from the violation. In addition, consultants, agents, independent contractors and representatives will be required to meet the same standards as our employees and will face the same types of consequences, including termination of any consulting contract, agency or representative relationship with our company.

            Any person making a report of a breach of this Code has the right, if they so choose, to be informed of the resolution of their report.

WE HAVE A DUTY TO ACT IN THE BEST INTERESTS OF OUR STOCKHOLDERS

        Our employees share a duty to protect our assets and manage our business in the best interests of our stockholders.

•

Records and reporting:  All business information, financial or otherwise, pertaining to our company must be accurately and honestly recorded, whether in internal records or in information we release to the public or file with government agencies, and no one shall enter any false or artificial information in our records or reporting systems. Employees are expected to follow any records retention and destruction policies that we may implement and communicate from time to time. It is our company's policy not to destroy or alter our records or documents (in any form) in response to or in anticipation of any legal proceeding or government inquiry or investigation. Criminal liability may be incurred by any person who knowingly falsifies, alters, destroys, mutilates or conceals a record, document or other object with the intent to impede or obstruct an investigation or impair its availability for use in an official proceeding.



•

Disclosure Controls and Procedures.  We are required by applicable securities laws, rules and regulations to maintain effective disclosure controls and procedures so that financial and non-financial information we are required to report in our securities filings is timely and accurately reported both to our senior management and in the filings we make. All employees are expected, within the scope of their employment duties, to support the effectiveness of our disclosure controls and procedures and to provide information which promotes full, fair, accurate, timely and understandable disclosure in reports and documents that our company files with, or submits to government agencies and in our company's other public communications.

2

•

Stock Trading; Use of Confidential Information.  Any employee who is aware of material nonpublic information concerning our company, or concerning third parties with whom our company does business, is prohibited from buying or selling securities of our company or of those third parties until after the material information has been fully disclosed to the public. Employees must not disclose any of this material nonpublic information to family, friends or others outside the company. Generally, all information concerning the affairs of our company is to be kept confidential and disclosed only to authorized persons for legitimate business purposes, unless and until such information has been publicly disclosed by authorized employees in accordance with our disclosure policies. For more information about this prohibition, please refer to the MEC Insider Trading Policy, a copy of which can be obtained from the Corporate Secretary at 905-726-2462.

Selective Disclosure Prohibited.    Applicable securities laws, rules and regulations generally prohibit selective disclosure of material nonpublic information to persons outside our company. All employees are expected to keep all material nonpublic information about our company strictly confidential unless and until we have made full public disclosure regarding the information by way of a press release or appropriate filing with securities regulatory authorities.

Providing Information to the Public.    Our policy is to disseminate material information about our business in a timely manner and only through our employees authorized for this purpose. Employees are not under any circumstance to discuss our company's financial, business or other information with the press (except for those employees expressly authorized for this purpose), at any public venue or on any website, chat room or similar forum. Requests from the media, analysts or stockholders about our company must be forwarded promptly in accordance with our Corporate Disclosure Policy.

            For more information concerning the foregoing disclosure practices, please refer to the MEC Corporate Disclosure Policy, a copy of which can be obtained from the Corporate Secretary at 905-726-2462.

•

Communications.  Communications by our employees on behalf of our company must be for a legitimate business purpose, be appropriate and avoid inappropriate or derogatory comments about other individuals or companies, unprofessional language and unauthorized statements.



•

Use of Company Assets.  Our company's assets are to be used only for our lawful, corporate purposes. All employees should help our company protect its assets from misuse, theft, damage or other loss. Improper or unauthorized personal use of company assets is prohibited. Employees have a duty to protect our trade secrets and other nonpublic information and keep them confidential. Access to our intellectual property and other confidential information is to be limited to those authorized to use them in their duties for the company. If customers or suppliers provide nonpublic information to us in their dealings with us, our employees are expected to protect that information in the same manner as our company's non-public information.



•

Suppliers.  Our contracts with suppliers of products and services to us are to be based exclusively on the best interests of our company and its business, reflect a fair price for the deliverables provided to us and be documented in accordance with appropriate approval, contracting and internal control procedures.

WE ARE COMMITTED TO OUR CUSTOMERS

        We are committed to excellence in service and performance and building strong customer relationships.

•

Customer Relationships.  Our goal is to develop customer loyalty by delivering high quality racing, entertainment, pari-mutuel wagering and hospitality services. We will comply strictly with all applicable horse racing, gaming and other industry laws and standards. Our advertising will be truthful, non-deceptive and fair and we will not make false or deceptive statements about our competitors.



•

Protecting Our Customers' Private Information.  We are committed to treating the confidential information of our customers with a standard of care that meets or exceeds the care we use to protect our own proprietary and confidential information. We are also subject to various privacy laws restricting the manner in which we handle customer and employee information. Our employees are expected to limit access to confidential information about our customers and employees to those individuals in our

3

company who need to know this information to carry out their jobs, and at all times in compliance with applicable privacy laws.

WE RESPECT OUR EMPLOYEES AND OUR EMPLOYEES ARE EXPECTED TO RESPECT EACH OTHER

        Each MEC employee has a duty to promote a positive working environment for all of our employees, our horsemen and their employees who work at our racetracks.

•

Health and Safety.  We are committed to maintaining a healthy and safe working environment. We require all employees to report promptly any unsafe or hazardous conditions, injuries, or accidents connected with our business to their Supervising Manager. If you have any doubts about whether to raise safety-related concerns with your Supervising Manager, always err on the side of disclosure.



•

Duties to Our Fellow Employees.  Harassment or abuse by one employee towards another is prohibited. We will not tolerate any harassment in the workplace on the basis of sex, race, color, religion, national origin, age, disability or any other characteristic protected by law. All of our employees must be allowed to work in an environment free from abuse and harassment. For more information, please refer to our company's Harassment Policy in your employee handbook. If you require a copy of the Harassment Policy, please contact your Human Resources Department or the General Manager of your facility. If you wish to make a report of harassment, please contact your Supervising Manager or Human Resources Department. If you do not feel comfortable reporting an incident of harassment to anyone at your facility, please call the MEC Employee Hotline at 1-800-263-1691. Any good faith reports of harassment or abuse can be made without fear of retaliation although, for legal and practical reasons, they cannot be made anonymously.



•

Compliance with Fair Labor Standards.  Our employment decisions will be based on business-related factors, such as job performance, individual skills and talents, and other business-related factors. We do not discriminate in any aspect of employment based on race, color, religion, sex, marital status, national origin, disability or age, within the meaning of applicable laws.



•

Working Within Our Communities.  We respect our employees' participation in their community and in charitable, religious and political activities, provided that these activities do not unreasonably interfere with their job responsibilities to us. Our employees may not represent that their personal views or activities represent those of our company. Our employees must not engage in any unwanted solicitations or pressure toward other employees relating to charitable, religious or political causes, unrelated to our business.

WE COMPLY WITH ALL APPLICABLE LAWS

        We expect our employees to comply with all applicable laws and regulations affecting our company and its business, whether or not referred to explicitly in this Code. The following is a non-exhaustive summary of certain laws and regulations applicable to our company and its business.

•

Prohibited Corrupt Practices.  Our company must comply with anti-corruption laws that apply to our company's business. Our employees and agents must not directly or indirectly offer or make a corrupt payment to any domestic or foreign government officials, or employees of enterprises owned or controlled by a government agency. Our employees must not engage in any form of fraud, including but not limited to embezzlement, theft, hiding or misuse of company assets, or falsification of records.



•

Prohibited Political Contributions.  

U.S. Political Contributions.    There are various complex laws governing political contributions in the U.S. As a result, we have adopted a policy in respect of U.S. political contributions and gifts to U.S. public officials. All U.S. political contributions and gifts to U.S. public officials (whether in the form of cash, property or services) must be made in compliance with this policy which essentially requires that any U.S. political contributions made by or on behalf of our company be made only after approval is obtained from the applicable political contributions officer. For more details on our policy on

4

U.S. political contributions, please consult the MEC U.S. Political Contributions Policy, a copy of which can be obtained by contacting the Corporate Secretary at 905-726-2462.

Political Contributions Outside the U.S.    None of our employees shall contribute in our company's name or on our company's behalf, any cash, property or services of any kind for or in support of any political candidate, committee, initiative, or activity outside the U.S. unless it is first approved by an executive officer of our company. No lobbying efforts shall be undertaken in our company's name or on our company's behalf without prior authorization from our Legal Department.

•

Prohibited Loans to Executive Officers and Directors.  Under U.S. law, our company may not, directly or indirectly, extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any director or executive officer of our company.



•

Environmental Laws.  Our employees are required to adhere in all material respects to applicable environmental laws and ensure that all hazardous materials and substances they handle are being handled and disposed of properly. For further information concerning our environmental policies and procedures, please consult our Health & Safety and Environmental Policy, a copy of which can be obtained from the General Manager of your facility.



•

Intellectual Property Laws.  Our employees must take reasonable steps to avoid any violations of copyright, trademark, service mark, patent, trade secret or other intellectual property rights held by third parties when conducting business on behalf of our company or using our business systems and facilities.



•

Pari-Mutuel and Other Horse Racing Industry Specific Regulation.  Our employees must adhere in all material respects to all rules and regulations applicable to them as employees working within the horse racing industry, including, without limitation, pari-mutuel wagering laws concerning wagers placed by pari-mutuel staff, if applicable.

OUR EMPLOYEES ARE EXPECTED TO ACT IN THE BEST INTERESTS OF OUR COMPANY AND AVOID CONFLICTS OF INTEREST

        All of our employees must be wary of any investment, business interest or other personal interest that interferes, or even appears to interfere, with their objective ability to act in the best interests of our company. A conflict of interest arises in any situation where an employee's private interests or personal considerations, including potential benefits to the employee's family, may detrimentally affect the independent judgment of the employee to act in the best interests of our company. A conflict of interest also arises where an employee uses his position, confidential information or corporate time or facilities for private gain.

        All employees who, by virtue of their employment duties and responsibilities are in a position to retain or influence the retention of persons or companies to provide goods and services to our company, are required to complete a questionnaire disclosing the direct or indirect business interests of themselves and their immediate family members. For more information on this area, please refer to the MEC Conflict of Interest Policy, a copy of which can be obtained from the Human Resources Department by calling 905-726-2462.

WE COMPETE FAIRLY AND ETHICALLY

        We are committed to providing high quality racing, entertainment, pari-mutuel wagering and hospitality services to our customers on a lawful and ethical basis. Our company and its employees must comply with the antitrust and unfair competition laws of the countries in which our company engages in business. Antitrust is the general term for laws that protect the free enterprise system by promoting fair competition and restricting restraints on trade. Generally, these laws prohibit or regulate: attempts to monopolize or otherwise restrain trade, price fixing or other agreements with competitors that would divide or allocate customers or otherwise harm customers, selling products and services below cost, "tied selling", and certain other overly restrictive agreements. Employees responsible for any dealings with competitors are expected to know the laws that apply to their business activities, and should speak to the Legal Department as questions arise.

EFFECTIVE DATE

        This Code was implemented and became effective on May 4, 2004.

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MAGNA ENTERTAINMENT CORP. Code of Business Conduct

EX-21

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Exhibit 21

LIST OF SUBSIDIARIES

United States

The Santa Anita Companies, Inc. (Delaware)
    Los Angeles Turf Club, Incorporated (California) (Santa Anita Park)
SLRD Thoroughbred Training Center, Inc. (Delaware) (San Luis Rey Downs)
Gulfstream Park Racing Association, Inc. (Florida)
    Orchid Concessions, Inc. (Florida) (Gulfstream Park Food and Beverage)
    GPRA Commercial Enterprises, Inc.
        The Village at Gulfstream Park, LLC
Pacific Racing Association (California) (Golden Gate Fields)
MEC Land Holdings (California) Inc. (California)
Remington Park, Inc. (Oklahoma)
Thistledown, Inc. (Ohio)
MI Racing Inc. (Delaware) (Great Lakes Downs)
MEC Holdings (USA) Inc. (Delaware)
Bay Meadows Operating Company, LLC (Delaware)
Bay Meadows Catering Company (California)
20002 Delaware LLC. (Delaware)
40000 Delaware Inc. (Delaware)
MEC Global Wagering Solutions LLC (Delaware)
MEC Pennsylvania Racing Services, Inc. (Delaware)
GPRA Thoroughbred Training Center, Inc. (Delaware) (Palm Meadows)
    Palm Meadows Estates, LLC (Delaware)
MEC Land Holdings (Oregon) LLC (Delaware)
MEC Oregon Racing, Inc. (Delaware) (Portland Meadows)
MEC Dixon, Inc. (Delaware)
DLR, Inc.
OTL, Inc.
MEC Texas Racing, Inc. (Delaware)
Racetrack Holdings, Inc. (Delaware)
    MEC Lone Star, L.P. (Delaware) (Lone Star Park at Grand Prairie)
        MEC Texas Concessions, LLC (Texas)
MEC Maryland Ventures, LLC (Maryland)
MEC Maryland Investments, Inc. (Delaware)
    30000 Maryland Investments LLC (Delaware)
        AmTote International Inc. (Delaware)
Maryland Racing, Inc. (Delaware)
    Maryland Turf Caterers, Inc. (Maryland)
        MTC Cecil County, Inc. (Maryland)
    Laurel Racing Assoc., Inc. (Maryland) (Laurel Park)
        Laurel Racing Association Limited Partnership (Maryland)
            Prince George's Racing, Inc. (Maryland)
                Southern Maryland Agricultural Association (Maryland)
            Maryland OTB Facilities, LLC (Maryland)
            New Maryland OTB Facilities, LLC (Maryland)
    Pimlico Racing Association, Inc. (Maryland)
        The Maryland Jockey Club of Baltimore City, Inc. (Maryland) (Pimlico)
            Southern Maryland Racing, Inc. (Maryland)
                Southern Maryland Agricultural Association (Maryland)
            Maryland OTB Facilities, LLC (Maryland)
            New Maryland OTB Facilities, LLC (Maryland)
Michigan Racing, Inc. (Delaware)
XpressBet, Inc. (Delaware)

MEC Media Distribution Corp. (Delaware)
    HorseRacing TV, Inc. (Delaware)
Sunshine Meadows Racing, Inc.
Aurora Hospitality Services, Inc. (Delaware)
MEC Developments, Inc. (Delaware)
MEC Services Corp. (Delaware)
Fex Straw Manufacturing Inc. (Delaware)

Canada

MEC Holdings (Canada) Corp. (Nova Scotia)
    Adena Meadows II Limited (Ontario)
    690346 Ontario Inc. (Ontario)
    805062 Ontario Limited (Ontario)

Europe

MEC Projektentwicklungs AG (Austria)
    FEX ÖKO-Faserverarbeitungs GmbH (Austria)
    MEC Grundstücksentwicklungs GmbH (Austria)
        MEC Sport and Entertainment Holding GmbH (Austria)
            MEC Sport and Entertainment GmbH (Austria)
MEC Racino Holding GmbH (Austria)
    MEC Magna Racino Veranstaltungs GmbH (Austria)
        Fontana Beteiligungs AG (Austria)
            Fontana restaurant GmbH (Austria)

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LIST OF SUBSIDIARIES

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

(a)

the Registration Statement (Form S-8 No. 333-32414) pertaining to the Long-Term Incentive Plan of Magna Entertainment Corp.;

(b)

the Registration Statement (Form S-3 No. 333-102889) and related prospectus of Magna Entertainment Corp. for the registration of 7¹/4% Convertible Subordinated Notes due December 15, 2009 and Shares of Class A Subordinate Voting Stock issuable upon the Conversion of such Notes;

(c)

the Registration Statement (Form S-3 No. 333-107368) and related prospectus of Magna Entertainment Corp. for the registration of 8.55% Convertible Subordinated Notes due June 15, 2010 and Shares of Class A Subordinate Voting Stock issuable upon the Conversion of such Notes and

(d)

the Registration Statement (Form S-3 No. 333-109922) and related prospectus of Magna Entertainment Corp. for the sale of up to $300,000,000 of Magna Entertainment Corp.'s Warrants to Purchase Debt Securities, Warrants to Purchase Class A Subordinate Voting Stock, Debt Securities, including the Debt Securities issuable upon exchange of other Debt Securities or the exercise of such Warrants, and Class A Subordinate Voting Stock, including the Shares of Class A Subordinate Voting Stock issuable upon the exercise of such Warrants or the conversion or exchange of such Debt Securities.

(e)

the Registration Statement (Form S-3 No. 333-140802) for the sale of up to $500,000,000 of Magna Entertainment Corp.'s shares of Class A Subordinate Voting Stock, Shares of Class B Stock, Shares of Preferred Stock, Securities warrants, purchase contracts, rights or purchase units issuable upon conversion, exercise of or exchange for securities that provide for conversion, exercise or exchange, upon exercise of rights or warrants or pursuant to the anti-dilution provisions of any such securities.

of our report dated March 7, 2007, with respect to the consolidated financial statements and schedule of Magna Entertainment Corp., Magna Entertainment Corp. management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Magna Entertainment Corp., included in this Annual Report (Form 10-K) for the year ended December 31, 2006.

March 14, 2007	/s/Ernst & Young
Toronto, Canada	Ernst & Young LLP

EX-24

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Exhibit 24

POWER OF ATTORNEY

        The undersigned directors of Magna Entertainment Corp. (the "Company") hereby appoint Michael A. Neuman, Chief Executive Officer, Blake S. Tohana, Executive Vice-President and Chief Financial Officer, and William G. Ford, Legal Counsel, as their true and lawful attorneys-in-fact, with full power for and on their behalf to execute, in their names and capacities as directors of the Company, and to file with the Securities and Exchange Commission on behalf of the Company under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 2006 (including any and all amendments thereto).

        This Power of Attorney automatically ends upon the termination of Mr. Neuman's, Mr. Tohana's and Mr. Ford's service with the Company.

        In witness whereof, the undersigned have executed this Power of Attorney on this 14th day of March, 2007.

/s/  JERRY D. CAMPBELL Jerry D. Campbell	/s/  JOSEPH DE FRANCIS Joseph De Francis
/s/  LOUIS E. LATAIF Louis E. Lataif	/s/  WILLIAM J. MENEAR William J. Menear
/s/  DENNIS MILLS Dennis Mills	/s/  MICHAEL A. NEUMAN Michael A. Neuman
/s/  FRANK STRONACH Frank Stronach	/s/  CHARLIE WILLIAMS Charlie Williams

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POWER OF ATTORNEY

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
REGARDING MAGNA ENTERTAINMENT CORP.'S
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2006

I, Michael Neuman, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Magna Entertainment Corp.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to material affect, the registrant's internal control over financial reporting;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 14, 2007. /s/  MICHAEL NEUMAN Michael Neuman
Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
REGARDING MAGNA ENTERTAINMENT CORP.'S
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2006

I, Blake Tohana, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Magna Entertainment Corp.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to material affect, the registrant's internal control over financial reporting;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 14, 2007. /s/  BLAKE S. TOHANA Blake S. Tohana
Executive Vice-President and
Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Michael Neuman, the Chief Executive Officer of Magna Entertainment Corp. ("MEC"), certify pursuant to 18 U.S.C. Section 1350 that (i) the Annual Report on Form 10-K (the "Report") of MEC for the year ended December 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of MEC.

/s/  MICHAEL NEUMAN Michael Neuman, Chief Executive Officer

Date: March 14, 2007

A signed original of this written statement required by Section 906 has been provided to Magna Entertainment Corp. and will be retained by Magna Entertainment Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as added by Section 906 of the Sarbanes-Oxley Act of 2002

I, Blake S. Tohana, the Chief Financial Officer of Magna Entertainment Corp. ("MEC"), certify pursuant to 18 U.S.C. Section 1350 that (i) the Annual Report on Form 10-K (the "Report") of MEC for the year ended December 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of MEC.

/s/  BLAKE S. TOHANA Blake S. Tohana, Chief Financial Officer

Date: March 14, 2007

A signed original of this written statement required by Section 906 has been provided to Magna Entertainment Corp. and will be retained by Magna Entertainment Corp. and furnished to the Securities and Exchange Commission or its staff upon request.