UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2003.                                                
|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)                                                           |  | 98-0208374(I.R.S. Employer Identification Number)
|-------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------
|337 Magna Drive
Aurora, Ontario, Canada(Address of Principal Executive Offices)                                                  |  | L4G 7K1(Zip Code)                                
|Registrant's telephone number, including area code:(905) 726-2462Securities registered pursuant to Section 12(b) of the Act:None
|Securities registered pursuant to Section 12(g) of the Act:                                                                     
|Class A Subordinate Voting Stock(Title of class)                                                                                

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes 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. ý

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



---

As of June 30, 2003, the aggregate market value of the Class A Subordinate Voting Stock held by non-affiliates of the registrant was
approximately $196,262,190 (based on the closing sale price of $5.00 per share of Class A Subordinate Voting Stock reported on The Nasdaq National Market on June 30, 2003, the last day
of the registrant's most recently completed second quarter). As of June 30, 2003, 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 10, 2004 was 48,878,796.

The
number of shares of Class B Stock of the registrant outstanding as of March 10, 2004 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 ("SEC") pursuant to
Regulation 14A within 120 days after the registrant's fiscal year end of December 31, 2003 are incorporated by reference in Part II, Item 5 and Part III of
this Annual Report to the extent stated herein. The section entitled "Description of Debt Securities" in the prospectus included in the registrant's registration statement on
Form S-3 (File number 333-107368), filed with the SEC on July 25, 2003 (and as amended on Form S-3/A on September 26 and
September 30, 2003), is incorporated by reference into Part II, Item 5 of this Annual Report. Except with respect to information specifically incorporated by reference in this
Annual Report, the documents incorporated by reference are not deemed to be filed as part hereof.

2

---



INDEX

|              |  |                                                                                                |  | Page
|------------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART 1        |  | 4                                                                                             
|Item 1.       |  | Business                                                                                       |  | 4   
|Item 2.       |  | Properties                                                                                     |  | 47  
|Item 3.       |  | Legal Proceedings                                                                              |  | 47  
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                            |  | 47  
|PART II       |  |                                                                                               
|Item 5.       |  | Market for Registrant's Common Equity and Other Stockholder Matters                            |  | 48  
|Item 6.       |  | Selected Financial Data                                                                        |  | 49  
|Item 7.       |  | Management's Discussion and Analysis of Results of Operations and Financial Position           |  | 51  
|Item 7A.      |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  | 70  
|Item 8.       |  | Financial Statements and Supplementary Data                                                    |  | 71  
|Item 9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 109 
|PART III      |  |                                                                                               
|Item 10.      |  | Directors and Executive Officers of the Registrant                                             |  | 109 
|Item 11.      |  | Executive Compensation                                                                         |  | 109 
|Item 12.      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 109 
|Item 13.      |  | Certain Relationships and Related Transactions                                                 |  | 109 
|Item 14.      |  | Disclosure Controls and Procedures                                                             |  | 110 
|PART IV       |  |                                                                                               
|Item 15.      |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 110 
|SIGNATURES    |  |                                                                                               
|EXHIBIT INDEX |  |                                                                                               

3

---



Part I

Item 1. Business

Available Information

The registrant maintains a website that contains information about the registrant, none of which is incorporated by reference in, or shall be deemed included in,
this Annual Report. It is accessible atwww.magnaentertainment.com. Through the registrant's website, stockholders and the general public may access
free of charge (other than any connection charges from internet service providers) filings the registrant makes with the SEC as soon as reasonably practicable after filing. Filing accessibility in
this manner includes this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
and amendments to these reports filed with or furnished to the SEC.

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

Special Note Regarding Forward-Looking Information

This Annual Report, including "Management's Discussion and Analysis of Results of Operations and Financial Position" in Item 7, contains "forward-looking
statements" within the meaning of applicable securities legislation, including the
Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among others, statements regarding: expectations as to operational improvements; expectations as to cost
savings, revenue growth and earnings; the time by which certain objectives will be achieved; estimates of costs relating to environmental remediation and restoration; proposed new racetracks or other
developments, products and services; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a
material adverse effect on our consolidated financial position, operating results, prospects or liquidity; projections, predictions, expectations, estimates or forecasts as to our financial and
operating results and future economic performance; and other matters that are not historical facts.

Forward-looking
statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or the times at or by which such
performance or results will be achieved. Forward-looking statements are based on information available at the time and/or management's good faith belief with respect to future events, and are subject
to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.

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

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

Incorporation and Corporate Structure

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

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

4

---

OUR BUSINESS

We are North America's number one owner and operator of horse racetracks, based on revenues, and one of the world's leading suppliers, via simulcasting, of live
racing content to the growing inter-track, off-track and account wagering markets. We currently operate or manage twelve thoroughbred racetracks, two standardbred (harness racing)
racetracks, one racetrack which runs both thoroughbred and standardbred meets and one greyhound racetrack, as well as the simulcast wagering venues at these tracks. In addition, we operate
off-track betting ("OTB") facilities and a national account wagering business known as XpressBet, 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. We also own and operate HorseRacing TV, a television network focused
on horse racing that we initially launched on the Racetrack Television Network ("RTN") in July 2002. HorseRacing TV is currently carried on cable systems in ten states, with
approximately 1.4 million subscribers. We are in ongoing discussions with cable and satellite operators with the goal of achieving broader distribution for HorseRacing TV. RTN, in
which we have a one-third interest, was formed to telecast races from our racetracks and other racetracks, via private direct-to-home satellite, to paying
subscribers. On August 22, 2003, we acquired a 30% equity interest in AmTote International, Inc., a provider of totalisator services to the pari-mutuel industry. We also own
and operate production facilities in Austria and North Carolina for Streufex, a straw-based horse bedding product. We own a significant real estate portfolio which includes two golf
courses and related recreational facilities as well as three residential developments in various stages of development in Austria, the United States and Canada. For the year ended
December 31, 2003, our operations generated consolidated revenues of $708.9 million.

We
have recently developed RaceON TV, a new service based near Vienna, Austria that produces and broadcasts simultaneous televised coverage of North American horse races and
other racing content directly to racetracks and off-track wagering operations outside of North America. RaceON TV commenced operations during the first quarter of 2004.

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

Since
December 1998, we have acquired seven large racetrack operations in North America: Santa Anita Park near Los Angeles, Gulfstream Park near Miami, Golden Gate Fields and Bay
Meadows near San Francisco, Lone Star Park at Grand Prairie near Dallas, and The Maryland Jockey Club, which operates Laurel Park, 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 The Meadows near
Pittsburgh, Thistledown near Cleveland, Remington Park in Oklahoma City, Great Lakes Downs in Muskegon, Michigan, Portland Meadows near Portland, Oregon, Multnomah Greyhound Park also near Portland,
Oregon and Flamboro Downs near Toronto. We own all the land on which these racetracks are located, with the exception of Bay Meadows, Lone Star Park at Grand Prairie, Remington Park, Portland Meadows
(in which we own a minority interest in the land) and Multnomah Greyhound Park where we lease the land from third parties. These acquisitions have enabled us to secure the ownership rights to what we
believe is some of the highest quality and most popular live horse racing content in North America, based on standard industry measures, such as total handle, average daily attendance and average
daily wagering, both on and off-track. We believe that the aggregation of this high-quality content, combined with a strong branding strategy and the introduction of new media
distribution technologies, will enhance the distribution of our content and help us develop new sources of revenues. We intend to continue to acquire strategic racetracks and other related assets on a
selective basis.

5

---

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

In
2002, we purchased FEX ÖKO Faserverarbeitungs-GMBH ("FOF"), an Austrian company which manufactures and sells Streufex, a straw-based horse
bedding product. With the purchase of FOF, we acquired a Streufex manufacturing plant in Neusied/Zaya, Austria. During the first quarter of 2004, we introduced Streufex to
the North American market. In 2003, we purchased property in Lumberton, North Carolina on which we have built a Streufex manufacturing facility. The Lumberton facility commenced
operations in the first quarter of 2004.

We
have almost completed development of a horse racetrack and gaming facility near Vienna, Austria, called Magna Racino, which is scheduled to commence operation of its
first live race meet in April 2004. We have also applied for horse racing licenses in certain other jurisdictions, including the Detroit, Michigan area where we have plans to develop a new
racetrack, subject to regulatory and other approvals. In October 2003, a subsidiary of MI Developments Inc., our parent company, purchased vacant land in Romulus, Michigan which may
serve as the site of the proposed racetrack. We are currently discussing terms of a potential long-term lease of such land with MI Developments Inc. In addition, we are actively
seeking a developer or strategic partner for the development of leisure and entertainment or retail-based real estate projects on the excess land surrounding, or adjacent to, certain of our premier
racetracks.

Initiatives
related to the passage of legislation permitting alternative gaming at racetracks, such as slot machines, video lottery terminals ("VLTs") and other forms of
non-pari-mutuel gaming, are currently underway in a number of states in which we operate, including Maryland, Michigan and Pennsylvania. Legislation passed by the Oklahoma
Senate and House of Representatives in February 2004, and signed by the Governor of Oklahoma on March 8, 2004, provides for alternative gaming at racetracks in that state. Please see
" Our Properties  Remington Park". The enactment of alternative gaming legislation in any jurisdiction can be a long process. Please
see " Risk Factors  The passage of legislation permitting alternative gaming at racetracks, such as slot machines, VLTs and other forms
of non-pari-mutuel gaming, can be a long and uncertain process. A decision to 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."

The
lease of our Bay Meadows property has been renewed on a year-to-year basis for the last two years and is scheduled to expire on December 31, 2004. At
this time, we are uncertain as to the likelihood of further renewals of the Bay Meadows lease or the terms upon which such renewals may be achieved. If this lease is not renewed on comparable terms or
at all, or we cannot arrange an alternative venue, our operating results would be materially adversely affected. We are exploring alternative venues, including vacant land that we purchased in Dixon,
California for future development, to conduct the racing dates currently held at Bay Meadows after the expiry of the lease term, including any further renewals. In October 2003, we held "Town
Hall" meetings with the residents of the City of Dixon to review the proposed development, in stages, of "Dixon Downs", a thoroughbred racetrack with an associated retail shopping and entertainment
complex. This project, which is still in the early stages of planning, is subject to regulatory and other approvals.

We
currently have substantial real estate holdings in excess of that needed to support our racetrack operations in the United States, Canada and Austria. This real estate consists
of vacant industrial lands, golf courses, residential housing developments, excess land around several of our racetracks and other real estate. We are continually re-evaluating each of
these holdings in relation to our core business activities. We will, from time to time, sell or otherwise monetize some or all of these real estate holdings in order to fund the growth of our core
racetrack operations and related businesses.

6

---

Please
see our financial statements beginning on page 73 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 program. We intend to grow and develop our business further
by:

Continuing to Integrate our Acquisitions by Employing "Best Practice" Improvements at our Racetracks

Through our acquisitions, we own some of the largest and what we believe to be some of the highest-quality thoroughbred racetracks in North America, as measured
in terms of total handle, average daily attendance and average daily wagering, both on and off-track. We believe that the increased scale and integration of our racetrack operations and
related wagering operations will afford us the opportunity to both grow our revenues and achieve significant operational synergies through the implementation of best practices, cost reductions
realized from economies of scale and increased efficiencies. In the fourth quarter of 2003, we established a "Continuous Improvement Team" to review our racetrack operations and make recommendations.
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.

Expanding the Distribution of our Live Racing

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

Further Developing an Integrated Branding and Marketing Strategy

We intend to combine our racing content, and possibly the racing content from racetracks not owned by us, and market this content under our brand name. We believe
that aggregating this content offers pari-mutuel wagering venues that import our content greater convenience and lower operating costs, while offering customers at their facilities access
to more racing content, including signals, that the venue operators may not have purchased as stand-alone products. We believe that packaging our product this way will increase the exposure of our
smaller racetracks. In furtherance of this strategy, we piloted RaceON TV in Europe during the fourth quarter of 2003 to provide North American racing content from our tracks and other
U.S. racetracks that have agreed to become part of our international distribution network to locations outside North America. This new business unit launched in the first quarter of 2004.

Improving the Quality of the Entertainment Experience at our Racetracks

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

7

---

Obtaining Broader Distribution of HorseRacing TV

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 ten states, as well as on RTN. In an effort to broaden the audience, reach and appeal of horse racing and wagering thereon, we are pursuing carriage
agreements with other cable and satellite operators to achieve expanded distribution of HorseRacing TV in North America.

Selectively Acquiring and Developing Additional Strategic Racetracks and Related Assets

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

Our History

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

We
were incorporated in Delaware on March 4, 1999. In November 1999, Magna International Inc. 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 10, 2004, MI Developments Inc. owns, directly or indirectly, all 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 of
our directors and to control us. Each company has its own board of directors and management team, although, we share the same 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.

8

---

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 20 years, live attendance at horse racetracks in the United States has declined substantially due to a number of factors, including
the growth in off-track wagering; increased competition from other forms of gaming and leisure entertainment; the attrition of the racing industry's traditional customer base; the lack of,
or deterioration in,
the quality of live racing events at many racetracks; and the inability of racetrack operators to broaden the appeal of wagering on horse racing. Declines in live attendance have resulted in an
overall decline in the amount of money wagered on-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 a significant increase in total industry revenues, and the creation of larger pools of wagers on horse races at
certain racetracks. This has more than offset the decline in live on-track wagering due to declining live attendance. The larger pools of wagers have produced larger purses, which have
resulted in higher-quality racing events and an increased interest in horse racing and pari-mutuel wagering. Subsequently, the financial performance of many of the premier racetracks in
the United States has improved.

The Growth in Off-track and Inter-track Wagering

Pari-mutuel wagering on thoroughbred horse racing in the United States increased from $9.6 billion in 1993 to $15.2 billion in
2003, according to The Jockey Club. This increase resulted primarily from the growth of off-track and inter-track wagering, which has grown by approximately 53% from $8.7 billion in
1996 to $13.3 billion in 2003. Simulcasting live racing events to off-track and inter-track venues has been facilitated by technological advances and the introduction of legislative
changes.

9

---

U.S. Thoroughbred Pari-Mutuel Wagering Handle (in Billions)

|                 |  | 1993 |       | 1994 |   | 1995  |  | 1996 |        | 1997 |   | 1998   |  | 1999 |        | 2000 |   | 2001   |  | 2002 |        | 2003
|---------------- |  | ---- | ----- | ---- | - | ----- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ----
|Total Handle     |  | $    | 9.600 |      | $ | 9.897 |  | $    | 10.429 |      | $ | 11.627 |  | $    | 12.542 |      | $ | 13.115 |  | $    | 13.724 |     
|On-Track Handle  |  |      | *     |      |   | *     |  |      | *      |      | $ | 2.944  |  | $    | 2.703  |      | $ | 2.498  |  | $    | 2.359  |     
|Off-Track Handle |  |      | *     |      |   | *     |  |      | *      |      | $ | 8.683  |  | $    | 9.839  |      | $ | 10.617 |  | $    | 11.365 |     

* Not availableSource: 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. Simulcasting provides racetracks with the opportunity to increase revenues by exporting their live racing content to as many
wagering locations as possible, such as other racetracks, OTB facilities and casinos, and by importing racing content from other racetracks.

Revenues
are increased because simulcasting provides racetracks that export their live content with additional customers in multiple locations who would not have otherwise been able to
place wagers on the live racing event. Similarly, simulcasting provides operators of wagering venues who import content from other racetracks with more product upon which their customers can place
wagers. Providers of live racing content who export their content to other venues generally charge these venues a percentage of all monies wagered on their content, while operators of
pari-mutuel wagering venues that import racing content retain a pre-determined percentage of all amounts wagered at their facility on the imported content. Because the
competition for time slots is relatively intense, the growth of simulcasting has been particularly beneficial to the operators of premier racetracks, which tend to offer higher quality racing, with
larger fields and higher purses. Conversely, operators of smaller or lesser quality racetracks have historically benefited less from export simulcasting of their content, due to a lack of demand for
their content. Part of our strategy involves efforts to broaden the distribution of, and demand for, the racing content from our smaller tracks.

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

Because
of the high quality of our thoroughbred racing content and racetrack properties, we believe we are well positioned to participate in the future growth of off-track,
inter-track and account wagering as both a leading exporter and importer of live racing content.

Our Content

Our racetracks are geographically diversified. Santa Anita Park is near Los Angeles, Gulfstream Park is near Miami, Golden Gate Fields and Bay Meadows are near
San Francisco, Lone Star Park at Grand Prairie is near Dallas, Pimlico Race Course is in Baltimore, Laurel Park is between Washington, D.C. and Baltimore, The Meadows is near Pittsburgh,
Thistledown is near Cleveland, Remington Park is in Oklahoma City, Flamboro Downs is near Toronto, Great Lakes Downs is in Muskegon, Michigan, and Portland Meadows and Multnomah Greyhound Park are in
or near Portland, Oregon. Colonial Downs, whose racing operations we manage, is in New Kent, Virginia. Maroñas, a racetrack to which we provide management services, is in
Montevideo, Uruguay. Our newest racetrack, Magna Racino, scheduled to open in April 2004, is located near Vienna, Austria.

10

---

2004 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, 2003  April 18, 2004 and September 29, 2004 
October 31, 2004                               
|Gulfstream Park                 |  | January 3, 2004  April 25, 2004                                                                           
|Golden Gate Fields              |  | December 26, 2003  April 4, 2004 and November 10, 2004  December 20, 2004                                
|Bay Meadows                     |  | April 7, 2004  June 20, 2004 and September 2, 2004 
November 7, 2004                                     
|Laurel Park                     |  | December 26, 2003  March 28, 2004, July 22, 2004  August 27, 2004 and October 6, 2004  December 31, 2004
|Lone Star Park at Grand Prairie |  | April 15, 2004  July 11, 2004 and October 1, 2004 
October 31, 2004                                      
|Pimlico Race Course             |  | March 31, 2004  June 6, 2004 and September 8, 2004  October 3, 2004                                      
|The Meadows                     |  | January 1, 2004  December 31, 2004                                                                        
|Thistledown                     |  | April 8, 2004  December 31, 2004                                                                          
|Flamboro Downs                  |  | January 1, 2004  December 31, 2004                                                                        
|Remington Park                  |  | March 20, 2004  May 31, 2004 and July 30, 2004  November 28, 2004                                        
|Portland Meadows                |  | October 15, 2003  April 25, 2004 and October 18, 2004 
December 31, 2004                                 
|Great Lakes Downs               |  | April 25, 2004  October 30, 2004                                                                          
|Multnomah Greyhound Park        |  | May 1, 2004  October 12, 2004                                                                             
|Colonial Downs*                 |  | June 11, 2004  July 20, 2004                                                                              
|Magna Racino                   |  | April 4, 2004  November 7, 2004                                                                           

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.

11

---

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
mid-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 115 racing days each year (including The Oak Tree Meet). Average daily attendance in 2003 was approximately 9,000 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 2003, approximately $1.459 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 $1.111 billion in 2003. Of this amount, approximately $920.7 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
December 1999, we completed a $45.0 million capital renovation program at Santa Anita Park, which included the development of a new 750-seat
high-end restaurant, the installation of a 2,120 square foot LED screen in the infield track area for racing customers and other upgrades to the grandstand, the track and other areas of
the facility.

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 will operate 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.

We
are considering a variety of retail-based development proposals for our excess real estate at Santa Anita Park. This development would be intended to further enhance the entertainment
experience at Santa Anita Park, broaden the demographic composition of our customer base and strengthen the loyalty of existing customers. These proposals are preliminary. If, after a detailed review,
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.

Gulfstream Park

Gulfstream Park is located on approximately 255 acres of land in the cities of Hallandale and Aventura, between Miami and Ft. Lauderdale in Florida. There are
approximately 4.3 million people living within a 40-mile radius of Gulfstream Park.

12

---

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. Average daily attendance in 2003 was approximately 8,500 customers per live racing day.

Gulfstream
Park had one of the highest total handles of all North American racetracks in 2003, approximately $861.7 million, including wagers made at Gulfstream Park on its races,
wagers made at other wagering venues and through various account wagering operations on Gulfstream Park's races, and wagers made at Gulfstream Park on races imported to its inter-track facilities.
Wagers on Gulfstream Park's races (including all venues at which wagers were placed) totaled approximately $759.4 million in 2003. Of this amount, approximately $671.4 million in wagers
were placed at other wagering venues to which we exported Gulfstream Park's races via simulcast and through various account wagering operations. Gulfstream Park exports its simulcast signal to
approximately 1,000 off-track and inter-track wagering facilities in the United States, Canada, Mexico and the Caribbean.

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

Although
we are still considering a major redevelopment of Gulfstream Park, we have deferred a decision on the project at the present time. Should we proceed as contemplated, the
redevelopment would include a simulcast pavilion, a sports and entertainment arena, and a new turf club and grandstand. In addition, there would be significant modifications and enhancements to the
racetracks and stable areas. If completed, the Gulfstream Park redevelopment would require the demolition of a substantial portion of the current buildings and related structures, which include the
grandstand and turf club. Please see " Risk Factors  If we decide to proceed with redevelopment projects at some of our racetracks, we
may need to write down the value of certain assets."

Golden Gate Fields

Golden Gate Fields is located on approximately 165 acres of land in the cities of Albany and Berkeley, California, approximately eight miles from Oakland and
approximately 11 miles from San Francisco. There are approximately 5.2 million people within a 40-mile radius of Golden Gate Fields. In December 2003, we closed the sale of
approximately 16 acres of excess real estate located at Golden Gate Fields. The land, located on the Berkeley site of the property, was sold to the East Bay Regional Park District (see
" Our Real Estate Portfolio").

Golden
Gate Fields' racing season of approximately 106 racing days complements the Bay Meadows racing schedule. The season runs after the close of Bay Meadows' racing season in the fall
through the first week of April, when Bay Meadows opens again. From the end of December through to the close of the season, Golden Gate Fields operates simultaneously with Santa Anita Park. Average
daily attendance in 2003 was approximately 2,400 customers per live racing day.

13

---

Golden
Gate Fields had one of the highest total handles of all North American racetracks in 2003, approximately $533.6 million, including wagers made at Golden Gate Fields on its
races, wagers made at other wagering venues and through various account wagering operations on Golden Gate Fields' races (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 $317.7 million in 2003. Of this amount, approximately $287.2 million in wagers were placed at other wagering venues to which we exported Golden Gate Fields' races via
simulcast and through various account wagering operations. Golden Gate Fields exports its simulcast signal to approximately 900 off-track and inter-track wagering facilities in the
United States, Canada, Mexico and the Caribbean. Throughout the year, Golden Gate Fields operates as an inter-track wagering facility where customers can wager on races that are imported to
Golden Gate Fields from other racetracks.

Golden
Gate Fields' facilities include a one-mile main track and a 9/10-mile turf course, stalls for over 1,325 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.

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.

Bay Meadows

Bay Meadows is situated on approximately 90 acres of land in San Mateo, California, between San Francisco and San Jose. There are approximately 5.7 million
people living within a 40-mile radius of Bay Meadows.

The
racing season at Bay Meadows is divided into a spring meet, which runs approximately 55 days between early April and mid-June, and a fall meet, which runs
approximately 50 days between late August and early November. This schedule complements the racing schedule of Golden Gate Fields, which is located approximately 30 miles from Bay Meadows.
Average daily attendance in 2003 was approximately 3,300 customers per live racing day. In addition, we sub-lease Bay Meadows to the San Mateo County Exposition and Fair Association, which
hosts The San Mateo County Fair Meet for two weeks during the summer.

Bay
Meadows had one of the highest total handles of all North American racetracks in 2003, approximately $508.3 million, including wagers made at Bay Meadows on its races, wagers
made at other wagering venues and through various account wagering operations on Bay Meadows' races (excluding wagers placed in Southern California and via account wagering systems licensed to operate
in California), and wagers made at Bay Meadows and its inter-track facilities on imported races. Wagers on Bay Meadows' races totaled approximately $264.8 million in 2003. Of this amount,
approximately $232.5 million in wagers were placed at other wagering venues to which we exported Bay Meadows' races via simulcast and through various account wagering operations. Bay Meadows
exports its simulcast signal to approximately 900 off-track and inter-track wagering facilities in the United States, Canada, Mexico and the Caribbean. Throughout the year, Bay
Meadows operates as an inter-track wagering facility where customers can wager on races that are imported to Bay Meadows from other racetracks.

The
facilities at Bay Meadows include a grandstand with seating for approximately 8,000 customers (including the clubhouse and turf club), a one-mile oval track with
11/4-mile and 3/4-mile chutes, a 7/8-mile turf course and stalls for approximately 900 horses with auxiliary stabling
available at Golden Gate Fields.

The
Bay Meadows property is operated under a lease that has been renewed on a year-to-year basis for the last two years and is scheduled to expire on
December 31, 2004. We are exploring various alternative venues, including vacant land which we purchased in Dixon, California, to conduct the racing dates currently held at Bay Meadows after
the expiry of the lease term (including any further extensions).

14

---

Laurel Park

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

Laurel
Park's racing season of approximately 142 racing days complements the Pimlico racing schedule. Live thoroughbred racing is conducted at Laurel Park from the end of Pimlico's fall
meet in early October to the end of March, when Pimlico opens for its spring meet. Racing then resumes at Laurel Park in late July for a four-week summer meet. Average daily attendance at
Laurel Park in 2003 was approximately 3,300 customers per live racing day.

Laurel
Park's handle was approximately $470.0 million in 2003, 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 $287.6 million in 2003. Of this amount,
approximately $261.3 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 11/8-mile dirt track with a seven-furlong chute, a
one-mile turf course, stalls for approximately 1,000 horses and parking facilities sufficient to accommodate approximately 8,000 cars.

We
are considering a redevelopment of the entire stable area and racetrack surfaces at Laurel Park (the "Laurel Park Redevelopment"). In the event this project were to proceed as
currently contemplated, the Laurel Park Redevelopment would include the construction of new barns, dormitories and grooms' quarters, along with the development of new dirt and turf tracks. Please see
" Risk Factors  If we decide to proceed with redevelopment projects at any of our racetracks, we may need to write down the value of
certain assets and will likely suffer a temporary disruption of our racing operations." We are subject to an agreement with the Maryland Racing Commission that obligates us to incur capital
expenditures and make renovations at Laurel Park, Pimlico and/or the Bowie Training Center. Please see " Government Regulation".

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; however, it will be superseded in 2004 by a special thoroughbred meet. Average daily attendance during the 2003 thoroughbred and quarter horse meets were approximately 8,600 and 4,000
customers per live racing day, respectively. In addition to its live racing facilities, Lone Star Park contains a state-of-the-art 36,000 square foot simulcast
pavilion, which operates year-round.

15

---

Lone
Star Park had total handle during 2003 of approximately $375.0 million, which includes wagers made at Lone Star Park on its races, wagers made on Lone Star Park races at
other wagering venues and through various account wagering operations, and wagers made at Lone Star Park on races imported to its inter-track facility. Wagers on Lone Star Park's races (both
thoroughbred and quarter horse) totaled approximately $200.2 million in 2003. Of this amount, approximately
$155.1 million in wagers were placed at other wagering venues to which we exported Lone Star Park's signal and through various account wagering operations.

Lone
Star Park's facilities include a grandstand with seating for approximately 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 2,110 customers.

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

Lone
Star Park is operated pursuant to a lease with a governmental entity associated with the City of Grand Prairie. The lease expires in 2027, at which time we will have an option to
purchase the Lone Star Park property at a purchase price equal to one-half of its then fair market value. Pursuant to the lease 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 15, 2004, will mark the 129th 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 consists of approximately 71 racing days divided into a 10 week spring meet between early April and mid-June and a month-long
fall meet in September. The spring meet features 10 graded stakes races, including the middle jewel of thoroughbred racing's Triple Crown, the Preakness Stakes®, which is run annually on
the third Saturday of May. Average daily attendance in 2003 was approximately 4,600 customers per live racing day.

Pimlico's
handle was approximately $350.6 million in 2003, 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 $207.7 million in 2003. Of this amount, approximately
$190.8 million in wagers were placed at other wagering venues to which its signal was exported via simulcast and through various account wagering operations.

16

---

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.

We
are subject to an agreement with the Maryland Racing Commission that obligates us to incur capital expenditures and make renovations at Laurel Park, Pimlico and/or the Bowie Training
Center. Please see " Government Regulation".

The Meadows

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

The
Meadows first opened in 1963 and has a year-round racing schedule encompassing approximately 210 live racing days. As part of this acquisition, we also acquired four OTB
facilities in the greater Pittsburgh area, located in New Castle, Harmar Township, Moon Township and West Mifflin.

The
Meadows' facilities include a grandstand with seating for approximately 5,000 customers, a 5/8-mile harness track, stalls for approximately 990 horses and
parking facilities to accommodate approximately 3,000 cars. The four OTB facilities acquired with The Meadows each contain a restaurant and bar and offer wagering on simulcast races from racetracks
across the country.

The
Meadows and its associated OTB facilities generated approximately $240.2 million in handle in 2003, including wagers made at The Meadows on its races, wagers made at other
wagering venues and through various account wagering operations on The Meadows' races, wagers made at The Meadows on races imported to its inter-track facilities and wagers made at The Meadows'
associated OTB facilities. Wagers on The Meadows' races (including all venues at which the wagers were placed) totaled approximately $102.8 million in 2003. Of this amount, approximately
$94.6 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.

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 188 racing days between March and December. Thistledown hosts
the Summit, Thistledown, Randall and Cranwood meets. Annually, Thistledown hosts the Ohio Derby, which is the premier graded stakes race in Ohio.

Thistledown's
handle was approximately $224.8 million in 2003, 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 $130.8 million in 2003. Of this amount, approximately $104.6 million in wagers were placed at other wagering venues to which we exported Thistledown's races
via simulcast and through various account wagering operations. Thistledown exports its simulcast signal to as many as 500 off-track and inter-track wagering facilities in the
United States. 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.

17

---

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

Flamboro Downs

We acquired Flamboro Downs racetrack, our second standardbred track, through the acquisition of Flamboro Downs Holdings Limited in April 2003. Flamboro
Downs is located in the greater Hamilton area, approximately 40 miles outside Toronto, on approximately 235 acres of land. There are approximately 3.5 million people living within a
40-mile radius of Flamboro Downs.

Flamboro
Downs first opened in April 1975, and is a year-round harness racing facility. Flamboro schedules approximately 260 live racing days per year, and is open
365 days of the year offering live harness racing, simulcasting on both thoroughbred and harness racing. As part of this acquisition, we also acquired seven OTB operations in the greater
Hamilton, Burlington, Brantford and Stoney Creek area. An eighth OTB operation was opened subsequent to the acquisition date.

The
Flamboro Downs facility includes a grandstand with seating for approximately 2,400 people, the Top O' The Turn dining room (300 capacity), the Pavilion restaurant which seats
approximately 220, parking for approximately 2,500 vehicles, a 1/2-mile racing track, a 1/2-mile training track and stalls for approximately 630 horses
contained in eight barns. All eight OTB operations are housed within sports bars and entertainment facilities operated by third parties that offer food and beverage service.

Flamboro
Downs and its associated OTB facilities generated approximately $101.5 million in handle in 2003, including wagers made at Flamboro Downs on its live races, wagers made
at other wagering venues and through various account wagering operations on Flamboro Downs live races, wagers made at Flamboro Downs on races imported to its inter-track facilities and wagers made at
Flamboro Downs associated OTB facilities. Wagers on Flamboro Downs races (including all venues at which the wagers were placed) totaled approximately $65.5 million in 2003. Of this amount,
approximately $58.7 million in wagers were placed at other wagering venues to which we exported Flamboro Downs' live races via simulcast and through various account wagering operations.
Flamboro Downs exports its simulcast signal to approximately 210 off-track and inter-track wagering facilities in Canada and the United States. Flamboro Downs racetrack also
operates as an inter-track wagering facility where customers can wager on races that are imported to Flamboro Downs from other racetracks.

Flamboro
Downs houses a gaming facility with 750 VLTs owned and operated by the Ontario Lottery and Gaming Corporation ("OLGC"). Pursuant to a prescribed lottery scheme site holder
facilities agreement with the OLGC, Flamboro Downs retains 20% of the "net win" (VLT revenue minus payouts to VLT players), with one-half of that amount distributed to the horsemen's
purses and the other half retained by the racetrack. The agreement with the OLGC has a five-year term that expires in October 2005. The agreement contemplates that it will be
automatically renewed for an additional five years, unless terminated by the OLGC for material breach. Following the first renewal period, the OLGC may elect to renew the agreement for a second
five-year extension. Following the initial term, the OLGC may terminate the agreement at any time (and without payment to Flamboro Downs) on 270 days' notice. There can be no
assurance as to how long the arrangement with the OLGC will continue, or, if it does, whether the terms will remain the same.

18

---

Remington Park

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

In
2003, the racing schedule consisted of one meet totaling 82 days of live racing days, which included a 12 day quarter horse meet, a 13 day mixed quarter horse and
thoroughbred meet and a 57 day thoroughbred meet. The meet ran from June 27 through November 30. For 2004, Remington Park has been approved for 93 days of live racing,
consisting of 28 days of quarter horse racing and a 65 day thoroughbred meet.

Remington
Park's handle was approximately $97.1 million in 2003, including wagers made at Remington Park on its races, wagers made at other wagering venues and through various
account wagering operations on Remington Park's races, and wagers made at Remington Park on races imported to its inter-track and associated OTB facilities. Wagers on Remington Park's races (including
all venues at which wagers were placed) totaled approximately $26.1 million in 2003. Of this amount, approximately $19.4 million in wagers were placed at other wagering venues to which
we exported Remington Park's races via simulcast and through various account wagering operations. Remington Park exports its simulcast signal to approximately 275 off-track and inter-track
wagering facilities in the United States. Throughout the year, Remington Park operates as an inter-track wagering facility where customers can wager on races that are imported to Remington Park
from other racetracks.

Remington
Park's facilities include a grandstand with seating for approximately 20,000 customers, 21 luxury suites for corporate and group events, a one-mile dirt track, a
7/8-mile turf course, stalls for approximately 1,300 horses, lighting to permit night racing and parking facilities sufficient to accommodate approximately 8,000 cars.

The
property on which Remington Park is located is leased from the Oklahoma Zoological Trust pursuant to a lease which extends through 2013, with options to renew until 2063 in
ten-year increments.

On
February 26, 2004, the Oklahoma House of Representatives passed Senate Bill 553, entitled the "State-Tribal Gaming Regulation Act." This legislation was passed by the Oklahoma
Senate on February 19, 2004 and signed by Oklahoma Governor Brad Henry on March 8, 2004. The legislation is anticipated to become effective 90 days after the end of the
current legislative session, which is scheduled to end on May 28, 2004. It provides for a model tribal-state gaming compact
for the conduct of specified types of gaming and, following enactment into law and the ratification of that model compact by at least four Oklahoma Native American tribes, authorizes electronic gaming
operations to be conducted at the three privately-owned Oklahoma racetracks and directs a share of gaming revenues from Tulsa area tribes to the publicly-owned fourth track. Remington Park would be
permitted to conduct alternative gaming through the operation of 650 player terminals under the new legislation, subject to the satisfaction of regulatory requirements, including the issuance of
applicable gaming licenses.

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 86 live racing days between October and April.

19

---

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 $54.3 million in handle during its 2003 race meet, including wagers made at Portland Meadows on its races, wagers made at other wagering
venues and through various account wagering operations on Portland Meadows' races and wagers on imported races at Portland Meadows and OTB facilities within the State of Oregon during Portland
Meadows' live meet. Wagers on Portland Meadows' races (including all venues at which the wagers were placed) totaled approximately $19.1 million in 2003. Of this amount, approximately
$16.1 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 150 off-track and inter-track wagering facilities in the United States and Canada. Throughout the year, Portland Meadows operates as an
inter-track wagering facility where customers can wager on races that are imported to Portland Meadows from other racetracks.

Prior
to June 2003, MEC operated Portland Meadows pursuant to a short-term sublease whose term ran until May 15, 2005. In June 2003, we purchased the
rights to the master lease for the Portland Meadows property. Pursuant to the master lease, we have the right, subject to the satisfaction of certain conditions, to operate racing at Portland Meadows
on a long-term basis. In addition to purchasing the rights to the master lease, we purchased 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 118 live racing days beginning in April and ending in October of each year.

Great
Lakes Downs' handle was approximately $52.5 million in 2003, 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 $39.4 million in 2003. Of this amount, approximately $36.0 million in wages were placed at other wagering venues to which we exported Great Lakes Downs'
races via simulcast and through various account wagering operations. Great Lakes Downs exports its simulcast signal to approximately 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.

In
December 2003, we entered into an agreement with Richmond Racing Co., LLC ("Richmond") to sell the real property and buildings of Great Lakes Downs to Richmond
for approximately $4.2 million and then lease them back in order to continue to run the race meet and operate the facility. The closing of the sale and leaseback is subject to a number of
outstanding conditions, including approval by The Office of Racing Commissioner (Michigan) to transfer the Great Lakes Downs racetrack license to Richmond. See also " Recent
Developments  Transfer of Great Lakes Downs".

20

---

Multnomah Greyhound Park

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

Multnomah
Greyhound Park first opened in 1933 and offers approximately 119 live racing days beginning in May and ending in mid-October of each year.

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

Multnomah
Greyhound Park generated approximately $40.6 million in handle in 2003, including wagers made at Multnomah Greyhound Park on its races, wagers made at other wagering
venues and through various account wagering operations on Multnomah Greyhound Park's races, and wagers made on imported races at Multnomah Greyhound Park and OTB facilities within the State of Oregon
during Multnomah Greyhound Park's live meet. Wagers on Multnomah Greyhound Park's races (including all venues at which the wagers were placed) totaled approximately $12.1 million in 2003. Of
this amount, approximately $5.4 million in wagers were placed at other wagering venues to which we exported Multnomah Greyhound Park's races via simulcast and through various account wagering
operations. Multnomah Greyhound Park exports its simulcast signal to approximately 110 off-track and inter-track wagering facilities in the United States, Canada and the Virgin
Islands. Throughout the year, Multnomah Greyhound Park operates as an inter-track wagering facility where customers can wager on races that are imported to Multnomah Greyhound Park from other
racetracks.

Colonial Downs

The Maryland Jockey Club manages the racing and pari-mutuel operations of Colonial Downs and its network of four OTB facilities in Virginia. Colonial
Downs is a racetrack in New Kent, Virginia which hosted 30 days of thoroughbred racing and 28 days of standardbred racing in 2003. The thoroughbred meet at Colonial Downs runs
from mid-June to late-July, between the meets at Pimlico Race Course and Laurel Park. The standardbred meet runs from early October to late-November. The track's
signature race is the Virginia Derby, which is a 11/4-mile turf race for three-year-old horses that features a $500,000 purse.

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

The
facility currently includes a 11/8-mile dirt track, a one mile turf course, stalls for up to 1,440 horses, administrative offices, dormitories and a
viewing stand. The facility opened in November 2002 and is currently home to over 1,200 horses for Gulfstream's 2004 meet.

21

---

Construction
began in October 2003 on a 60,000 square foot compost building that is scheduled to be completed in October 2004. We also applied for and obtained a permit
from Palm Beach County to develop an equestrian estate residential development on approximately 157 acres of our property situated adjacent to the training facility, with access to the training
facility. As of December 31, 2003, we have spent approximately $75.2 million on the development of the training center and the infrastructure for the residential development, in addition
to the initial purchase price of the land.

San Luis Rey Downs

San Luis Rey Downs is a horse boarding and training center situated approximately 45 miles north of downtown San Diego. It is located on approximately 200 acres
of land and includes over 500 horse stalls, a one-mile oval dirt main track, a 3/8-mile dirt training track, an equine exercise pool, 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 utilized since 1985 as a year-round training center to support
thoroughbred racing at Pimlico Race Course and Laurel Park.

We
are subject to an agreement with the Maryland Racing Commission that obligates us to incur capital expenditures and make renovations at Laurel Park, Pimlico and/or the Bowie Training
Center. Please see " Government Regulation".

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.

XpressBet

We offer advance deposit account wagering by telephone and over the Internet through XpressBet, to customers in certain jurisdictions of the
United States, subject to legal and regulatory restrictions. See " Government Regulations". Operators of advance deposit account wagering businesses may establish a
hub in one of the states 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 by 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 an automated teller, over the telephone with a touch tone recognition system or through the Internet.

XpressBet
originally operated under the trade name Call-A-Bet under The Meadows harness track license in Western Pennsylvania.
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. XpressBet is
currently licensed in Pennsylvania and California, where its operations are located, to receive advance deposit account wagers from residents in those states and other jurisdictions that permit
account wagering.

Wagering
through an XpressBet account is only permitted 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 and Dubai. 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.

22

---

Since
1997, XpressBet has been party to a Telecommunications Facilitation System Agreement with YouBet.com, Inc. ("YouBet"), which agreement has been amended from
time to time. Under the current agreement, YouBet customers have access to and are able to wager on our California racetrack content and XpressBet shares the net revenue with YouBet.
Until August 2001, YouBet offered only the XpressBet (then Call-A-Bet) system, however, YouBet now offers its own interactive wagering system.

The
primary source of revenue for XpressBet is the takeout on the handle wagered by its customers through advance deposit 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, 2003, total handle wagered through XpressBet was
$128.1 million.

Sunshine Millions

On January 25, 2003, we launched 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.

On
January 24, 2004, Santa Anita Park and Gulfstream Park jointly hosted the 2004 edition of the Sunshine Millions. This event, which generated increases in live
attendance and on-track handle relative to appropriate comparables from the previous year, was covered on a national two-hour NBC broadcast. Overnight ratings for the
two-hour broadcast of 1.7 topped last year's 1.5 rating for a one-hour show. The 2004 edition of the Sunshine Millions also secured a 4 percent share of all
televisions in use, up from 3 percent a year ago.

On-track
handle on the 2004 Sunshine Millions increased over 2003 by 6.9% at Gulfstream and 2.6% at Santa Anita. The combined increase in on-site
handle was 4.5%, generated by a total of $8.5 million in wagering. All sources handle for Santa Anita and Gulfstream, together with on-site handle wagered through all MEC
distribution points, topped $38 million for 2004 and included an increase in account wagering handle through XpressBet of 31% over last year.

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

In July 2002, we launched HorseRacing TV, a cable and satellite 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 in a single signal produced by Santa Anita Park's award-winning television
department. HorseRacing TV has entered into agreements with certain regional cable systems to make HorseRacing TV available in ten states. As of December 31, 2003,
HorseRacing TV had approximately 1.4 million cable subscribers and was available on RTN. We are seeking to achieve broader distribution of HorseRacing TV through
additional distribution agreements with other cable and satellite television systems.

23

---

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 one-third
interest in RTN, which is independently managed by Roberts Communications Network, Inc., and we are primarily a content provider to the service.

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. NBC carried exclusive live television coverage of the 2003 and 2004 Sunshine Millions. In 2003, HDNet carried tape-delayed,
high-definition television coverage of certain horse races from Lone Star Park at Grand Prairie and is carrying live and tape-delayed, high-definition coverage of certain horse
races from Santa Anita in the spring of 2004. We continue to seek new outlets for 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.

Recent Developments

Set forth below is a summary of certain transactions and other projects that were underway in 2003, but not yet completed, and other business developments that
have occurred since January 1, 2004.

Magna Racino

In 2001, we commenced the development of a horse racetrack combined with a gaming and entertainment center in Ebreichsdorf, Austria, approximately 20 miles south
of Vienna. The site includes dirt and turf thoroughbred tracks, a standardbred track and related training facilities. Eight barns with 608 stalls and 80 apartments for grooms have been completed. The
site also features a covered grandstand that seats up to 1,000 people. Magna Racino's thoroughbred and standardbred meets will run from early April to early November, with 50 days
of racing planned annually commencing in 2004.

Magna
Racino will also offer alternative gaming, a race and sportsbook facility and entertainment venues, which are scheduled to commence operations in the fall of 2004,
subject to the finalization of our joint venture with our Austrian partner.

Pittsburgh Racetrack Development

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

Dixon Downs Development

On March 3, 2003, we filed an application for various local approvals with the City of Dixon, California relating to the phased development of a
destination entertainment and retail complex. The centerpiece of the development would be a thoroughbred horse racing track 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 environmental impact analysis of the project has been initiated and the related
studies are in the process of being prepared. We expect to complete the environmental review of the project and the negotiations with the City of Dixon regarding the terms of development by
mid-2005 and be ready to go to hearing soon thereafter. See " Our Real Estate Portfolio."

24

---

Michigan Racetrack Development

On August 29, 2002, we filed an application with The Office of Racing Commissioner (Michigan) for a license to construct a racetrack in the Greater Detroit
area. The proposed site for the new racetrack is in the City of Romulus, Michigan, on a property which is situated less than two miles from the Detroit Metropolitan Airport. This site, which was
purchased by our parent company, MI Developments Inc. in October 2003, consists of approximately 212 acres in a location less than 25 miles from the center of the business districts of
both Detroit and Ann Arbor. We are currently discussing terms of a potential long-term lease for the site with MI Developments Inc. The proposed new track would be a dual purpose
facility which could host both thoroughbred and standardbred racing. The issuance of a racetrack license is subject to the review and approval of the application by The Office of Racing Commissioner
(Michigan). The construction of the racetrack is also subject to certain regulatory approvals, including site plan application review by the City of Romulus. In December 2003, the citizens of
the City of Romulus held a referendum to determine whether they supported (i) a casino and (ii) a horse racetrack in the City of Romulus. A majority of the votes cast in the referendum
were in favor of both a casino and a horse racetrack in the City of Romulus. In January 2004, the City of Romulus city council adopted a resolution supporting, in principle, our application to
The Office of Racing Commissioner (Michigan) for a new horse racetrack in the City of Romulus.

In
December 2002, a competing application for a license to construct and operate a horse racetrack with pari-mutuel wagering was filed with The Office of Racing
Commissioner (Michigan) by a third party. The site for this competing application is located in Van Buren Township, Michigan, which is adjacent to the City of Romulus, where our proposed racetrack is
located. In February 2004, a competing application for a license to construct and operate a horse racetrack with pari-mutuel wagering in Lansing, Michigan was filed with The Office
of Racing Commissioner (Michigan) by a third party.

Transfer of Great Lakes Downs

In December 2003, we entered into an agreement with Richmond to sell the real property and buildings of Great Lakes Downs for approximately
$4.2 million and then lease them back in order to continue to operate the facility and run the race meet. The closing of the sale and leaseback is subject to a number of outstanding conditions,
including approval by The Office of Racing Commissioner (Michigan) to transfer the Great Lakes Downs racetrack license to Richmond. In January 2004 we, along with Richmond, formally requested
the transfer of the racetrack license to Richmond.

AmTote

On August 22, 2003, we completed the acquisition of a 30% equity interest in AmTote International, Inc. ("AmTote"), a provider of totalisator
services to the pari-mutuel industry. AmTote provides wagering services and equipment to horse racetracks, OTBs and other venues where pari-mutuel wagering is permitted. AmTote
currently has totalisator service contracts with approximately 70 racetracks and other wagering entities.

25

---

RaceON TV

In the fourth quarter of 2003, we piloted RaceON TV, a newly developed simulcast service targeted towards the distribution of North American racing
content from our racetracks and third party racetracks to markets outside North America, including licensed off-track betting facilities as well as racetracks located outside of North
America. RaceON TV commenced operations during the first quarter of 2004.

Magna 5 Pick 5

In January 2004, MEC 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, 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. Races from Pimlico, Bay Meadows and Lone Star Park will be added to the line-up in the Spring. While the Magna
5features races from our tracks, the national wager is offered at pari-mutuel outlets throughout the country. With the
exception of its first day, the Magna 5pool has exceeded the guaranteed minimum each time the wager has been offered.

Streufex

In August 2002, we purchased FOF, an Austrian company which manufactures and sells Streufex, a straw-based horse bedding product. During the
first quarter of 2004, we introduced Streufex to the North American market. In the third quarter of 2003, we purchased property in Lumberton, North Carolina, on which we have built a
Streufex manufacturing facility. The Lumberton facility commenced operations in the first quarter of 2004.

Competition

We face numerous sources of competition. We compete with other racetracks for customers both with respect to attendance at our racetracks and in the simulcast
markets. We also compete with other racetracks for horses, jockeys and backstretch personnel. 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 Inc., has been
in operation for a much longer period of time than we have and may have greater name recognition. We expect this competition from other racetracks to intensify as new gaming operators enter our
markets and existing competitors expand their operations and consolidate management of multiple racetracks.

We
also compete for customers with other sports, entertainment and gaming operators, including casinos and government-sponsored lotteries. We also compete with Internet and other account
wagering gaming services that allow their customers to wager on a wide variety of sporting events and Las Vegas-style casino games from home, many of which are currently operating from
off-shore locations in violation of U.S. law by accepting wagers from U.S. residents.

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

26

---

Government Regulation

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 involvement 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 and 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 also is 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 differing racetracks and wagering facilities and broadcast horse racing events to other licensed establishments.

In
Canada, pari-mutuel wagering is regulated by the Canadian Pari-Mutuel Agency, a branch of the Canadian federal government, while the conduct of horse races is
regulated by provincial racing commissions. Both regulatory authorities perform background checks on all racetrack owners before granting them licenses to conduct pari-mutuel wagering and
horse races, as applicable. Provincial horse racing commissions also have licensing and other regulatory requirements similar to those of state racing commissions described above, although solely with
respect to the conduct of horse races and not pari-mutuel wagering.

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 Harness Racing Commission, the Nevada Gaming Commission, the New Jersey Casino Control Commission, the Oregon Racing Commission, the Alcohol and Gaming Commission
of Ontario, the Canadian Pari-Mutuel Agency, and the Ontario Racing Commission. As part of this regulation, licenses to conduct live horse racing and to participate in simulcast wagering
are required, and there is no assurance that these licenses will be granted, renewed or maintained in good standing, as applicable.

In
California, the California Horse Racing Board is responsible for regulating the form of wagering, the length and conduct of meets and the distribution of the pari-mutuel
wagers within the limits set by the California legislature. The California Horse Racing Board has annually licensed one of our subsidiaries, Los Angeles Turf Club, Inc., and The Oak Tree Racing
Association to conduct racing meets at Santa Anita Park. At present, the California Horse Racing Board has not licensed other thoroughbred racetracks in Southern California to conduct racing during
these meets. However, night quarter horse racing is conducted at Los Alamitos Race Course in Southern California during portions of these meets. The California Horse Racing Board also annually
licenses the operations of Golden Gate Fields and Bay Meadows and has licensed XpressBet, Inc. to conduct account wagering operations as described 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 California Horse Racing Board that would increase the number of competitive racing days, reduce the number of racing days available to us and The Oak Tree Racing Association, authorize
other forms of wagering, grant additional licenses authorizing competitors to conduct account wagering, or remove or limit our authority to conduct account wagering in California.

27

---

In
Maryland, the Maryland Racing Commission approves annual licenses for racetracks to conduct thoroughbred and standardbred horse races. However, Maryland's racing law effectively
provides that except for Pimlico 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. We are currently subject to an agreement with the Maryland Racing
Commission that obligates us, as a condition of our racing license in Maryland, to expend at least $15 million on capital expenditures and renovations at the Laurel Park and Pimlico racetracks
and the thoroughbred training facility in Bowie, Maryland, together with their related facilities and operations, between January 1, 2003 and June 30, 2004. As a result of delays in
obtaining permits for several projects related to this commitment, only $4.5 million had been spent by December 31, 2003. In addition, we have deposited $5.5 million in an escrow
account to be applied to future capital expenditures and renovations.

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

In
Florida, the Division of Pari-Mutuel Wagering considers applications for annual licenses for thoroughbred, standardbred and quarter horse meetings. Tax laws in Florida
have historically discouraged the three Miami-area racetracks, Gulfstream Park, Hialeah Park (which no longer hosts live racing) and Calder Race Course, from applying for race days outside
of their traditional racing season, so the race days for these Miami-area racetracks did not overlap. Effective July 1, 2001, a new tax structure 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.

In
Texas, the Texas Racing Commission issues licenses to conduct pari-mutuel wagering. Once issued, a license can be suspended or revoked for a variety of reasons. Even with
a license, a racetrack operator can conduct live racing only during the time periods authorized by the Texas Racing Commission. The Texas Racing Commission has not licensed any operator of a horse or
greyhound racetrack 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.

28

---

In
Oklahoma, the Oklahoma Horse Racing Commission regulates all aspects of live horse racing with pari-mutuel wagering. The Commission considers and approves annual licenses
for thoroughbred and mixed breed (quarter horse, paint horse and Appaloosa) race meetings. Currently, there are three racetracks in Oklahoma that are licensed to offer a live race meet with
pari-mutuel wagering. A fourth license to conduct live racing with pari-mutuel wagering has been filed for a track in Claremore, Oklahoma, which is northeast of Tulsa,
Oklahoma, but action on that license application has been deferred until a later date, pending action by the Oklahoma Legislature regarding proposed alternative gaming legislation. Since it opened in
1988, Remington Park has been the only racetrack in the Oklahoma City metropolitan area licensed to conduct live horse racing and pari-mutuel wagering.

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

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, 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. More recently, seven applications for racetracks in the Pittsburgh marketplace have been filed in
the past year, consisting of two standardbred applications, four thoroughbred applications and one dual thoroughbred-standardbred application. In addition, on January 28, 2003, we filed an
application with the Pennsylvania State Horse Racing Commission for a proposed thoroughbred horse racing and pari-mutuel wagering operation to be constructed in Findlay Township, less than
three miles from the Pittsburgh International Airport. See " Recent Developments."

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 California Horse Wagering Board which
expires on January 24, 2005, while the two entities that conduct horseracing and pari-mutuel wagering at The Meadows are entitled to serve as Pennsylvania-based account wagering hub
by virtue of their annual licenses to conduct standardbred racing and pari-mutuel wagering. All three entities conduct their account wagering operations under the trade name
XpressBet. In accordance with the laws of Pennsylvania and California, XpressBet opens wagering accounts on behalf of residents from California, Pennsylvania and certain
other states and processes wagering instructions from those account holders in respect of races conducted throughout the United States and in other countries.

29

---

Laws
governing account wagering in the United States varies 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.

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

In
Ontario, horse racing and pari-mutuel wagering are regulated by two governmental agencies. The Canadian Pari-Mutuel Agency is responsible for licensing and
regulating the conduct of pari-mutuel wagering by racetracks located in Canada. The Ontario Racing Commission is responsible for regulating the non-wagering aspects of the
conduct of horse racing by racetracks located in the province of Ontario. Flamboro Downs is located in Hamilton, Ontario, and is licensed by both the Canadian Pari-Mutuel Agency and the
Ontario Racing Commission. Currently, there are three other racetracks licensed to conduct live horse racing and pari-mutuel wagering within sixty miles of Flamboro Downs: Woodbine
Racetrack and Casino (thoroughbred and standardbred), Mohawk Raceway (standardbred), and Fort Erie (thoroughbred).

Ontario
law also permits the Ontario Lottery and Gaming Corporation, or the OLGC, to conduct slot machine activities at licensed horse racetracks in Ontario. The Alcohol and Gaming
Commission of Ontario, or the AGCO, regulates all respects of the conduct of VLT operations in the province of Ontario. The OLGC conducts VLT operations at Flamboro Downs racetrack. See also
" Our Properties  Flamboro Downs".

Our Real Estate Portfolio

As of December 31, 2003, the aggregate net book values of our real estate are as follows:

|                                         |  | ($ millions)
|---------------------------------------- |  | ------------
|Revenue-Producing Racing Real Estate     |  | 529.2       
|Excess Racing Real Estate                |  | 97.2        
|Development Real Estate                  |  | 122.6       
|Revenue-Producing Non-Racing Real Estate |  | 80.6        
|Non-Core Real Estate                     |  | 9.3         
|                                         |  |             
|Total                                    |  | 838.9       
|                                         |  |             

Only
negligible gains on the sale of our non-core real estate were included in our income before income taxes for the year ended December 31, 2003, whereas such gains
amounted to $2.2 million in 2002 and $20.4 million in 2001. Although we may realize some gains from sales of our non-core real estate over the next year or so, we expect
those gains to be reduced to zero as the balance of our non-core real estate is sold. We are actively marketing and intend to continue to sell the balance of our non-core real
estate in order to provide capital to grow and enhance our racing business; accordingly, we are currently servicing, improving and seeking zoning and other approvals for some of this real estate in
order to enhance its value on sale. See " Risk Factors  Our operating income includes gains from the sale of non-core real
estate, which sales may soon cease, causing our future operating income and cash flow to decrease".

30

---



We currently have substantial holdings of excess racing real estate, revenue-producing non-racing real estate and non-core real estate in excess of that needed to
support our racetrack operations. We are continually re-evaluating each of these holdings in relation to our core business activities. We will, from time to time, sell or otherwise
monetize some or all of these real estate holdings in order to fund the growth of our core racing operations and related businesses. The aggregate net book value of these excess racing real estate
assets as of December 31, 2003 was approximately $187.1 million.

Included
in our excess racing real estate is land adjacent to several of our racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park, Laurel Park and Pimlico Race Course, totaling
approximately 314 acres. 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 the fourth quarter of 2003, we sold approximately 16 acres of excess
racing real estate located at Golden Gate Fields. The property was sold for $8.5 million. In the prior year, the property was written down to reflect this value. In the fourth quarter of 2003,
the proceeds of $8.5 million were recorded in non-wagering revenues and the cost was reflected in operating costs.

Our
development real estate includes: approximately 609 acres of land in Ebreichsdorf, Austria, located approximately 20 miles south of Vienna, Austria, on which we have almost completed
development of a horse racetrack and gaming facility. Our other development real estate, which is largely undeveloped, includes approximately 110 acres of land in Oberwaltersdorf, Austria, also
located approximately 20 miles south of Vienna; 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 435 acres of land in Ocala, Florida; approximately 157 acres of land in Palm Beach County, Florida, adjacent to our Palm Meadows training facility, which is
currently in the initial stages of development as a residential community; and approximately 21 acres of land in Aurora, Ontario, adjacent to one of our golf courses, which is currently under
development as a residential community.

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

Pursuant
to an access arrangement effective as of March 1, 1999, Magna International Inc. has paid us an annual fee of 2.5 million Euros (approximately
$3.1 million) to access the Fontana Sports golf course and related recreational facilities for Magna International Inc.-sponsored corporate and charitable events, as well as for business
development purposes. The
access fee relating to Fontana Sports was payable until March 1, 2004. Pursuant to an access agreement effective as of January 1, 2001, Magna International Inc. has also paid us
an annual fee of Cdn. $5.0 million (approximately $3.9 million) to access the Magna Golf Club. The access fee relating to the Magna Golf Club was payable until December 31, 2003.
We are continuing to explore various means of monetizing or improving the returns from Fontana Sports and the Magna Golf Club. Our objective would be to realize at least the net book values of these
properties from any sale; however, should we be unable to do so, we would consider extending the current access arrangements. To that end, there have been recent negotiations with Magna
International Inc., aimed at reaching mutually acceptable terms for the renewal of the access arrangements in respect of these golf courses. Please see
"  Risk Factors  The access agreements with Magna International Inc. relating to the use of our golf courses have
expired and this may result in a writedown of the carrying value of our golf courses." The Fontana Sports and Magna Golf Club properties are both subject to rights of first refusal in favor of Magna
International Inc. if we decide to sell either of them.

Environmental Matters

We are subject to a wide range of requirements under environmental laws and regulations relating to wastewater discharge, waste management and storage of
hazardous substances. Those requirements include United States Environmental Protection Agency and state regulations that address the impacts of manure and wastewater generated by concentrated
animal feeding operations ("CAFOs") on water quality, including, but not limited to, 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.

31

---

Portland
Meadows racetrack has obtained a National Pollutant Discharge Elimination System permit from Oregon State Environmental authorities for storm water from the backstretch,
pursuant to a number of conditions including sampling, best management practices and physical separation of the manure contact and non-contact runoff. The first phase of this separation is
to be accomplished by September 2004 and the second phase by September 2005. Engineering designs are being prepared and the preliminary estimated total cost is $500,000.

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

Negotiations
are proceeding between The Maryland Jockey Club and Maryland Environmental Authorities regarding the terms of a consent order pertaining to the implementation of measures to
contain wastewater discharges. The cost and timing of such measures have not yet been determined.

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

Employees

As of December 31, 2003, 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.

32

---

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

Risks Regarding Our Company

We are a relatively new company with a short history of racetrack operations. We must successfully integrate recent racetrack acquisitions
or our operating results may be adversely affected.

We
were incorporated approximately five years ago and acquired our first racetrack in December 1998. Accordingly, although all our racetracks have been in operation for some time,
we have a relatively short history of owning and operating racetracks. The acquisition of Santa Anita Park was completed in December 1998, the acquisition of Gulfstream Park was completed in
September 1999, the acquisition of Remington Park and Thistledown was completed in November 1999, the acquisition of Golden Gate Fields was completed in December 1999, the
acquisition of Great Lakes Downs was completed in February 2000, the acquisition of Bay Meadows was completed in November 2000, the acquisition of The Meadows was completed in
April 2001, the acquisition of Multnomah Greyhound Park was completed in October 2001, the acquisition of Lone Star Park at Grand Prairie was completed in October 2002, the
acquisition of Pimlico Race Course and Laurel Park was completed in November 2002 and the acquisition of Flamboro Downs was completed in April 2003. The Portland Meadows facility
commenced operations under our management in July 2001 and we assumed the management of the racing operations of Colonial Downs in November 2002. Maroñas, the national
racetrack of Uruguay, located in Montevideo, re-opened with our assistance in June 2003. Prior to their respective acquisitions or management agreements with us, most of these
racetracks had been operated separately under different ownership. Completing the integration of these businesses into our operations will require a significant dedication of management resources and
further expansion of our information and other operating systems.

If
we do not successfully integrate our recent acquisitions and any future acquisitions, or if this integration consumes a disproportionate amount of our management's time, then these
acquisitions may materially adversely affect our efficiency and, therefore, significantly harm our business.

We may not be able to obtain financing or may be able to obtain it only on unfavorable terms, which may affect the viability of our expansion and improvement
projects or make expansion and improvement more costly.

33

---

We
may require substantial additional financing in order to expand and improve our operations, including financing related to alternative gaming facilities, if any such opportunities are
available to us. It is possible that such financing will not be available or, if available, will not be available on terms that are favorable to us. On October 10, 2003, we amended and extended
our revolving credit facility as a $50 million senior credit facility maturing on October 8, 2004. As of March 10, 2004, we had no borrowings under this facility but had issued
letters of credit totaling $21.6 million. There can be no assurance that the amounts, terms and conditions involved in a renewal of the facility will be favorable, or that we will be able to
renew the facility at all in October 2004. If we are unable to obtain substantial additional financing on favorable terms, or at all, we may not be able to expand and improve our operations,
which could have a material adverse effect on our future profitability.

Our senior revolving credit facility imposes important restrictions on us.

Our
senior revolving credit facility, which matures on October 8, 2004, requires us to maintain a net debt to earnings before interest, taxes, depreciation and amortization ratio
not greater than 3.5 to 1, an interest coverage ratio not lower than 1.5 to 1 and a senior interest coverage ratio not lower than 2.5 to 1, each as calculated under the facility. This revolving credit
facility is secured by mortgages on our Santa Anita and Golden Gate racetracks. The credit agreement also 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 ratios and comply with these 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. In particular, it is possible that we may not be able to meet the financial covenants
under our $50.0 million senior, revolving credit facility at the quarterly reporting dates during the remaining term of the facility. Failure to comply with these restrictions may result in the
occurrence of an event of default under the senior, revolving credit facility. 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.

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

Approximately
0.2%, 9.1% and 39.5% of our earnings before interest, taxes, depreciation and amortization, before write-downs, for the years ended December 31, 2003, 2002 and 2001,
respectively, resulted from gains from non-core real estate sales. Although we may realize some gains from sales of our non-core real estate over the next year or so, we expect
those gains to be reduced to zero as the balance of our non-core real estate portfolio is sold. Additionally, our short-term and annual operating income and cash flow may be
adversely affected by decreases in non-core 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.



Six of our racetracks, Santa Anita Park, Laurel Park, Pimlico Race Course, Gulfstream Park, Lone Star Park at Grand Prairie and Golden Gate Fields
accounted for approximately 65.5% of our revenue while three of our racetracks, Santa Anita Park, Gulfstream Park and Flamboro Downs, accounted for approximately 222.3% of our earnings before
interest, taxes, depreciation and amortization, before write-downs, for the year ended December 31, 2003. 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 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.

The current lease of the Bay Meadows property expires on December 31, 2004 and may not be renewed.

The
lease of our Bay Meadows property is scheduled to expire on December 31, 2004. We are uncertain as to the likelihood of the further renewal of this lease beyond
December 31, 2004 or the terms upon which such renewal may be achieved. We are continuing to explore alternative venues, including vacant land that we purchased in Dixon, California for future
development of a thoroughbred racetrack, to conduct the racing dates currently held at Bay Meadows after the expiry of the lease term. There can be no assurance that we will be successful in obtaining
the necessary regulatory approvals to run these racing dates at another racetrack operated by us in northern California if the lease is not extended. If the Bay Meadows lease is not renewed on
comparable terms or if the lease is not renewed at all and we conduct the Bay Meadows racing dates at another of our racetracks, we may suffer a reduction in revenues and earnings, which would
materially adversely affect our operating results.

In the state of Maryland, our revenue sharing and operations agreement with the owner of Rosecroft Raceway may not be assumed by the intended purchaser of the
assets of Rosecroft Raceway, and in any event, such agreement terminates on April 30, 2004.

The
Maryland Jockey Club, the trade name for the entities that own and operate Pimlico and Laurel Park, is a party to a Cross-Breed Horseracing Revenue Sharing and Operations Agreement
(the "Maryland Revenue Sharing Agreement") with Cloverleaf Enterprises, Inc. ("Cloverleaf"), the owner of Rosecroft Raceway ("Rosecroft"), a standardbred track located in Prince George's County
in Maryland. The Maryland Revenue Sharing Agreement was effective as of January 1, 2000 and was to expire on March 31, 2004, however, an agreement has been reached to extend it for a
further 30 days on similar terms and conditions, expiring April 30, 2004.

The
Maryland Revenue Sharing Agreement provides for wagering to be conducted, both day and night, on live and simulcast thoroughbred and harness races at Pimlico, Laurel Park and
Rosecroft and the three Maryland OTBs operated by them. Under the agreement, wagering revenue from these sources is pooled and certain expenses and obligations are pooled and paid from those revenues
to generate net wagering revenue. This net wagering revenue is then distributed 80% to The Maryland Jockey Club and 20% to Rosecroft. This agreement was entered into to resolve all issues relating to
Maryland law, which prevents thoroughbred tracks in Maryland from offering live racing or accepting simulcast wagering after 6:15 p.m. without Rosecroft's consent and the federal Interstate
Horseracing Act which provides that, without the consent of The Maryland Jockey Club, Rosecroft cannot accept simulcast wagering on horse racing during the times that Pimlico or Laurel are running
live races.

It
was announced in 2003 that Centaur, Inc. ("Centaur") had entered into an agreement with Cloverleaf to purchase Rosecroft. However, in November 2003, Centaur apparently
failed to meet certain conditions of the purchase agreement and Cloverleaf solicited bids from competing purchasers for Rosecroft. In December 2003, it was announced that Northwind
Racing LLC ("Northwind") was selected as the winning bidder for Rosecroft. Subsequently, Centaur has filed suit against both Cloverleaf and Northwind seeking to complete its purchase of
Rosecroft. Furthermore, in February 2004, Northwind announced that it intended to partner with Greenwood Racing, Inc. for the purchase of Rosecroft.

In
the event of the non-assumption by the successful purchaser of Rosecroft or the expiry of the Maryland Revenue Sharing Agreement, we will be required to renegotiate an
agreement with such purchaser. Such renegotiation, or the failure to reach a new agreement, may result in a decline in the revenues of The Maryland Jockey Club which would materially adversely affect
our operating results.

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 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 of our Class A Subordinate Voting Stock by MI
Developments Inc. or by certain other of our significant stockholders under our effective 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, who is also the chairman of 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. See "  Our History".

If we do not identify, negotiate and complete a sufficient number of strategic acquisitions, we may not achieve our business plan and our growth prospects may
suffer.

Our
current business plan calls for us to continue to selectively pursue strategic acquisitions. Our future profitability will depend to some degree upon the ability of our management to
identify, complete and successfully integrate commercially viable acquisitions. If we do not do so for any reason, we may not be able to implement our business plan successfully, or grow as quickly as
we anticipate, and this could have a material adverse effect on our future profitability.



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 Gaming Operations

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.

34

---

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 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.

Our gaming activities 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 operations 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 simulcast wagering 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 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.

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

There
has been speculation, by members of the media, investment analysts and our employees and other representatives, as to the probability and potential impact of the passage of
legislation permitting alternative gaming at racetracks in various states in the United States. This has been especially prevalent over the last 16 months with the conclusion of the
mid-term elections in November 2002, and as alternative gaming at racetracks has become an issue for consideration in some states.

35

---

While
certain candidates who publicly advocated alternative gaming at racetracks were elected, there can be no assurance that alternative gaming at racetracks will become permitted in
those states, or if it does, what the timetable, conditions, terms of income or revenue sharing, or other feasibility factors will be. It is possible that public reaction or other factors may cause
these persons to change their stance on this issue or call for a public referendum to determine whether and how to proceed. It is also difficult to predict accurately which issues will become priority
agenda items during a legislative session.

In
the event that alternative gaming legislation is enacted in a given state or other jurisdiction, 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 were to proceed to conduct
alternative gaming in such a situation, 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. In the province of
Ontario, the location of Flamboro Downs, racetracks are permitted to serve as landlord to VLT operations conducted by a government corporation. Under that arrangement, the racetrack retains 20% of the
"net win" (slot machine revenues minus payout to slot players), with one-half of that amount distributed to the horsemen and the other half being retained by the racetrack owner. There can
be no assurance as to how long this arrangement will continue, or, if it does, whether the terms will remain the same. Similarly, we have almost completed development of a horse racetrack combined
with a gaming and entertainment center on property located approximately 20 miles south of Vienna, Austria, in anticipation of concluding joint venture negotiations with an Austrian third party and
receiving the requisite racing and gaming licenses. Ultimately, those negotiations may not be successful or we may not obtain the necessary licenses. If we are unable to complete this development as
planned, we may record a substantial write-down of the carrying value of this property.

Any future expansion of our 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 gaming industry is a significant obstacle to our growth strategy, especially with respect to account wagering, including telephone, interactive
television and Internet-based wagering. Account wagering may currently be conducted only through hubs or bases located in certain states. Our expansion opportunities in this area 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 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.

36

---

From
time to time, the United States Congress has considered legislation that would either inhibit or restrict Internet gambling in general or inhibit or restrict the use of
certain financial instruments, including credit cards, to provide funds for account wagering. For example, on June 13, 2003, the United States House of Representatives approved a bill in
the form of the Unlawful Internet Gambling Funding Prohibition Act that, if enacted, would prohibit the use of credit cards, checks, electronic funds transfers and certain other funding methods for
most forms of Internet gambling. The United States Senate Banking, Housing and Urban Affairs Committee adopted a different bill with a similar effect on August 31, 2003; however, this
bill still needs to be considered by the full Senate. While each of these recent bills contains exemptions which we believe are intended at the very least to permit such funding for account wagering
under certain conditions in states that authorize pari-mutuel account wagering, it is unclear whether and to what extent such exemptions will remain in any Internet gambling funding bill
that ultimately may be enacted, or the extent to which we will be able to utilize those exemptions with respect to our account wagering operations as currently conducted. Moreover, although it is
difficult to predict the ultimate chances for passage of any given legislation, it is anticipated that legislation will continue to be introduced in the United States Congress or elsewhere that
will seek to restrict, regulate or potentially ban altogether Internet gambling. Furthermore, even in the absence of legislation, 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.

Implementation of some of the recommendations of the National Gambling Impact Study Commission may harm our growth prospects.

In
August 1996, the United States Congress established the National Gambling Impact Study Commission to conduct a comprehensive study of the social and economic effects of
the gambling industry in the United States. This commission reviewed existing federal, state and local policy and practices with respect to the legalization or prohibition of gambling
activities with the aim of formulating and proposing changes in these policies and practices and recommending legislation and administrative actions for these proposed changes. On April 28,
1999, the commission voted to recommend that there be a pause in the expansion of gaming. On June 18, 1999, the commission issued a report setting out its findings and conclusions, together
with recommendations for legislation and administrative actions. Some of the recommendations were:



The
recommendations made by the National Gambling Impact Study Commission could result in the enactment of new laws and/or the adoption of new regulations in the United States,
which would materially adversely impact the gambling industry in the United States in general or our segment in particular and consequently may threaten our growth prospects.

37

---

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 VLTs 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 Inc., 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 hurt our future performance and operating results.

In
addition, Florida tax laws have historically discouraged the three Miami-area horse racetracks, Gulfstream Park, Hialeah Park (which no longer hosts live racing) and
Calder Race Course, from scheduling concurrent races. A change in the tax structure, effective as of July 1, 2001, has eliminated this deterrent. As a result, our Gulfstream Park racetrack may
face direct competition from other Miami-area horse racetracks in the future. This competition could significantly affect the operating results of Gulfstream Park which could reduce our
overall profitability.

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. The National Gambling Impact Study
Commission's June 1999 report estimated that there were over 250 on-line casinos, 64 lotteries, 20 bingo games and 139 sports wagering services offering gambling over the Internet.
Total industry-wide Internet gaming revenues are estimated to have grown from approximately $1.1 billion in 1999 to approximately $2.5 billion in 2001, according to Bear,
Stearns & Co. Inc. in its 2002-2003 North American Gaming Almanac. That report also estimated 2002 total industry-wide Internet gaming revenues at
$3.5 billion and projected a 2003 level of $4.2 billion. 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 hurt our business.

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.

38

---

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 may lead to increased competition and may have an adverse effect on the profitability of Santa Anita Park, Golden Gate Fields and Bay Meadows 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 recently expressed interest in opening or expanding existing casinos in southern Florida, which could compete with Gulfstream Park and
reduce its profitability.

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, 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.

The 2002 Breeders' Cup Pick 6 controversy 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.

The
full impact on the horseracing industry of the Pick 6 controversy, which arose from fraudulent conduct in connection with certain Pick 6 wagers made on the 2002 Breeders' Cup hosted
by Arlington Park in Chicago, Illinois, is still uncertain. A perceived lack of integrity or security could result in a decline in bettor confidence, and would likely lead to a decline in the amount
wagered on horse racing. Further negative publicity concerning the Pick 6 controversy, further negative information being discovered as a result of the FBI or any other investigation, and any negative
information concerning the internal controls and security of the totalisator systems may materially reduce the amount wagered on horse racing and the revenue and earnings of companies engaged in the
horse racing industry, including us. The Pick 6 controversy has also caused the horse racing industry to focus 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. The Pick 6 controversy and this industry focus on late odds changes may lead to changes in
legislation, regulation, or industry practices, which could result in a material reduction in the amount wagered on horse racing and in the revenue and earnings of companies engaged in the horse
racing industry, including us.

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.

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

Since
horse racing is conducted outdoors, unfavorable weather conditions, including extremely high or low temperatures, excessive precipitation, storms or hurricanes, may cause races to
be cancelled or may reduce 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
unfavorable weather would reduce our revenues and cause our business to suffer.

We provide management services to Colonial Downs and Maroñas pursuant to management contracts which are dependent on third party actions and events
over which we have limited control.

The
revenues that we receive from our operations in Virginia through the management of the Colonial Downs race meets and pari-mutuel wagering system are highly dependent on
the business strategy of Colonial Downs, over which we have limited control. Moreover, our Virginia operations are highly dependent on Colonial Downs' ability to maintain the owner's and operator's
licenses issued to it by the Virginia Racing Commission, over which we have limited control. In addition, our management contract with Colonial Downs provides for a one-half reduction in
the management fee we receive if and to the extent that non-pari-mutuel gaming activities become authorized and are conducted by us in Maryland but are not authorized and
conducted in Virginia.

The
revenues that we receive by providing management services to Maroñas, a thoroughbred racetrack in Montevideo, Uruguay, are somewhat dependent on the business strategy
of Maroñas, over which we have limited control. These revenues are also highly dependent on Maroñas' ability to maintain licenses and permits pursuant to which it
operates under the law of Uruguay and over which we have limited control.

The profitability of our racetracks is partially dependent upon the size 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 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 Mare Reproductive Loss Syndrome, which caused a large number of mares in Kentucky to sustain late term abortions or early embryonic loss in 2001. 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.

39

---

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, 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 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, 2003, 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.

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

Three
of our largest racetracks, Santa Anita Park, Golden Gate Fields and Bay Meadows, are located in California and are therefore subject to earthquake risks. 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.



In purchasing and selling our pari-mutuel wagering products, our customers depend on information provided by each of the three main totalisator
companies operating in North America, including Amtote International, Inc. in which we own a 30% equity interest. These totalisator companies provide the computer systems that accumulate
wagers, record sales, calculate payoffs and display wagering data. The loss of any of the totalisator companies as a provider of these critical services would decrease competition in the market for
those services and could result in an increase in the cost to obtain them. Additionally, the failure of the totalisator companies to keep their technology current could limit our ability to serve
customers effectively, develop new forms of wagering, or ensure a sufficient level of wagering security. Because of the highly specialized nature of these services, replicating these totalisator
services would be expensive.



Our operations are affected by general economic conditions, and therefore our future success is unpredictable. The demand for entertainment and leisure activities
tends to be highly sensitive to consumers' disposable incomes, and thus a decline in general economic conditions may lead to our customers having less discretionary income to wager on horse racing. In
2002 and 2003, the weak U.S. economy had a negative impact on our operating results and if the economy deteriorates further, the consequent reduction in our revenues could have a material
adverse effect on our operating results.

40

---

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.

We may not be able to sell or otherwise monetize some of our non-core real estate, 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 non-core real estate, excess racing real estate and revenue-producing
non-racing real estate. The costs of holding real estate may be high and, during a recession, we may be faced with ongoing expenditures with little prospect of earning revenue on our
non-core real estate and 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.

The access agreements with Magna International Inc. relating to the use of our golf courses have expired and this may result in a write-down of the
carrying value of our golf courses.

Pursuant to an access arrangement effective as of March 1, 1999, Magna International Inc. paid us an annual fee of 2.5 million Euros to
access the Fontana Sports golf course and related recreational facilities for Magna-sponsored corporate and charitable events, as well as for business development purposes. The agreement expired on
March 1, 2004. Pursuant to an access agreement effective as of January 1, 2001, Magna International Inc. also paid us an annual fee of Cdn.$5.0 million to access the Magna
Golf Club. This agreement expired on December 31, 2003. There have been recent negotiations with Magna International Inc. aimed at reaching mutually acceptable terms for the renewal of
the access arrangements in respect of these golf courses. The terms of any sale or extension of the access arrangements will determine whether a writedown of the carrying value of these properties is
required. The amount of such write-downs, if any cannot reasonably be estimated until such terms are finalized. Furthermore, there can be no assurance that we will be successful in either concluding a
sale of each of the golf courses, or entering into agreements to extend the access arrangements for such courses, on acceptable terms. If the access agreements are not renewed on favorable terms or
not renewed at all, we may suffer a reduction in revenues and earnings, which would materially adversely affect our operating results.

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. Furthermore, in the case of certain land to be held by us in Aurora, Ontario, the transfer of this land to us from Magna International Inc. is conditional on our obtaining
permission to sever the land from adjoining properties and other approvals. If we do not obtain these approvals, we may not ultimately acquire this land. 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.

If we decide to proceed with redevelopment projects at any of our racetracks, we may need to write down the value of certain assets and will likely suffer a
temporary disruption of our racing operations.

We
have deferred a decision on the proposed redevelopment of Gulfstream Park in Florida and the entire stable area at Laurel Park in Maryland. Any redevelopment would require the
demolition of a substantial portion of the current buildings and related structures, including the grandstand and turf club at Gulfstream Park and the demolition of certain assets at Laurel Park. The
aggregate carrying value of these assets as of December 31, 2003 is $21.1 million and $4.0 million, respectively. If we decide to proceed with a redevelopment at Gulfstream Park
or Laurel Park and obtain the approval of our board of directors, a reduction in the expected life of the existing assets would occur and a write-down would be necessary.

If
we proceed with the redevelopment of either racetrack, we would schedule the project to minimize any interference with the racing season. However, with any project of this magnitude,
there is a significant risk of a temporary disruption of our operations during a racing season, resulting in a reduction of the revenues and earnings generated at the racetrack under redevelopment.

We may not be able to complete expansion 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 potential land use issues, as well as risks typically associated with any construction project, including possible shortages of
materials or skilled labor, unforeseen engineering or environmental problems, delays and work stoppages, weather interference and unanticipated cost overruns. For example, Santa Anita Park completed
certain upgrades to its facilities in 1999. The disruption caused by these upgrades was greater than anticipated and reduced the total amount wagered at Santa Anita Park's simulcast wagering
facilities and attendance at The Oak Tree Meet in 1999. 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.

41

---

We
are currently subject to an agreement with the Maryland Racing Commission that requires us to expend at least $15 million on capital improvements and renovations to the Laurel
Park and Pimlico racetracks and the thoroughbred training facility in Bowie, Maryland, together with their related facilities and operations, between January 1, 2003 and June 30, 2004.
We will endeavor to schedule the work for these expenditures to minimize interference with the respective racing seasons, but given the short timeline, that cannot be assured. If there is interference
with the racing seasons of either of Pimlico or Laurel Park, or the project plans are not completed according to schedule, it could result in a reduction in the revenues and earnings generated at
those racetracks.

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, we were involved in a dispute with the United States Environmental Protection Agency involving the Portland Meadows racetrack, which caused
us to postpone the planned opening of the 2001-2002 meet at that facility on September 1, 2001 and also to conclude the 2001-2002 meet early, on February 10,
2002.

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. See "Environmental Matters".

42

---

Risks Relating to Our Securities

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:



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. 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 do not contribute proportionately to our profitability, the trading price of our
shares may also decrease.

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

As
of March 10, 2004, MI Developments Inc. owns, 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. We also have effective registration statements covering up to 8,823,529 shares of our Class A
Subordinate Voting Stock issuable upon the conversion of $75.0 million aggregate outstanding principal amount of our 71/4% Convertible Subordinated Notes due December 15,
2009 and up to 21,276,595 shares of our Class A Subordinate Voting Stock issuable upon the conversion of $150.0 million aggregate principal amount of our 8.55% Convertible Subordinated
Notes due June 15, 2010. Sales of a substantial number of shares of our Class A Subordinate Voting Stock, either by MI Developments Inc. or under our registration statements,
could depress the prevailing market price of our Class A Subordinate Voting Stock.

43

---



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".



Our debt securities are subject to the following risks associated with debt financing:



In
addition, although we anticipate that we will be able to repay or refinance any indebtedness that we incur when it matures, we may not be able to do so, and the terms of any
refinancings of our indebtedness may not be favorable to us. Our leverage may have important consequences including the following:



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

From time to time, various routine claims incidental to our business are made against us. None of these claims has had, and we believe that none of the current
claims, if successful, will have, a material adverse effect upon our business.

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.

44

---



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 under the symbol "MECA" and on the Toronto Stock Exchange under the
symbol "MEC.A". The Class A Subordinate Voting Stock commenced trading on the Nasdaq National Market on February 23, 2000 and closed at a price of $3.06 per share, and on the Toronto
Stock Exchange 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 the Nasdaq National Market ("Nasdaq") and the Toronto Stock Exchange ("TSX").

|      |                                        | Nasdaq |   | TSX  
|----- | -------------------------------------- | ------ | - | -----
|
|2002: |                                        |        |   |      
|      | First Quarter                          |        | $ | 10.25
|      | Second Quarter                         |        | $ | 8.65 
|      | Third Quarter                          |        | $ | 6.99 
|      | Fourth Quarter                         |        | $ | 7.49 
|2003: |                                        |        |   |      
|      | First Quarter                          |        | $ | 6.32 
|      | Second Quarter                         |        | $ | 5.38 
|      | Third Quarter                          |        | $ | 5.15 
|      | Fourth Quarter                         |        | $ | 5.94 
|2004: |                                        |        |   |      
|      | First Quarter (through March 10, 2004) |        | $ | 6.00 

On
March 10, 2004, the last sale price of the Class A Subordinate Voting Stock as reported by the Nasdaq National Market was $5.43 and by the Toronto Stock Exchange was
Cdn. $7.03.

On
February 26, 2003, the trading symbol for our Class A Subordinate Voting Stock was changed from "MIEC" to "MECA" on the Nasdaq National Market and from "MIE.A" to
"MEC.A" on the Toronto Stock Exchange.

Our
Class B Stock is unlisted and not actively traded.

The
number of securityholders of record as of March 10, 2004 was as follows: Class A Subordinate Voting Stock: 634; 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.

48

---

Recent Sales of Unregistered Securities

On June 2, 2003, we completed the sale of $100 million aggregate principal amount of our 8.55% Convertible Subordinated Notes due June 15,
2010 in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Regulation S and Rule 144A. The initial purchaser of the
8.55% Convertible Subordinated Notes, Bank Austria Creditanstalt AG, exercised in full its option to purchase an additional $50 million of the 8.55% Convertible Subordinated Notes on
June 24, 2003. For a description of the 8.55% Convertible Subordinated Notes, please read the section entitled "Description of the Convertible Notes" in the prospectus included in our
registration statement on Form S-3 (File number 333-107368), initially filed with the SEC on July 25, 2003 (and as amended on Form S-3/A on
September 26, 2003, and September 30, 2003), which is incorporated by reference herein.

Equity Compensation Plan Information

The information regarding our equity compensation plans required in this Item 5 is incorporated herein by reference from the section of our Proxy Statement
entitled "Executive Compensation  Long Term Incentive Plan", which Proxy Statement will be filed with the Securities and Exchange Commission within
120 days after our fiscal year end of December 31, 2003.

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, 1999, 2000, 2001, 2002 and 2003 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, 1999 (as filed with our Annual Report for the fiscal year ended December 31, 1999), December 31, 2000 (as filed with our Annual Report for the
year ended December 31, 2000), December 31, 2001 (as filed with our Annual Report for the year ended December 31, 2001), December 31, 2002 (as filed with our Annual Report
for the year ended December 31, 2002) and December 31, 2003 (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 Results of Operations and Financial Position" included in this Annual Report.

49

---

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

|                                                                                                                                                |  | Year Ended December 31, |        
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|
|
|Racing Revenues                                                                                                                                 |  | $                       | 164,946
|Real Estate and Other Revenues                                                                                                                  |  |                         | 21,914 
|                                                                                                                                                |  |                         |        
|Total Revenues                                                                                                                                  |  | $                       | 186,860
|                                                                                                                                                |  |                         |        
|Costs and Expenses                                                                                                                              |  |                         |        
|Racing costs and expenses                                                                                                                       |  | $                       | 155,263
|Real estate and other costs and expenses                                                                                                        |  |                         | 21,820 
|Depreciation and amortization                                                                                                                   |  |                         | 7,924  
|Write-down of long-lived and intangible assets                                                                                                  |  |                         |       
|Write-down of excess real estate                                                                                                                |  |                         |       
|Equity income                                                                                                                                   |  |                         |       
|Interest expense (income), net                                                                                                                  |  |                         | (920   
|                                                                                                                                                |  |                         |        
|Income (loss) before income taxes                                                                                                               |  | $                       | 2,773  
|                                                                                                                                                |  |                         |        
|Net income (loss)                                                                                                                               |  | $                       | (62    
|                                                                                                                                                |  |                         |        
|Earnings (loss) per share for Class A Subordinate Voting Stock, Class B Stock and Exchangeable Share:                                           |  |                         |        
|Basic                                                                                                                                           |  | $                       | 0.00   
|                                                                                                                                                |  |                         |        
|Diluted                                                                                                                                         |  | $                       | 0.00   
|                                                                                                                                                |  |                         |        
|Average number of shares of Class A Subordinate Voting Stock, Class B Stock and Exchangeable Shares outstanding during the year (in thousands): |  |                         |        
|Basic                                                                                                                                           |  |                         | 78,686 
|Diluted                                                                                                                                         |  |                         | 78,686 

|                              |  | Year Ended December 31, |         
|----------------------------- |  | ----------------------- | --------
|
|
|EBITDA(2)                     |  | $                       | 9,777   
|Capital expenditures(3)       |  |                         | 54,762  
|Cash provided from (used for) |  |                         |         
|Operating activities          |  |                         | 15,226  
|Investment activities         |  |                         | (215,398
|Financing activities          |  |                         | 238,458 

|                                             |  | At December 31,
|-------------------------------------------- |  | ---------------
|
|
|Cash and cash equivalents                    |  | $              
|Real estate properties and fixed assets, net |  |                
|Total assets                                 |  |                
|Total debt(4)                                |  |                
|Shareholders' equity                         |  |                

---

50

---

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

|                                                                          |  | Year Ended December 31, |      
|------------------------------------------------------------------------- |  | ----------------------- | -----
|
|
|Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") |  |                         |      
|Income (loss) before income taxes                                         |  | $                       | 2,773
|Interest expense (income), net                                            |  |                         | (920 
|Depreciation and amortization                                             |  |                         | 7,924
|                                                                          |  |                         |      
|EBITDA                                                                    |  | $                       | 9,777
|                                                                          |  |                         |      

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

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, 2003.

Overview

Magna Entertainment Corp. ("MEC", "we" or the "Company") is North America's number one owner and operator of horse racetracks, based on revenues, and one of the
world's leading suppliers, via simulcasting, of live racing content to the growing inter-track, off-track and account wagering markets (harness racing). We currently operate or manage
twelve thoroughbred racetracks, two standardbred racetracks, one racetrack that runs both thoroughbred and standardbred meets and one greyhound track, as well as the simulcast wagering venues at these
tracks. In addition, we operate off-track betting ("OTB") facilities and a national account wagering business known as XpressBet, 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. We also own and operate HorseRacing
TV, a television network focused on horse racing that we initially launched on the Racetrack Television Network ("RTN") in July 2002. HorseRacing TV is currently
carried on cable systems in ten states, with approximately 1.4 million subscribers. We are in ongoing discussions with cable and satellite operators with the goal of achieving broader
distribution for HorseRacing TV. RTN, in which we have a one-third interest, was formed to telecast races from our racetracks and other racetracks, via private direct to home
satellite, to paying subscribers. On August 22, 2003, we acquired a 30% equity interest in AmTote International, Inc., a provider of totalisator services to the pari-mutuel
industry. To support certain of our thoroughbred racetracks, we also 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.

51

---

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 currently underway in a number of states in which we operate, including Maryland, Michigan and Pennsylvania. The passage of such legislation can be
a long and uncertain process. In addition, should alternative gaming legislation be enacted in any jurisdiction, there are a number of factors which will determine the viability and profitability of
such an operation at one of 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 other sites which are licensed to offer alternative gaming in competition with us, 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. Under new legislation recently passed by the Oklahoma Senate and House
of Representatives in February 2004, and signed by the Governor of Oklahoma on March 8, 2004, which is anticipated to become effective by September 2004, Remington Park, MEC's
Oklahoma City racetrack, would be permitted to operate 650 player terminals for certain kinds of electronic gaming permitted at Native American casinos in the state. Remington Park's right to operate
gaming machines under the new legislation is conditional on a number of events and approvals, including the ratification of a model tribal-state gaming compact by at least four Oklahoma Native
American tribes.

We
believe that the European marketplace offers significant potential growth for the export of MEC's horse racing. RaceON TV is a new service, based near Vienna, Austria,
that broadcasts simultaneous televised coverage of North American horse races and other racing content directly to racetracks and off-track wagering operations outside of North America.
RaceON TV commenced operations during the first quarter of 2004. During 2001, we commenced development of a horse racetrack and gaming facility near Vienna, Austria. The development
includes dirt and turf thoroughbred tracks, a harness track, training facilities, barns and grooms' quarters. Live racing is scheduled to commence in April 2004 with 50 days annually of
live racing in a mixed thoroughbred and standardbred meet. The gaming operations are is expected to open in the fall of 2004, assuming finalization of our joint venture with our Austrian
partner, and will include alternative gaming, race and sportsbook betting and an entertainment venue.

We
have applied for horse racing licenses in certain other jurisdictions, including the Detroit, Michigan area where we have plans to develop a new racetrack, subject to regulatory and
other approvals. In October 2003, a subsidiary of MI Developments Inc. ("MID"), our parent company, purchased vacant land in Romulus, Michigan which may serve as the site of the proposed
racetrack. We are currently discussing terms of a long-term lease of such land with MID.

52

---

In addition to our racetracks, we own a significant real estate portfolio which includes two golf courses and related recreational facilities as well as three residential developments in
various stages of development in Austria, the United States and Canada. We are also actively seeking a developer or strategic partner for the development of leisure and entertainment or
retail-based real estate projects on the excess land surrounding, or adjacent to, certain of our premier racetracks. While we are exploring the development of some of our real estate, we intend to
continue to sell our non-core real estate in order to generate additional capital to grow and enhance our racing business.

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

Racing Operations

Information about our racing operations is set forth below.

|                                      |  |            |  |      |  | Year ended December 31, 2003                                | 
|------------------------------------- |  | ---------- |  | ---- |  | ----------------------------------------------------------- | 
|
|Santa Anita Park
Los Angeles         |  | Dec. 1998  |  | 10.9 |  | Jan. 1 to Apr. 20 and
Dec. 26 to 31                         | 
|                                      |  |            |  |      |  | The Oak Tree Meet
Oct. 1 to Nov. 9                          | 
|Gulfstream Park
Miami                |  | Sept. 1999 |  | 4.3  |  | Jan. 3 to Apr. 24                                           | 
|Golden Gate Fields
San Francisco     |  | Dec. 1999  |  | 5.2  |  | Jan. 1 to Mar. 30 and
Nov. 5 to Dec. 31                     | 
|Bay Meadows(5)
San Francisco         |  | Nov. 2000  |  | 5.7  |  | Apr. 2 to Jun. 15 and
Aug. 29 to Nov. 2                     | 
|Laurel Park(6)
Baltimore             |  | Nov. 2002  |  | 6.6  |  | Jan. 1 to Mar. 30,
Jul. 24 to Aug. 22 and
Oct. 7 to Dec. 31 | 
|Lone Star Park
Dallas                |  | Oct. 2002  |  | 5.1  |  | Apr. 3 to Jul. 13 and
Oct. 3 to Nov. 29                     | 
|Pimlico Race Course(6)
Baltimore     |  | Nov. 2002  |  | 5.2  |  | Apr. 2 to Jun. 8 and
Sep. 3 to Oct. 4                       | 
|The Meadows
Pittsburgh               |  | Apr. 2001  |  | 2.8  |  | All year                                                    | 
|Thistledown
Cleveland                |  | Nov. 1999  |  | 3.0  |  | Mar. 15 to Dec. 15                                          | 
|XpressBet
National                  |  | Apr. 2001  |  | N/A  |  | All year                                                    | 
|Flamboro Downs(7)
Hamilton, Ontario  |  | Apr. 2003  |  | 3.5  |  | All year                                                    | 
|Remington Park
Oklahoma City         |  | Nov. 1999  |  | 1.1  |  | Jun. 27 to Nov. 30                                          | 
|Portland Meadows
Portland            |  | July 2001  |  | 2.0  |  | Jan. 1 to Apr. 27 and Oct. 18 to Dec. 31                    | 
|Great Lakes Downs
Muskegon, Michigan |  | Feb. 2000  |  | 1.2  |  | Apr. 26 to Oct. 28                                          | 
|Multnomah Greyhound Park
Portland    |  | Oct. 2001  |  | 2.0  |  | Apr. 30 to Oct. 13                                          | 
|                                      |  |            |  |      |  |                                                             | 
|                                      |  |            |  |      |  |                                                             | 

---

53

---

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 gross wagering revenues from the following primary sources:



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.

54

---

We
also generate non-wagering revenues consisting primarily of commissions earned from the Flamboro Downs slot facility, food and beverage sales, program sales, admissions
income, parking revenues, sponsorship revenues and revenues from the rental of our facilities to other racing operators.

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 system; 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.

Set
forth below is a list of the total live race days by racetrack for the years ended December 31, 2003, 2002 and 2001 as well as of those live race days during our ownership of
the racetracks.

|                    |  | Year ended 12/31/03 |  | Year ended 12/31/02 |  | Year ended 12/31/01
|------------------- |  | ------------------- |  | ------------------- |  | -------------------
|
|Largest Racetracks  |  |                     |  |                     |  |                    
|Santa Anita Park(1) |  | 86                  |  | 86                  |  | 84                 
|Gulfstream Park     |  | 89                  |  | 89                  |  | 90                 
|Golden Gate Fields  |  | 106                 |  | 106                 |  | 103                
|Bay Meadows         |  | 105                 |  | 105                 |  | 105                
|Laurel Park         |  | 142                 |  | 142                 |  | 107                
|Lone Star Park      |  | 103                 |  | 103                 |  | 103                
|Pimlico Race Course |  | 71                  |  | 71                  |  | 110                
|                    |  |                     |  |                     |  |                    
|                    |  | 702                 |  | 702                 |  | 702                
|                    |  |                     |  |                     |  |                    
|Other Racetracks    |  |                     |  |                     |  |                    
|The Meadows         |  | 207                 |  | 207                 |  | 210                
|Thistledown         |  | 188                 |  | 188                 |  | 187                
|Flamboro Downs      |  | 262                 |  | 188                 |  | 257                
|Remington Park      |  | 82                  |  | 82                  |  | 105                
|Portland Meadows    |  | 86                  |  | 86                  |  | 47                 
|Great Lakes Downs   |  | 118                 |  | 118                 |  | 118                
|                    |  |                     |  |                     |  |                    
|                    |  | 943                 |  | 869                 |  | 924                
|                    |  |                     |  |                     |  |                    
|Total               |  | 1,645               |  | 1,571               |  | 1,626              
|                    |  |                     |  |                     |  |                    

---

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

55

---

Our
operating costs include principally salaries and benefits, 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.

In
the fourth quarter of 2003 we sold approximately 16 acres of excess real estate located at Golden Gate Fields. The property was sold for $8.5 million. In the prior year, the
property was written down to reflect this value. The proceeds of $8.5 million were recorded in non-wagering revenues and the cost was reflected in operating costs. In the current
year, we incurred $0.7 million of disposal costs related to this transaction.

Upon
completion of our annual business planning process, we tested our long-lived assets, racing licenses and other intangible assets for impairment. As a result of the
assets' carrying value at December 31, 2003 exceeding their fair value at certain of our business units, we recognized a non-cash impairment charge of $3.9 million before
income taxes ($2.6 million after income taxes), related to our long-lived assets and a non-cash impairment charge of $130.9 million, before income taxes
($79.1 million after income taxes), related to our racing licenses and other intangible assets. These charges were announced on February 5, 2004 and have been reflected in our 2003
statement of operations.

In
December 2003, we reached an agreement with the property owner on an extension of the site lease for Bay Meadows. The extension runs through December 31, 2004. The
rental rate for the facility is consistent with the 2003 rental rate. Although we intend to seek an extension beyond the end of 2004, as we have in each of the past two years, we are continuing to
explore alternative venues, including vacant land that we purchased in Dixon, California for future development of a thoroughbred racetrack with an associated retail shopping and entertainment
complex. This project, which is still in the early stages of planning, is subject to regulatory and other approvals. At this time, we are uncertain as to the likelihood of renewing the Bay Meadows
lease beyond December 31, 2004 or the terms upon which such renewal may be achieved. If this lease is not renewed on comparable terms or at all, or an alternative venue is not arranged, our
operating results would be materially adversely affected.

Although
we are still considering a major redevelopment of our Gulfstream Park racetrack in Florida (the "Gulfstream Park Redevelopment"), we have deferred a decision on the project at
the present time. Should we proceed as currently contemplated, the Gulfstream Park Redevelopment would include a simulcast pavilion, a sports and entertainment arena and a new turf club and
grandstand. In addition, there would be significant modifications and enhancements to the racetracks and stable areas. If completed, the Gulfstream Park Redevelopment would require the demolition of a
substantial portion of the current buildings and related structures, which include the grandstand and turf club. The aggregate carrying value at December 31, 2003 of the assets that would be
demolished if the Gulfstream Park Redevelopment is completed is approximately $21.1 million. If we decide to proceed with the Gulfstream Park Redevelopment and obtain the approval of our Board
of Directors, a reduction in the expected life of the existing assets would occur and a write-down would be necessary. If we decide to proceed, we would schedule the project to minimize
any interference with Gulfstream Park's racing season, however, with a project of this magnitude, there will likely be a temporary disruption to our operations during a racing season and there is a
risk that the redevelopment will not be completed according to schedule. Any interference with the racing operations would result in a reduction in the revenues and earnings generated at Gulfstream
Park during that season.

We
are also considering a redevelopment of the entire stable area and racetrack surfaces at Laurel Park (the "Laurel Park Redevelopment"). In the event this redevelopment were to proceed
as currently contemplated, the Laurel Park Redevelopment would include the construction of new barns, dormitories and grooms' quarters, along with the construction of new dirt and turf tracks. The
aggregate carrying value at December 31, 2003 of the assets that would be demolished if the Laurel Park Redevelopment is completed is approximately $4.0 million. If we decide to proceed
with the Laurel Park Redevelopment and obtain the approval of our Board of Directors, a reduction in the expected life of the existing assets would occur and a write-down would be
necessary. If we proceed, we would schedule the project to minimize any interference with Laurel Park's racing season, however, with a project of this magnitude, there will likely be a temporary
disruption to our operations during a racing season and there is a risk that the redevelopment will not be completed according to schedule. Any interference with the racing operations would result in
a reduction in the revenues and earnings generated at Laurel Park during that season.

56

---

The
revenue sharing and operations agreement between The Maryland Jockey Club and the owner of Rosecroft Raceway, which was to expire on March 31, 2004, has been agreed to be
extended for an additional 30 days under existing terms and conditions. If this agreement is not further renewed on comparable terms, there may be a material decline in the revenues of The
Maryland Jockey Club that could materially adversely affect our operating results. At this time, we are uncertain as to the likelihood of a renewal of this agreement on comparable terms.

In
connection with its acquisition of a controlling interest in The Maryland Jockey Club, Maryland Racing, Inc. ("MRI"), our wholly-owned subsidiary, agreed with the Maryland
Racing Commission to spend a minimum of $5.0 million by August 31, 2003, an additional $5.0 million by December 31, 2003, and an additional $5.0 million by
June 30, 2004 on capital expenditures and renovations at Pimlico Race Course, Laurel Park, Bowie Training Center and related facilities and operations. As a result of delays in permitting of
several projects related to this commitment, only $4.5 million had been spent by December 31, 2003. In addition, we have deposited $2.2 million and will deposit the remaining
$3.3 million, in an escrow account to be applied to future capital expenditures and renovations.

In
December 2003, we entered into an agreement to sell the real property and buildings of MI Racing Inc. ("Great Lakes Downs") for approximately $4.2 million, which
represents the net book value of these assets. The closing of the sale is subject to a number of outstanding conditions including regulatory approval and a leaseback arrangement. In
January 2004, we formally requested the transfer of our racetrack license to the purchaser. Following the successful transfer of our racetrack license, we will enter into a lease arrangement
pursuant to which we will continue as the facility operator.

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 four of our largest racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park 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 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 Operations

We characterize our real estate as follows:

Revenue-Producing
Racing Real Estate



Excess
Racing Real Estate



Development
Real Estate



57

---



Revenue-Producing Non-Racing Real Estate



Non-Core Real Estate



As
of December 31, 2003, the aggregate net book values of our real estate properties is as follows:

|                                         |  | $ millions
|---------------------------------------- |  | ----------
|Revenue-Producing Racing Real Estate     |  | 529.2     
|Excess Racing Real Estate                |  | 97.2      
|Development Real Estate                  |  | 122.6     
|Revenue-Producing Non-Racing Real Estate |  | 80.6      
|Non-Core Real Estate                     |  | 9.3       
|                                         |  |           
|                                         |  | 838.9     
|                                         |  |           

Included
in our Excess Racing Real Estate is land adjacent to several of our racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park, Laurel Park and Pimlico Race Course, totaling
approximately 314 acres. We are considering a variety of options with respect to this excess land, including entertainment and retail-based developments that could be undertaken in conjunction with
business partners who could be expected to provide the necessary financing.

Our
Development Real Estate includes approximately 609 acres of land in Ebreichsdorf, Austria, located approximately 20 miles south of Vienna, Austria, on which we have almost completed
development of a horse racetrack and gaming facility. Our other Development Real Estate, which is largely undeveloped, includes approximately 110 acres of land in Oberwaltersdorf, Austria, also
located approximately 20 miles south of Vienna; 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 435 acres of land in Ocala, Florida; 157 acres of land in Palm Beach County, Florida, adjacent to our Palm Meadows training facility, which is currently in the
initial stages of development as a residential community; and approximately 21 acres of land in Aurora, Ontario, adjacent to one of our golf courses, which is currently under development as a
residential community.

Our
Revenue-Producing Non-Racing Real Estate consists of two golf courses that we own and operate, Fontana Sports and Magna Golf Club. Fontana Sports, which opened in 1997,
is a semi-private sports facility located in Oberwaltersdorf, Austria that includes an 18-hole golf course, a tennis club and a clubhouse which contains a dining facility, a
pro shop and a fitness facility. The Magna Golf Club, an 18-hole golf course in Aurora, Ontario, adjacent to our and Magna International Inc.'s ("Magna") headquarters approximately
30 miles north of Toronto, opened in May 2001. The clubhouse was completed in the spring of 2002 and contains a dining facility, a members' lounge, a pro shop and a fitness facility.

Pursuant
to an access arrangement effective as of March 1, 1999, Magna has paid us an annual fee of 2.5 million Euros to access the Fontana Sports golf course and related
recreational facilities for Magna-sponsored corporate and charitable events, as well as for business development purposes. The access fee relating to Fontana Sports was payable until March 1,
2004. Pursuant to an access agreement effective as of January 1, 2001, Magna has also paid us an annual fee of Cdn.$5.0 million to access the Magna Golf Club. The access fee relating to
the Magna Golf Club was payable until December 31, 2003. We are continuing to explore various means of monetizing or improving the returns from Fontana Sports and the Magna Golf Club. Our
objective would be to realize at least the net book values of these properties from any sale, however, should we be unable to do so, we would consider extending the current access arrangements. To
that end, there have been recent negotiations with Magna, aimed at reaching mutually acceptable terms for the renewal of the access arrangements in respect of these golf courses. The terms of any sale
or extension of the access arrangements will determine whether a write-down of the carrying value of these properties is required. The amount of such write-downs, if any, cannot reasonably
be estimated until such terms are finalized. Furthermore, there can be no assurance that we will be successful in either concluding a sale of each of the golf courses, or entering into agreements to
extend the access arrangements for such courses, on acceptable terms. The aggregate carrying value at December 31, 2003 of these golf course assets is approximately $78.4 million.

58

---

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect
the amounts reported and disclosed in the consolidated financial statements. We base our estimates on historical experience and various other assumptions that are believed to be reasonable 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 1 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 SFAS 142, intangibles are evaluated for impairment on an annual basis or when impairment indicators are present. An impairment write-down to fair
value would occur if discounted cash flows from operations net of the fair value of the long-lived assets was less than the carrying amount of the racing license.

Under
SFAS 144, our long-lived assets are evaluated for impairment on an annual basis. If such indicators 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 sheet.

59

---



Future Income Tax Assets

At December 31, 2003, we had 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
sheet.

Stock-Based Compensation

SFAS 123 provides companies an alternative to accounting for stock-based compensation. The pronouncement encourages, but does not require, companies to
recognize an expense for stock-based awards based on their fair value at date of grant. SFAS 123 allows companies to continue to follow the intrinsic method which does not give rise to an
expense, provided that pro-forma disclosures are made of what net income (loss) and earnings (loss) per share would have been had the fair value method been used. We account for stock
based compensation under the intrinsic value method and provide pro-forma disclosure as required by SFAS 123.

Litigation

In the ordinary course of business, we may be contingently liable for litigation and claims with 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.

Related Party Transactions

Refer to Note 17 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, 2003, 2002 and 2001.

Year Ended December 31, 2003 Compared to December 31, 2002

Racing operations

In the year ended December 31, 2003, we operated our largest racetracks for an additional 287 live race days compared to the prior year. The overall
increase in live race days at those racetracks is primarily attributable to our acquisitions of The Maryland Jockey Club and Lone Star Park at Grand Prairie, which were both acquired in the fourth
quarter of 2002.

Our
other racetracks operated an additional 202 live race days in the year ended December 31, 2003, compared to the prior year, primarily due to the acquisition of Flamboro Downs
on April 16, 2003, additional live race days at Portland Meadows as a result of the 2002 live race meet concluding early in order to permit construction of a storm water retention system,
partially offset by a decrease in live race days at Remington Park as a result of our desired reduction in race days at that location.

60

---

Revenues
from our racing operations were $687.2 million in 2003, compared to $522.6 million in 2002, an increase of $164.5 million or 31.5%. The increase is
primarily attributable to the acquisitions of The Maryland Jockey Club, Lone Star Park at Grand Prairie and Flamboro Downs, which generated additional revenues in 2003 of $95.5 million,
$59.7 million and $20.5 million, respectively, partially offset by reduced revenues due to lower average daily attendance and decreased on-track wagering activity at certain
of our facilities. Also contributing to the decline was a generally weak United States economy and inclement weather experienced in the year, particularly in the northeast region of the
United States where several of our facilities are located, which resulted in live race day and simulcast signal cancellations. As noted above, 2003 racing revenues include $8.5 million
of revenue generated on the sale of excess real estate at Golden Gate Fields.

In
2003, gross wagering revenues from our racing operations increased 24.7% to $561.9 million, compared to $450.7 million in 2002, primarily due to the acquisitions of The
Maryland Jockey Club, Lone Star Park at Grand Prairie and Flamboro Downs, partially offset by declines in average daily attendance which resulted in lower volumes of on-track live and
import handle and related revenues at certain of our facilities. Non-wagering revenues in 2003 increased 74.2% to $125.2 million, compared to $71.9 million in 2002, primarily
due to our recent acquisitions. As a percentage of gross wagering revenues, non-wagering revenues increased from 15.9% in 2002 to 22.3% in 2003 primarily as a result of the
$8.5 million of revenue from the sale of excess real estate at Golden Gate Fields included in non-wagering revenues, commissions earned from the Flamboro Downs slot facility and
sponsorship revenues earned at Lone Star Park at Grand Prairie, The Maryland Jockey Club and on the Sunshine Millions.

Purses,
awards and other increased to $336.8 million in 2003 from $276.0 million in 2002, primarily due to the increase in gross wagering revenues for the period. As a
percentage of gross wagering revenues, purses, awards and other decreased from 61.2% in 2002 to 59.9% in 2003 primarily due to the mix of wagers made, the states the wagers were made in, the mix of
on-track versus off-track wagering and purse subsidies received by The Maryland Jockey Club which lowered their purse expense.

Operating
costs increased $76.0 million to $259.4 million in 2003. The increased operating costs included additional operating costs of $68.4 million incurred by our
recent acquisitions, The Maryland Jockey Club, Lone Star Park at Grand Prairie and Flamboro Downs, $8.5 million of cost related to the sale of excess real estate at Golden Gate Fields and
additional rent expense incurred at our Bay Meadows facility of $2.9 million, partially offset by operating cost reductions at our other racetracks. As a percentage of total racing revenues,
operating costs increased from 35.1% in 2002 to 37.7% in 2003. The increase in operating costs as a percentage of revenues was primarily the result of additional costs incurred by our recent
acquisitions, the sale of the excess real estate at Golden Gate Fields and additional rent expense incurred at our Bay Meadows facility. Excluding these factors, operating costs as a percentage of
total racing revenues were 26.1% in 2003. Other factors contributing to higher operating costs in 2003 were start-up costs related to HorseRacing TV, Palm Meadows and the
inaugural running of the Sunshine Millions.

General
and administrative expenses were $66.7 million in 2003, compared to $41.5 million in 2002. As a percentage of total racing revenues, general and administrative
expenses increased from 7.9% in 2002 to 9.7% in 2003. The increased costs included an additional $13.2 million of costs incurred by our recent acquisitions which were not included in the
comparable prior year period and higher costs of our head office.

Real estate and other operations

Revenues from real estate and other operations were $21.8 million in 2003, compared to $26.6 million in 2002. The decrease in revenues is primarily
attributable to lower sales of Non-Core Real Estate in the current period, partially offset by increased revenues from our Magna Golf Club operations as a result of new members. In 2002,
there were four Non-Core Real Estate properties sold, which generated revenues of $8.9 million and income before income taxes of $2.2 million. In 2003, only one
Non-Core Real Estate property was sold generating revenue of $2.6 million which was equal to the carrying value of the property.

61

---

Predevelopment and other costs

Predevelopment and other costs were $8.8 million in 2003, compared to $2.3 million in 2002. Predevelopment and other costs in the current period
represent costs of approximately $4.2 million incurred pursuing alternative gaming opportunities in states where we currently operate, $0.8 million of information technology costs which
have been determined to have no future benefit, $0.7 million of disposal costs related to the excess real estate at Golden Gate Fields and $3.1 million of costs relating to development
initiatives undertaken to enhance our racing operations. In the prior year, the predevelopment and other costs that we incurred were all related to development initiatives that were undertaken to
enhance our racing operations.

Write-down of long-lived and intangible assets

Pursuant to SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", and SFAS 142, "Goodwill and Other Intangible
Assets", our long-lived assets, racing licenses and other intangible assets were tested for impairment after completion of our annual business planning process. As a result of the assets'
carrying value at December 31, 2003 exceeding their fair value at certain of our business units, we recognized a non-cash impairment charge of $3.9 million related to
long-lived assets and a non-cash impairment charge of $130.9 million related to the racing licenses and other intangible assets.

Depreciation and amortization

Depreciation and amortization increased $9.1 million to $31.9 million in 2003, primarily as a result of our recent acquisitions recording additional
depreciation and amortization of $7.7 million and increased depreciation and amortization on recent fixed asset additions.

Interest income and expense

Our net interest expense for 2003 increased $12.9 million to $13.6 million from $0.7 million in 2002. The higher net interest expense is
attributable to the issuance of $150.0 million of convertible subordinated notes in June 2003 and the issuance of $75.0 million of convertible subordinated notes in
December 2002, as well as higher levels of long-term debt related to our acquisitions of The Maryland Jockey Club, Lone Star Park at Grand Prairie and Flamboro Downs. In 2003,
$7.3 million of interest was capitalized with respect to projects under development, compared to $2.7 million in the prior year period.

Income tax provision

We recorded an income tax recovery of $58.4 million on losses before income taxes of $163.5 million in 2003, compared to an income tax recovery of
$8.6 million on losses before income taxes of $23.0 million in 2002. Our effective income tax rate in 2003, adjusted for equity income, was 35.5%, compared to 36.6% in 2002, primarily
due to additional income tax expense of $3.7 million related to a change in Canadian enacted income tax rates and increased non-deductible expenditures.

Year Ended December 31, 2002 Compared to December 31, 2001

Racing operations

Revenues from our racing operations were $522.6 million in 2002, compared to $459.4 million in 2001, an increase of $63.2 million or 13.8%.
The increase resulted primarily from additional live race days at Gulfstream, the acquisition of MEC Pennsylvania in April 2001 and Multnomah in October 2001, the lease of Portland
Meadows in July 2001, the acquisition of Lone Star Park in October 2002 and The Maryland Jockey Club in November 2002, the launch of XpressBet in California in
January 2002 and improved results at Santa Anita Park.

62

---

In
2002, gross wagering revenues for our racing operations increased 14.4% to $450.7 million, compared to $394.0 million in 2001, primarily as a result of the additional
live race days at Gulfstream, increased average daily handle at Santa Anita Park and the completion of our acquisitions, partially offset by decreased revenues at certain of our racetracks as a result
of lower average daily attendance, fewer live race days and a generally weak U.S. economy. Non-wagering revenues in 2002 increased 9.9% to $71.9 million compared to
$65.4 million in 2001. Contributing to the increase in non-wagering revenues were increases in revenues from parking, racing and concert admissions, program sales and food and
beverage operations related to the increase in live race days and due to our acquisitions.

Purses,
awards and other increased by 13.4% to $276.0 million in 2002 from $243.4 million in 2001 primarily due to the increase in gross wagering revenues for the year. As
a percentage of gross wagering revenue, purses, awards and other decreased from 61.8% in 2001 to 61.2% in 2002. Operating costs increased to $183.4 million in 2002 from $152.6 million in
2001. The increased operating costs included $24.4 million related to acquisitions or new business units not included in the prior year. As a percentage of total racing revenues, operating
costs increased from 33.2% in 2001 to 35.1% in 2002. The increase in operating costs as a percentage of revenue was primarily the result of an increase in insurance costs of $3.6 million,
start-up costs of $1.3 million related to XpressBet and the launch of HorseRacing TV and an increase in utility costs of approximately $0.8 million.

Racing
general and administrative expenses were $41.5 million in 2002, compared to $31.1 million in 2001. As a percentage of total racing revenues, general and
administrative expenses increased from 6.8% in 2001 to 7.9% in 2002. The increased costs included $4.9 million of costs related to acquisitions or new business units not included in the prior
year and higher costs of our head office, as several members of our corporate and group management teams joined late in the second quarter of 2001 and during 2002.

Real estate operations

Revenues from real estate operations were $26.6 million in 2002, compared to $59.7 million in 2001. Income before income taxes from real estate
activities decreased to a loss of $0.1 million in 2002 from income of $21.5 million in 2001. These decreases are primarily attributable to the lower level of sales of
Non-Core Real Estate in 2002. In 2002, we had gains on the sale of Non-Core Real Estate of $2.2 million, compared to gains of $20.4 million during 2001.

Predevelopment and other costs

Predevelopment and other costs were $2.3 million in 2002 compared to $3.2 million in 2001. The decrease in predevelopment and other costs was a
result of lower activity on certain development projects in the current year.

Write-down of long-lived and intangible assets

Pursuant to SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", and SFAS 142, "Goodwill and Other Intangible
Assets", our long-lived assets and racing licenses were tested for impairment after completion of our annual business planning process. As a result of declining attendance and related
revenues at Remington Park and Great Lakes Downs, operating profits and cash flows were lower than expected in 2002. Based on these results, the earnings forecasts for these two racetracks were
revised and we recognized a non-cash impairment charge of $14.7 million related to our long-lived assets and a non-cash impairment charge of
$2.8 million related to the racing licenses in 2002.

63

---

Depreciation and amortization

Depreciation and amortization decreased $3.4 million from $26.2 million in 2001 to $22.8 million in 2002, primarily as a result of the
implementation of SFAS 142. The implementation of SFAS 142 resulted in the cessation of amortization of goodwill and intangible assets that meet the criteria for indefinite life,
effective January 1, 2002. The impact of SFAS 142 was to reduce depreciation and amortization expense by $8.0 million from the prior year, which has been partially offset by
increased depreciation and amortization of fixed assets for our acquisitions and increased depreciation on recent fixed asset additions.

Interest income and expense

Our net interest expense for the year ended December 31, 2002 decreased $2.0 million to $0.7 million from $2.7 million in 2001. The
lower net interest expense is attributable to the capitalization of interest on certain properties under development in the current year, interest earned on increased cash balances on hand and a
reduction of debt for the majority of the year.

Income tax provision

We recorded an income tax benefit of $8.6 million on a loss before income taxes of $23.0 million in 2002, compared to an income tax provision of
$9.3 million on income before income taxes of $22.8 million in 2001. Our effective income tax rate in 2002 was 37.4%, compared to 41.0% in 2001, primarily as a result of the income tax
recovery recorded on our write-down of long-lived and intangible assets, which did not reflect any state tax recovery.

Year Ended December 31, 2001 Compared to December 31, 2000

Racing operations

Revenues from our racing operations were $459.4 million in 2001, compared to $355.2 million in 2000, an increase of $104.2 million or 29.3%.
This increase resulted primarily from having nine racetracks open for live racing for some part of the year, compared with only six open in 2000. We acquired the operations of Bay Meadows on
November 17, 2000, the operations of MEC Pennsylvania, formerly Ladbroke Pennsylvania, which include the operations of The Meadows, four OTB facilities and the Pennsylvania hub for
XpressBet, on April 5, 2001, and Multnomah Greyhound Park on October 26, 2001. In addition, in the second quarter of 2001, we leased a racetrack facility in Portland, Oregon
operating as Portland Meadows.

In
2001, gross wagering revenues for our racing operations increased 30.8% to $394.0 million, compared to $301.3 million in 2000, primarily relating to the increase in live
race days due to our acquisitions. Non-wagering revenues in 2001 increased 21.3% to $65.4 million, compared to $54.0 million in 2000. Contributing to the increase in
non-wagering revenues were increases in revenues from parking, admissions and program sales related to the increase in live race days due to our acquisitions and the addition of food and
beverage revenues from our Gulfstream Park facility, previously contracted out to concession operators.

Purses,
awards and other increased by 28.1% to $243.4 million in 2001 from $190.0 million in 2000 primarily due to the increase in gross wagering revenues for the year. As
a percentage of gross wagering revenue, purses, awards and other decreased from 63.1% in 2000 to 61.8% in 2001. Operating costs increased to $152.6 million in 2001 from $128.6 million in
2000. As a percentage of total racing revenues, operating costs decreased from 36.2% in 2000 to 33.2% in 2001. The reduction in operating costs as a percentage of revenues was primarily the result of
cost savings and other synergies realized on the consolidation of racing operations during the year. Racing general and administrative expenses were $31.1 million in 2001, compared to
$18.1 million in 2000. As a percentage of total racing revenue, general and administrative expenses increased from 5.1% in 2000 to 6.8% in 2001. The increase in general and administrative
expenses as a percentage of total racing revenue in 2001 was primarily related to the higher costs of our head office, where we have continued to add management expertise. These costs were
significantly lower during our formative stage in 2000.

64

---

Real estate operations

Revenues from real estate operations were $59.7 million in 2001, compared to $58.3 million in 2000. Income before income taxes from real estate
activities increased to $21.5 million in 2001 from $5.4 million in 2000. These increases are primarily attributable to the sale of Non-Core Real Estate in 2001. In 2001 we
had gains on the sale of Non-Core Real Estate of $20.4 million, compared to gains of $7.0 million during the same period in 2000.

Predevelopment and other costs

Predevelopment and other costs were $3.2 million in 2001 compared to $4.2 million in 2000. These costs include consultants' fees associated with
technology development, feasibility studies, construction designs, market analyses, site models and alternative site investigations.

Depreciation and amortization

Depreciation and amortization increased by $6.1 million to $26.2 million in 2001, compared to $20.1 million in 2000. The increase in
depreciation and amortization is primarily attributable to our Bay Meadows and MEC Pennsylvania acquisitions and increased depreciation recorded on recent fixed asset additions.

Interest income and expense

Our net interest expense for the year ended December 31, 2001 increased $2.5 million to $2.7 million from $0.2 million in 2000. The
higher net interest expense is attributable to the increase in long-term debt in the fourth quarter of 2000 and the second quarter of 2001, related to the financings of our Bay Meadows and
MEC Pennsylvania acquisitions and the purchase of 481 acres of land in Palm Beach County, Florida, offset by interest capitalized on properties under development.

Income tax provision

We recorded an income tax provision of $9.3 million on income before income taxes of $22.8 million in 2001, compared to an income tax provision of
$1.1 million on income before income taxes of $1.6 million in 2000. Our effective income tax rate in 2001 was 41.0%, compared to 71.6% in 2000, primarily as a result of the higher level
of operating losses in certain subsidiaries in 2000, for which we did not recognize the tax benefit in that period.

Liquidity and Capital Resources

Year Ended December 31, 2003

Operating activities

Cash provided by operations before changes in non-cash working capital decreased $19.5 million to $0.2 million in 2003 from
$19.7 million in 2002 primarily due to lower net income. In 2003, cash provided by non-cash working capital balances was $13.6 million compared to cash provided by
non-cash working capital balances of $0.4 million in 2002 primarily as a result of the collection of a receivable during 2003 from a land sale which was recorded in a prior year.

65

---

Investment activities

Cash used in investment activities in 2003 was $109.3 million, including expenditures of $106.0 million on real estate property and fixed asset
additions and $16.5 million on other asset additions, including $12.1 million on our acquisition of the master lease on the Portland Meadows racetrack and an interest in the underlying
real estate and $4.3 million on our 30% equity investment in AmTote International, Inc., partially offset by $13.2 million of net proceeds received on the disposal of real estate
and fixed assets. Expenditures relating to real estate property and fixed asset additions in 2003 were comprised of $31.9 million for our Austrian racetrack under development,
$29.4 million for the construction of our Palm Meadows training center, maintenance capital improvements of $16.2 million, $4.9 million for the construction of our horse bedding
manufacturing facility in North Carolina, $3.7 million for the purchase of land adjacent to the Pimlico Race Course, $2.1 million for improvements at Lone Star Park at Grand Prairie and
$17.8 million of expenditures related to other racetrack property enhancements, infrastructure and predevelopment costs on certain of our properties and account wagering and television related
activities.

Financing activities

Cash provided by financing activities was $100.8 million in 2003. We issued $150.0 million of 8.55% convertible subordinated notes in
June 2003 which are due June 15, 2010 and received net proceeds of $145.0 million. Our revolving credit facility of $49.5 million was repaid early in the year from proceeds
on the sale of Non-Core Real Estate received late in 2002. One of our subsidiaries had borrowed $6.7 million under an operating facility as at December 31, 2003. We incurred
additional long-term debt of $16.1 million and made repayments of $17.5 million.

Year Ended December 31, 2002

Operating activities

Cash provided by operations before changes in non-cash working capital decreased $6.6 million in 2002 compared to 2001. The decrease was
attributable to decreases in net income, depreciation and amortization, future income taxes and gains on disposal of real estate properties, partially offset by write-downs of real estate and
intangible assets and equity earnings. In 2002, cash provided from non-cash working capital balances was $0.4 million.

Investing activities

Cash used in investing activities in 2002 was $226.2 million, including $146.3 million spent on acquisitions, primarily for Lone Star Park at Grand
Prairie and The Maryland Jockey Club, expenditures of $107.2 million on real estate property and fixed asset additions and $26.6 million in other asset additions, partially offset by
$53.9 million of proceeds received on the sale of Non-Core Real Estate. Expenditures relating to real estate property and fixed assets for 2002 included $42.0 million for the
construction of our Palm Meadows training center, $23.3 million for our Austrian racetrack under development, $8.1 million for the completion of our Magna Golf Club clubhouse,
$7.6 million for the purchase of 435 acres of land in Ocala, Florida and maintenance capital improvements of $9.9 million. The remaining $16.3 million of expenditures related to
other racetrack property enhancements, infrastructure and predevelopment costs on certain of our properties and account wagering and television related activities. Other asset additions included our
cash advance of $23.1 million to Ontario Racing Inc. related to the purchase of Flamboro Downs.

Financing activities

Cash provided by financing activities was $249.2 million in 2002 arising from the issuance of share capital for $142.4 million, net of issue
expenses, and convertible subordinated notes for $72.2 million, net of issue expenses, and utilization of our revolving credit facility for $49.5 million, partially offset by the net
repayment of long-term debt of $14.9 million.

66

---

Year Ended December 31, 2001

Operating activities

Cash provided by operations before changes in non-cash working capital increased $18.6 million in 2001 compared to 2000. The increase was
attributable to increases in net income, depreciation and amortization and future income taxes, partially offset by additional gains recorded on the disposal of Non-Core Real Estate. In
2001, cash invested in non-cash working capital balances was $0.7 million.

Investing activities

Cash used in investing activities in 2001 was $7.5 million, including investments of $40.0 million in real estate property and fixed asset and other
asset additions and $24.0 million on the acquisitions of MEC Pennsylvania and Multnomah Greyhound Park, partially offset by $56.5 million of proceeds received on the sale of
Non-Core Real Estate. In 2001, we invested $38.9 million in real estate and fixed asset additions, which included $6.4 million for the purchase of real estate,
$14.8 million related to maintenance capital improvements to the racetracks and $10.7 million on the Magna
Golf Club. The remaining $7.0 million of expenditures related to racetrack property enhancements, infrastructure and predevelopment costs on certain of our properties and on account wagering
activities, including the telephone and Internet and television distribution.

Financing activities

Cash used for financing activities was $10.2 million in 2001. During 2001, there were repayments of bank indebtedness of $7.6 million and of
long-term debt of $18.0 million, partially offset by the issuance of long-term debt of $15.0 million related to our term loan facility and the issuance of share
capital of $0.5 million.

Working Capital, Cash and Other Resources

Our net working capital, excluding cash and cash equivalents and bank indebtedness, was ($45.3) million at December 31, 2003, compared to ($37.6) million
at December 31, 2002. The decreased investment in net working capital, excluding cash and cash equivalents and bank indebtedness, was primarily related to a decrease of $11.9 million in
accounts receivable.

Our
$50.0 million credit agreement with respect to our senior, revolving credit facility has been amended and extended to October 8, 2004. The 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 is guaranteed by certain of our subsidiaries which own and operate Golden Gate Fields,
Gulfstream Park and Santa Anita Park and operate Bay Meadows. At December 31, 2003, we had no borrowings under this facility, but had issued letters of credit totaling $21.6 million.

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 on or after June 2, 2006. At December 31, 2003, all of the notes remained outstanding.

67

---

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 on or after December 21, 2005. At December 31, 2003, all of the notes remained
outstanding.

One
of our subsidiaries, The Santa Anita Companies, Inc., is party to a secured term loan facility, which bears interest at LIBOR plus 2.2% per annum. We have entered into an
interest rate swap contract and fixed the rate of interest at 6.0% per annum to November 30, 2004, the maturity date of the term loan facility. At December 31, 2003, $51.1 million
was outstanding under this fully drawn term loan facility. It is our expectation that we will renegotiate and extend this debt arrangement.

One
of our subsidiaries has issued a promissory note denominated in Canadian dollars, secured by two first mortgages and a debenture against Flamboro Downs racetrack and related real
estate. At December 31, 2003 the note is valued at $38.1 million and is repayable in annual installments of $1.9 million with the remaining amount due in June 2007.

One
of our European subsidiaries is party to a Euro denominated term loan facility, secured by a pledge of land and a guarantee by MEC, which bears interest at 4% per annum. At
December 31, 2003, $18.9 million was outstanding on this facility which matures on February 9, 2007.

Also,
two of our subsidiaries, which are part of The Maryland Jockey Club, are party to secured term loan facilities which bear interest at 3.7% and 7.0% per annum, respectively. Both
term loans have interest rate adjustment clauses which reset to the market rate for a U.S. Treasury security of an equivalent term plus 2.6% at set dates prescribed in the agreements. At
December 31, 2003, $18.7 million and $4.7 million, respectively, were outstanding under these fully drawn term loan facilities which mature on December 1, 2013 and
June 7, 2017, respectively.

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, 2003, this obligation has been reflected on our balance sheet as long-term debt due after one year.

As
of December 31, 2003, one of our subsidiaries had borrowed $6.7 million under a $10.0 million revolving credit loan facility to fund capital expenditures. The
indebtedness under the facility is secured by deeds of trust on land, buildings and improvements and by security interests in all other assets of the subsidiary and certain affiliates of The Maryland
Jockey Club. The advances under the facility bear interest at either the US prime rate or LIBOR plus 2.6%.

At
December 31, 2003, we had cash and cash equivalents of $99.8 million and total shareholders' equity of $657.1 million. At December 31, 2003, we also had
unused and available credit facilities of approximately $31.7 million.

At
December 31, 2003, we were in compliance with all of our debt agreements and related covenants. Our ability to continue 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. In particular, it is possible that we may not be
able to meet the financial covenants under our $50.0 million senior, revolving credit facility at the quarterly reporting dates during the remaining term of the facility, which expires on
October 8, 2004, unless extended with the consent of both parties. If we fail to comply with these financial covenants and the bank is unwilling to waive such a covenant breach, it will result
in the occurrence of an event of default under the facility, in which case the bank may terminate the facility, demand repayment of all amounts borrowed by us and require adequate security or
collateral for all outstanding letters of credit under the facility. At December 31, 2003, we had no borrowings and had issued letters of credit totaling $21.6 million under the
facility.

68

---

We
believe that our current cash resources, cash flow from our racing and real estate operations, including proceeds from the anticipated sales of Non-Core Real Estate and
other assets, the extension of credit and loan facilities and borrowings under our credit facilities described above will be sufficient to finance our operations and our capital expenditure program
during the next year. However, in order to fully implement our strategic plan and capitalize on future growth opportunities, we will be required to seek additional debt, equity and/or other financing
through public or private sources. If such additional financing is not available to us as needed or on terms acceptable to us, we may not be able to fully implement our strategic plan.

Contractual Obligations

Our commitments to make future payments consist primarily of repayments of long-term debt including capital lease obligations, obligations under
operating and facility leases and construction commitments. Our contractual obligations at December 31, 2003 are as follows:

|($ millions)                                     |  | Less than
1 year |  | 1 to 3 years |  | 3 to 5 years |  | More than
5 years |  | Total
|------------------------------------------------ |  | ---------------- |  | ------------ |  | ------------ |  | ----------------- |  | -----
|Long-term debt                                   |  | 58.0             |  | 33.3         |  | 54.6         |  | 34.1              |  | 180.0
|Operating leases                                 |  | 1.9              |  | 1.7          |  | 0.3          |  |                  |  | 3.9  
|Facility leases                                  |  | 5.1              |  | 1.7          |  | 0.6          |  | 1.8               |  | 9.2  
|Construction and development project commitments |  | 30.4             |  |             |  |             |  |                  |  | 30.4 
|                                                 |  |                  |  |              |  |              |  |                   |  |      
|                                                 |  | 95.4             |  | 36.7         |  | 55.5         |  | 35.9              |  | 223.5
|                                                 |  |                  |  |              |  |              |  |                   |  |      

Operating
lease obligations do not include contingent rental payments.

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. 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 the London Interbank Offered
Rate ("LIBOR") and the European Interbank Offered Rate ("EURIBOR"). Based on interest rates at December 31, 2003 and our current credit 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 our variable rate debt, we have entered into an interest rate swap contract. Under the terms of this contract, we
receive a LIBOR based variable interest rate and pay a fixed rate of 6.0% on a notional amount of $51.1 million as at December 31, 2003. The maturity date of this contract is
November 30, 2004.

69

---

Accounting Developments

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. At December 31, 2003, there are no new accounting standards which impact us which have not yet been adopted.

Forward-looking Statements

This Report contains "forward-looking statements" within the meaning of applicable securities legislation, including the Private Securities Litigation Reform Act
of 1995. These forward-looking statements may include, among others, statements regarding: expectations as to operational improvements; expectations as to cost savings, revenue growth and earnings;
the time by which certain objectives will be achieved; estimates of costs relating to environmental remediation and restoration; proposed new racetracks or other developments, products and services;
expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our
consolidated financial position, operating results, prospects or liquidity; projections, predictions, expectations, estimates or forecasts as to our financial and operating results and future economic
performance; and other matters that are not historical facts.

Forward-looking
statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or the times at or by which such
performance or results will be achieved. Forward-looking statements are based on information available at the time and/or management's good faith belief with respect to future events, and are subject
to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that could cause such differences include, but
are not limited to, the factors discussed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2003 and our subsequent
public filings.

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

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Information required by this item is incorporated by reference to the information contained in "Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Position" of this Annual Report.

70

---

Item 8.    Financial Statements and Supplementary Data

REPORT OF THE INDEPENDENT AUDITORS

To
the Shareholders ofMagna Entertainment Corp.

We
have audited the accompanying consolidated balance sheets of Magna Entertainment Corp. as of December 31, 2003 and 2002, and the related consolidated statements of operations
and comprehensive income (loss), changes in shareholders' equity and cash flows for each of the years in the three year period ended December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with United States generally accepted auditing standards. 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, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the years in the three year period ended December 31, 2003, in conformity with
United States generally accepted accounting principles.

|                  |  | /s/ Ernst & Young LLP
|----------------- |  | ---------------------
|Toronto, Canada   |  | Ernst & Young LLP    
|February 12, 2004 |  |                      

71

---



MAGNA ENTERTAINMENT CORP.        CONSOLIDATED STATEMENTS OF OPERATIONS AND  COMPREHENSIVE INCOME (LOSS)        (U.S. dollars in thousands, except per share figures)

|                                                                                                                                                |                                            |         |    | Years ended December 31, |         
|----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -- | ------------------------ | --------
|
|Revenues                                                                                                                                        |                                            | 16, 17  |    |                          |         
|Racing                                                                                                                                          |                                            |         |    |                          |         
|                                                                                                                                                | Gross wagering                             |         |    |                          | $       
|                                                                                                                                                | Non-wagering                               |         |    |                          |         
|                                                                                                                                                |                                            |         |    |                          |         
|                                                                                                                                                |                                            |         |    |                          | 687,165 
|                                                                                                                                                |                                            |         |    |                          |         
|Real estate and other                                                                                                                           |                                            |         |    |                          |         
|                                                                                                                                                | Sale of real estate                        |         |    |                          |         
|                                                                                                                                                | Golf and other                             |         |    |                          |         
|                                                                                                                                                |                                            |         |    |                          |         
|                                                                                                                                                |                                            |         |    |                          | 21,770  
|                                                                                                                                                |                                            |         |    |                          |         
|                                                                                                                                                |                                            |         |    |                          | 708,935 
|                                                                                                                                                |                                            |         |    |                          |         
|Costs and expenses                                                                                                                              |                                            |         |    |                          |         
|Racing                                                                                                                                          |                                            |         |    |                          |         
|                                                                                                                                                | Purses, awards and other                   |         |    |                          |         
|                                                                                                                                                | Operating costs                            |         |    |                          |         
|                                                                                                                                                | General and administrative                 |         |    |                          |         
|Real estate and other                                                                                                                           |                                            |         |    |                          |         
|                                                                                                                                                | Cost of real estate sold                   |         |    |                          |         
|                                                                                                                                                | Operating costs                            |         |    |                          |         
|                                                                                                                                                | General and administrative                 |         |    |                          |         
|Predevelopment and other costs                                                                                                                  |                                            |         |    |                          | 8,767   
|Depreciation and amortization                                                                                                                   |                                            |         |    |                          | 31,897  
|Interest expense, net                                                                                                                           |                                            | 11      |    |                          | 13,620  
|Write-down of long-lived and intangible assets                                                                                                  |                                            | 4       |    |                          | 134,856 
|Write-down of excess real estate                                                                                                                |                                            | 5       |    |                          |        
|Equity income                                                                                                                                   |                                            | 3       |    |                          | (1,153  
|                                                                                                                                                |                                            |         |    |                          |         
|                                                                                                                                                |                                            |         |    |                          | 872,388 
|                                                                                                                                                |                                            |         |    |                          |         
|Income (loss) before income taxes                                                                                                               |                                            |         |    |                          | (163,453
|Income tax provision (benefit)                                                                                                                  |                                            | 9       |    |                          | (58,356 
|                                                                                                                                                |                                            |         |    |                          |         
|Net income (loss)                                                                                                                               |                                            |         |    |                          | (105,097
|Other comprehensive income (loss)                                                                                                               |                                            |         |    |                          |         
|                                                                                                                                                | Foreign currency translation adjustment    |         | 14 |                          |         
|                                                                                                                                                | Change in fair value of interest rate swap |         | 15 |                          |         
|                                                                                                                                                |                                            |         |    |                          |         
|Comprehensive income (loss)                                                                                                                     |                                            |         |    | $                        | (64,021 
|                                                                                                                                                |                                            |         |    |                          |         
|Earnings (loss) per share for Class A Subordinate Voting Stock, Class B Stock or Exchangeable Share:                                            |                                            |         |    |                          |         
|                                                                                                                                                |                                            | Basic   |    | 13                       |         
|                                                                                                                                                |                                            | Diluted |    | 13                       |         
|                                                                                                                                                |                                            |         |    |                          |         
|Average number of shares of Class A Subordinate Voting Stock, Class B Stock and Exchangeable Shares outstanding during the year (in thousands): |                                            |         |    |                          |         
|                                                                                                                                                |                                            | Basic   |    | 13                       |         
|                                                                                                                                                |                                            | Diluted |    | 13                       |         
|                                                                                                                                                |                                            |         |    |                          |         

See accompanying notes

72

---

MAGNA ENTERTAINMENT CORP.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (U.S. dollars in thousands)

|                                                                                                     |                                                            |    |    | Years ended December 31, |         
|---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | -- | -- | ------------------------ | --------
|
|Cash provided from (used for)                                                                        |                                                            |    |    |                          |         
|OPERATING ACTIVITIES:                                                                                |                                                            |    |    |                          |         
|Net income (loss)                                                                                    |                                                            |    |    | $                        | (105,097
|Adjustments to reconcile net income (loss) to net cash provided from (used for) operating activities |                                                            |    |    |                          |         
|                                                                                                     | Depreciation and amortization                              |    |    |                          |         
|                                                                                                     | Future income taxes                                        |    | 9  |                          |         
|                                                                                                     | Gain on disposal of real estate properties                 |    |    |                          |         
|                                                                                                     | Write-down of long-lived, intangible and other assets      |    | 4  |                          |         
|                                                                                                     | Write-down of excess real estate                           |    | 5  |                          |         
|                                                                                                     | Equity income                                              |    | 3  |                          |         
|                                                                                                     | Amortization of convertible subordinated notes issue costs |    | 12 |                          |         
|                                                                                                     | Other                                                      |    |    |                          |         
|                                                                                                     |                                                            |    |    |                          |         
|                                                                                                     |                                                            |    |    |                          | 190     
|                                                                                                     |                                                            |    |    |                          |         
|Changes in non-cash working capital                                                                  |                                                            |    |    |                          |         
|                                                                                                     | Restricted cash                                            |    |    |                          |         
|                                                                                                     | Accounts receivable                                        |    |    |                          |         
|                                                                                                     | Prepaid expenses and other                                 |    |    |                          |         
|                                                                                                     | Accounts payable                                           |    |    |                          |         
|                                                                                                     | Accrued salaries and wages                                 |    |    |                          |         
|                                                                                                     | Customer deposits                                          |    |    |                          |         
|                                                                                                     | Other accrued liabilities                                  |    |    |                          |         
|                                                                                                     | Income taxes receivable                                    |    |    |                          |         
|                                                                                                     | Deferred revenue                                           |    |    |                          |         
|                                                                                                     |                                                            |    |    |                          |         
|                                                                                                     |                                                            |    |    |                          | 13,614  
|                                                                                                     |                                                            |    |    |                          |         
|                                                                                                     |                                                            |    |    |                          | 13,804  
|                                                                                                     |                                                            |    |    |                          |         
|INVESTMENT ACTIVITIES:                                                                               |                                                            |    |    |                          |         
|Acquisition of businesses, net of cash                                                               |                                                            | 3  |    |                          |        
|Real estate property additions                                                                       |                                                            |    |    |                          | (102,195
|Fixed asset additions                                                                                |                                                            |    |    |                          | (3,763  
|Other asset additions                                                                                |                                                            | 8  |    |                          | (16,549 
|Proceeds on real estate sold to a related party                                                      |                                                            | 17 |    |                          |        
|Proceeds on disposal of real estate                                                                  |                                                            |    |    |                          | 13,248  
|                                                                                                     |                                                            |    |    |                          |         
|                                                                                                     |                                                            |    |    |                          | (109,259
|                                                                                                     |                                                            |    |    |                          |         
|FINANCING ACTIVITIES:                                                                                |                                                            |    |    |                          |         
|Increase (decrease) in bank indebtedness                                                             |                                                            | 10 |    |                          | (42,779 
|Issuance of long-term debt                                                                           |                                                            |    |    |                          | 16,110  
|Repayment of long-term debt                                                                          |                                                            |    |    |                          | (17,513 
|Issuance of share capital                                                                            |                                                            | 13 |    |                          | 29      
|Issuance of convertible subordinated notes                                                           |                                                            | 12 |    |                          | 145,000 
|                                                                                                     |                                                            |    |    |                          |         
|                                                                                                     |                                                            |    |    |                          | 100,847 
|                                                                                                     |                                                            |    |    |                          |         
|Effect of exchange rate changes on cash and cash equivalents                                         |                                                            |    |    |                          | 6,734   
|                                                                                                     |                                                            |    |    |                          |         
|Net increase in cash and cash equivalents during the year                                            |                                                            |    |    |                          | 12,126  
|Cash and cash equivalents, beginning of year                                                         |                                                            |    |    |                          | 87,681  
|                                                                                                     |                                                            |    |    |                          |         
|Cash and cash equivalents, end of year                                                               |                                                            |    |    | $                        | 99,807  
|                                                                                                     |                                                            |    |    |                          |         

See accompanying notes

73

---

MAGNA ENTERTAINMENT CORP.        CONSOLIDATED BALANCE SHEETS        (U.S. dollars and share amounts in thousands)

|                                                                        |                                    |        |    | December 31, |          
|----------------------------------------------------------------------- | ---------------------------------- | ------ | -- | ------------ | ---------
|
|ASSETS                                                                  |                                   
|Current assets:                                                         |                                    |        |    |              |          
|                                                                        | Cash and cash equivalents          |        |    |              | $        
|                                                                        | Restricted cash                    |        |    |              |          
|                                                                        | Accounts receivable                |        |    |              |          
|                                                                        | Income taxes receivable            |        |    |              |          
|                                                                        | Prepaid expenses and other         |        |    |              |          
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    |              | 173,508  
|                                                                        |                                    |        |    |              |          
|Real estate properties, net                                             |                                    | 6      |    |              | 838,870  
|                                                                        |                                    |        |    |              |          
|Fixed assets, net                                                       |                                    | 7      |    |              | 31,355   
|                                                                        |                                    |        |    |              |          
|Other assets, net                                                       |                                    | 8      |    |              | 249,177  
|                                                                        |                                    |        |    |              |          
|Future tax assets                                                       |                                    | 9      |    |              | 30,030   
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    | $            | 1,322,940
|                                                                        |                                    |        |    |              |          
|LIABILITIES AND SHAREHOLDERS' EQUITY                                    |                                   
|Current liabilities:                                                    |                                    |        |    |              |          
|                                                                        | Bank indebtedness                  |        | 10 |              | $        
|                                                                        | Accounts payable                   |        |    |              |          
|                                                                        | Accrued salaries and wages         |        |    |              |          
|                                                                        | Customer deposits                  |        |    |              |          
|                                                                        | Other accrued liabilities          |        |    |              |          
|                                                                        | Long-term debt due within one year |        | 11 |              |          
|                                                                        | Deferred revenue                   |        |    |              |          
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    |              | 183,741  
|                                                                        |                                    |        |    |              |          
|Long-term debt                                                          |                                    | 11     |    |              | 122,026  
|                                                                        |                                    |        |    |              |          
|Convertible subordinated notes                                          |                                    | 12     |    |              | 218,167  
|                                                                        |                                    |        |    |              |          
|Other long-term liabilities                                             |                                    | 19     |    |              | 11,725   
|                                                                        |                                    |        |    |              |          
|Future tax liabilities                                                  |                                    | 9      |    |              | 130,227  
|                                                                        |                                    |        |    |              |          
|Commitments and contingencies                                           |                                    | 17, 18 |    |              |          
|Shareholders' equity:                                                   |                                    |        |    |              |          
|Class A Subordinate Voting Stock
(Issued: 2003  48,680; 2002  48,648) |                                    | 13     |    |              | 317,028  
|Class B Stock
(Issued: 2003 and 2002  58,466)                          |                                    | 13     |    |              | 394,094  
|Contributed surplus                                                     |                                    | 17     |    |              | 17,282   
|Deficit                                                                 |                                    |        |    |              | (108,018 
|Accumulated comprehensive income (loss)                                 |                                    | 14, 15 |    |              | 36,668   
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    |              | 657,054  
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    | $            | 1,322,940
|                                                                        |                                    |        |    |              |          

|On behalf of the Board:     
|----------------------------
|/s/WILLIAM J. MENEARDirector

See accompanying notes

74

---

MAGNA ENTERTAINMENT CORP.        CONSOLIDATED STATEMENTS OF CHANGES IN  SHAREHOLDERS' EQUITY        (U.S. dollars in thousands)

|                                                                                       |  | Class A Subordinate Voting Stock |         | Exchangeable Shares |   | Class B Stock |   | Contributed Surplus |         | Retained Earnings (Deficit) |   | Accumulated Comprehensive Income (Loss) | 
|-------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | ------------------- | - | ------------- | - | ------------------- | ------- | --------------------------- | - | --------------------------------------- | 
|Balances at December 31, 2000                                                          |  | $                                | 100,770 |                     | $ | 57,937        |   | $                   | 394,094 |                             | $ | 1,352                                   | 
|Activity for the year ended December 31, 2001:                                         |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Net income                                                                             |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Net gain on sale of real estate to a related party (note 17)                           |  |                                  |         |                     |   |               |   |                     |         |                             |   | 5,938                                   | 
|Foreign currency translation adjustment (note 14)                                      |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock for acquisitions (note 13)                   |  |                                  | 15,250  |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 13) |  |                                  | 476     |                     |   |               |   |                     |         |                             |   |                                         | 
|Conversion of Exchangeable Shares to Class A Subordinate Voting Stock (note 13)        |  |                                  | 41,137  |                     |   | (41,137       | ) |                     |         |                             |   |                                         | 
|                                                                                       |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Balances at December 31, 2001                                                          |  |                                  | 157,633 |                     |   | 16,800        |   |                     | 394,094 |                             |   | 7,290                                   | 
|Activity for the year ended December 31, 2002:                                         |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Net loss                                                                               |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Net gain on sale of real estate to a related party (note 17)                           |  |                                  |         |                     |   |               |   |                     |         |                             |   | 9,992                                   | 
|Foreign currency translation adjustment (note 14)                                      |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Change in fair value of interest rate swap (note 15)                                   |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock on completion of public offering (note 13)   |  |                                  | 142,084 |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock on exercise of stock options (note 13)       |  |                                  | 87      |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 13) |  |                                  | 251     |                     |   |               |   |                     |         |                             |   |                                         | 
|Conversion of Exchangeable Shares to Class A Subordinate Voting Stock (note 13)        |  |                                  | 16,800  |                     |   | (16,800       | ) |                     |         |                             |   |                                         | 
|                                                                                       |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Balances at December 31, 2002                                                          |  |                                  | 316,855 |                     |   |              |   |                     | 394,094 |                             |   | 17,282                                  | 
|Activity for the year ended December 31, 2003:                                         |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Net loss                                                                               |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Foreign currency translation adjustment (note 14)                                      |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Change in fair value of interest rate swap (note 15)                                   |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 13) |  |                                  | 144     |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock on exercise of stock options (note 13)       |  |                                  | 29      |                     |   |               |   |                     |         |                             |   |                                         | 
|                                                                                       |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Balances at December 31, 2003                                                          |  | $                                | 317,028 |                     | $ |              |   | $                   | 394,094 |                             | $ | 17,282                                  | 
|                                                                                       |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 

See accompanying notes

75

---



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.     SIGNIFICANT ACCOUNTING POLICIES



76

---



77

---



78

---



|                                                                                         |                       | Years ended December 31, |         
|---------------------------------------------------------------------------------------- | --------------------- | ------------------------ | --------
|
|Net income (loss), as reported                                                           |                       | $                        | (105,097
|Pro-forma stock compensation expenses determined under the fair value method, net of tax |                       |                          | (2,181  
|                                                                                         |                       |                          |         
|Pro-forma net income (loss)                                                              |                       | $                        | (107,278
|                                                                                         |                       |                          |         
|Earnings (loss) per share                                                                |                       |                          |         
|                                                                                         | Basic  as reported   |                          | $       
|                                                                                         |                       |                          |         
|                                                                                         | Basic  pro-forma     |                          | $       
|                                                                                         |                       |                          |         
|                                                                                         | Diluted  as reported |                          | $       
|                                                                                         |                       |                          |         
|                                                                                         | Diluted  pro-forma   |                          | $       
|                                                                                         |                       |                          |         





79

---



2.     ACCOUNTING CHANGE



|                                                           |  | Years ended December 31,
|---------------------------------------------------------- |  | ------------------------
|
|Net income (loss), as reported                             |  | $                       
|Amortization of racing licenses and goodwill, net of taxes |  |                         
|                                                           |  |                         
|Adjusted net income (loss)                                 |  | $                       
|                                                           |  |                         
|Basic and diluted earnings (loss) per share:               |  |                         
|As reported                                                |  | $                       
|Amortization of racing licenses and goodwill               |  |                         
|                                                           |  |                         
|Adjusted basic and diluted earnings (loss) per share       |  | $                       
|                                                           |  |                         

80

---

3.     BUSINESS ACQUISITIONS



|Non-cash working capital deficit                                         |  | $ | (1,549  | )
|------------------------------------------------------------------------ |  | - | ------- | -
|Real estate properties and fixed assets                                  |  |   | 16,494  |  
|Other assets                                                             |  |   | 55,491  |  
|Future taxes                                                             |  |   | (11,031 | )
|                                                                         |  |   |        
|Net assets acquired and total purchase price, net of cash acquired       |  | $ | 59,405  |  
|                                                                         |  |   |        
|The purchase consideration for this acquisition is as follows:           |  |   |         |  
|Cash                                                                     |  | $ | 23,055  |  
|Issuance of secured notes (note 11)                                      |  |   | 32,855  |  
|Obligation with respect to the extension of the slot agreement (note 11) |  |   | 3,495   |  
|                                                                         |  |   |        
|                                                                         |  | $ | 59,405  |  
|                                                                         |  |   |        





81

---





82

---



|                                                                   |  | Lone Star Park at Grand Prairie |         | The Maryland Jockey Club |   | Other   |   | Total |     
|------------------------------------------------------------------ |  | ------------------------------- | ------- | ------------------------ | - | ------- | - | ----- | ----
|Non-cash working capital deficit                                   |  | $                               | (4,087  | )                        | $ | (12,159 | ) | $     | (384
|Real estate properties and fixed assets                            |  |                                 | 64,010  |                          |   | 70,458  |   |       | 393 
|Other assets                                                       |  |                                 | 34,797  |                          |   | 96,832  |   |       | 585 
|Debt due within one year                                           |  |                                 | (62     | )                        |   | (1,041  | ) |       |    
|Long-term debt                                                     |  |                                 | (15,563 | )                        |   | (25,489 | ) |       |    
|Future taxes                                                       |  |                                 |        |                          |   | (43,674 | ) |       |    
|                                                                   |  |                                 |         |                          |   |         |   |       |     
|Net assets acquired and total purchase price, net of cash acquired |  | $                               | 79,095  |                          | $ | 84,927  |   | $     | 594 
|                                                                   |  |                                 |         |                          |   |         |   |       |     
|The purchase consideration for these acquisitions is as follows:   |  |                                 |         |                          |   |         |   |       |     
|Cash                                                               |  | $                               | 79,095  |                          | $ | 66,615  |   | $     | 594 
|Issuance of long-term debt (note 11)                               |  |                                 |        |                          |   | 18,312  |   |       |    
|                                                                   |  |                                 |         |                          |   |         |   |       |     
|                                                                   |  | $                               | 79,095  |                          | $ | 84,927  |   | $     | 594 
|                                                                   |  |                                 |         |                          |   |         |   |       |     





83

---



|                                                                   |  | MEC Pennsylvania |         | Multnomah Greyhound Park |   | Total |  
|------------------------------------------------------------------ |  | ---------------- | ------- | ------------------------ | - | ----- | -
|Non-cash working capital deficit                                   |  | $                | (6,514  | )                        | $ | (292  | )
|Real estate properties and fixed assets                            |  |                  | 19,947  |                          |   | 292   |  
|Other assets                                                       |  |                  | 60,587  |                          |   | 5,910 |  
|Future taxes                                                       |  |                  | (27,448 | )                        |   | (31   | )
|                                                                   |  |                  |         |                          |   |       |  
|Net assets acquired and total purchase price, net of cash acquired |  | $                | 46,572  |                          | $ | 5,879 |  
|                                                                   |  |                  |         |                          |   |       |  
|The purchase consideration for these acquisitions is as follows:   |  |                  |         |                          |   |       |  
|Cash                                                               |  | $                | 20,072  |                          | $ | 3,879 |  
|Issuance of two promissory notes                                   |  |                  | 13,250  |                          |   |      |  
|Issuance of Class A Subordinate Voting Stock                       |  |                  | 13,250  |                          |   | 2,000 |  
|                                                                   |  |                  |         |                          |   |       |  
|                                                                   |  | $                | 46,572  |                          | $ | 5,879 |  
|                                                                   |  |                  |         |                          |   |       |  





4.     WRITE-DOWN OF LONG-LIVED AND INTANGIBLE ASSETS



84

---

5.     WRITE-DOWN OF EXCESS REAL ESTATE



85

---

6.     REAL ESTATE PROPERTIES



|                                              |                          | December 31, |        
|--------------------------------------------- | ------------------------ | ------------ | -------
|
|Revenue-producing racing real estate          |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              | $      
|                                              | Buildings                |              |        
|                                              | Construction in progress |              |        
|                                              |                          |              |        
|                                              |                          |              | 565,694
|Accumulated depreciation                      |                          |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|Revenue-producing racing real estate, net     |                          |              | 529,240
|                                              |                          |              |        
|Excess racing real estate                     |                          |              | 97,201 
|                                              |                          |              |        
|Development real estate                       |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              |        
|                                              | Construction in progress |              |        
|                                              |                          |              |        
|Development real estate                       |                          |              | 122,530
|                                              |                          |              |        
|Revenue-producing non-racing real estate      |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|                                              |                          |              | 89,175 
|Accumulated depreciation                      |                          |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|Revenue-producing non-racing real estate, net |                          |              | 80,554 
|                                              |                          |              |        
|Non-core real estate                          |                          |              |        
|                                              | Land and improvements    |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|                                              |                          |              | 11,113 
|Accumulated depreciation                      |                          |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|Non-core real estate, net                     |                          |              | 9,345  
|                                              |                          |              |        
|                                              |                          | $            | 838,870
|                                              |                          |              |        



86

---

7.     FIXED ASSETS



|                                               |                         | December 31, |       
|---------------------------------------------- | ----------------------- | ------------ | ------
|
|Revenue-producing racing fixed assets          |                         |              |       
|Cost                                           |                         |              |       
|                                               | Machinery and equipment |              | $     
|                                               | Furniture and fixtures  |              |       
|                                               |                         |              |       
|                                               |                         |              | 62,401
|Accumulated depreciation                       |                         |              |       
|                                               | Machinery and equipment |              |       
|                                               | Furniture and fixtures  |              |       
|                                               |                         |              |       
|Revenue-producing racing fixed assets, net     |                         |              | 25,699
|                                               |                         |              |       
|Revenue-producing non-racing fixed assets      |                         |              |       
|Cost                                           |                         |              |       
|                                               | Machinery and equipment |              |       
|                                               | Furniture and fixtures  |              |       
|                                               |                         |              |       
|                                               |                         |              | 11,874
|Accumulated depreciation                       |                         |              |       
|                                               | Machinery and equipment |              |       
|                                               | Furniture and fixtures  |              |       
|                                               |                         |              |       
|Revenue-producing non-racing fixed assets, net |                         |              | 5,656 
|                                               |                         |              |       
|                                               |                         | $            | 31,355
|                                               |                         |              |       

8.     OTHER ASSETS



|                                             |                                                                      | December 31, |        
|-------------------------------------------- | -------------------------------------------------------------------- | ------------ | -------
|
|Racing licenses                              |                                                                      |              |        
|                                             | Balance, beginning of the year                                       |              | $      
|                                             | Adjustment to purchase price allocation for Multnomah Greyhound Park |              |        
|                                             | Acquired during the year (note 3)                                    |              |        
|                                             | Write-down of racing licenses (note 4)                               |              |        
|                                             | Foreign currency impact on racing licenses(i)                        |              |        
|                                             |                                                                      |              |        
|                                             | Balance, end of year                                                 |              |        
|Receivable from Ontario Racing Inc. (note 3) |                                                                      |              |       
|Long-term receivables and other              |                                                                      |              | 7,738  
|Equity investments                           |                                                                      |              | 4,593  
|Goodwill, net                                |                                                                      |              | 748    
|                                             |                                                                      |              |        
|                                             |                                                                      | $            | 249,177
|                                             |                                                                      |              |        

87

---

9.     INCOME TAXES



|                                         |  | Years ended December 31, |        
|---------------------------------------- |  | ------------------------ | -------
|
|Expected provision:                      |  |                          |        
|Federal statutory income tax rate (35%)  |  | $                        | (57,209
|State income tax, net of federal benefit |  |                          | (6,223 
|Tax losses not benefited (utilized)      |  |                          | (1,082 
|Foreign rate differentials               |  |                          | 80     
|Increase in enacted income tax rates     |  |                          | 3,721  
|Other                                    |  |                          | 2,357  
|                                         |  |                          |        
|Income tax provision (benefit)           |  | $                        | (58,356
|                                         |  |                          |        



|Years:       |  |   |       
|------------ |  | - | ------
|2008 to 2010 |  | $ | 5,300 
|2012 to 2018 |  |   | 4,800 
|2020 to 2022 |  |   | 33,300
|             |  |  
|             |  | $ | 43,400
|             |  |  



|              |  | Years ended December 31, |         
|------------- |  | ------------------------ | --------
|
|United States |  | $                        | (170,521
|Foreign       |  |                          | 7,068   
|              |  |                          |         
|              |  | $                        | (163,453
|              |  |                          |         



|                  |               | Years ended December 31, |        
|----------------- | ------------- | ------------------------ | -------
|
|Current provision |               |                          |        
|                  | United States |                          | $      
|                  | Foreign       |                          |        
|                  |               |                          |        
|                  |               |                          | 5,450  
|                  |               |                          |        
|Future provision  |               |                          |        
|                  | United States |                          |        
|                  | Foreign       |                          |        
|                  |               |                          |        
|                  |               |                          | (63,806
|                  |               |                          |        
|                  |               | $                        | (58,356
|                  |               |                          |        

88

---



|                                                                                                                      |  | Years ended December 31, |        
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|Tax deferral on sale of real estate                                                                                   |  | $                        | 2,536  
|Amortization of purchase accounting fair value increments, for tax purposes in excess of book (book in excess of tax) |  |                          | 1,901  
|Tax gain in excess of book gain on disposal of real estate property                                                   |  |                          | (6,403 
|Tax benefit of charitable contribution carry-forward                                                                  |  |                          | (269   
|Tax benefit of loss carry-forwards                                                                                    |  |                          | (10,932
|Utilization of loss carry-forwards                                                                                    |  |                          | 385    
|Taxable fee revenue in excess of book                                                                                 |  |                          | (1,305 
|Write-down of assets for book purposes                                                                                |  |                          | (53,194
|Reduction in valuation allowance                                                                                      |  |                          | (920   
|Increase in enacted income tax rates                                                                                  |  |                          | 3,721  
|Other                                                                                                                 |  |                          | 674    
|                                                                                                                      |  |                          |        
|                                                                                                                      |  | $                        | (63,806
|                                                                                                                      |  |                          |        



|                                                         |                                                                                         | December 31,     |        
|-------------------------------------------------------- | --------------------------------------------------------------------------------------- | ---------------- | -------
|
|Assets                                                   |                                                                                         |                  |        
|Real estate properties tax value in excess of book value |                                                                                         | $                | 23,145 
|Tax benefit of loss carry-forwards                       |                                                                                         |                  |        
|                                                         | Pre-acquisition                                                                         |                  |        
|                                                         | Post-acquisition                                                                        |                  |        
|Tax benefit of charitable contribution carry-forward     |                                                                                         |                  | 1,505  
|Benefit of various tax credit carry-forwards             |                                                                                         |                  | 2,628  
|                                                         |                                                                                         |                  |        
|                                                         |                                                                                         |                  | 44,952 
|Valuation allowance                                      |                                                                                         |                  |        
|                                                         | Valuation allowance against tax basis of loss carry-forwards                            |                  |        
|                                                         |                                                                                         | Pre-acquisition  |        
|                                                         |                                                                                         | Post-acquisition |        
|                                                         | Valuation allowance against tax basis of real estate properties in excess of book value |                  |        
|                                                         |                                                                                         |                  |        
|Future tax assets                                        |                                                                                         | $                | 30,030 
|                                                         |                                                                                         |                  |        
|Liabilities                                              |                                                                                         |                  |        
|                                                         | Real estate properties book basis in excess of tax basis                                |                  | $      
|                                                         | Other assets book basis in excess of tax basis                                          |                  |        
|                                                         | Other                                                                                   |                  |        
|                                                         |                                                                                         |                  |        
|Future tax liabilities                                   |                                                                                         | $                | 130,227
|                                                         |                                                                                         |                  |        



89

---



10.   BANK INDEBTEDNESS





90

---



11.   DEBT AND COMMITMENTS



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | December 31,
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|
|Term loan facility, bearing interest at LIBOR plus 2.2% per annum (3.3% at December 31, 2003, note 15(c)) with a maturity date of November 30, 2004, secured by a deed of trust against Santa Anita Park
racetrack and related real estate. At December 31, 2003, the term loan is fully drawn and is repayable in monthly principal amounts of $350 thousand until maturity.                                                                                                                                                                                                                |  | $           
|Promissory note denominated in Canadian dollars bearing interest at the five-year Government of Canada benchmark bank bond rate plus 1.5% per annum, with a maturity date of June 30, 2007. The interest rate is not to
be less than 6.0% per annum and cannot exceed 7.0% per annum (6.0% at December 31, 2003). The note is secured by two first mortgages and a debenture against Flamboro Downs racetrack and related real estate. The promissory note is repayable in
annual installments of $1.9 million (Cdn. $2.5 million) with the remaining amount due upon maturity (note 3).     |  |             
|Term loan facility of 15 million Euros, 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.                                                                                                                                                                                                                                                                                                                                                                                                             |  |             
|Term loan facilities, bearing interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum (3.7% at December 31, 2003) 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 entities of The Maryland Jockey Club. |  |             
|Obligation to pay $18.3 million on exercise of either the put or call option for the remaining minority interest in The Maryland Jockey Club, bearing interest at the 6 month LIBOR (1.3% at December 31,
2003) (note 3).                                                                                                                                                                                                                                                                                                                                                                    |  |             
|Capital lease (imputed interest rate of 8.5%) maturing April 1, 2027, secured by buildings and improvements at Lone Star Park at Grand Prairie.                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |             
|Bank term line of credit denominated in Euros, bearing interest at EURIBOR plus 0.625% per annum (2.8% at December 31, 2003). The term line of credit is repayable in annual installments of $3.7 million (Euros
2.9 million) due in July 2005. The Company has provided two first mortgages on real estate properties as security for this facility.                                                                                                                                                                                                                                        |  |             
|Promissory note bearing interest at 6.0% per annum, repaid in April 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |             
|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, 2006 or 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 entities of The Maryland Jockey Club. |  |             
|Obligation to pay $5.5 million Canadian with respect to the extension of the Flamboro Downs' agreement with the OLGC regarding the slot facility, bearing interest at the five-year Government of Canada benchmark bank
bond rate plus 1.5% per annum. The interest rate is not to be less than 6.0% per annum and cannot exceed 7.0% per annum (6.0% at December 31, 2003) (note 3).                                                                                                                                                                                                        |  |             
|Unsecured promissory note bearing interest at 6.1% per annum, with a maturity date of September 14, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |             
|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 9.0%.                                                                                                                                                                                                                                                                                                                                                                                                                      |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |             
|Less due within one year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |             

91

---



|2004       |  | $ | 58,048 
|---------- |  | - | -------
|2005       |  |   | 11,662 
|2006       |  |   | 21,674 
|2007       |  |   | 52,845 
|2008       |  |   | 1,760  
|Thereafter |  |   | 34,085 
|           |  |  
|           |  | $ | 180,074
|           |  |  



|2004                                                       |  | $ | 1,320 
|---------------------------------------------------------- |  | - | ------
|2005                                                       |  |   | 1,320 
|2006                                                       |  |   | 1,320 
|2007                                                       |  |   | 1,452 
|2008                                                       |  |   | 1,452 
|Thereafter                                                 |  |   | 31,416
|                                                           |  |  
|Total payments                                             |  |   | 38,280
|Less: capital lease minimum payments representing interest |  |   | 22,759
|                                                           |  |  
|Present value of lease payments                            |  | $ | 15,521
|                                                           |  |  



|                           |  | Years ended December 31, |       
|-------------------------- |  | ------------------------ | ------
|
|Interest cost, gross       |  | $                        | 22,523
|Less: Interest capitalized |  |                          | 7,281 
|                           |  |                          |       
|Interest expense           |  |                          | 15,242
|Interest income            |  |                          | (1,622
|                           |  |                          |       
|Interest expense, net      |  | $                        | 13,620
|                           |  |                          |       



92

---



12.   CONVERTIBLE SUBORDINATED NOTES







13.   CAPITAL STOCK



93

---





|                                                                           |  | Class A Subordinate Voting Stock |  | Exchangeable Shares |         | Class B Stock |            | Total
|-------------------------------------------------------------------------- |  | -------------------------------- |  | ------------------- | ------- | ------------- | ---------- | -----
|
|Issued and outstanding at December 31, 2000                                |  | 14,192,147                       |  | $                   | 100,770 |               | 7,807,431  |      
|Conversion of Exchangeable Shares to Class A Subordinate Voting Stock      |  | 5,544,059                        |  |                     | 41,137  |               | (5,544,059 | )    
|Issued on acquisition of subsidiaries                                      |  | 3,509,259                        |  |                     | 15,250  |               |           |      
|Issued under the Long-term Incentive Plan                                  |  | 78,094                           |  |                     | 476     |               |           |      
|                                                                           |  |                                  |  |                     |         |               |            |      
|Issued and outstanding at December 31, 2001                                |  | 23,323,559                       |  |                     | 157,633 |               | 2,263,372  |      
|Issued on completion of public offering (i)                                |  | 23,000,000                       |  |                     | 142,084 |               |           |      
|Conversion of Exchangeable Shares to Class A Subordinate Voting Stock (ii) |  | 2,263,372                        |  |                     | 16,800  |               | (2,263,372 | )    
|Issued on exercise of Stock Options                                        |  | 18,000                           |  |                     | 87      |               |           |      
|Issued under the Long-term Incentive Plan                                  |  | 42,900                           |  |                     | 251     |               |           |      
|                                                                           |  |                                  |  |                     |         |               |            |      
|Issued and outstanding at December 31, 2002                                |  | 48,647,831                       |  |                     | 316,855 |               |           |      
|Issued on exercise of Stock Options                                        |  | 6,000                            |  |                     | 29      |               |           |      
|Issued under the Long-term Incentive Plan                                  |  | 25,965                           |  |                     | 144     |               |           |      
|                                                                           |  |                                  |  |                     |         |               |            |      
|Issued and outstanding at December 31, 2003                                |  | 48,679,796                       |  | $                   | 317,028 |               |           |      
|                                                                           |  |                                  |  |                     |         |               |            |      



94

---



|                                            |         | Years ended December 31,
|------------------------------------------- | ------- | ------------------------
|
|Net income (loss)                           |         | $                       
|                                            |         |                         
|Weighted average shares outstanding         |         |                         
|Net effect of dilutive instruments(i)       |         |                         
|                                            |         |                         
|Diluted weighted average shares outstanding |         |                         
|                                            |         |                         
|Earnings (loss) per Share:                  |         |                         
|                                            | Basic   |                         
|                                            |         |                         
|                                            | Diluted |                         
|                                            |         |                         

---

14.   CURRENCY TRANSLATION ADJUSTMENT



15.   FINANCIAL INSTRUMENTS



95

---







96

---



16.   SEGMENT INFORMATION



|                                                    |  | Year ended December 31, 2003 |          
|--------------------------------------------------- |  | ---------------------------- | ---------
|
|Revenues                                            |  | $                            | 687,165  
|                                                    |  |                              |          
|Loss before income taxes                            |  |                              | (161,162 
|                                                    |  |                              |          
|Real estate properties and fixed asset additions    |  |                              | 102,940  
|                                                    |  |                              |          
|Real estate properties, fixed and other assets, net |  |                              | 1,007,214
|Current assets                                      |  |                              |          
|Future tax assets                                   |  |                              |          
|                                                    |  |                              |          
|Total assets                                        |  |                              |          
|                                                    |  |                              |          

97

---

|                                                    |  | Year ended December 31, 2002 |        
|--------------------------------------------------- |  | ---------------------------- | -------
|
|Revenues                                            |  | $                            | 522,621
|                                                    |  |                              |        
|Loss before income taxes                            |  |                              | (22,903
|                                                    |  |                              |        
|Real estate properties and fixed asset additions    |  |                              | 96,746 
|                                                    |  |                              |        
|Real estate properties, fixed and other assets, net |  |                              | 980,720
|Current assets                                      |  |                              |        
|Future tax assets                                   |  |                              |        
|                                                    |  |                              |        
|Total assets                                        |  |                              |        
|                                                    |  |                              |        

|                                                    |  | Year ended December 31, 2001
|--------------------------------------------------- |  | ----------------------------
|
|Revenues                                            |  | $                           
|                                                    |  |                             
|Income before income taxes                          |  |                             
|                                                    |  |                             
|Real estate properties and fixed asset additions    |  |                             
|                                                    |  |                             
|Real estate properties, fixed and other assets, net |  |                             
|Current assets                                      |  |                             
|Future tax assets                                   |  |                             
|                                                    |  |                             
|Total assets                                        |  |                             
|                                                    |  |                             



|              |  | Years ended December 31,
|------------- |  | ------------------------
|
|United States |  | $                       
|Canada        |  |                         
|Europe        |  |                         
|              |  |                         
|              |  | $                       
|              |  |                         



|              |  | Years ended December 31,
|------------- |  | ------------------------
|
|United States |  | $                       
|Canada        |  |                         
|Europe        |  |                         
|              |  |                         
|              |  | $                       
|              |  |                         

98

---

17.   TRANSACTIONS WITH RELATED PARTIES







99

---



18.   COMMITMENTS AND CONTINGENCIES



|2004       |  | $ | 7,029 
|---------- |  | - | ------
|2005       |  |   | 2,121 
|2006       |  |   | 1,312 
|2007       |  |   | 427   
|2008       |  |   | 423   
|Thereafter |  |   | 1,780 
|           |  |  
|           |  | $ | 13,092
|           |  |  



100

---



101

---



102

---



19.   OTHER LONG-TERM LIABILITIES



|                                              |  | December 31,
|--------------------------------------------- |  | ------------
|
|Deferred initiation fees and other revenue    |  | $           
|Fair value of interest rate swap (note 15(c)) |  |             
|Pension liability                             |  |             
|                                              |  |             
|                                              |  | $           
|                                              |  |             



|                                              |  | Years ended December 31, |       
|--------------------------------------------- |  | ------------------------ | ------
|
|Components of net periodic pension cost:      |  |                          |       
|Service cost                                  |  | $                        | 413   
|Interest cost on projected benefit obligation |  |                          | 647   
|Actual (return) loss on plan assets           |  |                          | (1,015
|Net amortization and deferral                 |  |                          | 452   
|                                              |  |                          |       
|Net periodic pension cost                     |  | $                        | 497   
|                                              |  |                          |       

103

---



|                                         |                                                | Years ended December 31, |       
|---------------------------------------- | ---------------------------------------------- | ------------------------ | ------
|
|Change in benefit obligation:            |                                                |                          |       
|                                         | Benefit obligation at beginning of year        |                          | $     
|                                         | Service cost                                   |                          |       
|                                         | Interest cost                                  |                          |       
|                                         | Benefits paid                                  |                          |       
|                                         | Actuarial (gains) losses                       |                          |       
|                                         |                                                |                          |       
|Benefit obligation at end of year        |                                                |                          | 11,711
|                                         |                                                |                          |       
|Change in plan assets:                   |                                                |                          |       
|                                         | Fair value of plan assets at beginning of year |                          |       
|                                         | Actual return (loss) on plan assets            |                          |       
|                                         | Company contributions                          |                          |       
|                                         | Benefits paid                                  |                          |       
|                                         |                                                |                          |       
|Fair value of plan assets at end of year |                                                |                          | 9,962 
|                                         |                                                |                          |       
|Funded status of plan (underfunded)      |                                                |                          | (1,749
|Unrecognized net loss                    |                                                |                          | 1,675 
|                                         |                                                |                          |       
|Net pension liability                    |                                                | $                        | (74   
|                                         |                                                |                          |       



|                                                         |  | Years ended December 31,
|-------------------------------------------------------- |  | ------------------------
|
|Weighted average discount rate                           |  | 6.0%                    
|Weighted average rate of increase in compensation levels |  | 5.0%                    
|Expected long-term rate of return                        |  | 6.0%                    
|                                                         |  |                         



104

---



|                           |  | Shares Subject to Option |   | Weighted Average Exercise Price
|-------------------------- |  | ------------------------ | - | -------------------------------
|
|Balance, Beginning of Year |  | 5,361,833                |   | 4,453,333                      
|Granted                    |  | 640,000                  |   | 947,500                        
|Exercised                  |  | (6,000                   | ) | (18,000                        
|Forfeited                  |  | (1,154,333               | ) | (21,000                        
|                           |  |                          |   |                                
|Balance, End of Year       |  | 4,841,500                |   | 5,361,833                      
|                           |  |                          |   |                                



|                                                    |  | Options Outstanding |           | Options Exercisable
|--------------------------------------------------- |  | ------------------- | --------- | -------------------
|
|Number                                              |  |                     | 4,841,500 |                    
|Weighted average exercise price                     |  | $                   | 6.14      |                    
|Weighted average remaining contractual life (years) |  |                     | 6.6       |                    



105

---



|                                                                               |  | Years ended December 31,
|------------------------------------------------------------------------------ |  | ------------------------
|
|Risk free interest rates                                                       |  | 2.0%                    
|Dividend yields                                                                |  | 0.84%                   
|Volatility factor of expected market price of Class A Subordinate Voting Stock |  | 0.534                   
|Weighted average expected life (years)                                         |  | 4.00                    



|                                                                                        |                       | Years ended December 31, |         
|--------------------------------------------------------------------------------------- | --------------------- | ------------------------ | --------
|
|Net income (loss), as reported                                                          |                       | $                        | (105,097
|Pro-forma stock compensation expense determined under the fair value method, net of tax |                       |                          | (2,181  
|                                                                                        |                       |                          |         
|Pro-forma net income (loss)                                                             |                       | $                        | (107,278
|                                                                                        |                       |                          |         
|Earnings (loss) per share                                                               |                       |                          |         
|                                                                                        | Basic  as reported   |                          | $       
|                                                                                        |                       |                          |         
|                                                                                        | Basic  pro-forma     |                          | $       
|                                                                                        |                       |                          |         
|                                                                                        | Diluted  as reported |                          | $       
|                                                                                        |                       |                          |         
|                                                                                        | Diluted  pro-forma   |                          | $       
|                                                                                        |                       |                          |         



20.   CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES



106

---





|                                                                                                                                             |         | Years ended December 31,
|-------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ------------------------
|
|Net income (loss) under U.S. GAAP                                                                                                            |         | $                       
|Adjustments (net of related tax effects)                                                                                                     |         |                         
|Interest expense on convertible subordinated notes resulting from amortization of discount on initial recognition of liability component (a) |         |                         
|Net gain on sale of real estate to a related party (b) (note 17)                                                                             |         |                         
|                                                                                                                                             |         |                         
|Net income (loss) under Canadian GAAP                                                                                                        |         | $                       
|                                                                                                                                             |         |                         
|Earnings (loss) per share:                                                                                                                   |         |                         
|                                                                                                                                             | Basic   |                         
|                                                                                                                                             |         |                         
|                                                                                                                                             | Diluted |                         
|                                                                                                                                             |         |                         

107

---

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

|For the year ended December 31, 2003                                                    |  | March 31 |         | June 30 |   | September 30 |  | December 31 |         | Total |  
|--------------------------------------------------------------------------------------- |  | -------- | ------- | ------- | - | ------------ |  | ----------- | ------- | ----- | -
|Revenue                                                                                 |  | $        | 270,115 |         | $ | 188,267      |  | $           | 104,475 |       | $
|Earnings (loss) before interest, income taxes, depreciation and amortization ("EBITDA") |  |          | 31,839  |         |   | 10,977       |  |             | (12,599 | )     |  
|Net income (loss)                                                                       |  |          | 12,650  |         |   | 811          |  |             | (15,397 | )     |  
|Diluted earnings (loss) per share                                                       |  |          | 0.12    |         |   | 0.01         |  |             | (0.14   | )     |  
|                                                                                        |  |          |         |         |   |              |  |             |         |       |  

|For the year ended December 31, 2002 |  | March 31 |         | June 30 |   | September 30 |  | December 31 |         | Total |  
|------------------------------------ |  | -------- | ------- | ------- | - | ------------ |  | ----------- | ------- | ----- | -
|Revenue                              |  | $        | 248,799 |         | $ | 128,168      |  | $           | 65,433  |       | $
|EBITDA                               |  |          | 37,046  |         |   | 7,536        |  |             | (11,220 | )     |  
|Net income (loss)                    |  |          | 18,615  |         |   | 1,082        |  |             | (9,742  | )     |  
|Diluted earnings (loss) per share    |  |          | 0.22    |         |   | 0.01         |  |             | (0.09   | )     |  
|                                     |  |          |         |         |   |              |  |             |         |       |  

|For the year ended December 31, 2001 |  | March 31 |         | June 30 |   | September 30 |  | December 31 |        | Total
|------------------------------------ |  | -------- | ------- | ------- | - | ------------ |  | ----------- | ------ | -----
|Revenue                              |  | $        | 244,526 |         | $ | 113,192      |  | $           | 65,832 |      
|EBITDA                               |  |          | 44,622  |         |   | 11,019       |  |             | (2,825 | )    
|Net income (loss)                    |  |          | 22,468  |         |   | 2,237        |  |             | (6,227 | )    
|Diluted earnings (loss) per share    |  |          | 0.28    |         |   | 0.03         |  |             | (0.07  | )    
|                                     |  |          |         |         |   |              |  |             |        |      

Reconciliation of Non-GAAP to GAAP Financial Measures
(U.S. dollars in thousands)
(unaudited)

|Earnings (Loss) Before Interest, Income Taxes,
Depreciation and Amortization ("EBITDA") |  | 2003 |          | 2002 |   | 2001    |   | 2000 |        | 1999 |  
|--------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | ------- | - | ---- | ------ | ---- | -
|Income (loss) before income taxes                                                       |  | $    | (163,453 | )    | $ | (22,990 | ) | $    | 22,813 |      | $
|Interest expense (income), net                                                          |  |      | 13,620   |      |   | 709     |   |      | 2,682  |      |  
|Depreciation and amortization                                                           |  |      | 31,897   |      |   | 22,834  |   |      | 26,194 |      |  
|                                                                                        |  |      |          |      |   |         |   |      |        |      |  
|EBITDA                                                                                  |  | $    | (117,936 | )    | $ | 553     |   | $    | 51,689 |      | $
|                                                                                        |  |      |          |      |   |         |   |      |        |      |  

108

---

MAGNA ENTERTAINMENT CORP.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
[Amounts in thousands, U.S. dollars]

|                                 |                                  |                                                               |   |         |    |        |   | Costs Capitalized
Subsequent to Acquisition |   | Foreign Exchange Impact |   | Gross Amount at which
Carried at Close of Period |   |       |   |         |    |        |   |        
|-------------------------------- | -------------------------------- | ------------------------------------------------------------- | - | ------- | -- | ------ | - | ------------------------------------------- | - | ----------------------- | - | ------------------------------------------------ | - | ----- | - | ------- | -- | ------ | - | -------
|
|
|EXCESS REAL ESTATE               |                                  |                                                               |   |         |    |        |   |                                             |   |                         |   |                                                  |   |       |   |         |    |        |   |        
|                                 | Racing Operations                |                                                               |   |         |    |        |   |                                             |   |                         |   |                                                  |   |       |   |         |    |        |   |        
|                                 |                                  | Santa Anita Park (Arcadia, California, U.S.A.)                |   |        |    | 52,500 |   |                                            |   |                        |   | 281                                              |   |      |   |        |    | 52,500 |   | 281    
|                                 |                                  | Gulfstream Park
(Hallandale, Florida, U.S.A.)                 |   |        |    | 14,201 |   |                                            |   |                        |   |                                                 |   |      |   |        |    | 14,201 |   |       
|                                 |                                  | Lone Star Park (Grand Prairie, Texas, U.S.A.)                 |   |        |    | 4,245  |   |                                            |   |                        |   |                                                 |   |      |   |        |    | 4,245  |   |       
|                                 |                                  | Maryland Jockey Club (Baltimore, Maryland, U.S.A.)            |   |        |    | 10,900 |   |                                            |   |                        |   |                                                 |   |      |   |        |    | 10,900 |   |       
|                                 |                                  | MEC Grundstucksentwicklumgs GmbH (Niederoesterreich, Austria) |   |        |    | 9,974  |   |                                            |   | 3,651                   |   |                                                 |   | 1,449 |   |        |    | 15,074 |   |       
|REAL ESTATE HELD FOR DEVELOPMENT
|                                 | Racing Operations                |                                                               |   |         |    |        |   |                                             |   |                         |   |                                                  |   |       |   |         |    |        |   |        
|                                 |                                  | Dixon Downs (Dixon, California, U.S.A.)                       |   |        |    | 6,584  |   |                                            |   | 4,542                   |   | 22                                               |   |      |   |        |    | 11,126 |   | 22     
|                                 |                                  | Ocala (Ocala, Florida, U.S.A.)                                |   |        |    | 7,227  |   |                                            |   | 441                     |   |                                                 |   |      |   |        |    | 7,668  |   |       
|                                 |                                  | Palm Meadows Estates (Boynton, Florida, U.S.A.)               |   |        |    | 7,488  |   |                                            |   | 927                     |   |                                                 |   |      |   |        |    | 8,415  |   |       
|                                 |                                  | MEC Grundstucksentwicklumgs GmbH (Niederoesterreich, Austria) |   |        |    | 11,475 |   |                                            |   | 3,935                   |   | 53,936                                           |   | 403   |   | 8,483   |    | 15,813 |   | 62,419 
|                                 | Real Estate Operations           |                                                               |   |         |    |        |   |                                             |   |                         |   |                                                  |   |       |   |         |    |        |   |        
|                                 |                                  | New York, U.S.A.                                              |   |        |    | 725    |   |                                            |   | 2,034                   |   |                                                 |   |      |   |        |    | 2,759  |   |       
|                                 |                                  | Ontario, Canada                                               |   |        |    | 2,334  |   |                                            |   | 5,121                   |   |                                                 |   | 805   |   |        |    | 8,260  |   |       
|                                 |                                  | Niederoesterreich, Austria                                    |   |        |    | 6,804  |   |                                            |   |                        |   |                                                 |   | (756  | ) |        |    | 6,048  |   |       
|NON-CORE REAL ESTATE            
|                                 | Land                             |                                                               |   |         |    |        |   |                                             |   |                         |   |                                                  |   |       |   |         |    |        |   |        
|                                 |                                  | Ontario, Canada                                               |   |        |    | 2,559  |   |                                            |   | 232                     |   |                                                 |   | 186   |   |        |    | 2,977  |   |       
|                                 |                                  | Michigan, U.S.A.                                              |   |        |    | 1,161  |   |                                            |   | 269                     |   |                                                 |   |      |   |        |    | 1,430  |   |       
|                                 |                                  | Florida, U.S.A.                                               |   |        |    | 1,918  |   |                                            |   | 504                     |   |                                                 |   |      |   |        |    | 2,422  |   |       
|                                 | Commercial/Industrial Properties |                                                               |   |         |    |        |   |                                             |   |                         |   |                                                  |   |       |   |         |    |        |   |        
|                                 |                                  | Oberoesterreich, Austria                                      |   |        |    | 3,376  |   | 8,193                                       |   | (3,516                  | ) | (8,563                                           | ) | 159   |   | 370     |    | 19     |   |       
|                                 |                                  | Oberoesterreich, Austria                                      |   |        |    | 2,024  |   |                                            |   |                        |   |                                                 |   | 313   |   |        |    | 2,337  |   |       
|                                 | Residential Properties           |                                                               |   |         |    |        |   |                                             |   |                         |   |                                                  |   |       |   |         |    |        |   |        
|                                 |                                  | Niederoesterreich, Austria                                    |   |        |    | 18     |   | 1,553                                       |   |                        |   | 53                                               |   | (1    | ) | 260     |    | 17     |   | 1,866  
|                                 | Other                            |                                                               |  |         | 41 |        |  |                                             |  |                         |  |                                                  | 4 |       |  |         | 45 |        |  |        
|                                 |                                  |                                                               |   |         |    |        |   |                                             |   |                         |   |                                                  |   |       |   |         |    |        |   |        
|                                 |                                  |                                                              |   | 145,554 |    | 9,746  |   | 18,140                                      |   | 45,729                  |   | 2,562                                            |   | 9,113 |   | 166,256 |    | 64,588 |   | 230,844
|                                 |                                  |                                                               |   |         |    |        |   |                                             |   |                         |   |                                                  |   |       |   |         |    |        |   |        

109

---

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

None.

Item 9A.    Controls and Procedures

Based on an evaluation carried out, as of December 31, 2003, 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 15d-15(e) under the U.S. Securities Exchange Act of 1934) are effective. As of December 31, 2003, there have been no significant
changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.

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.

Part III

Item 10.    Directors and Executive Officers of the Registrant

Pursuant to instruction G(3) of the General Instructions to Form 10-K, 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, 2003.

Item 11.    Executive Compensation

Pursuant to instruction G(3) of the General Instructions to Form 10-K, 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, 2003.

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

Pursuant to instruction G(3) of the General Instructions to Form 10-K, the information required herein is incorporated by reference from
the section of our Proxy Statement titled "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, 2003.

Item 13.    Certain Relationships and Related Transactions

Pursuant to instruction G(3) of the General Instructions to Form 10-K, the information required herein is incorporated by reference from
the section of our Proxy Statement titled "The Board of Directors and Committees of the Board  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, 2003.

110

---

Item 14.    Principal Accountant Fees and Services

Pursuant to instruction G(3) of the General Instructions to Form 10-K, the information required herein is incorporated by reference from
the section of our Proxy Statement titled "(*)", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31,
2003.

Part IV

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



111

---





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 12th day of March, 2004.

| |  | MAGNA ENTERTAINMENT CORP.
| |  | -------------------------
| |  | By:                      

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          
|--------------------------------------- |  | ---------------------------------------------------------------------------------- |  | --------------
|                                        |  |                                                                                    |  |               
|/s/ JIM McALPINEJim McAlpine            |  | President and Chief Executive Officer and Director (Principal Executive Officer)   |  | March 12, 2004
|/s/BLAKE TOHANABlake Tohana             |  | Executive Vice-President and Chief Financial Officer (Principal Financial Officer) |  | March 12, 2004
|/s/DOUGLAS R. TATTERSDouglas R. Tatters |  | Vice-President and Controller (Principal Accounting Officer)                       |  | March 12, 2004
|/s/JERRY D. CAMPBELLJerry D. Campbell   |  | Director                                                                           |  | March 12, 2004
|/s/WILLIAM G. DAVISWilliam G. Davis     |  | Director                                                                           |  | March 12, 2004
|/s/LOUIS E. LATAIFLouis E. Lataif       |  | Director                                                                           |  | March 12, 2004
|/s/EDWARD C. LUMLEYEdward C. Lumley     |  | Director                                                                           |  | March 12, 2004
|/s/WILLIAM J. MENEARWilliam J. Menear   |  | Director                                                                           |  | March 12, 2004

112

---

|                                |  |                       |  |               
|------------------------------- |  | --------------------- |  | --------------
|/s/GINO RONCELLI                |  | Director              |  | March 12, 2004
|/s/FRANK STRONACHFrank Stronach |  | Chairman and Director |  | March 12, 2004

113

---



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 by reference to the corresponding exhibit number of the registrant's Report on Form 8-K filed on March 16, 2000).                                                                                                                                              
|3.2         |  | By-Laws of Magna Entertainment Corp. (incorporated by reference to the corresponding exhibit number of the registrant's Report on Form 8-K filed on March 16, 2000).                                                                                                                                                                            
|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
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 by reference to exhibit 4.1 of
the Registrant's Registration Statement on Form S-3 filed July 25, 2003 (File number 333-107368)          
|4.4         |  | Registration Rights Agreement among the Company, BMO Nesbitt Burns Corp. and CIBC World Markets Corp., dated as of December 2, 2002 (incorporated by reference to exhibit 10.30 to registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 2002).                                                                        
|4.5         |  | Registration Rights Agreement between the Company and Bank Austria Creditanstalt AG dated as of June 2, 2003 (incorporated by reference to exhibit 10.7 to the registrant's Form 10-Q for the Quarter ended June 30,
2003).                                                                                                                     
|10.1        |  | Stock Purchase Agreement dated as of June 30, 1999 between Magna Entertainment Corp. and Gulfstream Park Racing Association Inc. (incorporated by reference to exhibit 10.2 of the registrant's Registration Statement on Form S-1
originally filed on January 14, 2000 (File number 333-94791)).                                               
|10.2        |  | Stock Purchase Agreement dated as of October 21, 1999 between Magna Entertainment Corp., The Edward J. DeBartolo Corporation and Oklahoma Racing LLC (incorporated by reference to exhibit 10.3 of the registrant's Registration Statement
on Form S-1 originally filed on January 14, 2000 (File number 333-94791)).                           
|10.3        |  | Stock Purchase Agreement dated as of November 5, 1999 between Magna Entertainment Corp. and Ladbroke Racing Corporation (incorporated by reference to exhibit 10.4 of the registrant's Registration Statement on Form S-1 originally filed
on January 14, 2000 (File number 333-94791)).                                                        
|10.4        |  | 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 by reference to the exhibit 10.6 of the
registrant's Registration Statement on Form S-1 originally filed on January 14, 2000 (File number 333-94791)). 

114

---

|10.5  |  | Revolving Credit Agreement dated as of November 1, 2002 between Los Angeles Turf Club, Incorporated and Wells Fargo Bank, National Association.                                                                                                                                                                      
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6  |  | Forbearance Agreement dated as of February 8, 2000 between Magna International Inc. and Magna Entertainment Corp. (incorporated by reference to the exhibit 10.8 of the registrant's Registration Statement on Form S-1 originally
filed on January 14, 2000 (File number 333-94791)).                               
|10.7  |  | Access Agreement dated as of March 1, 1999 between Magna International Inc. and Magna Liegenschaftsverwaltungs-GmbH (incorporated by reference to the exhibit 10.9 of the registrant's Registration Statement on Form S-1 originally
filed on January 14, 2000 (File number 333-94791)).                             
|10.8  |  | Magna Entertainment Corp. Long-Term Incentive Plan (incorporated by reference to exhibit 10.11 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999).                                                                                                                          
|10.9  |  | Employment Agreement with Donald Amos dated August 3, 2000 (incorporated by reference to exhibit 10.15 to registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).                                                                                                                      
|10.10 |  | Purchase Agreement dated as of August 25, 2000 between Magna Entertainment Corp., BMOC Acquisitions XIV, LLC and PaineWebber Real Estate Securities, Inc. (incorporated by reference to exhibit 2 to registrant's Report on
Form 8-K filed February 2, 2001).                                                        
|10.11 |  | Lease dated as of November 17, 2000 between Bay Meadows Operating Company LLC and PW Acquisition IV, LLC (incorporated by reference to exhibit 10.20 of the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000).                                                                    
|10.12 |  | 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 by reference to exhibit 10.21 of the
registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).         
|10.13 |  | 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 by reference to exhibit 10.22 of the
registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).         
|10.14 |  | 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 by reference to exhibit 10.16 of the
registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).          
|10.15 |  | Stock Purchase Agreement dated as of December 21, 2000 among Ladbroke Racing Wyoming, Inc., Ladbroke Racing Corporation and Magna Entertainment Corp. (incorporated by reference to exhibit 2 to registrant's Report on Form 8-K
filed March 16, 2001).                                                              
|10.16 |  | Amendment No. 1, effective as of the Closing Date, to the Stock Purchase Agreement, dated as of December 21, 2000, among Ladbroke Racing Wyoming, Inc., Ladbroke Racing Corporation and Magna Entertainment Corp. (incorporated by
reference to exhibit 2.1 to registrant's Report on Form 8-K filed March 16, 2001).

115

---

|10.17 |  | Amending letter agreement dated March 28, 2001 to the Stock Purchase Agreement dated as of December 21, 2000, among Ladbroke Racing Wyoming, Inc., Ladbroke Racing Corporation and Magna Entertainment Corp. (incorporated by reference to
exhibit 2.2 to registrant's Report on Form 8-K filed March 16, 2001).                                                                                                                                                                                   
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 |  | Preferred Access Agreement dated December 21, 2001 between Magna International Inc. and MEC Holdings (Canada) Inc. (incorporated by reference to exhibit 10.21 of the registrant's Amendment No. 3 on Form S-1 filed on
March 8, 2002 (File number 333-70520)).                                                                                                                                                                                                                                    
|10.19 |  | Stock Purchase Agreement dated June 27, 2001 between Magna Entertainment Corp. and Arthur L. McFadden (incorporated by reference to exhibit 10.22 of the registrant's Amendment No. 3 on Form S-1 filed on March 8, 2002 (File
number 333-70520)).                                                                                                                                                                                                                                                 
|10.20 |  | Asset Purchase Agreement dated as of March 6, 2002 among MEC Lone Star, L.P., Lone Star Race Park, Ltd. and LSJC Development Corporation. (The Exhibits to this Agreement, which are identified in the list appearing at the end of the
Agreement, have been omitted but will be furnished supplementally to the Commission upon request.) (incorporated by reference to exhibit 2 to registrant's Report on Form 8-K filed on November 6, 2002).                                                  
|10.21 |  | First Amendment to Asset Purchase Agreement among MEC Lone Star, L.P., Lone Star Race Park, Ltd. and LSJC Development Corporation made as of September 30, 2002. (incorporated by reference to exhibit 2.1 to registrant's Report
on Form 8-K filed on November 6, 2002).                                                                                                                                                                                                                          
|10.22 |  | Second Amendment to Asset Purchase Agreement among MEC Lone Star, L.P., Lone Star Race Park, Ltd. and LSJC Development Corporation made as of October 23, 2002. (incorporated by reference to exhibit 2.2 to registrant's Report
on Form 8-K filed on November 6, 2002).                                                                                                                                                                                                                           
|10.23 |  | Stock Purchase Agreement dated July 15, 2002 by and among the Company, all the Stockholders of Laurel Racing Assoc., Inc., and Pimlico Racing Association, Inc., and Laurel Guida Group. (The Exhibits to this Agreement, which are
identified in the list appearing at the end of the Agreement, have been omitted but will be furnished supplementally to the Commission upon request.) (incorporated by reference to exhibit 2.1 to registrant's Report on Form 8-K filed on
December 12, 2002).
|10.24 |  | Option Agreement dated November 27, 2002 by and among the Company, Joseph LLC, Karin LLC, Joseph A. De Francis and Karin M. De Francis. (Exhibit A to this Agreement has been omitted but will be furnished supplementally to the
Commission upon request.) (incorporated by reference to exhibit 2.2 to registrant's Report on Form 8-K filed on December 12, 2002).                                                                                                                              
|10.25 |  | Amended and Restated Credit Agreement between the Company and the Bank of Montreal, et al, dated as of October 10, 2003.                                                                                                                                                                                                                                                                                                                                                                           

116

---

|10.26 |  | Loan Agreement dated January 24, 2003 between MEC Gründstucksentwicklungs GmbH and Österreichische Lotterien Gesellschaft m.b.H. (incorporated by reference to exhibit 10.1 to the registrant's Form 10-Q for the
Quarter ended March 31, 2003).     
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.27 |  | Second Amendment to Lease Agreement dated December 31, 2003 among Bay Meadows Main Track Investors and Bay Meadows Operating Company LLC.                                                                                                            
|10.28 |  | Employment Agreement with Gary M. Cohn dated October 5, 2000 (incorporated by reference to the corresponding exhibit number of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).                             
|10.29 |  | Employment Agreement with Blake Tohana dated July 1, 2003.                                                                                                                                                                                           
|10.30 |  | Promissory Note made by Ontario Racing inc. in favor of Charles Juravinski and Margaret Juravinski dated October 18, 2002 (incorporated by reference to exhibit 10.1 to the registrant's Form 10-Q for the quarter ended June 30,
2003).             
|10.31 |  | Demand Debenture made by Flamboro Downs Holdings Limited in favor of Charles Juravinski and Margaret Juravinski dated October 18, 2002 (incorporated by reference to exhibit 10.2 to the registrant's Form 10-Q for the quarter ended
June 30, 2003).
|10.32 |  | Guarantee issued by Flamboro Downs Holdings Limited in favor of Charles Juravinski and Margaret Juravinski dated October 18, 2002 (incorporated by reference to exhibit 10.3 to the registrant's Form 10-Q for the quarter ended June 30,
2003).     
|10.33 |  | Guarantee issued by the Registrant in favor of Charles Juravinski and Margaret Juravinski dated October 18, 2002 (incorporated by reference to exhibit 10.4 to the registrant's Form 10-Q for the quarter ended June 30, 2003).                      
|12    |  | Statement re: Computation of Earnings to Fixed Charges                                                                                                                                                                                               
|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.                                                                                                          

117

---

QuickLinks