<PAGE>   1
                                                                   Exhibit 10.3


                          BAY MEADOWS OPERATING COMPANY
                               Board of Directors


August 30, 1996

F. Jack Liebau.
President
Bay Meadows Operating Company
2600 S. Delaware Street
San Mateo, California  94402

Dear Mr. Liebau:

                  Bay Meadows Operating Company (the "Company") considers it
essential to the best interests of the Company and its shareholders to encourage
the continuous employment of key management personnel. In this connection, the
Board of Directors of the Company (the "Board") recognizes that, as is the case
with many publicly held corporations, the possibility of a change in control may
exist and that such possibility, and the uncertainty and questions which it may
raise among management may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders. Accordingly, the
Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's top
management, including yourself, to their assigned duties without distraction in
the face of the potentially disturbing circumstances arising from the
possibility of a disposition or other change in the structure of the Company.

                  To persuade you to remain in the employ of the Company and in
consideration of your agreement stated in Section 5, the Company agrees with you
as follows:

                  1. Term and Operation of Agreement. This Agreement shall
commence on the date hereof and shall continue in effect through December 31,
1997; provided, however, that commencing on January 1, 1998 and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than June 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this Agreement;
and provided further, that notwithstanding any such notice by the Company not to
extend, this Agreement shall continue in effect for a period of twenty-four (24)
months beyond the term provided herein if a "Change in Control" (as defined in
Section 2) shall have occurred during such term.
<PAGE>   2
                  2. Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean any one or more of the following:

                           (i) the stockholders of the Company approve a merger
         or consolidation of the Company with any other corporation, other than
         a merger or consolidation which would result in the Voting Securities
         of the Company outstanding immediately prior to such a merger or
         consolidation continuing to represent (either by remaining outstanding
         or by being converted into Voting Securities of the surviving entity)
         at least 90% of the total voting power represented by the Voting
         Securities of the Company or such surviving entity outstanding
         immediately after such merger or consolidation;

                           (ii) the stockholders of the Company approve a plan
         of complete liquidation of the Company, an agreement for the sale or
         disposition by the Company (in one transaction or a series of
         transactions) of all or substantially all the Company's assets, or a
         plan pursuant to which (in one transaction or a series of transactions)
         all or substantially all the Company's assets shall be transferred to a
         person (defined, for purposes of this Section 2, as such term is used
         in Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934,
         as amended) not wholly owned by the Company (including but not limited
         to a plan pursuant to which all or substantially all of the Company's
         assets shall be transferred to a partnership not entirely owned by the
         Company);

                           (iii) any person holds or comes to hold directly or
         indirectly 20% or more of the voting power entitled to elect the
         Company's directors, whether through "beneficial ownership" (defined,
         for purposes of this Section 2, as defined in Rule 13d-3 under such 
         Act) of the Company's securities or otherwise, provided that the
         following acquisitions shall not constitute a Change in Control: (a)
         any acquisition directly from the Company (excluding an acquisition by
         virtue of the exercise of a conversion privilege), (b) any acquisition
         by the Company, or (c) any acquisition by any employee benefit plan (or
         related trust) sponsored or maintained by the Company or any
         corporation controlled by the Company;

                           (iv) individuals who, as of the date hereof,
         constitute the Board of Directors (the "Incumbent Board") cease for any
         reasons to constitute at least a majority of the Board; provided,
         however, than any individual becoming a director subsequent to the date
         hereof whose election, or nomination for election by the Company's
         shareholders, was approved by a vote of at least a majority of the
         directors then compromising the Incumbent Board shall be considered as
         though such individual were a member of the Incumbent Board, but
         excluding, for this purpose, any such individual whose initial
         assumption of office occurs as a result of either an actual or
         threatened election contest (as such terms are used in Rule 14a-11 of
         Regulation 14A promulgated under the Exchange Act) with respect to the
         election or removal of directors or other actual or threatened
         solicitation of proxies or consents by or on behalf of a Person other
         than the Board;


                                       2
<PAGE>   3
                           (v) the Company's Board of Directors shall authorize
         any action which if consummated would constitute a Change in Control;

                           (vi) the Company shall enter into an agreement the
         consummation of which would result in the occurrence of a Change in
         Control; or

                           (vii) the Company shall publicly announce an
         intention to take or to consider taking actions which if consummated
         would constitute a Change in Control.

                  3. Termination In Connection With or After Change in Control.

                  (a) General. If, during the term of this Agreement, your
employment terminates in connection with or after a Change in Control, you shall
be entitled to the benefits provided in Section 4(c) unless such termination is
(i) because of your death or Retirement, (ii) by the Company for Cause or
Disability or (iii) by you other than for Good Reason.

                  (b) Disability; Retirement. Termination by the Company of your
employment based on "Disability" shall mean termination because of your absence
from your duties with the Company on a full-time basis on account of physical or
mental health conditions continued after the period for which you are entitled
to continued employment under the Company's disability policy as in effect on
the date hereof, unless within 30 days after Notice of Termination (as
hereinafter defined) is given following such absence you shall have returned to
the full-time performance of your duties. (Any termination on account of
disability will be subject to your rights and benefits under such plan, and no
purported Notice of Termination contrary to such plan will be deemed to commence
the running of the 30-day period referred to in the preceding sentence or be
considered a termination for Disability for any purpose.) Termination by the
Company or you of your employment based on "Retirement" shall mean termination
in accordance with the Company's retirement policy in effect on the date hereof,
including (at your election, as set forth in writing) early retirement,
generally applicable to its salaried employees or in accordance with any
retirement arrangement established with your written consent with respect to
you.

                  (c) Cause. Termination by the Company of your employment for
"Cause" shall mean termination upon

                           (i) the willful and continued failure by you to
         substantially perform your duties with the Company (other than any such
         failure resulting from your incapacity due to physical or mental
         illness or any such actual or anticipated failure resulting from your
         termination for Good Reason), after a demand for substantial
         performance is delivered to you by the Board which specifically
         identifies the manner in which the Board believes that you have not
         substantially performed your duties, or

                           (ii) the willful engaging by you in conduct which is
         demonstrably and materially injurious to the Company, monetarily or
         otherwise.


                                       3
<PAGE>   4
For purposes of this paragraph, no act, or failure to act, on your part shall be
considered "willful" unless done, or omitted to be done, by you in bad faith and
without reasonable belief that your action or omission was in the best interest
of the Company. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
you a copy of resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for the purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of conduct
set forth above in Section 3(c)(i) or (ii) and specifying the particulars
thereof in detail.

                  (d) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean any of the following, unless you have given your express written consent
thereto:

                           (i) the assignment to you of any duties inconsistent
         with your then-existing position, duties and status with the Company; a
         substantial alteration in the nature or status of your then-existing
         responsibilities; the failure to provide you with substantially the
         same perquisites which you then had, including but not limited to your
         office and appropriate support services; or a change in your
         then-existing titles or offices, or any removal of you from or any
         failure to re-elect you to any of such positions;

                           (ii) a reduction by the Company in your base salary
         as in effect on the date of this Agreement or as the same may be
         increased from time to time;

                           (iii) the Company's either requiring you to be based
         anywhere other than the San Mateo area where your office is located at
         the date of this Agreement, except for required travel on the Company's
         business to an extent substantially consistent with your present
         business travel obligations, or the Company's transferring or merging
         its racing operations to or with those at Golden Gate Fields;

                           (iv) the failure by the Company to continue in effect
         any benefit, pension or compensation plan, savings and profit sharing
         plan, life insurance plan, medical insurance plan or
         health-and-accident plan (including, without limitation, the California
         Race Track Pension Plan) in which you are participating, or in which
         you are entitled to participate, at the date hereof (or plans providing
         you with substantially similar benefits); the taking of any action by
         the Company which would adversely affect your participation in or
         materially reduce your benefits under any of such plans or deprive you
         of any material fringe benefit enjoyed by you, or to which you are
         entitled, at the date of this Agreement; or the failure by the Company
         to provide you with the number of paid vacation days to which you are
         entitled in accordance with the Company's vacation policy in effect on
         the date hereof;

                           (v) the failure by the Company to obtain the written
         assumption of this Agreement by any successor as contemplated in
         Section 6;


                                       4
<PAGE>   5
                           (vi) any purported termination of your employment by
         the Company which does not satisfy the requirements of this Agreement;
         and for purposes of this Agreement, no such purported termination shall
         be effective; or

                           (vii) if the Change in Control is one described in
         Sections 2(iv) through (v), you shall give Notice of Termination within
         9 months after the effectiveness of such Change in Control stating that
         you have determined, in your sole discretion, to terminate your
         employment.

Your right to terminate your employment pursuant to this Section 3(d) shall not
be affected by your incapacity due to physical or mental illness.

                  (e) Notice of Termination. Any purported termination by the
Company pursuant to Section 3(b) or (c) or by you pursuant to Section 3(d) shall
be communicated by written Notice of Termination to the other party hereto in
accordance with Section 7. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of your
employment under the provision so indicated.

                  (f) Date of Termination. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such 30-day period), and
(B) if your employment is terminated pursuant to Section 3(c) or (d) or for any
other reason, the date specified in the Notice of Termination (which, in the
case of a termination pursuant to Section 3(c) shall not be less than 30 days,
and in the case of a termination pursuant to Section 3(d) shall not be more than
60 days, from the date such Notice of Termination is given); provided that if
within 30 days after any Notice of Termination is given the party receiving such
Notice of Termination notified the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties, by a
binding and final arbitration award or by a final judgment, order or a decree of
a court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected); and provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay you your full compensation in effect
when the notice of dispute was given (including, but not limited to, base
salary, bonus and incentive compensation), and continue you as a participant in
all compensation, benefit and insurance plans in which you were participating
when the notice of dispute was given, until the dispute is finally resolved in
accordance with this Section 3(f). Amounts paid under this Section 3(f) are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.


                                       5
<PAGE>   6
                  4. Compensation Upon Termination or During Disability.

                  (a) During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, you shall
continue to receive benefits not less than those payable under the Company's
disability plans in effect on the date hereof.

                  (b) If your employment shall be terminated for Cause, the
Company shall pay you your full base salary, and accrued vacation and personal
holidays, through the Date of Termination at the rate in effect at the time
Notice of Termination is given and the Company shall have no further obligation
to you under this Agreement.

                  (c) The benefits referred to in Section 3(a) are as follows:

                           (i) the Company shall pay you your full base salary,
         and accrued vacation and personal holidays through the Date of
         Termination at the highest rate in effect at any time during the 12
         months immediately preceding the occurrence of the circumstances giving
         rise to the Notice of Termination given in respect thereof;

                           (ii) in lieu of any further salary payments to you
         for periods subsequent to the Date of Termination, the Company shall
         pay as severance pay to you, not later than the fifth day following the
         Date of Termination, a lump sum severance payment equal to two times
         the sum of (A) your annual base salary (including, without limitation,
         any portion you elected to defer to a plan maintained by the Company or
         otherwise) at the highest rate in effect at any time during the 12
         months immediately preceding the occurrence of the circumstances giving
         rise to the Notice of Termination given in respect thereof, and (B) the
         amount of any bonus and other incentive compensation of any kind paid
         to you (x) during the 12 months immediately preceding that in which the
         Date of Termination occurs, or (y) in calendar year 1996, whichever is
         higher;

                           (iii) in addition to the retirement benefits to which
         you are entitled under any pension or retirement plan, the Company
         shall, as directed by you, either (A) continue to designate you as an
         employee under the plan through January 1, 1998 and through such date
         make contributions to the plan based on your annual base salary at the
         highest rate in effect at any time during the 12 months immediately
         preceding the occurrence of the circumstances giving rise to the Notice
         of Termination given in respect thereof, or (B) pay to you in one sum
         in cash not later than the fifth day following the Date of Termination,
         an amount equal to the actuarial equivalent to the excess of (x) over
         (y), where (x) equals the retirement pension (determined as a straight
         life annuity) to which you would have been entitled under the terms of
         the plan (without regard to (1) any limitation on the amount used in
         the calculation of the regular pension thereunder, (2) any offset
         thereunder for severance allowances payable hereunder or (3) any
         amendment to the plan made subsequent to a Change in Control, which
         amendment adversely affects in any manner the computation of retirement
         benefits under the applicable plans), determined as if you were fully
         vested thereunder and had accumulated (after any termination pursuant
         to Section 3) two additional years of continuous service thereunder at
         your highest rate of earnings (as defined in the plan) during the year
         immediately 


                                       6
<PAGE>   7
         preceding the occurrence of the circumstances giving rise to the Notice
         of Termination given in respect thereof; and where (y) equals the
         retirement pension (determined as a straight life annuity) to which you
         are entitled pursuant to the provisions of such plans; and to the
         extent pension and retirement benefits with respect to prior service is
         not vested, the amount to be so paid shall be increased by an amount
         equal to the current actuarial value such benefits would have if they
         were vested; and for purposes of this Section 4(c)(iii), "actuarial
         equivalent" shall be determined using the same methods and assumptions
         utilized under the Company's retirement plans and programs immediately
         prior to the Change in Control;

                           (iv) the Company will permit you, by giving notice
         within 15 days after the Date of Termination, to purchase the Company
         car assigned to you, if any, for the lower of book value or low Blue
         Book;

                           (v) the Company shall also pay to you all legal fees
         and expenses incurred by you as a result of such termination (including
         all such fees and expenses, if any, incurred in contesting or disputing
         any such termination or in seeking to obtain or enforce any right or
         benefit provided by this Agreement); and

                           (vi) unless you are terminated for Cause, the Company
         shall maintain or cause to be maintained in full force and effect, for
         your continued benefit, for a period of two years, all health and
         welfare benefit plans, including but not limited to life insurance,
         health insurance, dental insurance, executive financial planning, tax
         return preparation and executive health benefits in which you
         participated or were entitled to participate immediately prior to the
         Date of Termination, provided that your continued participation is
         possible under the general terms and provisions of such plans and
         programs. In the event that your participation in any such plan or
         program is barred, the Company shall arrange to provide you with
         benefits substantially similar to those which you are entitled to
         receive under such plans and programs. At the end of such 2-year
         period, you will be entitled to take advantage of any conversion
         privileges applicable to the benefits available under any such plans or
         programs. Benefits under this Section 4(c)(vi) all terminate if, during
         such 2-year period and at your sole option, you become employed on a
         full-time basis.

                  (d) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Section 4 be reduced by
any compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.

                  5. Employment. Subject to your rights under Section 3(d), you
agree to remain in the employ of the Company until the earlier of (i) December
31, 1997 or (ii) six (6) months after the occurrence of a Change in Control
described in Section 2(v), 2(vi) or 2(vii).


                                       7
<PAGE>   8
                  6. Successors; Binding Agreement.

                  (a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to the Company, by
agreement in form and substance satisfactory to you, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. (Notwithstanding the foregoing, if the succession constitutes a Change in
Control, then the provisions hereof applicable in the event of a Change in
Control shall apply with respect to the succession). Failure of the Company to
obtain such agreement prior to the effectiveness of any succession shall be a
breach of this Agreement and shall entitle you to compensation from the Company
in the amount and on the same terms as you would be entitled hereunder if you
terminated your employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 6 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law, or otherwise.

                  (b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributes, devisees and legatees. If you
should die while any amount would be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.

                  7. Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
Registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.

                  8. Miscellaneous. No provision of this Agreement may be
modified waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by you and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the time or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this Agreement. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of California.


                                       8
<PAGE>   9
                  9. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

                  10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

                  11. Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
San Francisco, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.

                  If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the enclosed copy
of this letter which will then constitute our agreement on this subject.

                                            Sincerely yours,


                                            /s/ John C. Harris
                                            John C. Harris
                                            Chairman of the Board of Directors

Agreed to as of the date hereof:


/s/ F. Jack Liebau
------------------------------
F. Jack Liebau


                                       9