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, 2004.
|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

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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) 726-2462
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
|Class A Subordinate Voting Stock
(Title of class)                                                                                                                                              

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



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As of June 30, 2004, the aggregate market value of the Class A Subordinate Voting Stock held by non-affiliates of the registrant was approximately $232,886,782 (based on the
closing sale price of $5.90 per share of Class A Subordinate Voting Stock reported on The Nasdaq National Market on June 30, 2004, the last day of the registrant's most recently
completed second quarter). As of June 30, 2004, 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 9, 2005 was 48,878,796.

The
number of shares of Class B Stock of the registrant outstanding as of March 9, 2005 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, 2004 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.

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INDEX

|                                                                                                                     |  | Page
|-------------------------------------------------------------------------------------------------------------------- |  | ----
|PART 1                                                                                                               |  | 4   
|Item 1. Business                                                                                                     |  | 4   
|Item 2. Properties                                                                                                   |  | 48  
|Item 3. Legal Proceedings                                                                                            |  | 48  
|Item 4. Submission of Matters to a Vote of Security Holders                                                          |  | 49  
|PART II                                                                                                              |  | 49  
|Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 49  
|Item 6. Selected Financial Data                                                                                      |  | 50  
|Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 51  
|Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                                  |  | 81  
|Item 8. Financial Statements and Supplementary Data                                                                  |  | 82  
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 124 
|Item 9A. Controls and Procedures                                                                                     |  | 124 
|PART III                                                                                                             |  | 124 
|Item 10. Directors and Executive Officers of the Registrant                                                          |  | 124 
|Item 11. Executive Compensation                                                                                      |  | 124 
|Item 12. Security Ownership of Certain Beneficial Owners and Management and related Stockholder Matters              |  | 124 
|Item 13. Certain Relationships and Related Transactions                                                              |  | 125 
|Item 14. Principal Accounting Fees and Services                                                                      |  | 125 
|PART IV                                                                                                              |  | 125 
|Item 15. Exhibits, Financial Statement Schedules                                                                     |  | 125 
|SIGNATURES                                                                                                           |  | 127 
|EXHIBIT INDEX                                                                                                        |  | 129 

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Part I
Item 1.    Business

Available Information

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

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. Information contained in or otherwise accessed through the registrant's website does not form part of this Annual Report. All such references to the registrant's website
are inactive textual references only.

In
this Annual Report, when we use the terms "we", "us", "our", "MEC" 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 Securities Act of 1933, as amended and the Securities and Exchange Act of 1934, as amended. These forward-looking
statements may include, among others, statements regarding: our strategies and plans; expectations as to financing and liquidity requirements and arrangements; expectations as to operational
improvements; expectations as to cost savings, revenue growth and earnings; the time by which certain objectives will be achieved; estimates of costs relating to environmental remediation and
restoration; proposed new racetracks or other developments, products and services; expectations as to the timing and receipt of government approvals and regulatory changes in gaming and other racing
laws and regulations; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse
effect on our consolidated financial position, operating results, prospects or liquidity; projections, predictions, expectations, estimates 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.

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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.

OUR BUSINESS

We own and operate horse racetracks in California, Florida, Maryland, Texas, Oklahoma, Pennsylvania, Ohio, Michigan, Oregon, Ontario, Canada and Ebreichsdorf,
Austria. Based on revenues, we are North America's number one owner and operator of horse racetracks. Based on revenues, we are one of the world's leading suppliers, via simulcasting, of live racing
content to the growing inter-track, off-track and account wagering markets. Throughout 2004, we operated or managed twelve thoroughbred racetracks, two standardbred (harness racing)
racetracks, two racetracks that run both thoroughbred and standardbred meets and one greyhound racetrack, as well as the simulcast wagering venues at these tracks. Subsequent to December 31,
2004, we have ceased operations at one of our thoroughbred racetracks and at our only greyhound racetrack, which we operated in leased facilities under leases that were not renewed for 2005. In
addition, we operate off-track betting ("OTB") facilities, a U.S. national account wagering business known as XpressBet®, which permits customers to place wagers by
telephone and over the Internet on horse races at over 100 North American racetracks and internationally on races in Australia, South Africa and Dubai and a European-based account wagering
business known as MagnaBet. We also own and operate HorseRacing TV ("HRTV"), a television network focused on horse racing that we initially launched on the
Racetrack Television Network ("RTN"). We are in ongoing discussions with cable and satellite operators with the goal of achieving broader distribution for HRTV. In July 2004,
HRTV entered into a carriage agreement with the operator of the Dish Network that dramatically expanded HRTV's distribution throughout the United States.
HRTV is currently distributed to more than 11 million cable and satellite TV subscribers. RTN, in which we have a minority interest, was formed to telecast races from our
racetracks and other racetracks, via private direct-to-home satellite, to paying subscribers. In 2004, we launched RaceONTV in Europe to provide North American
racing content from our racetracks and other U.S. racetracks that have agreed to participate in our international distribution network to locations outside North America. We also own 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 own and operate
thoroughbred training centers situated near San Diego, California, in Palm Beach County, Florida and in the Baltimore, Maryland area. We also own and operate production facilities in Austria and in
North Carolina for StreuFex, a straw-based horse bedding product.

We
distribute our live racing content to approximately 1,000 off-track and inter-track venues, including other racetracks, OTB facilities and casinos in the
United States, Canada, Mexico, Peru, the Caribbean, the United Kingdom, Germany and Austria. We intend to expand the distribution of this content in these markets and, to the extent
permitted by various regulatory regimes, in additional markets, particularly emerging electronic media-based markets, such as wagering via interactive television and the Internet.

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Since
December 1998, we have acquired six large racetrack operations in North America: Santa Anita Park near Los Angeles, Gulfstream Park near Miami, Golden Gate Fields near San
Francisco, Lone Star Park at Grand Prairie near Dallas, and The Maryland Jockey Club, which operates 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 and Flamboro Downs near Toronto, Canada. In April 2004, we
opened our newest racetrack, Magna Racino, which we built near Vienna, Austria, and features both standardbred and thoroughbred racing.

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

Until
the end of 2004, we also operated the Bay Meadows thoroughbred racetrack near San Francisco and Multnomah Greyhound Park near Portland, Oregon under leases which expired at the end
of 2004 and were not renewed.

We
have also applied for horse racing licenses in certain other jurisdictions, including the Detroit, Michigan area where we have proposed to develop a new racetrack, subject to
regulatory and other approvals. In October 2003, a subsidiary of MI Developments Inc., purchased vacant land in Romulus, Michigan which may serve as the site of the proposed racetrack.
MI Developments Inc. has granted us an option, exercisable at any time on or prior to June 30, 2005, to purchase the shares of its subsidiary, which holds the Romulus land. 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 actively underway in a number of states in which we operate. Alternative gaming legislation has passed in Pennyslvania and Oklahoma and there is a
pending legislative initiative currently underway in Florida. In Pennsylvania, we intend to pursue a license to allow The Meadows to operate between 1,500 and 3,000 slot machines,
subject to future expansion of up to 2,000 additional machines, as soon as practicable. In Oklahoma, new legislation was approved which will permit Remington Park to operate
650 electronic gaming machines, subject to increases of an additional 50 machines in each of the third and fifth years after the issuance of the applicable license. We intend to apply
for the required license as soon as practicable. In Florida, Amendment 4 to the Florida State Constitution was approved, permitting the governing bodies of Broward and Miami-Dade
counties to each hold a county-wide referendum on whether to authorize slot machines within existing, licensed pari-mutuel facilities that have conducted live racing during
each of the last two years. A referendum was held in Broward County, where Gulfstream Park is located, on March 8, 2005. Based on preliminary unofficial results from the Broward County
Supervisor of Elections announced on March 9, 2005, voters in Broward County have approved the referendum questions by majority vote, which means that slot machines are authorized at qualifying
pari-mutuel facilities in Broward County, subject to the enactment of applicable legislation and licensing. Pursuant to Amendment 4, the state legislature is now required to adopt
implementing legislation in the next regular legislative session, with an effective date no later than July 1, 2005.

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 working with potential developers and strategic partners 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. We have entered into a predevelopment management agreement with Forest City
Enterprises, Inc. concerning the proposed development of "The Village at Gulfstream Park". Please see "Our Properties  Gulfstream Park". We
have also entered into a letter of intent with Caruso Affiliate Holdings to explore the possibility of joint ventures to develop certain undeveloped lands surrounding our Santa Anita Park and Golden
Gate Fields racetracks into retail and entertainment venues. Please see "Our Properties  Santa Anita Park" and "Our
Properties  Golden Gate Fields".

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Please
see our financial statements beginning on page 82 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. 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. In furtherance of this strategy, we formed our Continuous
Improvement Team, which since late 2003 has been evaluating and implementing best practices at our racetracks, resulting in significant cost savings and operating efficiencies.

Further Developing Our Off-Track and In-Home Simulcasting and Wagering Services

We intend to continue our efforts to combine our racing content, and the racing content from racetracks not owned by us, and market this content to the
in-home and off-track market. We believe that aggregating this content provides us significant leverage to generate increased revenues and economies of scale to utilize
cost-effective delivery systems. We believe that packaging our product this way will increase the exposure of our racetracks as well as racetracks owned by others and expand our customer
base. For the in-home market, we offer account wagering on over 100 North American racetracks via the Internet and by telephone through XpressBet®. Horse racing fans can also watch live
racing contest from all over the United States on HorseRacing TV, our specialty television network focused on horse racing that is distributed to more than 11 million cable and
satellite television subscribers. We also operate a significant number of OTBs in various markets.

Entering New Markets

We currently distribute our content to inter-track and off-track venues in the United States, Canada, Mexico, Peru, the Caribbean, the
United Kingdom, Germany and Austria. In April 2004, we opened our newest racetrack, Magna Racino, which features both thoroughbred and standardbred racing. We also launched
MagnaBet, our international account wagering service (currently operating in Austria, Great Britain and Germany) in 2004. RaceONTV, our international simulcast distribution
service, was also launched in 2004 and now offers North American racing content to customers in Austria, Germany and Peru. We believe that, subject to applicable regulation, significant opportunities
exist to expand the distribution of our content through the further development of our international distribution network. We believe that we have a strong business plan for these services that has
been augmented by the recent agreement with Churchill Downs, Inc. to offer combined MEC and Churchill Downs signals outside of North America.

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

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

In order to increase our customer base, we intend to improve the quality of the entertainment experience at our racetracks by offering a variety of experiences
with horseracing as the feature attraction. In pursuit of this strategy, we have begun and intend to continue to redevelop and modernize our facilities. In 2004, we commenced the redevelopment of
Gulfstream Park, located just outside Miami, Florida. This redevelopment includes the construction of new wider and longer racing surfaces, which allow Gulfstream Park to run a longer live racing
season and offer larger field sizes as well as a new grandstand/entertainment facility, each of which we expect to result in greater attendance and handle.

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

In order to broaden our market appeal and thereby increase attendance and revenues, we intend to pursue alternative gaming opportunities, where available.
Alternative gaming legislation that authorizes slot machines, video lottery terminals (VLTs) or electronic gaming at certain designated locations has been approved in Oklahoma, where our Remington
Park racetrack is located, and Pennsylvania, where our racetrack The Meadows is located. We intend to apply for licenses and build the necessary facilities to operate slot machines or electronic
gaming at Remington Park and The Meadows as soon as practicable. Alternative gaming legislation is also being seriously considered in other states in which we operate pari-mutuel
facilities and if such legislation is approved, we intend to apply for the applicable licenses and build the necessary facilities as soon as practicable.

Developing Our Significant Real Estate Assets

We have a significant portfolio of high quality real estate located in densely populated urban markets. Included in this real estate portfolio is land adjacent to
several of our racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park at Grand Prairie, Laurel Park and Magna Racino. We are considering a variety of options with respect to this
land, including entertainment and retail-based developments that could be undertaken in conjunction with business partners who could be expected to provide the necessary marketing and development
expertise, as well as the necessary financing. In pursuit of this strategy, we have entered into a predevelopment management agreement with Forest City Enterprises, Inc. concerning the proposed
development of a combined retail and entertainment development, featuring Gulfstream Park as its cornerstone entertainment feature. We have also entered into a letter of intent with Caruso Affiliate
Holdings to explore the possibility of joint ventures to develop certain undeveloped lands surrounding our Santa Anita Park and Golden Gate Fields racetracks into retail and entertainment venues.

Selectively Acquiring and Developing Additional Content

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

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.

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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 9, 2005, MI Developments Inc. owns, directly or indirectly, all of our outstanding Class B Stock and 4,362,328 shares of our Class A
Subordinate Voting Stock. As a result, MI Developments Inc. is able to exercise approximately 96% of the total voting power attached to all of our outstanding stock, and therefore is able to
elect all 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.

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.

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

The Growth in Off-track and Inter-track Wagering

Pari-mutuel wagering on thoroughbred horse racing in the United States increased from $9.9 billion in 1994 to $15.1 billion in
2004, according to The Jockey Club. This increase resulted primarily from the growth of off-track and inter-track wagering, which has grown by approximately 52% from $8.7 billion in
1996 to $13.2 billion in 2004. Simulcasting live racing events to off-track and inter-track venues has been facilitated by technological advances and the introduction of legislative
changes.

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

|                 |  | 1994 |       | 1995 |   | 1996   |  | 1997 |        | 1998 |   | 1999   |  | 2000 |        | 2001 |   | 2002   |  | 2003 |        | 2004
|---------------- |  | ---- | ----- | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ----
|Total Handle     |  | $    | 9.897 |      | $ | 10.429 |  | $    | 11.627 |      | $ | 12.542 |  | $    | 13.115 |      | $ | 13.724 |  | $    | 14.321 |     
|On-Track Handle  |  |      | *     |      |   | *      |  | $    | 2.944  |      | $ | 2.703  |  | $    | 2.498  |      | $ | 2.359  |  | $    | 2.270  |     
|Off-Track Handle |  |      | *     |      |   | *      |  | $    | 8.683  |      | $ | 9.839  |  | $    | 10.617 |      | $ | 11.365 |  | $    | 12.051 |     

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Source: Equibase Company LLC; The Jockey Club.

Simulcasting is the process of transmitting the audio and video signal of a live racing performance, referred to as the content, from one facility
to other locations or venues where wagering on such content is permitted. 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.

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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 is near San Francisco, Lone
Star Park at Grand Prairie is near Dallas, Pimlico Race Course is in Baltimore, Laurel Park is between Washington, D.C. and Baltimore, The Meadows is near Pittsburgh, Thistledown is near
Cleveland, Remington Park is in Oklahoma City, Flamboro Downs is near Toronto, Canada, Great Lakes Downs is in Muskegon, Michigan, and Portland Meadows and is 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, is located near Vienna, Austria.

2005 Racing Schedule

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

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|RACETRACK                       |  | SCHEDULED RACING MEETS                                                                                     
|------------------------------- |  | -----------------------------------------------------------------------------------------------------------
|Santa Anita Park                |  | December 26, 2004 - April 18, 2005 and September 28, 2005 - November 6, 2005                               
|Gulfstream Park                 |  | January 3, 2005 - April 24, 2005                                                                           
|Golden Gate Fields              |  | December 26, 2004 - January 30, 2005, May 11, 2005 - June 19, 2005 and October 19, 2005 - December 31, 2005
|Laurel Park                     |  | December 26, 2004 - March 26, 2005, August 6, 2005 - August 26, 2005 and October 8, 2005 - December 1, 2005
|Lone Star Park at Grand Prairie |  | April 14, 2005 - July 17, 2005 and September 30, 2005 - November 27, 2005                                  
|Pimlico Race Course             |  | March 30, 2005 - June 12, 2005 and September 8, 2005 - October 3, 2005                                     
|The Meadows                     |  | January 1, 2005 - December 31, 2005                                                                        
|Thistledown                     |  | April 7, 2005 - December 23, 2005                                                                          
|Flamboro Downs                  |  | January 1, 2005 - December 31, 2005                                                                        
|Remington Park                  |  | March 19, 2005 - June 5, 2005 and August 5, 2005 - November 27, 2005                                       
|Portland Meadows                |  | January 1, 2005 - April 24, 2005 and October 16, 2005 - December 31, 2005                                  
|Great Lakes Downs               |  | April 25, 2005 - November 5, 2005                                                                          
|Colonial Downs*                 |  | June 17, 2005 - August 1, 2005                                                                             
|Magna Racino                   |  | March 13, 2005 - November 20, 2005                                                                         

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Our Properties

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

Santa Anita Park

Santa Anita Park is situated on approximately 305 acres of land in the City of Arcadia, California, approximately 14 miles northeast of Los Angeles.
Approximately 10.9 million people are located within a 30-mile radius of Santa Anita Park.

Santa
Anita Park opened for thoroughbred horse racing in 1934 and hosts The Santa Anita Meet. The Santa Anita Meet generally commences on December 26 and runs until
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 2004 was approximately 9,000 customers per live racing day,
representing one of the highest average daily attendance figures of all North American racetracks.

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Santa
Anita Park had one of the highest total handles, or total amounts wagered, of all North American racetracks in 2004, approximately $1.253 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 $851.8 million in 2004. Of this amount, approximately $693.7 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.

In
April 2004, we signed a letter of intent to explore the possibility of joint ventures between Caruso Affiliate Holdings and various MEC affiliates to develop certain
undeveloped lands surrounding Santa Anita Park and Golden Gate Fields. We are continuing to explore these developmental opportunities but we have not yet entered into definitive agreements regarding
either of these potential developments. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations  2004 Developments and
Initiatives."

Gulfstream Park

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

Gulfstream
Park opened in 1939 and for many years, ending in 2001, the annual meet at Gulfstream Park lasted for approximately 63 days between January and March. Beginning in
2002, Gulfstream Park was granted approval to run its meet for 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 2004 was approximately 8,600 customers per live racing day.

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In
2004, we initiated a redevelopment of Gulfstream Park, including new dirt and turf racetracks, a new grandstand and entertainment facility and new backstretch facilities. The
redevelopment required us to demolish Gulfstream Park's existing grandstand, club house and racetracks. Under our current temporary structures we have seating under roof and air for approximately
2,400 patrons. Gulfstream Park currently has parking capacity for 8,000 cars and has stalls for 1,140 horses. We have just completed and opened the new dirt and turf racetracks in
the fourth quarter of 2004, which feature a 11/8-mile main track and a one-mile turf course. We anticipate completing the new grandstand and entertainment facility and the backstretch
facilities in time for our meet beginning in January 2006.

Gulfstream
Park had total handle during 2004 of approximately $823.3 million, which includes wagers made at Gulfstream Park on its races, wagers made on Gulfstream Park races at
other wagering venues and through various account wagering operations, and wagers made at Gulfstream Park on races imported to its inter-track facility. Wagers on Gulfstream Park's races totaled
approximately $710.6 million in 2004. Of this amount, approximately $622.5 million in wagers were placed at other wagering venues to which we exported Gulfstream Park's signal and
through various account wagering operations.

In
April 2004, we entered into a predevelopment management agreement with Forest City Enterprises, Inc. concerning the proposed development of "The Village at Gulfstream
Park", an 80-acre, mixed-use retail, entertainment and residential project proposed to be built adjacent to Gulfstream Park. The proposed first phase of The
Village at Gulfstream Park is a unique integration of a state-of-the-art lifestyle shopping and entertainment environment with Gulfstream Park that is
expected to incorporate approximately 600,000 square feet of lifestyle retail shops, restaurants, cinema and entertainment facilities, including some of the most unique and sought-after
national and local tenants. The proposed second phase of the Village at Gulfstream Park is to incorporate a unique residential village overlooking the picturesque Gulfstream Park
racetrack, Florida's inner-coastal waterway and the Atlantic Ocean beyond. Future phases also anticipate a hotel and commercial office space. Under the predevelopment management agreement, Forest City
will manage the development of The Village at Gulfstream Park, secure financing for the project and act as the property manager. Each of Forest City and MEC will hold a 50% interest in
the joint venture, which will lease the land underlying the retail project on a long-term basis from MEC. Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations  2004 Development and Initiative".

Golden Gate Fields

Golden Gate Fields is located on approximately 154 acres of land in the cities of Albany and Berkeley, California, approximately eight miles from Oakland
and approximately 11 miles from San Francisco. There are approximately 5.2 million people within a 40-mile radius of Golden Gate Fields. In December 2003, we closed
the sale of approximately 16 acres of excess real estate located at Golden Gate Fields, located on the Berkeley side of the property, to the East Bay Regional Park District
(see " Our Real Estate Portfolio").

Golden
Gate Fields' racing season lasts for approximately 103 racing days. The season runs in the fall through the end of January. From the end of December to the close of the
season, Golden Gate Fields operates simultaneously with Santa Anita Park. Average daily attendance in 2004 was approximately 2,300 customers per live racing day.

Golden
Gate Fields had one the highest total handle of all North American racetracks in 2004, approximately $501.2 million, including wagers made at Golden Gate Fields on its
races, wagers made at other wagering venues and through various account wagering systems on Golden Gate Fields' races (excluding wagers placed in Southern California, and wagers placed via advanced
deposit wagering systems licensed to operate in California) and wagers made at Golden Gate Fields and its inter-track facilities on imported races. Wagers on Golden Gate Fields' races totaled
approximately $289.7 million in 2004. Of this amount, approximately $261.1 million in wagers were placed at other wagering venues to which we exported Golden Gate Fields' races via
simulcast and through various account wagering operations. Golden Gate Fields exports its simulcast signal to approximately 900 off-track and inter-track wagering facilities in the
United States, Canada, Mexico and the Caribbean. Throughout the year, Golden Gate Fields operates as an inter-track wagering facility where customers can wager on races that are imported from
other racetracks.

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

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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.

In
April 2004, we signed a letter of intent to explore the possibility of joint ventures between Caruso Affiliate Holdings and various MEC affiliates to develop certain
undeveloped lands surrounding Santa Anita Park and Golden Gate Fields. We are continuing to explore these developmental opportunities but we have not yet entered into definitive agreements regarding
either of these potential developments. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations  2004 Developments and
Initiatives."

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, 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 in 2004 was 58 days compared to 142 racing days in 2003 due to the rebuilding of the racing surfaces at Laurel Park. Live thoroughbred racing is
generally 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. Historically racing then would resume at Laurel
Park in late July for a four-week summer meet, but due to the rebuilding of the racing surfaces at Laurel Park, Pimlico Race Course continued racing live through the end of the year in
2004. Average daily attendance at Laurel Park in 2004 was approximately 3,000 customers per live racing day.

Laurel
Park's handle was approximately $281.5 million in 2004, 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 $137.2 million in 2004. Of this amount,
approximately $127.1 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 and a new 11/8-mile dirt track with a seven and one
half-furlong chute which opened in January 2005. We are currently in the process of building a new 7/8-mile turf course at Laurel Park, which we
anticipate will open in the third quarter of 2005. Laurel Park has 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 at Laurel Park. In the event this redevelopment project proceeds as currently contemplated, it will include the construction
of new barns, dormitories and grooms' quarters. 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."

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.

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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 was superseded in 2004 by a special thoroughbred meet which ran for 19 days in October, including the 2004 Breeders' Cup World Thoroughbred Championships on
Saturday, October 30. Average daily attendance during the 2004 spring thoroughbred meet was approximately 8,400 customers per live race day and 7,400 customers (excluding
Breeders' Cup) in the fall. In addition to its live racing facilities, Lone Star Park contains a state-of-the-art 36,000 square foot simulcast
pavilion, which operates year-round.

Lone
Star Park had total handle during 2004 of approximately $360.8 million (excluding Breeders' Cup), 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 totaled approximately $180.6 million (excluding Breeders' Cup) in 2004. Of this amount, approximately $137.2 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 was the site of the 2004 Breeders' Cup World Thoroughbred Championships, making it the youngest track in history to host this prestigious event. An
overwhelming response from racing fans from around the world resulted in the fastest sellout in Breeders' Cup history with a total attendance of 53,717 on race day. Four major Breeders' Cup
wagering records were established: $120,863,117 for all sources on the 12-race program; $109,838,668 for all sources on the eight Breeders' Cup races; $107,536,392 for total simulcast
handle; and $16,401,762 for international simulcast handle.

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

Pimlico Race Course

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

The
Preakness Stakes® dates back to 1873, two years before the first Kentucky Derby was run. Since 1909, the Preakness Stakes® has been run annually at Pimlico
without interruption and this year's race, on May 21, 2005, will mark the 130th 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 generally consists of approximately 70 racing days, its Spring meet, between early April and mid-June and a Fall meet in September.
Historically, after its Spring meet, racing then would resume at Laurel Park in late July for a four-week summer meet, but due to the rebuilding of the racing surfaces at Laurel Park,
Pimlico Race Course continued racing live through the end of the year in 2004. 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 2004 was approximately 3,000 customers per live racing day.

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Pimlico's
handle was approximately $432.1 million in 2004, 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 $332.2 million in 2004. Of this amount, approximately
$306.1 million in wagers were placed at other wagering venues to which its signal was exported via simulcast and through various account wagering operations.

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

The Meadows

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

The
Meadows first opened in 1963 and has a year-round racing schedule encompassing approximately 206 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. In 2004, The Meadows opened its fifth OTB in Greensburg.

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 Meadows' OTB facilities 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 $238.0 million in handle in 2004, 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 $100.3 million in 2004. Of this amount, approximately
$92.7 million in wagers were placed at other wagering venues to which we exported The Meadows' races via simulcast and through various account wagering operations. The Meadows exports its
simulcast signal to approximately 240 off-track and inter-track wagering facilities in the United States, Canada and the Caribbean. Throughout the year, The Meadows operates
as an inter-track wagering facility where customers can wager on races that are imported to The Meadows from other racetracks.

In
July 2004, legislation was enacted in Pennsylvania that entitles The Meadows to apply for a license to operate between 1,500 and 3,000 slot machines, subject to
future expansion of up to 2,000 additional slot machines upon certain conditions being met. We intend to pursue a license to operate slot machines at The Meadows as soon a practicable. See
" Government Regulation  Alternative Gaming  Pennsylvania". In the event that we obtain a
license to operate slot machines at The Meadows, we plan to redevelop certain facilities at The Meadows. In the event that this project proceeds as currently contemplated, it will include the
construction of a new clubhouse/grandstand/slot facility and related site works. Please see " Risk Factors  Redevelopment projects at
our racetracks, may result in a write down of the value of certain assets and have caused and may continue to cause temporary disruptions of our racing operations."

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.

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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 $224.7 million in 2004, 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 $134.5 million in 2004. Of this amount, approximately $109.3 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 650 off-track and inter-track wagering facilities in the
United States. Throughout the year, Thistledown operates as an inter-track wagering facility where customers can wager on races that are imported to Thistledown from other racetracks.

Thistledown's
facilities include a grandstand with seating for approximately 8,000 customers, a 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, in April 2003. Flamboro Downs is located in the greater Hamilton area, approximately
40 miles outside Toronto, Canada, 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 and simulcasting on both thoroughbred and harness racing.

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.

Flamboro
Downs also currently operates four OTBs in its market area. All four 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 $102.8 million in handle in 2004, 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 $65.8 million in 2004. Of this amount,
approximately $59.2 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 video lottery terminals, or 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.

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Remington Park

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

In
2004, the racing schedule consisted of two meets totaling 93 days of live racing days, which included a 28 day quarter horse meet from mid-March through the
end of May and a 65 day thoroughbred meet from early August through early December 2004. In 2005, Remington Park has been approved for 98 days of live racing, consisting of
32 days of quarter horse racing from mid-March through early June and a 66 day thoroughbred meet from early August through late November.

Remington
Park's handle was approximately $92.6 million in 2004, 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 $29.4 million in 2004. Of this amount, approximately $22.1 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 280 off-track and
inter-track wagering facilities in the United States. Throughout the year, Remington Park operates as an inter-track wagering facility where customers can wager on races that are imported to
Remington Park from other racetracks across the country.

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

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

Under
new legislation which was approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, upon regulatory approval and licensing, Remington Park
will be permitted to operate 650 electronic gaming machines, subject to increases of an additional 50 machines in each of the third and fifth years after the issuance of the applicable
license. See "  Government Regulation  Alternative Gaming  Oklahoma."

Portland Meadows

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

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Portland
Meadows generated approximately $70.5 million in handle during its 2004 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 $21.3 million in 2004. Of this amount, approximately
$18.8 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.

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

Great Lakes Downs

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

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

Great
Lakes Downs' handle was approximately $55.7 million in 2004, 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 $43.5 million in 2004. Of this amount, approximately $40.3 million in wagers were placed at other wagering venues to which we exported Great Lakes Downs'
races via simulcast and through various account wagering operations. Great Lakes Downs exports its simulcast signal to approximately 250 off-track and inter-track wagering
facilities in the United States. Throughout the year, Great Lakes Downs operates as an inter-track wagering facility where customers can wager on races that are imported to Great Lakes Downs
from other racetracks.

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

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

Magna Racino

Our newest racetrack, Magna Racino opened on April 4, 2004 and is situated on approximately 650 acres in Ebreichsdorf, just outside
Vienna, Austria. There are approximately 2.5 million people living within a 30-mile radius of Magna Racino. Since its opening, Magna Racino has been
visited by over 180,000 guests and held a meet consisting of 50 live racing days in 2004 between early April and early November. In 2005, Magna Racino has been approved for
45 days of live racing, between mid-March and late November.

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Magna Racino features both thoroughbred and standardbred racing on three different tracks, a 5/8-mile sand track, a one-mile sand
track and a one-mile turf course. Magna Racino's facilities include 113 paddocks, 600 stables, parking for approximately 2,400 cars, a grandstand that
also houses a 150,000 square foot entertainment center, three restaurants, a simulcast center and a sportsbook/gaming facility that opened in September 2004. Magna
Racino's sportsbook facility is operated by Admiral Sportwetten AG under an agreement that entitles Magna Racino to receive a percentage of all wagers placed with
Admiral at Magna Racino. Magna Racino's 150 video lottery terminals are operated by the Austrian Lottery, a division of Casinos Austria AG, under an agreement that
entitles Magna Racino to receive a percentage of the gross profit and recovery of certain costs from the video lottery terminal operations located at Magna Racino.

Magna
Racino's handle was approximately $4.1 million in 2004, its inaugural year, including wagers made at Magna Racino on its races, wagers made at
other wagering venues and through account wagering operations on Magna Racino races and wagers made at Magna Racino on imported races. Magna Racino exports its
simulcast signal to various off-track and inter-track wagering facilities in Germany and Austria. Throughout the year, Magna Racino operates as an inter-track wagering
facility where customers can wager on races that are imported to Magna Racino from other racetracks around the world.

Colonial Downs

The Maryland Jockey Club manages the racing and pari-mutuel operations of Colonial Downs and its network of six OTB facilities in Virginia. Colonial
Downs is a racetrack in New Kent, Virginia which hosted 34 days of thoroughbred racing and 32 days of standardbred racing in 2004. 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 (Gr. III), 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 2005 meet.

Construction
began in October 2003 on a 60,000 square foot compost building that was 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, 2004, we have spent approximately $84.9 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.

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Bowie Training Center

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

Account Wagering Operations

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

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 governmental restrictions. See " Government Regulation". Operators of advance deposit account wagering businesses may establish a
hub in a state where advance deposit account wagering is expressly permitted, establish accounts into which customers deposit funds through debit or credit cards or by check to fund their wagering,
and receive wagering instructions from these customers. Wagers placed 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 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. In addition, XpressBet® has received licenses in Oregon, Washington and Idaho. See " Government Regulation".

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.

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, 2004, total handle wagered through XpressBet® was
$132.3 million.

MagnaBet

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

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MagnaBet
was launched in Austria in September 2004, where its operations are located, and in Germany in December 2004. Wagering through a MagnaBet
account is only permitted after MagnaBet has verified the account holder's identity, address and age and the account has been funded. MagnaBet account holders can wager on
thoroughbred and harness races at Magna Racino, on races at Krieau, an Austrian standardbred racetrack, opened in 1878 and internationally on over 27 North American
thoroughbred and standardbred racetracks. The MagnaBet service provides up-to-the-minute racing information, including live odds and results, race
program and past performance information, real-time audio and video streaming and an easy-to-use betting screen.

The
primary source of revenue for MagnaBet is the takeout on the handle wagered by its customers through advance deposit accounts. The takeout revenue is reduced by host
track fees, totalisator service fees, taxes and other operating expenses.

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.

Florida
breds won five out of eight races when they competed head to head against California breds during the third edition of the Sunshine Millions® held on
January 29, 2005.This event was covered on a national two-hour NBC broadcast. Overnight ratings for the two-hour
broadcast secured a four percent share of all televisions in use. All sources handle for Gulfstream Park and Santa Anita Park, together with on-site handle, topped $31 million for
the 2005 edition of the Sunshine Millions®.

Television Distribution

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

HorseRacing TV

HorseRacing TV is a television network focused on horse racing. HorseRacing TV carries horse racing from racetracks located throughout
North America as well as commentary and related content, combined into a single signal produced by Santa Anita Park's award-winning television department. In January 2003, we launched
HorseRacing TV on our first cable television system (Time Warner San Diego) and we have quickly grown the network's distribution to over 11 million cable and satellite subscribers
nationally. HorseRacing TV has entered into a national distribution agreement with Dish Network (Echostar Communications Corp.) that makes HRTV available in all
50 U.S. states. Additionally, HorseRacing TV has entered into agreements with certain national/regional cable television operators, including Comcast, to make HorseRacing
TV available via cable distribution in 15 states. HorseRacing TV is also available on RTN (see below).

We
will continue to seek broad distribution of HorseRacing TV through additional distribution agreements with other cable and satellite television systems.

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RTN

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

RaceONTV

We provide broadcast and wagering services under the brand RaceONTVto OTBs and racetracks outside
the United States, subject to legal and governmental restrictions. RaceONTVservices include the supply of decoders to receive an
encoded satellite channel featuring live horse racing, wagering terminals to allow pari-mutuel wagering into U.S., Austrian, and German racetrack pari-mutuel pools, internet-
based customer service center for downloading racecard information and marketing materials as well as totalisator and wagering pool settlement services.

RaceONTVlaunched in early 2004 and currently has customers in Austria, Germany, and Peru. MEC Sport and
Entertainment GmbH holds a license issued by the provincial government of Lower Austria which allows it to accept and process pari-mutuel wagers and a license issued by the Austrian
Regulatory Authority for Telecommunications and Broadcasting which allows it to broadcast an encoded TV channel via satellite with a European footprint. Services are only offered to OTBs and
racetracks with a valid license to accept pari-mutuel wagers in the jurisdictions in which it operates.

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

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 live television coverage of the 2003, 2004 and 2005 Sunshine Millions®. In 2003 and 2004, HDNet carried live and
tape-delayed, high-definition television coverage of certain horse races from Lone Star Park at Grand Prairie and Santa Anita Park. We continue to seek new outlets for national
television coverage of our horse racing content in order to promote the sport of horse racing and attract additional wagering customers to our racetracks and other wagering platforms.

StreuFex

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

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.

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."

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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 a subsidiary of 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 have entered into an option agreement with MI Developments Inc. to purchase the shares of the subsidiary that owns the site. The
proposed new track has the potential to 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 still subject to certain regulatory approvals by the City of Romulus, but in August 2004
the Romulus city council and planning commission effectively approved the site plan and location for the proposed horse racetrack by granting the necessary site plan and conditional use approvals that
are required for us to apply for and receive a building permit. In addition, 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. Finally, in January 2004, the 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.

As
of January 1, 2005, there were three other pending applications for a racetrack in the Detroit Metropolitan area and three other pending applications for a racetrack site to be
located within the Detroit city limits. As for the Detroit Metropolitan area racetrack applications, 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 originally was located in Van
Buren township, but has since been relocated to the City of Allen Park, Michigan. In April 2004, 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) for a site to be located in the city of Highland Park, Michigan. In June 2004, a competing
application for a license to construct and operate a horse racetrack with pari-mutuel wagering in Romulus, Michigan was filed with The Office of Racing Commissioner (Michigan) by a third
party. This site is located in the city of Romulus and is just north and west of our proposed racetrack site.

The
applicant that filed the competing Romulus application has also filed two applications to construct a horse racetrack at two different sites in the Detroit area, one at the Detroit
State Fairgrounds and one within the city of Westlands, Michigan. Another applicant has filed an application for a license to construct a horse racetrack with pari-mutuel wagering for a
site located at the Detroit Sate Fairgrounds.

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. While the Magna 5features races from our tracks, the national wager is offered
at pari-mutuel outlets throughout the country.

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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.

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 being involved in the industry. Although the specific form may vary, states that regulate horse racing generally do so through a horse racing commission or other gambling
regulatory authority. Regulatory authorities perform background checks on all racetrack owners prior to granting them the necessary operating licenses. Horse owners, trainers, jockeys, drivers,
stewards, judges and backstretch personnel are also subject to licensing by governmental authorities. State regulation of horse races extends to virtually every aspect of racing and usually extends to
details such as the presence and placement of specific race officials, including timers, placing judges, starters and patrol judges.

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

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We
currently satisfy the applicable licensing requirements of the racing and gambling regulatory authorities in each state or province where we maintain racetracks and/or carry on
business, including the California Horse Racing Board, the Florida Department of Business and Professional Regulation Division of Pari-Mutuel Wagering, the Texas Racing Commission, the
Maryland Racing Commission, the Virginia Racing Commission, the Oklahoma Horse Racing Commission, the Ohio State Racing Commission, the Office of the Racing Commissioner of the Michigan Department of
Agriculture, the Pennsylvania State Harness Racing Commission, the 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, the Ontario Racing Commission and the Government of the Province of Lower Austria. 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 allocation and distribution of
pari-mutuel wagers within the limits set by the California legislature. The California Horse Racing Board has annually licensed The Oak Tree Racing Association and one of our subsidiaries,
Los Angeles Turf Club, Inc., to conduct separate 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 in respect of the two racing meets that it conducts each year. As with the Southern California market, the California
Horse Racing Board has not licensed other thoroughbred racetracks in Northern California to conduct racing during these meets. The California Horse Racing Board also 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.

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.

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. Through our indirect subsidiary, Maryland-Virginia Racing Circuit, Inc. ("MVRC"), we possess 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.

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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.

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. 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 at five existing
racetracks in Michigan. See " Recent 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.

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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 Racing Board which
expires in October 2006. XpressBet® also holds a license to serve as a multi-jurisdictional account wagering hub issued by the Oregon Racing Commission. The Oregon license enables
XpressBet® to open accounts and accept wagering instructions on behalf of U.S citizens in respect of dog races and to open accounts and accept wagering instructions on behalf of
non-U.S. citizens in respect of horse races. XpressBet® also holds account wagering licenses issued by the Washington Racing Commission and the Idaho Racing Commission,
and it is in the process of applying for an advance deposit account wagering license from the Virginia Racing Commission. The two entities that conduct horseracing and pari-mutuel wagering
at The Meadows are entitled to serve as a
Pennsylvania-based account wagering hub by virtue of their annual licenses to conduct standardbred racing and pari-mutuel wagering. XpressBet® and the entities that conduct
horseracing and pari-mutuel wagering at The Meadows conduct their respective account wagering operations under the trade name XpressBet®. In accordance with the laws of
Pennsylvania, California and Oregon, 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.

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

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

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).

In
Austria, horse race meets are conducted at the Magna Racino by the Austrian Race Horse Owners Club under agreement with us. The Austrian Race Horse Owners Club conducts
standardbred (harness) and thoroughbred horse race meets pursuant to licenses issued by the Direktorium des Jockeyclub für Österreich (thoroughbred) and the Zentrale
für Traberzucht und Rennen in Österreich (standardbred harness). There is no limitation as to the number of racing days that can be conducted under these licenses. We
offer pari-mutuel wagering on the horse races conducted at the Magna Racino and through our MagnaBet account wagering service pursuant to totalisator licenses
issued by the Government of the Province of Lower Austria.

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Ontario law also permits the Ontario Lottery and Gaming Corporation, or the OLGC, owned by the provincial government, to operate VLTs 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 " Our Properties  Flamboro Downs".



The Pennsylvania Race Horse Development and Gaming Act was passed and signed into legislation in July 2004. This legislation authorizes the granting of
slot machine licenses to up to seven Category 1 licensed facilities (i.e. racetracks) and up to five Category 2 licensed facilities (i.e. non-tracks), along
with limited licenses to up to two Category 3 licensed facilities (i.e. resort hotels). Those racetracks and non-track facilities which successfully apply for slot machine
licenses will be permitted to operate between 1,500 and 3,000 slot machines each, subject to future expansion of up to 2,000 additional machines per facility upon the approval of
the Pennsylvania Gaming Control Board. The licensed resort facilities will be permitted to operate, on a limited basis, up to 500 machines each.

Each
racetrack slot machine licensee in Pennsylvania will be required to pay 34% of its daily gross revenues from gaming less all monetary payouts ("Gross Terminal Revenues") to the
State Gaming Fund, 4% of its Gross Terminal Revenues as a local share assessment, 5% of its Gross Terminal Revenues to the Pennsylvania Gaming Economic Development and Tourism Fund and a maximum of
12% of its Gross Terminal Revenues to a pool (the "Horsemen Pool") for distribution to each racetrack's horsemen, in the form of purses and other awards. Non-track and resort
facilities will be bound to make the same percentage distributions but, since they do not conduct horse racing, they will contribute to the Horsemen Pool that portion of their Gross Terminal Revenues
which is equal, on a pro rata basis, to the amount
contributed to the Horsemen Pool by Category 1 licensees. The Horsemen Pool will then be allocated among the horsemen at each of the Category 1 licensed facilities, with the intention of
providing payments to the horsemen at each racetrack, which are equivalent to 18% of that track's Gross Terminal Revenues.

All
racetrack licensees offering slot machines in Pennsylvania must pay an upfront fee of $50.0 million and will be required to commit a minimum of $5.0 million over a five
year period, and a minimum of $0.25 million annually for five years thereafter, for improvements and maintenance of its backstretch. The legalization of alternative gaming at Pennsylvania
racetracks is anticipated to have a significant positive impact on purses and on the Pennsylvania horse racing industry in general. We intend to pursue an application for a slot machine license at The
Meadows, MEC's racetrack in the Pittsburgh area, in accordance with the requirements of the legislation and associated regulations without delay. The Pennsylvania Gaming Control Board, created under
the legislation to implement and oversee licensee gaming operations, has been fully constituted but has not yet released the operating regulations or form of licensee application. We are closely
monitoring this process and will be in a position to pursue our application as soon as the Pennsylvania Gaming Control Board permits.

The
Pennsylvania Race Horse Development and Gaming Act has been subjected to legal challenge by various groups, a move that was not unanticipated at the time of the passage of this
legislation. These legal challenges are currently in the courts and are being vigorously defended by both the State of Pennsylvania and interested industry representatives.



Under new legislation that was approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park, our Oklahoma
City racetrack, will be permitted, subject to licensing, to operate 650 electronic gaming machines, subject to increases of an additional 50 machines in each of the third and fifth years
after the issuance of the applicable license. One of the pre-conditions to Remington Park's right to operate gaming machines under the new legislation, ratification of a model tribal-state
gaming compact by at least four Oklahoma Native American tribes, has now taken place. The Oklahoma Horse Racing Commission is empowered under the legislation to oversee licensees' applications and
operations and continues to work on the form of regulations and applications it will require. We intend to closely monitor this process and to be in a position to pursue our license application as
soon as the Oklahoma Horse Racing Commission permits.

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On November 2, 2004, Amendment 4 to the Florida State Constitution was approved, permitting the governing bodies of Broward and
Miami-Dade counties to each hold a county-wide referendum on whether to authorize slot machines within existing, licensed pari-mutuel facilities that have conducted
live racing during each of the last two years. The referendum was scheduled for vote in Broward County, where Gulfstream Park is located, on March 8, 2005. Based on preliminary unofficial
results from the Broward County Supervisor of Elections announced on March 9, 2005, voters in Broward County have approved the referendum questions by majority vote, which means that slot
machines are authorized at qualifying pari-mutuel facilities in Broward County, subject to the enactment of applicable legislation and licensing. Pursuant to Amendment 4, the state
legislature is now required to adopt implementing legislation in the next regular legislative session, with an effective date no later than July 1, 2005. We have entered into an agreement with
Broward County, identical in principal terms to agreements entered into by the three other pari-mutuel facilities in that County, that contains, among other things, provision for payment
to the County of 1.5% of Gross Terminal Revenues up to a level of $250.0 million of Gross Terminal Revenues and 2.0% on Gross Terminal Revenues in excess. If the referendum was approved and
officially certified, we are required to enter into an agreement with the city in which Gulfstream Park is located, Hallandale Beach, providing for, among other things, a payment of a percentage of
Gross Terminal Revenues to that city.



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

Our Real Estate Portfolio

As of December 31, 2004, the aggregate net book values of our real estate properties are as follows:

|                                         |  | ($ millions)
|---------------------------------------- |  | ------------
|Revenue-Producing Racing Real Estate     |  | 677.3       
|Excess Racing Real Estate                |  | 98.3        
|Development Real Estate                  |  | 50.6        
|Revenue-Producing Non-Racing Real Estate |  | 83.5        
|Non-Core Real Estate                     |  | 2.5         
|                                         |  |             
|Total                                    |  | 912.2       
|                                         |  |             

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, 2004 was approximately $184.3 million.

Included
in our excess racing real estate is land adjacent to several of our racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park at Grand Prairie, Laurel Park, Pimlico Race
Course and Magna Racino, totaling approximately 786 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.

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Our
development real estate, which is largely undeveloped, includes: approximately 27 acres of land in Oberwaltersdorf, Austria, 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 491 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 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.

In
November 2004, we entered into access agreements with Magna International Inc. and one of its subsidiaries for their use of the golf courses and associated facilities at
Magna Golf Club and Fontana Sports. Magna International Inc. has a right of first refusal to purchase Magna Golf Club and Fontana Sports. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".



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.

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 finalized.

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

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Employees

As of December 31, 2004, 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.

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 expect that during 2005 we will require additional financing to fund our current planned operations and the implementation of our
strategic plan, and there can be no assurance that we will be able to obtain such financing on satisfactory terms, if at all.

We
expect that during 2005, we will be required to seek additional debt and/or equity financing in order to fund our current planned operations and the implementation of our strategic
plan, including capitalizing on future growth opportunities. We also intend to generate cash by monetizing certain of our receivables, selling some of our real estate holdings and other assets and/or
entering into leases or similar arrangements with respect to such real estate holdings or other assets in order to fund our current planned operations and certain portions of our strategic plan. If
additional financing or other sources of funds are not available to us as needed, or are not available on terms that are acceptable to us, our business, operations and financial condition may be
materially adversely affected, including, without limitation, our ability to add alternative gaming to our racetracks where permitted or improve or expand our operations as planned.

We
have already entered into numerous financing arrangements secured by significant portions of our assets, which will limit our ability to provide security for new loans. Please see
"Management's Discussion and Analysis of Financial Condition and Results of Operations  Working Capital, Cash and Other Resources".

Following
their expiry, there can be no assurance that the amounts, terms and conditions involved in the renewal or extension of our existing financing arrangements will be favorable, or
that we will be able to renew or extend any of these financing arrangements at all. If we are unable to renew or extend our financing arrangements when due, on favorable terms, or at all, our
business, operations and financial condition may be materially adversely affected.

Our senior revolving credit facility imposes important restrictions on us.

Our
senior revolving credit facility, which matures on October 10, 2005, requires us to maintain a bank debt to earnings before interest, taxes, depreciation and amortization
ratio not greater than 5.0 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 a first charge on the assets of Golden Gate Fields and a second charge on the assets of Santa Anita Park and are guaranteed by certain of our
subsidiaries which own and operate Golden Gate Fields and Santa Anita Park. The credit agreement 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 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. 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 and trigger a cross-default under certain of our other credit facilities. Upon the occurrence of an event of default, the lender may terminate the senior, revolving
credit facility, demand immediate payment of all amounts borrowed by us and require adequate security or collateral for all outstanding letters of credit outstanding under the facility, which could
adversely affect our ability to repay our debt securities and would adversely affect the trading price of our Class A Subordinate Voting Stock.

Two of our totalisator service providers have not provided us with a Type II Statement on Auditing Standards ("SAS") 70 report and we therefore have
a material weakness in our internal controls over financial reporting.

During
the course of our assessment of the effectiveness of our internal control over financial reporting, it was determined that the inability of two of our totalisator service
providers to furnish a Type II SAS 70 report constitutes a material weakness in our internal control over financial reporting. Although we have not identified any accounting adjustments
as a result of inaccurate tote information, our inability to obtain a Type II SAS 70 report means that we do not have reasonable assurance that these tote providers maintain accurate and
fair records of all wagering transactions processed by them or that these tote providers have adequate security measures in place to detect and prevent unauthorized manipulation of the wagering
transactions processed by them. This constitutes a material weakness in our internal control over financial reporting and is a control deficiency that results in a more than remote likelihood that a
material misstatement of our financial statements will not be prevented or detected. Please see "Item 9A  Controls and Procedures."

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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.

We
generate earnings of approximately $9.6 million, $0 and $2.2 million for the years ended December 31, 2004, 2003 and 2002, respectively, 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. As a result, 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 and Golden Gate Fields accounted for approximately
62.3% of our revenue for the year ended December 31, 2004. 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.

We ceased operations at Bay Meadows and Multnomah Greyhound Park at the end of 2004, which is likely to adversely affect our operating results compared with
previous years.

The
lease on our Bay Meadows site expired December 31, 2004. Although 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 is still in the early stages of planning and is subject to regulatory and
other approvals. Our operating results will be materially adversely affected at least until such time as an alternative venue could be opened or additional revenue source arrangements secured. There
can be no assurance that operating at an alternative venue in the future will be as profitable as our Bay Meadows operation has been. Bay Meadows had earnings before income taxes in 2004 of
$3.1 million.

On
December 23, 2004, we announced that we would not renew our lease of the Multnomah Greyhound Park in Portland, Oregon when the lease expired on December 31, 2004. We
purchased the operating rights for the greyhound track in October 2001. Multnomah Greyhound Park had a loss of $2.6 million before income taxes in 2004.

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We are a relatively young company with a short history of racetrack operations. We must successfully integrate all of our racetrack acquisitions and implement
best practices and cost efficiencies or our operating results may be adversely affected.

We
were incorporated approximately six 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 The Meadows was completed in April 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. Integrating these businesses into our operations and implementing best practices and cost
efficiencies across all of our racetracks has required and will require a dedication of a significant amount of management resources.

If
we do not successfully integrate our 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.

In the state of Maryland, our operating agreement with the owner of Rosecroft Raceway may not be assumed by any purchasers of Rosecroft Raceway, and in any event,
such agreement terminates on April 30, 2005.

The
Maryland Jockey Club, the trade name for the entities that own and operate Pimlico and Laurel Park, is a party to an agreement (the "Maryland Operating Agreement") with
Cloverleaf Enterprises, Inc., the current owner of Rosecroft Raceway, a standardbred track located in Prince George's County in Maryland. The Maryland Operating Agreement replaced a previous
agreement (the "Maryland Revenue Sharing Agreement"), which was effective as of January 1, 2000 and expired on April 18, 2004. The term of the Maryland Operating Agreement runs
from June 9, 2004 through April 30, 2005, unless earlier terminated in accordance with its terms, or extended by mutual agreement of all parties.

The
Maryland Revenue Sharing Agreement enabled wagering to be conducted, both day and evening, on live and simulcast thoroughbred and harness races at Pimlico, Laurel Park and Rosecroft
and the three Maryland OTBs operated by them. Under the Maryland Revenue Sharing Agreement, wagering revenue from these sources was pooled and certain expenses and obligations were pooled and paid
from those revenues to generate net wagering revenue. This net wagering revenue was then distributed 80% to The Maryland Jockey Club and 20% to Rosecroft. Commencing April 19, 2004, The
Maryland Jockey Club and Rosecroft are no longer pooling their wagering revenue and distributing net wagering revenue as they did under the Maryland Revenue Sharing Agreement. From April 19,
2004 until June 9, 2004, they operated under a state law, which precluded The Maryland Jockey Club from operating after 6:15 p.m. without Rosecrofts' 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 Park are
running live races.

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Since
coming into effect on June 9, 2004, the Maryland Operating Agreement has enabled Pimlico, Laurel Park and Rosecroft to conduct simulcast wagering on thoroughbred and harness
race signals during the day and evening hours without restriction. Under the Maryland Operating Agreement, Cloverleaf agrees to pay the thoroughbred industry a 12% premium on pari-mutuel
wagering (net of refunds) conducted at Rosecroft on all thoroughbred race signals, and The Maryland Jockey Club agrees to pay Cloverleaf a 12% premium on pari-mutuel wagering (net of refunds)
conducted at Pimlico and Laurel Park and standardbred race signals.

Under
the Maryland Operating Agreement, the parties have agreed to make a good faith effort to reach a long-term agreement on cross-breed simulcasting and OTB facilities in
the State of Maryland. Without an arrangement similar in effect to the Maryland Revenue Sharing Agreement or the Maryland Operating Agreement, there would be a material decline in the revenues,
earnings and purses of The Maryland Jockey Club. At this time, the Company is uncertain as to the likelihood of a renewal of this agreement on comparable terms.

It
was announced in 2003 that Centaur, Inc. 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 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. However, notwithstanding an
announcement of a partnership between Greenwood Racing and Northwind to purchase Rosecroft in February 2004, the Northwind bid to purchase Rosecroft did not proceed. In November 2004, an
announcement was made that Rosecroft Holdings, controlled by the Angelos family of Baltimore, had agreed to purchase Rosecroft and the sale was approved by the Maryland Racing Commission in
January 2005. However, in mid-February 2005, Rosecroft Holdings announced that it did not intend to proceed with its purchase of Rosecroft. At this time, it is unclear
whether there will be any sale of Rosecroft in the foreseeable future. However, in the event of the non-assumption by any successful purchaser of Rosecroft or the expiry of the Maryland
Operating 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, earnings
and purses 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".

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

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

Risks Relating to Our Wagering Operations

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. In 2004, both Pennsylvania and Oklahoma passed legislation enabling racetracks to apply for
licenses to operate slots or other legal electronic gaming machines. We operate racetracks in each of Pennsylvania and Oklahoma that are eligible to apply for slots or electronic gaming licenses under
the current legislation. Currently, the alternative gaming legislation in Pennsylvania is being challenged in the courts by opponents seeking to have the legislation overturned. In addition, in 2004,
the Florida State Constitution was amended to permit certain counties to each hold a referendum on whether to authorize slot machines at certain existing pari-mutuel facilities located
within each county. A referendum was held in Broward County, in which Gulfstream Park is located, on March 8, 2005. Based on preliminary unofficial results announced by the Broward County
Supervisor of Elections on March 9, 2005, voters approved the referendum question. The Florida State Legislature is now required to enact alternative gaming legislation with an effective date
not later than July 1, 2005, which should entitle Gulfstream Park to apply for a license to operate slot machines.

Notwithstanding
the passage of legislation permitting slots and electronic gaming in Pennsylvania and Oklahoma, and the preliminary referendum results in Broward County, Florida, there
can be no assurance that alternative gaming will be permitted at our racetracks located in those jurisdictions until the applicable license is granted and if alternative gaming is permitted at any of
our racetracks, what the timetable, conditions, costs and profitability of such alternative gaming operations will be. In the event that we do not obtain the required licenses to operate alternative
gaming in these jurisdictions within the timeframe anticipated by our stockholders, investment analysts and other interested parties, or at all, the market price for our securities may be materially
adversely affected.

Furthermore,
other states are at various stages of considering alternative gaming but 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.

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

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

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

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

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

There
has been a general decline in the number of people attending and wagering at live horse races at North American racetracks due to a number of factors, including increased
competition from other forms of gaming, unwillingness of customers to travel a significant distance to racetracks and the increasing availability of off-track 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.

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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.

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, neither
this bill nor the House-passed version were considered by the full Senate before the end of the 2003-2004 Congressional session and therefore both bills expired. While each of these recent
bills contained exemptions which we believe were 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 future 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.

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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.

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.

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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, which 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.

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

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

Several
Native American groups in Florida have 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.

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

The
full impact on the horseracing industry of the 2002 Breeders' Cup 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. 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 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.

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

A
perceived lack of integrity in U.S. horse racing operations or wagering systems could result in a decline in bettor confidence, and would likely lead to a decline in the amount
wagered on horse racing. In addition, although we are taking steps to improve wagering systems, security and customer verification, the foregoing controversies may lead to changes in legislation,
regulation or industry practices, which could result in a material adverse effect on our business and results of operations.

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.

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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.

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

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

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

As
of December 31, 2004, 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.

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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 and Golden Gate Fields, which would adversely impact our cash flow from these
racetracks.

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



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, 2003 and 2004, weak economics in certain states in which we operate 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.

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.

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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 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.

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 the registered owner 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.

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

We
have completed the redevelopment of the racing surfaces and have commenced the redevelopment of the grandstand and backstretch facilities at Gulfstream Park in Florida. We have also
just completed the redevelopment of the dirt racing surfaces and are in the process of redeveloping the turf track at Laurel Park. These redevelopments resulted in writedowns in 2004 of
$26.3 million and $0.4 million, respectively. The redevelopment at Gulfstream Park has resulted in a racing meet using temporary facilities for 2005 and the re-opening of
Laurel Park for its 2004 - 2005 meet was delayed due to construction delays, which also resulted in a loss of a number of racing days. We have deferred a decision on the
proposed redevelopment of the entire stable area at Laurel Park in Maryland. We are also considering a redevelopment of the grandstand at The Meadows in Pennsylvania in connection with the proposed
slot facility, if approved. Any redevelopment would require the demolition of a substantial portion of the current buildings and related structures. The aggregate carrying value of these assets as of
December 31, 2004 is $3.1 million and $8.3 million, respectively. If we decide to proceed with a redevelopment of the stables at Laurel Park or the grandstand at The Meadows 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 either redevelopment, 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. In addition, we encountered delays in the rebuilding of the racetrack surfaces at Laurel Park, which resulted in a late re-opening
of Laurel Park for its 2004 - 2005 meet and a loss of certain race dates. Even if completed in a timely manner, our expansion projects may not be successful, which would
affect our growth and could have a material adverse effect on our future profitability.

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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".

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:



46

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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 9, 2005, 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. In December 2002, we issued $75.0 million aggregate principal amount
on 71/4% Convertible Notes due December 15, 2009 that are convertible into 8,823,529 shares of our Class A Subordinate Voting Stock (subject to certain
adjustments). We also have an effective registration statement covering 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 upon conversion of our Convertible Notes could depress the prevailing market price of our Class A Subordinate Voting Stock.



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:



47

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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.

In
connection with MI Developments Inc.'s intention to make an unsolicited offer to acquire all of our outstanding shares of Class A Subordinate Voting Stock not already
owned by it, six lawsuits were filed, and are currently pending against, among others, us, MI Developments Inc. and/or one or more of MI Developments and our directors as follows:



Each
of these lawsuits seeks injunctive relief to stop any proposed acquisition of our outstanding Class A Subordinate Voting Stock by MI Developments Inc. and, in certain
cases, damages if such transaction is completed as proposed by MI Developments Inc.

All
of the Delaware actions were consolidated by order dated August 30, 2004.

As
a result of the announcement by MI Developments Inc. on September 16, 2004, of its withdrawal of the offer, we believe that the lawsuits are moot and should be
dismissed. On October 1, 2004, the plaintiffs in the previously announced class action lawsuit in California captioned Feldman v. Magna Entertainment Corp. et al, filed a notice of
dismissal of this action with the Superior Court, State of California, County of Los Angeles. We intend to seek a dismissal of the Delaware cases and the remaining California case, however, the
plaintiffs in these proceedings may oppose any motion for dismissal.

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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.

Part II

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

Trading History

Our Class A Subordinate Voting Stock is listed and traded on the Nasdaq National Market ("Nasdaq") under the symbol "MECA" and listed and traded on the
Toronto Stock Exchange ("TSX") under the symbol "MEC.SV.A". On November 17, 2004, MEC announced a change in its stock symbol on the "TSX" from "MEC.A" to "MEC.SV.A" as a result of a new symbol
naming convention adopted by the TSX. The stock symbol for the Class A Subordinate Voting Stock on Nasdaq was not affected by this change. Class A Subordinate Voting Stock commenced
trading on Nasdaq on February 23, 2000 and closed at a price of $3.06 per share, and on the TSX on February 23, 2000 where it closed at a price of Cdn. $4.60 per share. The following
table sets forth for the calendar periods indicated the high and low sale prices per share of the Class A Subordinate Voting Stock as reported by Nasdaq and the TSX.

|      |                                       | Nasdaq |   | TSX 
|----- | ------------------------------------- | ------ | - | ----
|
|2003: |                                       |        |   |     
|      | First Quarter                         |        | $ | 6.32
|      | Second Quarter                        |        | $ | 5.38
|      | Third Quarter                         |        | $ | 5.15
|      | Fourth Quarter                        |        | $ | 5.94
|2004: |                                       |        |   |     
|      | First Quarter                         |        | $ | 5.46
|      | Second Quarter                        |        | $ | 5.52
|      | Third Quarter                         |        | $ | 6.12
|      | Fourth Quarter                        |        | $ | 5.90
|2005: |                                       |        |   |     
|      | First Quarter (through March 9, 2005) |        | $ | 7.12

On
March 9, 2005, the last sale price of the Class A Subordinate Voting Stock as reported by Nasdaq was $6.54 and by the TSX was Cdn. $7.84.

Our
Class B Stock is unlisted and not actively traded.

The
number of securityholders of record as of March 9, 2005 was as follows: Class A Subordinate Voting Stock: 595 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.

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Recent Sales of Unregistered Securities

None.

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, 2000, 2001, 2002, 2003 and 2004 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, 2000 (as filed with our Annual Report for the fiscal 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), December 31, 2003
(as filed with our Annual Report for the year ended December 31, 2003) and December 31, 2004 (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.



|                                                                                                                                                |  | Year Ended December 31, |        
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|
|
|Racing Revenues                                                                                                                                 |  | $                       | 355,249
|Real Estate and Other Revenues                                                                                                                  |  |                         | 58,314 
|                                                                                                                                                |  |                         |        
|Total Revenues                                                                                                                                  |  | $                       | 413,563
|                                                                                                                                                |  |                         |        
|Costs and Expenses                                                                                                                              |  |                         |        
|Racing costs and expenses                                                                                                                       |  | $                       | 341,017
|Real estate and other costs and expenses                                                                                                        |  |                         | 50,717 
|Depreciation and amortization                                                                                                                   |  |                         | 20,061 
|Write-down of long-lived and intangible assets                                                                                                  |  |                         |       
|Write-down of excess real estate                                                                                                                |  |                         |       
|Equity income                                                                                                                                   |  |                         |       
|Interest expense (income), net                                                                                                                  |  |                         | 215    
|                                                                                                                                                |  |                         |        
|Income (loss) before income taxes                                                                                                               |  | $                       | 1,553  
|                                                                                                                                                |  |                         |        
|Net income (loss)                                                                                                                               |  | $                       | 441    
|                                                                                                                                                |  |                         |        
|Earnings (loss) per share for Class A Subordinate Voting Stock, Class B Stock and Exchangeable Share:                                           |  |                         |        
|Basic                                                                                                                                           |  | $                       | 0.01   
|                                                                                                                                                |  |                         |        
|Average number of shares of Class A Subordinate Voting Stock, Class B Stock and Exchangeable Shares outstanding during the year (in thousands): |  |                         |        
|Basic                                                                                                                                           |  |                         | 80,422 
|Diluted                                                                                                                                         |  |                         | 80,424 

|                              |  | Year Ended December 31, |        
|----------------------------- |  | ----------------------- | -------
|
|
|EBITDA(2)                     |  | $                       | 21,829 
|Capital expenditures(3)       |  |                         | 30,418 
|Cash provided from (used for) |  |                         |        
|Operating activities          |  |                         | (16,109
|Investment activities         |  |                         | (35,255
|Financing activities          |  |                         | 32,906 

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

---

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 (Loss) Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA") |  |                         |       
|Income (loss) before income taxes                                                       |  | $                       | 1,553 
|Interest expense, net                                                                   |  |                         | 215   
|Depreciation and amortization                                                           |  |                         | 20,061
|                                                                                        |  |                         |       
|EBITDA                                                                                  |  | $                       | 21,829
|                                                                                        |  |                         |       

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

The following discussion of our results of operations and financial position should be read in conjunction with our consolidated financial statements for the year
ended December 31, 2004.

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

The following discussion of our results of operations and financial position should be read in conjunction with our consolidated financial statements for the year
ended December 31, 2004.

Overview

Magna Entertainment Corp. ("MEC", "we" or the "Company") owns and operates horse racetracks in California, Florida, Maryland, Texas, Oklahoma, Pennsylvania, Ohio,
Michigan, Oregon, Ontario, Canada and Ebreichsdorf, Austria. Based on revenues, MEC is North America's number one owner and operator of horse racetracks, and is one of the world's leading suppliers,
via simulcasting, of live racing content to the growing inter-track, off-track and account wagering markets. Throughout 2004, we operated or managed twelve thoroughbred racetracks, two
standardbred (harness racing) racetracks, two racetracks that run both thoroughbred and standardbred meets and one greyhound track, as well as the simulcast wagering venues at these tracks. Subsequent
to December 31, 2004, we have ceased operations at one of our thoroughbred racetracks and at our only greyhound track. These were operations in leased facilities and the leases were not renewed
for 2005. In addition, we operate off-track betting ("OTB") facilities, a United States national account wagering business known as XpressBet®, which permits customers
to place wagers by telephone and over the Internet on horse races at over 100 North American racetracks and internationally on races in Australia, South Africa and Dubai and a European account
wagering service known as MagnaBet. We also own and operate HorseRacing TV ("HRTV"), a television network focused on horse racing that we initially launched on
the Racetrack Television Network ("RTN"). We are in ongoing discussions with cable and satellite operators with the goal of achieving broader distribution for HRTV. In July 2004,
HRTV entered into a carriage agreement with the operator of the Dish Network which dramatically expanded HRTV's distribution throughout the United States.
HRTV is currently distributed to more than 11 million cable and satellite TV subscribers. RTN, in which we have a minority interest, was formed to telecast races from our
racetracks and other racetracks, via private direct to home satellite, to paying subscribers. In 2004, we launched RaceONTV in Europe to provide North American racing content from our
racetracks and other U.S. racetracks that have agreed to participate in our international distribution network to locations outside North America. We also own 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 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.

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 working with potential developers and strategic partners 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. We have entered into a predevelopment management agreement with Forest City
Enterprises, Inc. with respect to the planned development of "The Village at Gulfstream Park", an 80-acre, mixed-use retail, entertainment and residential
project at Gulfstream Park. While we are exploring the development of some of our real estate,

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we
intend to continue to sell our remaining Non-Core Real Estate (which had a book value of $2.5 million as of December 31, 2004) and may also sell our residential
developments and certain other real estate in order to generate additional capital for 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").

2004 Developments and Initiatives

Initiatives related to the passage of legislation permitting alternative gaming at racetracks, such as slot machines, video lottery terminals and other forms of
non-pari-mutuel gaming, are actively underway in a number of states in which we operate. 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. Alternative gaming legislation has passed in each of Pennsylvania and Oklahoma during the past year and there is a pending
legislative initiative active in Florida.

The
Pennsylvania Race Horse Development and Gaming Act was passed and signed into legislation in July 2004. This legislation authorizes the granting of slot machine licenses to up
to seven Category 1 licensed facilities (i.e. racetracks) and up to five Category 2 licensed facilities (i.e. non-tracks), along with limited licenses to up to
two Category 3 licensed facilities (i.e. resort hotels). Those racetracks and non-track facilities which successfully apply for slot machine licenses will be permitted to
operate between 1,500 and 3,000 slot machines each, subject to future expansion of up to 2,000 additional machines per facility upon the approval of the Pennsylvania Gaming
Control Board ("PGCB"). The licensed resort facilities will be permitted to operate, on a limited basis, up to 500 machines each.

Each
racetrack slot machine licensee in Pennsylvania will be required to pay 34% of its daily gross revenues from gaming less all monetary payouts ("Gross Terminal Revenues") to the
State Gaming Fund, 4% of its Gross Terminal Revenues as a local share assessment, 5% of its Gross Terminal Revenues to the Pennsylvania Gaming Economic Development and Tourism Fund and a maximum of
12% of its Gross Terminal Revenues to a pool (the "Horsemen Pool") for distribution to each racetrack's horsemen, in the form of purses and other awards. Non-track and resort
facilities will be bound to make the same percentage distributions but, since they do not conduct horse racing, they will contribute to the Horsemen Pool that portion of their Gross Terminal Revenues
which is equal, on a pro rata basis, to the amount contributed to the Horsemen Pool by Category 1 licensees. The Horsemen Pool will then be allocated among the horsemen at each of the
Category 1 licensed facilities, with the intention of providing payments to the horsemen at each racetrack, which are equivalent to 18% of that track's Gross Terminal Revenues.

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All
racetrack licensees offering slot machines in Pennsylvania must pay an upfront fee of $50.0 million and will be required to commit a minimum of $5.0 million over a five
year period, and a minimum of $0.25 million annually for five years thereafter, for improvements and maintenance of its backstretch. The legalization of alternative gaming at Pennsylvania
racetracks is anticipated to have a significant positive impact on purses and on the Pennsylvania horse racing industry in general. We intend to pursue an application for a slot machine license at The
Meadows, our racetrack in the Pittsburgh area, in accordance with the requirements of the legislation and associated regulations without delay. The PGCB, created under the legislation to implement and
oversee licensee gaming operations, has been fully constituted but has not yet released the operating regulations or form of licensee application. We are closely monitoring this process and will be in
a position to pursue our application as soon as the PGCB permits.

The
Pennsylvania Race Horse Development and Gaming Act has been subjected to legal challenge by various groups, a move that was not unanticipated at the time of the passage of this
legislation. These legal challenges are currently in the courts and are being vigorously defended by both the State of Pennsylvania and interested industry representatives.

Under
new legislation that was approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park, our Oklahoma City racetrack, will be
permitted, subject to licensing, to operate 650 electronic gaming machines, subject to increases of an additional 50 machines in each of the third and fifth years after the issuance of
the applicable license. One of the pre-conditions to Remington Park's right to operate gaming machines under the new legislation was the ratification of a model tribal-state gaming compact
by at least four Oklahoma Native American tribes which has now occurred. The Oklahoma Horse Racing Commission ("OHRC") is empowered under the legislation to oversee licensees' applications and
operations and continues to work on the form of regulations and applications it will require. We intend to closely monitor this process and to be in a position to pursue our license application as
soon as the OHRC permits.

On
November 2, 2004, Amendment 4 to the Florida State Constitution was approved, permitting the governing bodies of Broward and Miami-Dade counties to each hold
a county-wide referendum on whether to authorize slot machines within existing, licensed pari-mutuel facilities that have conducted live racing during each of the last two
years. The referendum was scheduled for vote in Broward County, where Gulfstream Park is located, on March 8, 2005. Based on preliminary unofficial results on March 9, 2005 from
the Broward County Supervisor of Elections, voters in Broward County have approved the referendum question by majority vote, which means that slot machines are authorized at qualifying
pari-mutuel facilities in Broward County, subject to the enactment of applicable legislation and licensing. Pursuant to Amendment 4, the state legislature is now required to adopt
implementing legislation in the next regular legislative session, with an effective date no later than July 1, 2005. We have entered into an agreement with Broward County,

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identical
in principal terms to agreements entered into by the three other pari-mutuel facilities in that County, that contains, among other things, provision for payment to the County of
1.5% of Gross Terminal Revenues up to a level of $250.0 million of Gross Terminal Revenues and 2.0% on Gross Terminal Revenues in excess. If the Broward County referendum is approved and
officially certified, we are required to enter into an agreement with the city in which Gulfstream Park is located, Hallandale Beach, providing for, among other things, a payment of a percentage of
Gross Terminal Revenues to that city. In 2004, we committed $2.5 million to the advancement of the state-wide referendum campaign and in 2005, we have committed up to an additional
$3.0 million to the county referendum and state legislative campaigns.

The
redevelopment of Gulfstream Park commenced in 2004. The project includes significant modifications and enhancements to the racing surfaces and stable area, including the construction
of a new, wider turf course. It also includes the construction of a modern clubhouse/grandstand offering an array of restaurants and entertainment facilities. The capital budget for the redevelopment
of Gulfstream Park is approximately $145 million, which we are partially financing through a $115 million construction loan from our parent company, MI Developments Inc. ("MID")
(see "Working Capital, Cash and Other Resources" below). Our goal is to minimize the disruption to the 2005 Gulfstream Park race meet during the construction period. To that end, the new racing
surfaces were completed prior to the start of the 2005 meet. However, since the project entails the demolition of a substantial portion of the current buildings and related structures, temporary
facilities have been erected to house the 2005 meet. The new clubhouse/grandstand facility is expected to be operational for the 2006 Gulfstream Park race meet. Although the redevelopment is being
scheduled to minimize any interference with Gulfstream Park's racing season, with a project of this magnitude, there will be a temporary disruption of Gulfstream Park's operations during the 2005 meet
and there is a risk that the redevelopment will not be completed according to schedule. Any interference with the racing operations during the meet would result in a reduction in the revenues and
earnings generated at Gulfstream Park during that meet.

The
redevelopment of the racing surfaces at Laurel Park also commenced in 2004. The project includes significant modifications and enhancements to the racing surfaces, including the
construction of a new, wider turf course. As a result of the redevelopment, Laurel Park's 2004 summer meet, which ran from July 31, 2004 to August 27, 2004, and the fall meet, which ran
from November 4, 2004 to December 31, 2004, were moved to Pimlico Race Course. The new dirt track was completed in January 2005 and the new turf track is scheduled to be completed
prior to the start of Laurel Park's 2005 summer meet, which commences on August 6, 2005. We are also considering a redevelopment of the entire stable area at Laurel Park. In the event that we
proceed with this redevelopment as currently contemplated, it would include the construction of new barns, dormitories and grooms' quarters. The aggregate carrying value at December 31, 2004 of
the assets that would be demolished if this redevelopment is completed is approximately $3.1 million. If we decide to proceed with this 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, the project would be scheduled to minimize any
interference with Laurel Park's racing season, however, with a project of this magnitude, there would likely be a temporary disruption to Laurel Park's operations during the racing season and there is
a risk that the redevelopment would 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.

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We
are also considering a redevelopment of the clubhouse/grandstand at The Meadows. In the event that we obtain a slot machine license for The Meadows and this development were to
proceed as currently contemplated, it would include the construction of a new clubhouse/grandstand with a facility to house slot machines. The aggregate carrying value at December 31, 2004 of
the assets that would be demolished if this redevelopment is completed is approximately $8.3 million. If we decide to proceed with this 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, our goal would be to minimize any interference with The
Meadows' operations, however, with a project of this magnitude, there would likely be a temporary disruption of The Meadows' operations and there is a risk that the redevelopment would not be
completed according to schedule. Any interference with the racing operations would result in a reduction in the revenues and earnings generated at The Meadows.

The
Maryland Jockey Club is a party to an agreement (the "Maryland Operating Agreement") with Cloverleaf Enterprises, Inc., the current owner of Rosecroft Raceway, a
standardbred track located in Prince George's County in Maryland. The Maryland Operating Agreement replaced a previous agreement (the "Maryland Revenue Sharing Agreement"), which was effective
as of January 1, 2000 and expired on April 18, 2004. The Maryland Operating Agreement has been in effect since June 9, 2004 and expires on April 30, 2005, unless extended
by all parties. Under the Maryland Operating Agreement, the parties have agreed to make a good faith effort to reach a long-term agreement on cross-breed simulcasting and OTB facilities in
the State of Maryland. Without an arrangement similar in effect to the Maryland Revenue Sharing Agreement or the Maryland Operating Agreement, there would be a material decline in the revenues,
earnings and purses of The Maryland Jockey Club. 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., 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 their related facilities and operations. The commitment was fulfilled by December 31,
2004.

We
believe that the European marketplace offers significant potential growth for the export of MEC's horse racing. RaceONTV is our new service, based near Vienna, Austria,
that offers simultaneous broadcasts of North American horse races and other racing content directly to wagering operations located outside of North America. RaceONTV commenced operations
during the first quarter of 2004. On April 4, 2004, we opened our newest racetrack, Magna Racino, near Vienna, Austria. We anticipate hosting 50 days of live racing annually
at the Magna Racino in a mixed thoroughbred and standardbred meet. On September 4, 2004, a gaming facility at the Magna Racino was opened, which includes an
entertainment venue, as well as alternative gaming and a race and sports book operated by third parties under commission-based agreements with us.

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In
October 2003, we signed a Letter of Intent to explore the possibility of a joint venture between Forest City Enterprises, Inc., ("Forest City") and various MEC
affiliates anticipating the ownership and development of a portion of the Gulfstream Park racetrack. In April 2004, we signed a Pre-Development Management Agreement which governs
the activities of the parties and obligates the parties to work together to plan, design, entitle, pre-lease, contract to construct and finance a project. The Agreement also contemplates a
conceptual development and business plan for the project. Upon execution of this Agreement, Forest City paid $1 million to MEC in consideration for their right to work exclusively with MEC on
this project and to secure the performance of their obligations under the Agreement. Forest City and MEC then collectively developed a Business Plan that upon completion, Forest City provided an
additional $1 million to MEC. These two deposits have been reflected as other accrued liabilities on our consolidated balance sheets. Under certain conditions, these deposits may be refundable
to Forest City. Under the terms of the Letter of Intent and also the Pre-Development Management Agreement, MEC may be responsible for additional equity contributions, however to
December 31, 2004, we have not made any such contributions.

In
April 2004, we signed a Letter of Intent to explore the possibility of joint ventures between Caruso Affiliates Holdings and various MEC affiliates to develop certain
undeveloped lands surrounding our Santa Anita Park and Golden Gate Fields racetracks. Upon execution of this Letter of Intent, we deposited $200,000 into a joint account to be used for the purpose of
co-funding the development of a business plan for each of these projects, with the goal of entering into Operating Agreements by May 31, 2005. We have contributed an additional
$200,000 in 2004. The deposits have been reflected as other assets on our consolidated balance sheets. The Company is continuing to explore these developmental opportunities, but to
December 31, 2004 has not entered into definitive Operating Agreements on either of these potential developments. Under the terms of the Letter of Intent, MEC may be responsible for additional
equity contributions, however to December 31, 2004, we have not made any such contributions.

On
July 13, 2004, we were advised by MID of its intention to make an unsolicited offer to acquire all of the outstanding shares of Class A Subordinate Voting Stock that
were not owned by MID at that time. On September 16, 2004, we were advised of MID's decision not to proceed with its offer.

On
August 24, 2004, MI Racing Inc., our wholly-owned subsidiary, sold the real property and associated racetrack license of Great Lakes Downs to Richmond
Racing Co., LLC ("Richmond Racing") for approximately $4.2 million. The consideration included cash of $0.2 million and the issuance of a 20-year promissory
note with a principal amount of $4.0 million, which bears interest at 5% per annum. MI Racing Inc. also entered into a lease agreement with Richmond Racing, which gives MI
Racing Inc. the conditional right to continue operating Great Lakes Downs and to conduct thoroughbred race meetings at the racetrack. The lease is for an initial term of five years with an
option to renew the lease for up to three additional periods of five years each. MI Racing Inc. also has an option to repurchase the property and associated racetrack license of Great Lakes
Downs from Richmond Racing in the event we are unsuccessful in obtaining a racetrack license for the proposed Romulus, Michigan racetrack or in the event that state law in Michigan is amended to allow
an entity to hold more than one racetrack license.

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We
have applied for horse racing licenses in certain other jurisdictions, including the Detroit, Michigan area where we have proposed to develop a new racetrack, subject to regulatory
and other approvals. In October 2003, a subsidiary of MID purchased vacant land in Romulus, Michigan, which may serve as the site of the proposed racetrack. In September 2004, one of our
subsidiaries entered into an option agreement with MID and one of its subsidiaries to acquire 100% of the shares of the MID subsidiary that owns the land in Romulus, Michigan for $33.5 million.
The option expires on June 30, 2005. If we are unable to obtain a racing license for this site, or if we are unable to renew this option arrangement with MID upon its expiry, then we would
incur a write-down of the costs that have been incurred with respect to entitlements on this property and in the pursuit of this license. At December 31, 2004, we have incurred
approximately $2.8 million of costs related to this property and in pursuit of the license.

On
November 1, 2004, certain of our wholly-owned subsidiaries entered into access agreements with Magna International Inc. and one of its subsidiaries ("Magna") for their
use of our golf courses and associated clubhouse, meeting, dining and other facilities at the Magna Golf Club in Aurora, Ontario and Fontana Sports in Oberwaltersdorf, Austria. The agreements, which
expire on December 31, 2014, stipulate annual fees of Cdn. $5.0 million, retroactive to January 1, 2004, and Euro 2.5 million, retroactive to March 1, 2004,
respectively, for the use of the Magna Golf Club and Fontana Sports facilities, which were recognized in the fourth quarter of 2004. In addition, Magna has a right of first refusal to purchase the
Magna Golf Club and Fontana Sports.

On
December 23, 2004, we announced we would not renew the lease on Multnomah Greyhound Park in Portland, Oregon when the lease expired on December 31, 2004. MEC purchased
the operating rights for the greyhound track in October 2001. Multnomah Greyhound Park had a loss before income taxes in 2004 of $2.6 million.

The
lease on our Bay Meadows site expired December 31, 2004 and as a result, certain fixed assets were disposed of for $1.0 million, which resulted in a loss of
$0.1 million being recognized on this transaction in 2004. Although 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 is still in the early stages of planning and is subject to regulatory and other
approvals. Our operating results will be materially adversely affected at least until such time as an alternative venue can be opened or additional revenue source arrangements secured. There can be no
assurance that operating at an alternative venue in the future will be as profitable as our Bay Meadows operation has been. Bay Meadows had earnings before income taxes in 2004 of $3.1 million.

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Racing Operations

Information about our racing operations is set forth below.

|                                      |  |            |  |      |   | Year ended December 31, 2004                               
|------------------------------------- |  | ---------- |  | ---- | - | -----------------------------------------------------------
|
|                                      |  |            |  |      |   |                                                            
|Santa Anita Park  Los Angeles        |  | Dec. 1998  |  | 10.9 |   | Jan. 1 to Apr. 18 and
Dec. 26 to 31                        
|                                      |  |            |  |      |   | The Oak Tree Meet
Sep. 29 to Oct. 31                       
|Gulfstream Park  Miami               |  | Sept. 1999 |  | 4.3  |   | Jan. 3 to Apr. 25                                          
|Lone Star Park
Dallas                |  | Oct. 2002  |  | 5.1  |   | Apr. 15 to Jul. 11 and
Oct. 1 to Oct. 31                   
|Bay Meadows(4)  San Francisco        |  | Nov. 2000  |  | 5.7  |   | Apr. 7 to Jun. 20 and
Sep. 3 to Nov. 7                     
|Golden Gate Fields
San Francisco     |  | Dec. 1999  |  | 5.2  |   | Jan. 1 to Apr. 4 and
Nov. 10 to Dec. 31                    
|Pimlico Race Course(5)
Baltimore     |  | Nov. 2002  |  | 5.2  |   | Mar. 31 to Jun. 6 and
Sep. 8 to Oct. 3                     
|Laurel Park(5)
Baltimore             |  | Nov. 2002  |  | 6.6  |   | Jan. 5 to Mar. 28,
Jul. 22 to Aug. 27 and
Oct. 6 to Dec. 31
|The Meadows
Pittsburgh               |  | Apr. 2001  |  | 2.8  |   | All year                                                   
|Thistledown  Cleveland               |  | Nov. 1999  |  | 3.0  |   | Apr. 8 to Dec. 31                                          
|XpressBet®
National                  |  | Apr. 2001  |  | N/A  |   | All year                                                   
|Flamboro Downs
Hamilton, Ontario     |  | Apr. 2003  |  | 3.5  |   | All year                                                   
|Remington Park
Oklahoma City         |  | Nov. 1999  |  | 1.1  |   | Mar. 20 to May 31 and
Jul. 30 to Nov. 28                   
|Portland Meadows
Portland            |  | July 2001  |  | 2.0  |   | Jan. 1 to Apr. 24 and Oct. 16 to Dec. 31                   
|Magna Racino
Ebreichsdorf, Austria  |  | Apr. 2004  |  | 2.5  |   | Apr. 4 to Oct. 31                                          
|Great Lakes Downs
Muskegon, Michigan |  | Feb. 2000  |  | 1.2  |   | Apr. 25 to Oct. 30                                         
|Multnomah Greyhound Park(4)
Portland |  | Oct. 2001  |  | 2.0  |   | May 1 to Oct. 9                                            
|                                     
|TOTAL:                                |  |            |  |      | $ | 692.4                                                      
|                                     

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

We
derive our 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.

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.

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

Set
forth below is a list of the total live race days by racetrack for the years ended December 31, 2004, 2003 and 2002 as well as of those live race days during our ownership or
operation of the racetracks.

|                    |  | Year ended 12/31/04 |  | Year ended 12/31/03 |  | Year ended 12/31/02
|------------------- |  | ------------------- |  | ------------------- |  | -------------------
|
|Largest Racetracks  |  |                     |  |                     |  |                    
|Santa Anita Park(1) |  | 84                  |  | 84                  |  | 86                 
|Gulfstream Park     |  | 91                  |  | 91                  |  | 89                 
|Golden Gate Fields  |  | 105                 |  | 105                 |  | 106                
|Bay Meadows         |  | 104                 |  | 104                 |  | 105                
|Laurel Park         |  | 58                  |  | 58                  |  | 142                
|Lone Star Park      |  | 81                  |  | 81                  |  | 103                
|Pimlico Race Course |  | 137                 |  | 137                 |  | 71                 
|                    |  |                     |  |                     |  |                    
|                    |  | 660                 |  | 660                 |  | 702                
|                    |  |                     |  |                     |  |                    
|Other Racetracks    |  |                     |  |                     |  |                    
|The Meadows         |  | 206                 |  | 206                 |  | 207                
|Thistledown         |  | 183                 |  | 183                 |  | 188                
|Flamboro Downs      |  | 258                 |  | 258                 |  | 262                
|Remington Park      |  | 93                  |  | 93                  |  | 82                 
|Portland Meadows    |  | 78                  |  | 78                  |  | 86                 
|Great Lakes Downs   |  | 118                 |  | 118                 |  | 118                
|Magna Racino       |  | 50                  |  | 50                  |  |                   
|                    |  |                     |  |                     |  |                    
|                    |  | 986                 |  | 986                 |  | 943                
|                    |  |                     |  |                     |  |                    
|Total               |  | 1,646               |  | 1,646               |  | 1,645              
|                    |  |                     |  |                     |  |                    

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.

Our
operating costs principally include 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.

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Seasonality

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



Revenue-Producing Non-Racing Real Estate



Non-Core Real Estate



As
of December 31, 2004, the aggregate net book values of our real estate properties is as follows:

|                                         |  | $ millions
|---------------------------------------- |  | ----------
|Revenue-Producing Racing Real Estate     |  | 677.3     
|Excess Racing Real Estate                |  | 98.3      
|Development Real Estate                  |  | 50.6      
|Revenue-Producing Non-Racing Real Estate |  | 83.5      
|Non-Core Real Estate                     |  | 2.5       
|                                         |  |           
|                                         |  | 912.2     
|                                         |  |           

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Included
in our Excess Racing Real Estate is land adjacent to several of our racetracks, Santa Anita Park, Gulfstream Park, Lone Star Park at Grand Prairie, Laurel Park, Pimlico Race
Course and Magna Racino, totaling approximately 786 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, which is largely undeveloped, includes approximately 27 acres of land in Oberwaltersdorf, Austria, located approximately 20 miles south of
Vienna, Austria; approximately 800 acres of land in upstate New York; approximately 260 acres of land in Dixon, California, located approximately 20 miles southwest of
Sacramento; approximately 491 acres of land in Ocala, Florida; 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 for 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'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.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with United States 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 Financial Accounting Standards Board Statement No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", intangibles are evaluated for impairment on
an annual basis or when impairment indicators are present. 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 is less than the carrying amount of the racing license.

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

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

Future Income Tax Assets

At December 31, 2004, 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
sheets.

Stock-Based Compensation

Financial Accounting Standards Board Statement No. 123 ("SFAS 123"), "Accounting and Disclosure of Stock-Based Compensation", 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. In December 2004, the Financial Accounting Standards Board issued a revision to SFAS 123 which requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro-forma disclosure is no longer an
alternative. The Company is currently reviewing the alternatives for implementation of this revised standard and has not yet determined the methodology for implementation or the impact on the
Company's financial statements.

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Litigation

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

Related Party Transactions

Refer to Note 18 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, 2004, 2003 and 2002.

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

Racing operations

In 2004, we operated our largest racetracks for 42 fewer live race days compared to the prior year, primarily due to the cancellation of the quarter horse
meet at Lone Star Park and The Maryland Jockey Club's desired reduction in race days. Pimlico Race Course and Laurel Park combined had 195 live race days in 2004 as compared to 213 live
race days in 2003. Our other racetracks operated an additional 117 live race days in 2004, compared to the prior year, primarily due to the completion of the acquisition of Flamboro Downs on
April 16, 2003 which added 70 live race days, the opening of Magna Racino on April 4, 2004 which added 50 live race days, the return of the spring quarter
horse meet at Remington Park which added 11 live race days, partially offset by 8 fewer live race days at Portland Meadows as a result of Portland Meadows' desired reduction in race
days.

Revenues
from our racing operations were $691.6 million in 2004, compared to $687.2 million in 2003, an increase of $4.4 million or 0.6%. The 2003 revenues include
$8.5 million of revenue generated on the sale of excess land at Golden Gate Fields. The increase is primarily attributable to the acquisition of Flamboro Downs on April 16, 2003, the
opening of our newest racetrack, Magna Racino, near Vienna, Austria on April 4, 2004, increased decoder revenues at our California racetracks as a result of revenue being
recognized for amounts previously in dispute, increased attendance and wagering at Pimlico on the Preakness Stakes®, increased revenues earned at Lone Star Park at Grand Prairie as a
result of hosting the 2004 Breeders' Cup and increased stall rent at Palm Meadows®, our thoroughbred training center in Palm Beach County, Florida, partially offset by fewer
live race days at our largest tracks and reduced on-track and inter-track wagering revenues at several of our facilities due to lower average daily attendance.

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In
2004, gross wagering revenues from our racing operations decreased $2.6 million or 0.5% to $559.3 million, compared to $561.9 million in 2003, primarily due to a
number of the factors noted above. Non-wagering revenues in 2004 increased 5.6% to $132.3 million compared to $125.2 million in 2003, primarily due to the opening of Magna
Racino, the acquisition of Flamboro Downs, increased decoder revenues at our California racetracks, increased admissions and parking revenues at The Maryland Jockey Club due to increased
attendance during the Preakness Stakes®, increased commissions earned at Lone Star Park at Grand Prairie as a result of the 2004 Breeders' Cup and increased stall rent at Palm
Meadows®. As a percentage of gross wagering revenues, non-wagering revenues increased from 22.3% in 2003 to 23.6% in 2004, primarily as a result of the same factors. The sale
of excess lands at Golden Gate Fields in 2003 of $8.5 million was included in non-wagering revenues.

Purses,
awards and other increased 1.0% to $340.0 million in 2004 from $336.8 million in 2003, primarily due to increased wagering at Pimlico during the Preakness
Stakes®, the opening of Magna Racino for live racing and the acquisition of Flamboro Downs, partially offset by reduced gross wagering revenues at several of our facilities in
2004. As a percentage of gross wagering revenues, purses, awards and other increased from 59.9% in 2003 to 60.8% in 2004, primarily due to the mix of wagers made, the states the wagers were made in
and the mix of on-track versus off-track wagering.

Operating
costs in our racing operations increased $28.0 million to $287.4 million in 2004, from $259.4 million in 2003, primarily due to the opening of Magna
Racino for live racing, pre-operating and start-up costs related to RaceONTV and other European business developments, the acquisition of Flamboro
Downs, additional distribution and production costs at HRTV as a result of the carriage agreement with the operator of the Dish Network and increased costs at Santa Anita
Park with the opening of an entertainment facility including a new restaurant and sports bar. As a percentage of total racing revenues, operating costs increased from 37.7% in 2003 to 41.6% in 2004,
primarily due to the factors described above.

General
and administrative expenses in our racing operations increased $0.3 million to $67.0 million in 2004 compared to $66.7 million in 2003. General and
administrative expenses in 2004 include approximately $2.7 million of costs that relate to the start-up of our European business units. Excluding the start-up costs
associated with our European operations, general and administrative expenses decreased $2.4 million from 2003 as a result of focused efforts to reduce costs. Corporate costs included in general
and administrative expenses declined approximately $0.9 million as a result of reduced salaries and wages, which were largely offset by expenses related to Sarbanes-Oxley requirements, bank
service charges, increased rent at our head office and costs incurred with MID's decision not to proceed with an unsolicited offer to take MEC private. As a percentage of total racing revenues,
general and administrative expenses remained constant at 9.7% in 2004 and 2003, primarily due to cost containment efforts and higher racing revenues.

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Real estate and other operations

Revenues from real estate and other operations were $40.0 million in 2004, compared to $21.8 million in 2003. The increase in revenues is primarily
attributable to the sale of four Non-Core Real Estate properties in 2004 and higher annual dues and initiation fee revenues from our Magna Golf Club and Fontana Sports facilities as a
result of increased membership at both facilities. In 2004, the sale of four Non-Core Real Estate properties generated revenues of $16.4 million and income before income taxes of
$9.6 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.

Predevelopment and other costs

Predevelopment and other costs were $20.5 million in 2004, compared to $8.8 million in 2003. Predevelopment and other costs in the current year
represent costs of $13.5 million incurred pursuing alternative gaming opportunities in states where we currently operate, $2.7 million on the development of a simplified wagering machine
that will simplify the pari-mutuel wagering process for the customer, $1.3 million of costs relating to the Laurel Park redevelopment and $3.0 million of costs relating to
development initiatives undertaken to enhance our racing operations. In 2003, the predevelopment and other costs that we incurred represented costs of $4.2 million pursuing alternative gaming
opportunities, a $0.8 million write-off of information technology costs which were determined to have no future benefit, $0.7 million of disposal costs related to excess real
estate at Golden Gate Fields and $3.1 million of costs relating to developmental initiatives undertaken to enhance our racing operations.

Depreciation and amortization

Depreciation and amortization increased $5.6 million from $31.9 million in 2003 to $37.5 million in 2004, primarily due to depreciation at
Magna Racino, which commenced operations on April 4, 2004 and increased depreciation at our Palm Meadows® training center related to additional stall and dormitory
construction, partially offset by reduced depreciation at Gulfstream Park as a result of the write-down of long-lived assets recorded in the second quarter of 2004 and at
Remington Park as a result of the write-down of long-lived assets recorded in the fourth quarter of 2003.

Interest income and expense

Our net interest expense for 2004 increased $10.5 million to $24.1 million from $13.6 million in 2003. The higher net interest expense is
primarily attributable to the issuance of $150.0 million of convertible subordinated notes in June 2003, the issuance of a 15 million Euro term loan facility in the first quarter
of 2004, borrowings on our Corporate revolving credit facility as well as less interest being capitalized with respect to projects under development. In 2004, $4.0 million of interest was
capitalized with respect to projects under development, compared to $7.3 million in the prior year.

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Write-down of long-lived assets

As a result of the major redevelopment of the Gulfstream Park racetrack, which entails the demolition of a substantial portion of the current buildings and
related structures, and the redevelopment of Laurel Park's racing surfaces, a write-down of long-lived assets was necessary. As a result, we have recognized
non-cash write-downs of $26.3 million and $0.4 million relating to Gulfstream Park and Laurel Park's long-lived assets, respectively, during the year ended
December 31, 2004.

Income tax provision

We recorded an income tax benefit of $1.7 million on a loss before income taxes of $97.3 million in the year ended December 31, 2004, whereas
in the year ended December 31, 2003 we recorded an income tax benefit of $58.4 million on a loss before income taxes of $163.5 million. The income tax benefit recorded for 2004 of
$1.7 million represents a reduction in enacted income tax rates in Austria, which resulted in a revaluation of our European net future tax liabilities, partially offset by income tax expense
recognized at our Canadian operations and in certain U.S. operations that are not included in our U.S. consolidated income tax return. Our effective income tax rate for 2003, adjusted
for equity income, was 35.5%.

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.

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 previously, 2003 racing revenues include
$8.5 million of revenue generated on the sale of excess real estate at Golden Gate Fields.

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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 costs 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 HRTV, 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.

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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 and SFAS 142, 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.

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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 Park, 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 at Grand Prairie 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.

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 Park, 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.

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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 and SFAS 142, 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.

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.

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Liquidity and Capital Resources

Year Ended December 31, 2004

Operating activities

Cash provided by operations before changes in non-cash working capital decreased $45.5 million to a use of cash of $45.3 million in 2004
from a source of cash of $0.2 million in 2003, primarily due to decreased earnings in 2004 adjusted for the write-downs of long-lived and intangible assets. In 2004, cash provided
from non-cash working capital balances was $8.8 million compared to cash provided from non-cash working capital balances of $13.6 million in 2003. Cash provided
from non-cash working capital balances of $8.8 million in 2004 is primarily due to an increase in accounts receivable, partially offset by increases in accounts payable, accrued
salaries and wages, other accrued liabilities and deferred revenues at December 31, 2004 compared to the respective balances at December 31, 2003.

Investment activities

Cash used in investment activities in 2004 was $120.7 million, including expenditures of $139.9 million on real estate property and fixed asset
additions and $0.6 million on other asset additions, partially offset by $19.8 million of net proceeds received on the disposal of Non-Core Real Estate and fixed assets.
Expenditures on real estate property and fixed asset additions in 2004 consisted of $41.7 million on the Gulfstream redevelopment, $36.6 million on Magna Racino,
$19.4 million at The Maryland Jockey Club, $12.1 million for construction at our Palm Meadows® training center, $9.7 million on maintenance capital improvements,
$4.0 million on the entertainment facility including a new restaurant and sports bar at Santa Anita Park, $0.8 million for the purchase of land in Ocala, Florida and $15.6 million
of expenditures related to other racetrack property enhancements, infrastructure and development costs on certain of our properties and technology operations.

Financing activities

Cash provided by financing activities was $117.3 million in 2004 arising from the issuance of debt of $142.6 million, the utilization of our credit
facilities of $29.5 million, the issuance of $0.9 million of share capital on the exercise of stock options, partially offset by repayments of long-term debt of
$55.7 million. The issuance of debt of $142.6 million is comprised primarily of $75.0 million of debt incurred by The Santa Anita Companies, Inc., $23.4 million of
debt (net of loan origination expenses of $3.0 million) incurred by Gulfstream Park from a financing transaction with MID, debt of $23.6 million incurred by one of our European
subsidiaries, debt incurred by another of our European subsidiaries of $18.4 million, $1.3 million of debt incurred by Pimlico Racing Association, Inc. and debt incurred to fund
the purchase of a mobile video screen that will be used at our racetracks of $0.9 million.

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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.

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 development 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.

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Investment activities

Cash used in investment 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 development 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.

Working Capital, Cash and Other Resources

Our net working capital, excluding cash and cash equivalents and bank indebtedness, was ($62.4) million at December 31, 2004, compared to ($45.3) million
at December 31, 2003. The decreased investment in net working capital, excluding cash and cash equivalents and bank indebtedness, was primarily related to an increase in current assets
excluding cash and cash equivalents of $14.3 million, partially offset by an increase in current liabilities excluding bank indebtedness and the current portion of long-term debt of
$31.4 million.

In
December 2004, certain of our subsidiaries entered into a project financing arrangement with MID for the reconstruction of facilities at Gulfstream Park of $115 million.
The project financing is made by way of progress draw advances to fund reconstruction. The loan has a ten-year term from the completion date of the reconstruction project. The anticipated
completion date for the Gulfstream Park reconstruction project is the first quarter of 2006. Prior to the completion date, amounts outstanding under the loan will bear interest at a floating rate
equal to 2.55% per annum above MID's notional cost of borrowing under its floating rate credit facility, compounded monthly. After the completion date, amounts outstanding under the loan will bear
interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2008, payment of interest will be deferred. Commencing January 1, 2008, we will
make monthly blended payments of principal and interest based on a 25-year amortization period commencing on the completion date. The loans contain cross-guarantee, cross-default and
cross-collateralization provisions. The loan is guaranteed by The Meadows and is collateralized principally by first-ranking security over the lands forming part of the race track operations at
Gulfstream Park and The Meadows and certain lands adjacent to the racetrack operations at Gulfstream Park and over all other assets of Gulfstream Park and The Meadows,

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excluding
licenses and permits. At December 31, 2004, $26.4 million was outstanding under the Gulfstream Park loan. We incurred loan origination expenses of $3.0 million, which
have been recorded as a reduction of the outstanding loan balance. The loan balance will be accreted to its face value over the term to maturity.

In
December 2004, certain of our subsidiaries also entered into a binding term sheet with MID for project financing to fund part of the proposed redevelopment at The Meadows for
$77 million. The project financing for The Meadows redevelopment would be on substantially the same terms as the project financing for the Gulfstream Park redevelopment and would be guaranteed
by our subsidiary that owns and operates Gulfstream Park and would be cross-defaulted with the Gulfstream Park loan. The Meadows project financing is contingent on a number of events, including the
issuance of a licence to The Meadows to operate slot machines and additional financing from other sources.

In
December 2004, one of our European subsidiaries entered into a financing arrangement which is collateralized by an assignment of the future amounts receivable under the Fontana
Sports access agreement. We received proceeds of 17.6 million Euros in December 2004 that is repayable in nine annual installments of 2.5 million Euros commencing
January 1, 2006 until the ninth installment has been made in 2014. The interest rate implicit in the arrangement is 5.17%. At December 31, 2004, $23.9 million was outstanding
under this arrangement. On February 18, 2005, one of our Canadian subsidiaries entered into a similar arrangement that is collateralized by an assignment of the future amounts receivable under
the Magna Golf Club access agreement. We received proceeds of $13.7 million Cdn. that is repayable in three annual installments of $5.0 million Cdn. commencing January 1, 2006
until the third installment has been made in 2008. The interest rate implicit in the arrangement is 5.08%.

One
of our subsidiaries, The Santa Anita Companies, Inc. ("SAC"), is party to a secured term loan facility that was scheduled to mature on November 30, 2004, however, on
October 7, 2004, the facility was amended and extended until October 7, 2007, subject to a further extension at SAC's option to October 7, 2009. Under the facility, SAC is
entitled to borrow up to a maximum of $75.0 million. Borrowings under the facility bear interest at either the U.S. Prime rate or LIBOR plus 2.0% per annum. Effective November 1,
2004, we have entered into an interest rate swap contract and fixed the rate of interest at 5.38% per annum to October 31, 2007 on a notional amount of 40% of the outstanding balance under the
amended and extended facility. The loan facility is guaranteed by the Los Angeles Turf Club, Incorporated ("LATC"), our wholly-owned subsidiary, and is secured by a First Deed of Trust on Santa Anita
Park and the surrounding real property, an assignment of the lease between LATC, the racetrack operator, and SAC and a pledge of all of the outstanding capital stock of LATC and SAC. At
December 31, 2004, $73.8 million was outstanding under this fully drawn facility.

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In
October 2004, the credit agreement for our $50.0 million senior secured revolving credit facility was amended and extended until October 10, 2005, and may be
further extended with the consent of both parties. Loans under the facility are secured by a first charge on the assets of Golden Gate Fields and a second charge on the assets of Santa Anita Park, and
are guaranteed by certain of our subsidiaries which own and operate Golden Gate Fields and Santa Anita Park. At December 31, 2004, we had borrowed $27.5 million and issued letters of
credit totaling $21.9 million under this facility. On February 18, 2005, we amended our credit agreement including the financial covenants for the facility effective December 31,
2004 and accordingly, at December 31, 2004, we were in compliance with the amended agreement and related financial covenants. However, 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. It is possible that we may not be
able to meet the financial covenants under our $50.0 million senior revolving credit facility, as currently stated, at the quarterly reporting dates during the remaining term of the facility,
which expires on October 10, 2005, 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 covenants
breach or amend the agreement and related financial covenants, it will result in the occurrence of an event of default under the facility, and the lender could therefore demand repayment. In addition,
as a result of a cross-default provision in The Santa Anita Companies, Inc. term loan facility, a default under the senior secured revolving credit facility would also constitute an event of
default under The Santa Anita Companies, Inc. term loan facility, unless waived by the lender, and the lender could therefore demand repayment.

A
subsidiary of the Company, Pimlico Racing Association, Inc., had a $10.0 million revolving credit loan facility that was scheduled to mature on September 7, 2004,
but was extended until October 28, 2004, at which date, the facility was converted to a term loan facility, which matures on December 15, 2019. The term loan facility, which bears
interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum, is secured by deeds of trust on land, buildings and improvements and security interests in all other assets of the
subsidiary and certain affiliates of The Maryland Jockey Club. At December 31, 2004, $10.0 million was outstanding under this term loan facility.

In
March 2004, one of our European subsidiaries entered into a 15 million Euro term loan facility secured by a first and second mortgage on land in Austria owned by the
European subsidiary, which bears interest at the European Interbank Offered Rate ("EURIBOR") plus 2% per annum. At December 31, 2004, $20.3 million was outstanding under this facility,
which matures on December 15, 2006.

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, 2004, all of the notes remained outstanding.

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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, 2004, all of the notes remained
outstanding.

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, 2004, $20.3 million was outstanding on this facility which matures on February 9, 2007.

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, 2004 the note is valued at $38.8 million and is repayable in annual installments of $2.1 million with the remaining amount due in June 2007.

Also,
two of our subsidiaries, which are part of The Maryland Jockey Club, are party to secured term loan facilities that bear interest at 5.0% and 7.0% per annum, respectively. Both
term loans have interest rate adjustment clauses that reset to the market rate for U.S. Treasury security of an equivalent term plus 2.6% at set dates prescribed in the agreements. At
December 31, 2004, $17.8 million and $4.5 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, 2004, this obligation has been reflected on our balance sheet as long-term debt due after one year.

At
December 31, 2004, we had cash and cash equivalents of $60.6 million, bank indebtedness of $27.5 million and total shareholders' equity of $578.7 million.
At December 31, 2004, we were in compliance with all of our debt agreements and related covenants.

Liquidity

We expect that during 2005, we will be required to seek additional debt and/or equity financing in order to fund our current planned operations and the
implementation of our strategic plan, including capitalizing on future growth opportunities. We also intend to generate cash by monetizing certain of our receivables, selling some of our real estate
holdings and other assets and/or entering into leases or similar arrangements with respect to such real estate holdings or other assets in order to fund our current planned operations and certain
portions of our strategic plan. If additional financing or other sources of funds are not available to us as needed, or are not available on terms that are acceptable to us, our business, operations
and financial condition may be materially adversely affected, including, without limitation, our ability to add alternative gaming to our racetracks where permitted or improve or expand our operations
as planned.

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 will be sufficient to finance our operations and our maintenance capital expenditure program during the next year. We are currently in active discussions to secure additional financing
and sources of funds from, and may enter into transactions with, a variety of public and private sources, which could include MID.

78

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Contractual Obligations

Our commitments to make future payments consist primarily of repayments of long-term debt including capital lease obligations and an amount due to our
parent, obligations under operating and facility leases, construction commitments and other long-term liabilities. Our contractual obligations at December 31, 2004 are as follows:

|($ thousands)                                    |  | Less than 1 year |  | 1 to 3 years |  | 3 to 5 years |  | More than 5 years |  | Total  
|------------------------------------------------ |  | ---------------- |  | ------------ |  | ------------ |  | ----------------- |  | -------
|Long-term debt                                   |  | 17,762           |  | 176,970      |  | 10,347       |  | 62,070            |  | 267,149
|Convertible subordinate notes                    |  |                 |  |             |  | 75,000       |  | 150,000           |  | 225,000
|Capital lease obligations                        |  | 1,320            |  | 2,772        |  | 2,904        |  | 29,964            |  | 36,960 
|Operating leases(1)                              |  | 1,371            |  | 872          |  | 70           |  |                  |  | 2,313  
|Facility leases                                  |  | 1,779            |  | 1,579        |  | 1,337        |  | 532               |  | 5,227  
|Construction and development project commitments |  | 78,600           |  |             |  |             |  |                  |  | 78,600 
|Other long-term liabilities                      |  | 11,919           |  |             |  |             |  |                  |  | 11,919 
|                                                 |  |                  |  |              |  |              |  |                   |  |        
|                                                 |  | 112,751          |  | 182,193      |  | 89,658       |  | 242,566           |  | 627,168
|                                                 |  |                  |  |              |  |              |  |                   |  |        

---

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 LIBOR and EURIBOR. Based on
interest rates at December 31, 2004 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.

79

---



In
order to mitigate a portion of the interest rate risk associated with The Santa Anita Companies, Inc. term loan facility, 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 5.38% on a notional amount of 40% of the outstanding balance under the credit facility, which is
$73.8 million as at December 31, 2004. The maturity date of this contract is October 31, 2007.

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.

On
December 16, 2004, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 123 (revised 2004), "Share-Based Payment" ("Statement 123(R)"), which is a
revision of SFAS 123. Statement 123(R) supersedes APB Opinion No. 25 ("APB 25") and amends FASB Statement No. 95,Statement of Cash
Flows. Generally, the approach in Statement 123(R) is similar to the approach described in SFAS 123, however, Statement 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro-forma disclosure is no longer an
alternative. As permitted by Statement 123, the Company currently accounts for share-based payments to employees using APB 25's intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)'s fair value method will have a significant impact on the results of operations, although it will have no
impact on the Company's overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted
in the future, however, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the
disclosure of pro-forma net loss and loss per share in Note 20 to our consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions
in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net
operating cash flows and increase net financing cash flows in periods after adoption. Statement 123(R) must be adopted no later than July 1, 2005. The Company is currently reviewing the
Statement, but has not yet determined the methodology it will follow for implementation, or the impact on the Company's financial statements.

The
United States Securities and Exchange Commission ("SEC") has recently announced that the use of the residual method to value acquired assets other than goodwill is prohibited.
Instead, a direct value method must be used to determine the fair value of intangible assets. The SEC announcement is effective for business combinations consummated after September 29, 2004
and also requires companies to perform the annual impairment test using a direct value method on all identifiable assets that were previously valued using the residual method no later than the
beginning of January 1, 2005. Although the Company is currently reviewing this announcement, the impact, if any, on the Company's financial statements has not yet been determined.

80

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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 Financial
Condition and Results of Operations" of this Annual Report.

81

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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, 2004 and 2003, 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, 2004. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Magna Entertainment Corp. at
December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the years in the three year period ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

|Toronto, Canada                                                                          |  | Ernst & Young LLP
|---------------------------------------------------------------------------------------- |  | -----------------
|February 7, 2005,except for Notes 11(a)and 21, as to which the date is February 18, 2005

82

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MAGNA ENTERTAINMENT CORP.        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

|(U.S. dollars in thousands, except per share figures)                                                                                           |                                            |       |    |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | -- | - | -------
|
|
|Revenues                                                                                                                                        |                                            | 17,18 |    |   |        
|Racing                                                                                                                                          |                                            |       |    |   |        
|                                                                                                                                                | Gross wagering                             |       |    |   | $      
|                                                                                                                                                | Non-wagering                               |       |    |   |        
|                                                                                                                                                |                                            |       |    |   |        
|                                                                                                                                                |                                            |       |    |   | 691,560
|                                                                                                                                                |                                            |       |    |   |        
|Real estate and other                                                                                                                           |                                            |       |    |   |        
|                                                                                                                                                | Sale of real estate                        |       |    |   |        
|                                                                                                                                                | Golf and other                             |       |    |   |        
|                                                                                                                                                |                                            |       |    |   |        
|                                                                                                                                                |                                            |       |    |   | 40,017 
|                                                                                                                                                |                                            |       |    |   |        
|                                                                                                                                                |                                            |       |    |   | 731,577
|                                                                                                                                                |                                            |       |    |   |        
|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                                                                                                                  |                                            |       |    |   | 20,508 
|Depreciation and amortization                                                                                                                   |                                            |       |    |   | 37,510 
|Interest expense, net                                                                                                                           |                                            | 12    |    |   | 24,091 
|Write-down of long-lived and intangible assets                                                                                                  |                                            | 4     |    |   | 26,685 
|Write-down of excess real estate                                                                                                                |                                            | 5     |    |   |       
|Equity income                                                                                                                                   |                                            | 2     |    |   | (635   
|                                                                                                                                                |                                            |       |    |   |        
|                                                                                                                                                |                                            |       |    |   | 828,882
|                                                                                                                                                |                                            |       |    |   |        
|Loss before income taxes                                                                                                                        |                                            |       |    |   | (97,305
|Income tax benefit                                                                                                                              |                                            | 10    |    |   | (1,669 
|                                                                                                                                                |                                            |       |    |   |        
|Net loss                                                                                                                                        |                                            |       |    |   | (95,636
|Other comprehensive income (loss)                                                                                                               |                                            |       |    |   |        
|                                                                                                                                                | Foreign currency translation adjustment    |       | 15 |   |        
|                                                                                                                                                | Change in fair value of interest rate swap |       | 16 |   |        
|                                                                                                                                                |                                            |       |    |   |        
|Comprehensive income (loss)                                                                                                                     |                                            |       |    | $ | (79,349
|                                                                                                                                                |                                            |       |    |   |        
|Loss per share for Class A Subordinate Voting Stock, Class B Stock or Exchangeable Share:                                                       |                                            |       |    |   |        
|                                                                                                                                                | Basic and Diluted                          |       | 14 |   | $      
|                                                                                                                                                |                                            |       |    |   |        
|Average number of shares of Class A Subordinate Voting Stock, Class B Stock and Exchangeable Shares outstanding during the year (in thousands): |                                            |       |    |   |        
|                                                                                                                                                | Basic and Diluted                          |       | 14 |   |        
|                                                                                                                                                |                                            |       |    |   |        

See accompanying notes

83

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MAGNA ENTERTAINMENT CORP.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|(U.S. dollars in thousands)                                                                 |                                                                      |    |    |   |         
|------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | -- | -- | - | --------
|
|
|Cash provided from (used for):                                                              |                                                                      |    |    |   |         
|OPERATING ACTIVITIES:                                                                       |                                                                      |    |    |   |         
|Net loss                                                                                    |                                                                      |    |    | $ | (95,636 
|Adjustments to reconcile net loss to net cash provided from (used for) operating activities |                                                                      |    |    |   |         
|                                                                                            | Depreciation and amortization                                        |    |    |   |         
|                                                                                            | Future income taxes                                                  |    | 10 |   |         
|                                                                                            | Gain on disposal of real estate properties                           |    |    |   |         
|                                                                                            | Loss on disposal of fixed assets                                     |    | 19 |   |         
|                                                                                            | Write-down of long-lived, intangible and other assets                |    | 4  |   |         
|                                                                                            | Write-down of excess real estate                                     |    | 5  |   |         
|                                                                                            | Equity income                                                        |    | 2  |   |         
|                                                                                            | Amortization of convertible subordinated notes issue costs           |    | 13 |   |         
|                                                                                            | Other                                                                |    |    |   |         
|                                                                                            |                                                                      |    |    |   |         
|                                                                                            |                                                                      |    |    |   | (45,299 
|                                                                                            |                                                                      |    |    |   |         
|Changes in non-cash working capital                                                         |                                                                      |    |    |   |         
|                                                                                            | Restricted cash                                                      |    |    |   |         
|                                                                                            | Accounts receivable                                                  |    |    |   |         
|                                                                                            | Income taxes receivable                                              |    |    |   |         
|                                                                                            | Prepaid expenses and other                                           |    |    |   |         
|                                                                                            | Accounts payable                                                     |    |    |   |         
|                                                                                            | Accrued salaries and wages                                           |    |    |   |         
|                                                                                            | Customer deposits                                                    |    |    |   |         
|                                                                                            | Other accrued liabilities                                            |    |    |   |         
|                                                                                            | Deferred revenue                                                     |    |    |   |         
|                                                                                            |                                                                      |    |    |   |         
|                                                                                            |                                                                      |    |    |   | 8,780   
|                                                                                            |                                                                      |    |    |   |         
|                                                                                            |                                                                      |    |    |   | (36,519 
|                                                                                            |                                                                      |    |    |   |         
|INVESTMENT ACTIVITIES:                                                                      |                                                                      |    |    |   |         
|Acquisition of businesses, net of cash                                                      |                                                                      | 2  |    |   |        
|Real estate property additions                                                              |                                                                      |    |    |   | (130,210
|Fixed asset additions                                                                       |                                                                      |    |    |   | (9,730  
|Other asset additions                                                                       |                                                                      |    |    |   | (582    
|Proceeds on real estate sold to a related party                                             |                                                                      | 18 |    |   |        
|Proceeds on disposal of real estate properties                                              |                                                                      |    |    |   | 18,801  
|Proceeds on disposal of fixed assets                                                        |                                                                      | 19 |    |   | 1,040   
|                                                                                            |                                                                      |    |    |   |         
|                                                                                            |                                                                      |    |    |   | (120,681
|                                                                                            |                                                                      |    |    |   |         
|FINANCING ACTIVITIES:                                                                       |                                                                      |    |    |   |         
|Increase (decrease) in bank indebtedness                                                    |                                                                      | 11 |    |   | 29,500  
|Issuance of long-term debt                                                                  |                                                                      |    |    |   | 142,616 
|Repayment of long-term debt                                                                 |                                                                      |    |    |   | (55,651 
|Issuance of share capital                                                                   |                                                                      | 14 |    |   | 852     
|Issuance of convertible subordinated notes                                                  |                                                                      | 13 |    |   |        
|                                                                                            |                                                                      |    |    |   |         
|                                                                                            |                                                                      |    |    |   | 117,317 
|                                                                                            |                                                                      |    |    |   |         
|                                                                                            | Effect of exchange rate changes on cash and cash equivalents         |    |    |   |         
|                                                                                            |                                                                      |    |    |   |         
|                                                                                            | Net increase (decrease) in cash and cash equivalents during the year |    |    |   |         
|Cash and cash equivalents, beginning of year                                                |                                                                      |    |    |   | 99,807  
|                                                                                            |                                                                      |    |    |   |         
|Cash and cash equivalents, end of year                                                      |                                                                      |    |    | $ | 60,641  
|                                                                                            |                                                                      |    |    |   |         

See accompanying notes

84

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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         |        |    |              |          
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    |              | 148,641  
|                                                                        |                                    |        |    |              |          
|Real estate properties, net                                             |                                    | 6      |    |              | 912,243  
|                                                                        |                                    |        |    |              |          
|Fixed assets, net                                                       |                                    | 7      |    |              | 51,538   
|                                                                        |                                    |        |    |              |          
|Racing licenses                                                         |                                    | 8      |    |              | 240,893  
|                                                                        |                                    |        |    |              |          
|Other assets, net                                                       |                                    | 9      |    |              | 14,793   
|                                                                        |                                    |        |    |              |          
|Future tax assets                                                       |                                    | 10     |    |              | 35,245   
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    | $            | 1,403,353
|                                                                        |                                    |        |    |              |          
|LIABILITIES AND SHAREHOLDERS' EQUITY                                    |                                   
|Current liabilities:                                                    |                                    |        |    |              |          
|                                                                        | Bank indebtedness                  |        | 11 |              | $        
|                                                                        | Accounts payable                   |        |    |              |          
|                                                                        | Accrued salaries and wages         |        |    |              |          
|                                                                        | Customer deposits                  |        |    |              |          
|                                                                        | Other accrued liabilities          |        |    |              |          
|                                                                        | Long-term debt due within one year |        | 12 |              |          
|                                                                        | Deferred revenue                   |        |    |              |          
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    |              | 195,673  
|                                                                        |                                    |        |    |              |          
|Long-term debt                                                          |                                    | 12     |    |              | 241,498  
|                                                                        |                                    |        |    |              |          
|Long-term debt due to parent                                            |                                    | 18     |    |              | 23,408   
|                                                                        |                                    |        |    |              |          
|Convertible subordinated notes                                          |                                    | 13     |    |              | 219,257  
|                                                                        |                                    |        |    |              |          
|Other long-term liabilities                                             |                                    | 20     |    |              | 11,919   
|                                                                        |                                    |        |    |              |          
|Future tax liabilities                                                  |                                    | 10     |    |              | 132,918  
|                                                                        |                                    |        |    |              |          
|Commitments and contingencies                                           |                                    | 18, 19 |    |              |          
|Shareholders' equity:                                                   |                                    |        |    |              |          
|Class A Subordinate Voting Stock
(Issued: 2004  48,879; 2003  48,680) |                                    | 14     |    |              | 318,003  
|Class B Stock (Issued: 2004 and 2003  58,466)                          |                                    | 14     |    |              | 394,094  
|Contributed surplus                                                     |                                    | 18     |    |              | 17,282   
|Deficit                                                                 |                                    |        |    |              | (203,654 
|Accumulated comprehensive income                                        |                                    | 15, 16 |    |              | 52,955   
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    |              | 578,680  
|                                                                        |                                    |        |    |              |          
|                                                                        |                                    |        |    | $            | 1,403,353
|                                                                        |                                    |        |    |              |          

On
behalf of the Board:

|Director | Director
|-------- | --------

See accompanying notes

85

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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, 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 18)                           |  |                                  |         |                     |   |               |   |                     |         |                             |   | 9,992                                   | 
|Foreign currency translation adjustment (note 15)                                      |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Change in fair value of interest rate swap (note 16)                                   |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock on completion of public offering (note 14)   |  |                                  | 142,084 |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock on exercise of stock options (note 14)       |  |                                  | 87      |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 14) |  |                                  | 251     |                     |   |               |   |                     |         |                             |   |                                         | 
|Conversion of Exchangeable Shares to Class A Subordinate Voting Stock (note 14)        |  |                                  | 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 15)                                      |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Change in fair value of interest rate swap (note 16)                                   |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 14) |  |                                  | 144     |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock on exercise of stock options (note 14)       |  |                                  | 29      |                     |   |               |   |                     |         |                             |   |                                         | 
|                                                                                       |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Balances at December 31, 2003                                                          |  |                                  | 317,028 |                     |   |              |   |                     | 394,094 |                             |   | 17,282                                  | 
|Activity for the year ended December 31, 2004:                                         |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Net loss                                                                               |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Foreign currency translation adjustment (note 15)                                      |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Change in fair value of interest rate swap (note 16)                                   |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 14) |  |                                  | 123     |                     |   |               |   |                     |         |                             |   |                                         | 
|Issue of Class A Subordinate Voting Stock on exercise of stock options (note 14)       |  |                                  | 852     |                     |   |               |   |                     |         |                             |   |                                         | 
|                                                                                       |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 
|Balances at December 31, 2004                                                          |  | $                                | 318,003 |                     | $ |              |   | $                   | 394,094 |                             | $ | 17,282                                  | 
|                                                                                       |  |                                  |         |                     |   |               |   |                     |         |                             |   |                                         | 

See accompanying notes

86

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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

Organization and Basis of Presentation

Magna Entertainment Corp. (the "Company") owns and operates horse racetracks in California, Florida, Maryland, Texas, Oklahoma, Pennsylvania, Ohio,
Michigan, Oregon, Ontario, Canada and Ebreichsdorf, Austria and supplies, via simulcasting, live racing content to the growing inter-track, off-track and account wagering markets.
Throughout 2004, the Company operated or managed twelve thoroughbred racetracks, two standardbred (harness racing) racetracks, two racetracks that run both thoroughbred and standardbred meets and one
greyhound track, as well as the simulcast wagering venues at these tracks. Subsequent to December 31, 2004, the Company ceased operations at one of its thoroughbred racetracks and at its only
greyhound track. These were operations in leased facilities and the leases were not renewed for 2005. In addition, the Company operates off-track betting facilities, a United States
national account wagering business known as XpressBet®, which permits customers to place wagers by telephone and over the Internet on horse races at over 100 North American
racetracks and internationally on races in Australia, South Africa and Dubai and a European-based account wagering service known as MagnaBet. The Company also owns and operates
HorseRacing TV ("HRTV"), a television network focused on horse racing that was initially launched on the Racetrack Television Network, a network in which the Company has a
minority interest, formed to telecast races from the Company's racetracks and other racetracks, via private direct to home satellite, to paying subscribers. In 2004, the Company launched
RaceONTV in Europe to provide racing content from the Company's racetracks and other U.S. racetracks that have agreed to participate in the Company's international distribution
network to locations outside North America. The Company also owns a 30% equity interest in AmTote
International, Inc., a provider of totalisator services to the pari-mutuel industry. To support certain of the Company's thoroughbred racetracks, the Company also owns and operates
thoroughbred training centers situated near San Diego, California, in Palm Beach County, Florida and in the Baltimore, Maryland area. The Company also owns and operates production facilities in
Austria and in North Carolina for StreuFex, a straw-based horse bedding product. In addition to racetracks, the Company's real estate portfolio includes two golf courses and related
recreational facilities in Austria and Canada, as well as three residential developments in various stages of development in Austria, the United States and Canada.

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

Principles of Consolidation

These consolidated financial statements include the accounts of Magna Entertainment Corp. and its subsidiaries (collectively the "Company"). All significant
intercompany balances and transactions have been eliminated. For those entities in which the Company holds less than 50% ownership interest, the equity or cost method of accounting is utilized based
on an assessment of the Company's ability to exercise significant influence over the operations of the entity.

Cash and Cash Equivalents

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

87

---



Impairment of Long-Lived Assets

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

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

Real Estate Properties

Revenue-Producing Racing Real Estate

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

Excess Racing Real Estate

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

Development Real Estate

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

Revenue-Producing Non-Racing Real Estate

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

Non-Core Real Estate

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

88

---



Fixed Assets

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

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

Racing Licenses

Racing licenses represent the value attributed to licenses to conduct race meets acquired through the Company's acquisition of racetracks. Racing licenses, an
intangible asset that meets the definition of an indefinite life intangible, are not subject to amortization, but are evaluated for impairment on an annual basis or when impairment indicators are
present. Racing license impairment is assessed based on a comparison of the fair value of an individual reporting unit to the underlying carrying value of the reporting unit's net assets, including
racing licenses. When the carrying amount of the reporting unit exceeds its fair value, the fair value of the reporting unit's racing license is compared with its carrying amount to measure the amount
of the impairment loss, if any. The fair value of racing licenses is determined in the same manner as in a business combination.

Revenue Recognition

The Company records operating revenues associated with horse racing on a daily basis. Wagering revenues are recognized gross of purses, stakes and awards and
pari-mutuel wagering taxes. The costs relating to these amounts are shown as "purses, awards and other". Non-wagering revenues include slot commissions, food and beverage
sales, program sales, admissions, parking, sponsorship, rental fees and other revenues. Slot commissions are recorded as revenues as the amounts are earned from the Ontario Lottery and Gaming
Corporation. Revenues from food and beverage and program sales are recorded at the time of sale. Revenues from admissions and parking are recorded on a daily basis, except for seasonal amounts which
are recorded ratably over the racing season. Revenues from sponsorship and rental fees are recorded ratably over the terms of the respective agreements or when the related event occurs.

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

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

Deferred Revenues

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

Non-refundable
golf membership initiation fees are deferred and amortized over the expected membership life.

Seasonality

The Company's racing business is seasonal in nature. The Company's racing revenues and operating results for any quarter will not be indicative of the revenues
and operating results for the year. A disproportionate share of annual revenues and net earnings are earned in the first quarter of each year.

89

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Advertising

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

Foreign Exchange

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

Income Taxes

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

Stock-based Compensation

Financial Accounting Standards Board Statement No. 123 ("SFAS 123"), "Accounting and Disclosure of Stock-Based Compensation", provides companies an
alternative to accounting for stock-based compensation as prescribed under APB Opinion No. 25 ("APB 25"). SFAS 123 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 existing accounting rules (intrinsic value method under APB 25
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. The Company accounts for stock-based compensation under APB 25 and provides pro-forma disclosure required by SFAS 123.

The
pro-forma impact on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based compensation is as
follows:

|                                                                                        |                       | Years ended December 31, |        
|--------------------------------------------------------------------------------------- | --------------------- | ------------------------ | -------
|
|Net loss, as reported                                                                   |                       | $                        | (95,636
|Pro-forma stock compensation expense determined under the fair value method, net of tax |                       |                          | (972   
|                                                                                        |                       |                          |        
|Pro-forma net loss                                                                      |                       | $                        | (96,608
|                                                                                        |                       |                          |        
|Loss per share                                                                          |                       |                          |        
|                                                                                        | Basic  as reported   |                          | $      
|                                                                                        |                       |                          |        
|                                                                                        | Basic  pro-forma     |                          | $      
|                                                                                        |                       |                          |        
|                                                                                        | Diluted  as reported |                          | $      
|                                                                                        |                       |                          |        
|                                                                                        | Diluted  pro-forma   |                          | $      
|                                                                                        |                       |                          |        

90

---



Loss per Share

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

Under
the "if converted" method:



Under
the "treasury stock" method:



Interest Rate Swaps

The Company utilizes, on occasion, interest rate swap contracts to hedge exposure to interest rate fluctuations on its variable rate debt. The fair value of the
swaps is recorded on the balance sheet as an asset or liability with the offset recorded in other comprehensive income, net of income taxes. Any changes in the market value of the swaps are adjusted
to the asset or liability account and recorded net of income taxes in other comprehensive income.

Use of Estimates

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

Comparative Amounts

Certain of the comparative amounts have been reclassified to conform to the current year presentation.

91

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Impact of Recently Issued Accounting Standards

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

On
December 16, 2004, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 123 (revised 2004), "Share-Based Payment" ("Statement 123(R)"), which is a
revision of SFAS 123. Statement 123(R) supersedes APB 25 and amends FASB Statement No. 95,Statement of Cash Flows.
Generally, the approach in Statement 123(R) is similar to the approach described in SFAS 123. However, Statement 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based on their fair values. Pro-forma disclosure is no longer an alternative.

Statement
123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company
expects to adopt Statement 123(R) on July 1, 2005.

Statement
123(R) permits public companies to adopt its requirements using one of two methods:



The
Company is currently reviewing the alternatives for implementation and has not yet determined the methodology for implementation.

As
permitted by Statement 123, the Company currently accounts for share-based payments to employees using APB 25's intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)'s fair value method will have a significant impact on the Company's results of operations, although it will
have no impact on the Company's overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments
granted in the future, however, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in
the disclosure of pro-forma net loss and loss per share in Note 20 to the consolidated financial statements. Statement 123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce
net operating cash flows and increase net financing cash flows in periods after adoption.

The
United States Securities and Exchange Commission ("SEC") has recently announced that the use of the residual method to value acquired assets other than goodwill is prohibited.
Instead, a direct value method must be used to determine the fair value of intangible assets. The SEC announcement is effective for business combinations consummated after September 29, 2004
and also requires companies to perform the annual impairment test using a direct value method on all identifiable assets that were previously valued using the residual method no later than periods
beginning January 1, 2005. Although the Company is currently reviewing this announcement, the impact, if any, on the Company's financial statements has not yet been determined.

92

---



2.     ACQUISITIONS AND PRO-FORMA IMPACT





Non-cash working capital deficit

$
(1,549
)Real estate properties and fixed assets


16,494Racing license


55,491Future taxes


(11,031
)Net assets acquired and total purchase price, net of cash acquired

$
59,405The purchase consideration for this acquisition is as follows:Cash

$
23,055Issuance of secured notes (note 12)


32,855Obligation with respect to the extension of the slot agreement (note 12)


3,495$
59,405








93

---





Lone Star Park at Grand Prairie

The Maryland Jockey Club

Other

TotalNon-cash working capital deficit

$
(4,087
)
$
(12,159
)
$
(384
)
$
(16,630
)Real estate properties and fixed assets


64,010


70,458


393


134,861Racing license


34,357


95,502





129,859Other assets


440


1,330





1,770Goodwill








585


585Debt due within one year


(62
)

(1,041
)




(1,103
)Long-term debt


(15,563
)

(25,489
)




(41,052
)Future taxes





(43,674
)




(43,674
)Net assets acquired and total purchase price, net of cash acquired

$
79,095

$
84,927

$
594

$
164,616The purchase consideration for these acquisitions is as follows:Cash

$
79,095

$
66,615

$
594

$
146,304Issuance of long-term debt (note 12)





18,312





18,312$
79,095

$
84,927

$
594

$
164,616






94

---





3.     SALE AND LEASE ARRANGEMENT OF GREAT LAKES DOWNS

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

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

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

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

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

The Company's long-lived assets and racing licenses were tested for impairment upon completion of the Company's annual business planning process. The
fair value of the racetracks was determined using the discounted cash flow method, including a probability-weighted approach in considering the likelihood of possible outcomes. It also includes the
estimated future cash flows associated with the racing licenses and long-lived assets directly associated with, and expected to arise as a direct result of, the use and disposition of
those assets. The fair value determined was then compared to the carrying value of the racing licenses and long-lived assets in order to determine the amount of the impairment. The
long-lived assets consist of fixed assets and real estate properties.

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

|                         |  | Years ended December 31,
|------------------------ |  | ------------------------
|
|Gulfstream Park          |  | $                       
|The Maryland Jockey Club |  |                         
|Bay Meadows              |  |                         
|Multnomah Greyhound Park |  |                         
|Remington Park           |  |                         
|Portland Meadows         |  |                         
|Thistledown              |  |                         
|Great Lakes Downs        |  |                         
|                         |  |                         
|                         |  | $                       
|                         |  |                         





95

---







5.     WRITE-DOWN OF EXCESS REAL ESTATE

In November 2002, the Company entered into an agreement with the East Bay Regional Park District, a California Special District, to sell approximately
16 acres of excess real estate located at Golden Gate Fields in Berkeley, California. The carrying value of the property, prior to entering into the agreement, was $14.3 million which
was based on an allocation of the purchase price for the Golden Gate Fields acquisition in 1999. In 2002, the Company recorded a non-cash write-down of this real estate which
resulted in a loss before income taxes and a loss after income taxes of $5.8 million and $2.4 million, respectively. In December 2003, the Company completed the transaction for
consideration of $8.5 million and recorded the proceeds in non-wagering revenues and the cost of the excess real estate in operating costs. There was no gain or loss on this
transaction in 2003.

96

---



6.     REAL ESTATE PROPERTIES

Real estate properties consist of:

|                                              |                          | December 31, |        
|--------------------------------------------- | ------------------------ | ------------ | -------
|
|Revenue-producing racing real estate          |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              | $      
|                                              | Buildings                |              |        
|                                              | Construction in progress |              |        
|                                              |                          |              |        
|                                              |                          |              | 750,571
|Accumulated depreciation                      |                          |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|Revenue-producing racing real estate, net     |                          |              | 677,302
|                                              |                          |              |        
|Excess racing real estate                     |                          |              | 98,332 
|                                              |                          |              |        
|Development real estate                       |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              |        
|                                              | Construction in progress |              |        
|                                              |                          |              |        
|Development real estate                       |                          |              | 50,622 
|                                              |                          |              |        
|Revenue-producing non-racing real estate      |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|                                              |                          |              | 94,500 
|Accumulated depreciation                      |                          |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|Revenue-producing non-racing real estate, net |                          |              | 83,475 
|                                              |                          |              |        
|Non-core real estate                          |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|                                              |                          |              | 2,561  
|Accumulated depreciation                      |                          |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|Non-core real estate, net                     |                          |              | 2,512  
|                                              |                          |              |        
|                                              |                          | $            | 912,243
|                                              |                          |              |        

Included
in revenue-producing racing real estate properties are land and improvements and buildings under capital lease with a cost of $45.6 million (December 31,
2003  $45.6 million) and accumulated depreciation of $4.6 million (December 31,
2003  $2.5 million).

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

97

---



7.     FIXED ASSETS

Fixed assets consist of:

|                                               |                         | December 31, |       
|---------------------------------------------- | ----------------------- | ------------ | ------
|
|Revenue-producing racing fixed assets          |                         |              |       
|Cost                                           |                         |              |       
|                                               | Machinery and equipment |              | $     
|                                               | Furniture and fixtures  |              |       
|                                               |                         |              |       
|                                               |                         |              | 93,418
|Accumulated depreciation                       |                         |              |       
|                                               | Machinery and equipment |              |       
|                                               | Furniture and fixtures  |              |       
|                                               |                         |              |       
|Revenue-producing racing fixed assets, net     |                         |              | 46,504
|                                               |                         |              |       
|Revenue-producing non-racing fixed assets      |                         |              |       
|Cost                                           |                         |              |       
|                                               | Machinery and equipment |              |       
|                                               | Furniture and fixtures  |              |       
|                                               |                         |              |       
|                                               |                         |              | 12,795
|Accumulated depreciation                       |                         |              |       
|                                               | Machinery and equipment |              |       
|                                               | Furniture and fixtures  |              |       
|                                               |                         |              |       
|Revenue-producing non-racing fixed assets, net |                         |              | 5,034 
|                                               |                         |              |       
|                                               |                         | $            | 51,538
|                                               |                         |              |       

Included
in revenue-producing racing fixed assets are machinery and equipment and furniture and fixtures under capital lease with a cost of $1.9 million (December 31,
2003  $1.9 million) and accumulated depreciation of $1.4 million (December 31,
2003  $0.9 million).

8.     RACING LICENSES

Racing licenses consist of:

|                                              |  | December 31, |        
|--------------------------------------------- |  | ------------ | -------
|
|Balance, beginning of the year                |  | $            | 236,098
|Acquired during the year (note 2)             |  |              |       
|Write-down of racing licenses (note 4)        |  |              |       
|Foreign currency impact on racing licenses(i) |  |              | 4,795  
|                                              |  |              |        
|Balance, end of year                          |  | $            | 240,893
|                                              |  |              |        

9.     OTHER ASSETS

Other assets consist of:

|                                |  | December 31,
|------------------------------- |  | ------------
|
|Long-term receivables and other |  | $           
|Equity investments              |  |             
|Goodwill                        |  |             
|                                |  |             
|                                |  | $           
|                                |  |             

98

---



10.     INCOME TAXES



|                                         |  | Years ended December 31, |        
|---------------------------------------- |  | ------------------------ | -------
|
|Expected provision:                      |  |                          |        
|Federal statutory income tax rate (35%)  |  | $                        | (34,057
|State income tax, net of federal benefit |  |                          | 586    
|Tax losses not benefited (utilized)      |  |                          | 30,624 
|Foreign rate differentials               |  |                          | 309    
|Change in enacted income tax rates       |  |                          | (5,108 
|Foreign dividends                        |  |                          | 1,894  
|Non-deductible expenses                  |  |                          | 4,542  
|Other                                    |  |                          | (459   
|                                         |  |                          |        
|Income tax benefit                       |  | $                        | (1,669 
|                                         |  |                          |        



|Years:      
|------------
|2008 to 2010
|2012 to 2018
|2020 to 2024
|            
|            
|            



|              |  | Years ended December 31, |        
|------------- |  | ------------------------ | -------
|
|United States |  | $                        | (84,042
|Foreign       |  |                          | (13,263
|              |  |                          |        
|              |  | $                        | (97,305
|              |  |                          |        



|                                       |               | Years ended December 31, |       
|-------------------------------------- | ------------- | ------------------------ | ------
|
|Current income tax provision (benefit) |               |                          |       
|                                       | United States |                          | $     
|                                       | Foreign       |                          |       
|                                       |               |                          |       
|                                       |               |                          | 3,238 
|                                       |               |                          |       
|Future income tax provision (benefit)  |               |                          |       
|                                       | United States |                          |       
|                                       | Foreign       |                          |       
|                                       |               |                          |       
|                                       |               |                          | (4,907
|                                       |               |                          |       
|                                       |               | $                        | (1,669
|                                       |               |                          |       

99

---





|                                                                    |                                                                                                                       | Years ended December 31, |        
|------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------ | -------
|
|Tax deferral on sale of real estate                                 |                                                                                                                       | $                        | 1,956  
|                                                                    | Amortization of purchase accounting fair value increments, for tax purposes in excess of book (book in excess of tax) |                          |        
|Tax gain in excess of book gain on disposal of real estate property |                                                                                                                       |                          | (1,404 
|Tax benefit of charitable contribution carry-forward                |                                                                                                                       |                          |       
|Tax benefit of loss carry-forwards                                  |                                                                                                                       |                          | (31,220
|Utilization of loss carry-forwards                                  |                                                                                                                       |                          | 714    
|Fee revenue in excess of tax (tax in excess of book)                |                                                                                                                       |                          | 66     
|Write-down of assets for book purposes                              |                                                                                                                       |                          |       
|Increase (reduction) in valuation allowance                         |                                                                                                                       |                          | 30,853 
|Change in enacted income tax rates                                  |                                                                                                                       |                          | (5,108 
|Other                                                               |                                                                                                                       |                          | (2,692 
|                                                                    |                                                                                                                       |                          |        
|                                                                    |                                                                                                                       | $                        | (4,907 
|                                                                    |                                                                                                                       |                          |        



|                                                                                        |                  | December 31, |        
|--------------------------------------------------------------------------------------- | ---------------- | ------------ | -------
|
|Assets                                                                                  |                  |              |        
|Real estate properties tax value in excess of book value                                |                  | $            | 21,510 
|Tax benefit of loss carry-forwards                                                      |                  |              |        
|                                                                                        | Pre-acquisition  |              |        
|                                                                                        | Post-acquisition |              |        
|Tax benefit of charitable contribution carry-forward                                    |                  |              | 1,400  
|Benefit of various tax credit carry-forwards                                            |                  |              | 2,700  
|                                                                                        |                  |              |        
|                                                                                        |                  |              | 79,101 
|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 |                  |              | (9,994 
|                                                                                        |                  |              |        
|Future tax assets                                                                       |                  | $            | 35,245 
|                                                                                        |                  |              |        
|Liabilities                                                                             |                  |              |        
|Real estate properties book basis in excess of tax basis                                |                  | $            | 68,952 
|Other assets book basis in excess of tax basis                                          |                  |              | 58,781 
|Other                                                                                   |                  |              | 5,185  
|                                                                                        |                  |              |        
|Future tax liabilities                                                                  |                  | $            | 132,918
|                                                                                        |                  |              |        



100

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11.     BANK INDEBTEDNESS





101

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12.     DEBT AND COMMITMENTS



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | December 31,
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|
|Term loan facility, bearing interest at LIBOR plus 2.0% per annum (4.4% at December 31, 2004) with a maturity date of October 7, 2007, subject to a further extension at the Company's option to October 7,
2009. The facility is guaranteed by the Los Angeles Turf Club, Incorporated ("LATC") and is secured by a first deed of trust on Santa Anita Park and the surrounding real property, an assignment of the lease between LATC, the racetrack operator, and
The Santa Anita Companies, Inc. ("SAC") and a pledge of all of the outstanding capital stock of LATC and SAC. At December 31, 2004, the term loan is fully drawn and is repayable in monthly principal amounts of $417 thousand until
maturity. |  | $           
|Term loan facility repaid during the year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |             
|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, 2004). 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 $2.1 million (Cdn. $2.5 million) with the remaining amount due upon maturity (note 2).                                                                                                                             |  |             
|Term loan facility of 17.6 million Euros, bearing interest at an implicit rate of 5.17% per annum, collateralized by an assignment of future amounts receivable under the Fontana Sports access agreement,
repayable in nine annual principal and interest payments of 2.5 million Euros commencing January 1, 2006 until the ninth installment has been made in 2014.                                                                                                                                                                                                                                                                                                                                               |  |             
|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 facility of 15 million Euros, bearing interest at the European Interbank Offered Rate ("EURIBOR") plus 2% per annum (4.0% at December 31, 2004) with a maturity date of December 15, 2006,
secured by a first and second mortgage on land in Austria owned by the European subsidiary.                                                                                                                                                                                                                                                                                                                                                                                                                     |  |             
|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 (2.6% at December 31,
2004) (note 2).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |             
|Term loan facilities, bearing interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum (5.0% at December 31, 2004) until December 1, 2008, with a maturity date of December 1, 2013. On
December 1, 2008, the interest rate is reset to the market rate for a United States Treasury security of an equivalent term plus 2.6%. The term loans are repayable in quarterly principal and interest payments. The loans are secured by deeds
of trust on land, buildings and improvements and security interests in all other assets of certain affiliates of The Maryland Jockey Club.                                                                                                                       |  |             
|Capital lease (imputed interest rate of 8.5%) maturing April 1, 2027, secured by buildings and improvements at Lone Star Park at Grand Prairie.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |             
|Term loan facility, bearing interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum (5.0% at December 31, 2004), with a maturity date of December 15, 2019. The term loan is repayable in
quarterly principal and interest payments. The loan is secured by deeds of trust on land, buildings and improvements and security interests in all other assets of certain affiliates of The Maryland Jockey Club.                                                                                                                                                                                                                                                                                             |  |             

102

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | December 31,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|
|Bank term line of credit denominated in Euros, bearing interest at EURIBOR plus 0.625% per annum (2.8% at December 31, 2004). The term line of credit is repayable in annual installments of $3.9 million (Euros
2.9 million) due in July 2005 and 2006. A European subsidiary has provided two first mortgages on real estate properties as security for this facility.                                                                                                                                                                                                                       |  |             
|Obligation to pay $5.5 million Canadian with respect to the extension of the Flamboro Downs agreement with the Ontario Lottery and Gaming Corporation 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, 2004). The obligation is repayable in two annual
installments of $2.3 million (Cdn. $2.75 million) due in October 2005 and 2010 (note 2).                                               |  |             
|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 affiliates of The Maryland Jockey Club. |  |             
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | $           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |             

103

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|2005       |  | $ | 17,763 
|---------- |  | - | -------
|2006       |  |   | 53,857 
|2007       |  |   | 123,252
|2008       |  |   | 4,784  
|2009       |  |   | 4,950  
|Thereafter |  |   | 54,655 
|           |  |  
|           |  | $ | 259,261
|           |  |  



|2005                                                       |  | $ | 1,320 
|---------------------------------------------------------- |  | - | ------
|2006                                                       |  |   | 1,320 
|2007                                                       |  |   | 1,452 
|2008                                                       |  |   | 1,452 
|2009                                                       |  |   | 1,452 
|Thereafter                                                 |  |   | 29,964
|                                                           |  |  
|Total payments                                             |  |   | 36,960
|Less: capital lease minimum payments representing interest |  |   | 21,440
|                                                           |  |  
|Present value of lease payments                            |  | $ | 15,520
|                                                           |  |  



|                           |  | Years ended December 31, |       
|-------------------------- |  | ------------------------ | ------
|
|Interest cost, gross       |  | $                        | 29,202
|Less: Interest capitalized |  |                          | 4,043 
|                           |  |                          |       
|Interest expense           |  |                          | 25,159
|Interest income            |  |                          | (1,068
|                           |  |                          |       
|Interest expense, net      |  | $                        | 24,091
|                           |  |                          |       



104

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13.   CONVERTIBLE SUBORDINATED NOTES





14.   CAPITAL STOCK







105

---



|                                                                          |  | Class A Subordinate Voting Stock |  | Exchangeable Shares |         | Class B Stock |            | Total
|------------------------------------------------------------------------- |  | -------------------------------- |  | ------------------- | ------- | ------------- | ---------- | -----
|
|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 |               |           |      
|Issued on exercise of Stock Options                                       |  | 175,000                          |  |                     | 852     |               |           |      
|Issued under the Long-term Incentive Plan                                 |  | 24,000                           |  |                     | 123     |               |           |      
|                                                                          |  |                                  |  |                     |         |               |            |      
|Issued and outstanding at December 31, 2004                               |  | 48,878,796                       |  | $                   | 318,003 |               |           |      
|                                                                          |  |                                  |  |                     |         |               |            |      

106

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|                                            |                   | Years ended December 31, |            
|------------------------------------------- | ----------------- | ------------------------ | -----------
|
|Net loss                                    |                   | $                        | (95,636    
|                                            |                   |                          |            
|Weighted average shares outstanding         |                   |                          | 107,323,300
|Net effect of dilutive instruments(i)       |                   |                          |           
|                                            |                   |                          |            
|Diluted weighted average shares outstanding |                   |                          | 107,323,300
|                                            |                   |                          |            
|Loss per Share:                             |                   |                          |            
|                                            | Basic and Diluted |                          | $          
|                                            |                   |                          |            

|                                                                     |  | Number of Shares
|-------------------------------------------------------------------- |  | ----------------
|Class A Subordinate Voting Stock outstanding at December 31, 2004    |  | 48,879          
|Class B Stock outstanding at December 31, 2004                       |  | 58,466          
|Options to purchase Class A Subordinate Voting Stock                 |  | 4,501           
|8.55% Convertible Subordinated Notes, convertible at $7.05 per share |  | 21,276          
|7.25% Convertible Subordinated Notes, convertible at $8.50 per share |  | 8,824           
|                                                                     |  |                 
|                                                                     |  | 141,946         
|                                                                     |  |                 

15.   CURRENCY TRANSLATION ADJUSTMENT



16.   FINANCIAL INSTRUMENTS



107

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108

---





17.   SEGMENT INFORMATION



109

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|               |                                        | Years ended December 31,
|-------------- | -------------------------------------- | ------------------------
|
|Revenues       |                                        |                         
|               | California operations                  |                         
|               | Florida operations                     |                         
|               | Maryland operations                    |                         
|               | Southern U.S. operations               |                         
|               | Northern U.S. operations               |                         
|               | Canadian operations                    |                         
|               | European operations                    |                         
|               | Technology operations                  |                         
|               |                                        |                         
|               |                                        |                         
|               | Corporate and other                    |                         
|               | Eliminations                           |                         
|               |                                        |                         
|               | Total racing operations                |                         
|               |                                        |                         
|               | Sale of real estate                    |                         
|               | Golf and other                         |                         
|               |                                        |                         
|               | Total real estate and other operations |                         
|               |                                        |                         
|Total revenues |                                        | $                       
|               |                                        |                         

|                                                                                        |                                        | Years ended December 31, |        
|--------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------ | -------
|
|Earnings (loss) before interest, income taxes, depreciation and amortization ("EBITDA") |                                        |                          |        
|                                                                                        | California operations                  |                          | $      
|                                                                                        | Florida operations                     |                          |        
|                                                                                        | Maryland operations                    |                          |        
|                                                                                        | Southern U.S. operations               |                          |        
|                                                                                        | Northern U.S. operations               |                          |        
|                                                                                        | Canadian operations                    |                          |        
|                                                                                        | European operations                    |                          |        
|                                                                                        | Technology operations                  |                          |        
|                                                                                        |                                        |                          |        
|                                                                                        |                                        |                          | (1,196 
|                                                                                        | Corporate and other                    |                          |        
|                                                                                        | Predevelopment costs                   |                          |        
|                                                                                        |                                        |                          |        
|                                                                                        | Total racing operations                |                          |        
|                                                                                        |                                        |                          |        
|                                                                                        | Sale of real estate                    |                          |        
|                                                                                        | Golf and other                         |                          |        
|                                                                                        |                                        |                          |        
|                                                                                        | Total real estate and other operations |                          |        
|                                                                                        |                                        |                          |        
|Total EBITDA                                                                            |                                        | $                        | (35,704
|                                                                                        |                                        |                          |        

110

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|             |                                        | December 31,
|------------ | -------------------------------------- | ------------
|
|Total Assets |                                        |             
|             | California operations                  |             
|             | Florida operations                     |             
|             | Maryland operations                    |             
|             | Southern U.S. operations               |             
|             | Northern U.S. operations               |             
|             | Canadian operations                    |             
|             | European operations                    |             
|             | Technology operations                  |             
|             |                                        |             
|             |                                        |             
|             | Corporate and other                    |             
|             |                                        |             
|             | Total racing operations                |             
|             |                                        |             
|             | Non-Core Real Estate                   |             
|             | Golf and other                         |             
|             |                                        |             
|             | Total real estate and other operations |             
|             |                                        |             
|Total assets |                                        | $           
|             |                                        |             

|                                                        |                                  | Years ended December 31,
|------------------------------------------------------- | -------------------------------- | ------------------------
|
|Real estate properties and fixed asset additions        |                                  |                         
|                                                        | Racing operations                |                         
|                                                        | Real estate and other operations |                         
|                                                        |                                  |                         
|Total real estate properties and fixed assets additions |                                  | $                       
|                                                        |                                  |                         

111

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Reconciliation of EBITDA to Net Loss

|                                  |  | Year ended December 31, 2004 |         
|--------------------------------- |  | ---------------------------- | --------
|
|EBITDA                            |  | $                            | (49,301 
|Interest expense (income), net    |  |                              | 25,456  
|Depreciation and amortization     |  |                              | 34,495  
|                                  |  |                              |         
|Income (loss) before income taxes |  |                              | (109,252
|Income tax benefit                |  |                              |         
|                                  |  |                              |         
|Net loss                          |  |                              |         
|                                  |  |                              |         

|                               |  | Year ended December 31, 2003 |         
|------------------------------ |  | ---------------------------- | --------
|
|EBITDA                         |  | $                            | (118,126
|Interest expense (income), net |  |                              | 14,011  
|Depreciation and amortization  |  |                              | 29,025  
|                               |  |                              |         
|Loss before income taxes       |  |                              | (161,162
|Income tax benefit             |  |                              |         
|                               |  |                              |         
|Net loss                       |  |                              |         
|                               |  |                              |         

|                                  |  | Year ended December 31, 2002 |        
|--------------------------------- |  | ---------------------------- | -------
|
|EBITDA                            |  | $                            | (3,442 
|Interest expense (income), net    |  |                              | 2,110  
|Depreciation and amortization     |  |                              | 20,060 
|                                  |  |                              |        
|Income (loss) before income taxes |  |                              | (25,612
|Income tax benefit                |  |                              |        
|                                  |  |                              |        
|Net loss                          |  |                              |        
|                                  |  |                              |        

112

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Geographic Segments

Revenues
by geographic segment of the Company are as follows:

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

Real
estate properties, fixed assets, racing licenses and other assets, net of accumulated depreciation and amortization, by geographic segment are as follows:

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

18.   TRANSACTIONS WITH RELATED PARTIES



113

---





114

---



19.   COMMITMENTS AND CONTINGENCIES

115

---



|2005       |  | $ | 3,149
|---------- |  | - | -----
|2006       |  |   | 1,421
|2007       |  |   | 1,031
|2008       |  |   | 853  
|2009       |  |   | 555  
|Thereafter |  |   | 531  
|           |  |  
|           |  | $ | 7,540
|           |  |  



116

---





117

---



118

---



20.     OTHER LONG-TERM LIABILITIES

Other long-term liabilities is comprised as follows:

|                                              |  | December 31,
|--------------------------------------------- |  | ------------
|
|Deferred initiation fees and other revenue    |  | $           
|Fair value of interest rate swap (note 16(c)) |  |             
|Pension liability                             |  |             
|Other                                         |  |             
|                                              |  |             
|                                              |  | $           
|                                              |  |             

Employee Defined Benefit Plans

The Company's Santa Anita Park racetrack has a pension plan that consists of a non-contributory defined benefit retirement plan for
year-round employees who are at least 21 years of age, have one or more years of service, and are not covered by collective bargaining agreements. Plan assets consist of a group of
annuity contracts with a life insurance company. Plan benefits are based primarily on years of service and qualifying compensation during the final years of employment. Funding requirements comply
with federal requirements that are imposed by law.

The
net periodic pension cost of the Company for the years ended December 31, 2004, 2003 and 2002 included the following components:

|                                              |  | Years ended December 31, |     
|--------------------------------------------- |  | ------------------------ | ----
|
|Components of net periodic pension cost:      |  |                          |     
|Service cost                                  |  | $                        | 437 
|Interest cost on projected benefit obligation |  |                          | 685 
|Actual (return) loss on plan assets           |  |                          | (825
|Net amortization and deferral                 |  |                          | 271 
|                                              |  |                          |     
|Net periodic pension cost                     |  | $                        | 568 
|                                              |  |                          |     

The
following provides a reconciliation of benefit obligations, plan assets and funded status of the plan:

|                                               |  | Years ended December 31, |       
|---------------------------------------------- |  | ------------------------ | ------
|
|Change in benefit obligation:                  |  |                          |       
|Benefit obligation at beginning of year        |  | $                        | 11,711
|Service cost                                   |  |                          | 437   
|Interest cost                                  |  |                          | 685   
|Benefits paid                                  |  |                          | (569  
|Actuarial (gains) losses                       |  |                          | 1,840 
|                                               |  |                          |       
|Benefit obligation at end of year              |  |                          | 14,104
|                                               |  |                          |       
|Change in plan assets:                         |  |                          |       
|Fair value of plan assets at beginning of year |  |                          | 9,962 
|Actual return (loss) on plan assets            |  |                          | 825   
|Company contributions                          |  |                          | 470   
|Benefits paid                                  |  |                          | (569  
|                                               |  |                          |       
|Fair value of plan assets at end of year       |  |                          | 10,688
|                                               |  |                          |       
|Funded status of plan (underfunded)            |  |                          | (3,416
|Unrecognized net loss                          |  |                          | 3,243 
|                                               |  |                          |       
|Net pension liability                          |  | $                        | (173  
|                                               |  |                          |       

119

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Assumptions
used in determining the funded status of the retirement income plan are as follows:

|                                                         |  | Years ended December 31,
|-------------------------------------------------------- |  | ------------------------
|
|Weighted average discount rate                           |  | 5.0%                    
|Weighted average rate of increase in compensation levels |  | 4.0%                    
|Expected long-term rate of return                        |  | 6.0%                    

The
measurement date and related assumptions for the funded status of the Company's retirement income plan are as of the end of the year.

The
Company also participates in several multi-employer benefit plans on behalf of its employees who are union members. Company contributions to these plans were $5.0 million in
the year ended December 31, 2004 (year ended December 31, 2003  $5.9 million; year ended December 31,
2002  $3.9 million). The data available from administrators of the multi-employer pension plans is not sufficient to determine the accumulated benefit
obligations, nor the net assets attributable to the multi-employer plans in which Company employees participate.

The
Company offers various 401(k) plans (the "Plans") to provide retirement benefits for employees. All employees who meet certain eligibility requirements are able to
participate in the Plans. Discretionary matching contributions are determined each year by the Company. The Company contributed $1.5 million in the year ended December 31, 2004 (year
ended December 31, 2003  $0.7 million; year ended December 31, 2002  $0.4 million) to the
Plans.

Long-term Incentive Plan

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

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

120

---



Information
with respect to shares under option is as follows:

|                           |  | Shares Subject to Option |   | Weighted Average Exercise Price
|-------------------------- |  | ------------------------ | - | -------------------------------
|
|Balance, Beginning of Year |  | 4,841,500                |   | 5,361,833                      
|Granted                    |  | 200,000                  |   | 640,000                        
|Exercised                  |  | (175,000                 | ) | (6,000                         
|Forfeited(i)               |  | (366,000                 | ) | (1,154,333                     
|                           |  |                          |   |                                
|Balance, End of Year       |  | 4,500,500                |   | 4,841,500                      
|                           |  |                          |   |                                



Information
regarding stock options outstanding is as follows:

|                                                    |  | Options Outstanding |           | Options Exercisable
|--------------------------------------------------- |  | ------------------- | --------- | -------------------
|
|Number                                              |  |                     | 4,500,500 |                    
|Weighted average exercise price                     |  | $                   | 6.18      |                    
|Weighted average remaining contractual life (years) |  |                     | 5.6       |                    

Pro-forma
information regarding net loss and loss per share is required by SFAS 123 and has been determined as if the Company had accounted for its stock options under
the fair value method under SFAS 123. The average fair values of the stock option grants in 2004 were $2.38 (for the year ended December 31,
2003  $1.50; for the year ended December 31, 2002  $3.41). The fair value of stock option grants in 2004 was
estimated at the date of grant using the following assumptions:

|                                                                               |  | Years ended December 31, |  
|------------------------------------------------------------------------------ |  | ------------------------ | -
|
|Risk free interest rates                                                       |  | 3.0                      | %
|Dividend yields                                                                |  | 0.84                     | %
|Volatility factor of expected market price of Class A Subordinate Voting Stock |  | 0.574                    |  
|Weighted average expected life (years)                                         |  | 4.00                     |  

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

121

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The
Company's SFAS 123 pro-forma net loss and the related per share amounts are as follows:

|                                                                                       |                       | Years ended December 31, |        
|-------------------------------------------------------------------------------------- | --------------------- | ------------------------ | -------
|
|Net loss, as reported                                                                  |                       | $                        | (95,636
|Pro-forma stock compensation expense determined nder the fair value method, net of tax |                       |                          | (972   
|                                                                                       |                       |                          |        
|Pro-forma net loss                                                                     |                       | $                        | (96,608
|                                                                                       |                       |                          |        
|Loss per share                                                                         |                       |                          |        
|                                                                                       | Basic  as reported   |                          | $      
|                                                                                       |                       |                          |        
|                                                                                       | Basic  pro-forma     |                          | $      
|                                                                                       |                       |                          |        
|                                                                                       | Diluted  as reported |                          | $      
|                                                                                       |                       |                          |        
|                                                                                       | Diluted  pro-forma   |                          | $      
|                                                                                       |                       |                          |        

For
purposes of pro-forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period.

21.     SUBSEQUENT EVENTS

On February 18, 2005, one of the Company's Canadian subsidiaries entered into a financing arrangement, which is collateralized by an assignment of the
future amounts receivable under the Magna Golf Club access agreement. The Company received proceeds of $11.1 million (Cdn. $13.7 million) that is repayable in three annual installments
of $5.0 million Cdn. commencing January 1, 2006 until the third installment has been made in 2008. The interest rate implicit in the arrangement is 5.08%.

122

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|
|

|
|

MAGNA ENTERTAINMENT CORP.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2004(Amounts in thousands, U.S. dollars)

|                                 |                        |                                                               |  | Initial Costs to Company |  | 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
|                                 |                        | 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                                            |   |       |   | 2,580 |   |        |  | 16,205
|REAL ESTATE HELD FOR DEVELOPMENT |                        |                                                               |  |                          |  |                                             |  |                         |  |                                                  |   |        |   |       |   |         |  |       
|                                 | Racing Operations      |                                                               |  |                          |  |                                             |  |                         |  |                                                  |   |        |   |       |   |         |  |       
|                                 |                        | Dixon Downs (Dixon, California, U.S.A.)                       |  |                         |  | 6,584                                       |  |                        |  | 6,502                                            |   | 22     |   |      |   |        |  | 13,086
|                                 |                        | Ocala (Ocala, Florida, U.S.A.)                                |  |                         |  | 7,227                                       |  |                        |  | 1,186                                            |   |       |   |      |   |        |  | 8,413 
|                                 |                        | Palm Meadows Estates (Boynton, Florida, U.S.A.)               |  |                         |  | 7,488                                       |  |                        |  | 2,418                                            |   |       |   |      |   |        |  | 9,906 
|                                 | Real Estate Operations |                                                               |  |                          |  |                                             |  |                         |  |                                                  |   |        |   |       |   |         |  |       
|                                 |                        | New York, U.S.A.                                              |  |                         |  | 725                                         |  |                        |  | 2,109                                            |   |       |   |      |   |        |  | 2,834 
|                                 |                        | Ontario, Canada                                               |  |                         |  | 2,334                                       |  |                        |  | 6,128                                            |   |       |   | 1,397 |   |        |  | 9,859 
|                                 |                        | Niederoesterreich, Austria                                    |  |                         |  | 6,804                                       |  |                        |  |                                                 |   |       |   | (302  | ) |        |  | 6,502 
|                                 |                        |                                                               |  |                          |  |                                             |  |                         |  |                                                  |   |        |   |       |   |         |  |       
|NON-CORE REAL ESTATE             |                        |                                                               |  |                          |  |                                             |  |                         |  |                                                  |   |        |   |       |   |         |  |       
|                                 | Land                   |                                                               |  |                          |  |                                             |  |                         |  |                                                  |   |        |   |       |   |         |  |       
|                                 |                        | Florida, U.S.A.                                               |  |                         |  | 1,918                                       |  |                        |  | 528                                              |   |       |   |      |   |        |  | 2,446 
|                                 | Residential Properties |                                                               |  |                          |  |                                             |  |                         |  |                                                  |   |        |   |       |   |         |  |       
|                                 |                        | Niederoesterreich, Austria                                    |  |                         |  | 18                                          |  | 1,553                   |  | 18                                               |   | (1,876 | ) | 5     |   | 397     |  | 41    
|                                 |                        |                                                               |  |                          |  |                                             |  |                         |  |                                                  |   |        |   |       |   |         |  |       
|                                 |                        |                                                              |  | 124,918                  |  | 1,553                                       |  | 22,540                  |  | (1,573                                           | ) | 3,680  |   | 397   |   | 151,138 |  | 377   
|                                 |                        |                                                               |  |                          |  |                                             |  |                         |  |                                                  |   |        |   |       |   |         |  |       

123

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

None.

Item 9A.    Controls and Procedures

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is a process defined to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit the preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

A
material weakness is a control deficiency, or combination of control deficiencies, that results in more than remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.

Based
on an evaluation of the Company's internal control over financial reporting (as defined in
Rule 13a-15(f) and 15d-15(f) under the U.S. Securities Exchange Act of 1934) as of December 31, 2004, which is still in progress,
under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, the Company has identified a material weakness in its
internal control over financial reporting with regard to two companies that are currently providing totalisator services to the Company.

During
the course of management's assessment of the effectiveness of the Company's internal control over financial reporting, the Company requested a Type II Statement on Auditing
Standards ("SAS") 70 report from the three companies that provide totalisator services to the Company. Despite our timely requests, Scientific Games Racing, LLC (the parent
company of Autotote) and United Tote Company, two of the three companies that provide totalisator services to the
Company, were unable to provide the required SAS 70 reports. The failure of these tote companies to provide the required SAS 70 reports has caused management of the Company to conclude
that there is a material weakness in the Company's internal control over financial reporting. This conclusion is based on the fact that significant financial statement balances including gross
wagering revenues and settlements receivable and settlements payable, are balances which are impacted by tote information from these companies. Despite the use of these tote systems, the Company
performs alternative procedures including money room counts, bank reconciliations and confirmations with other racetracks of settlement balances prior to payment to obtain assurance that the balances
in these accounts are appropriate. Although we did not identify any accounting adjustments as a result of inaccurate tote information in these accounts in our financial statements for the year ended
December 31, 2004, the inability to obtain a Type II SAS 70 report on the applicable controls in operation at these two tote companies is considered a material weakness in our own
internal control over financial reporting. The Company was able to obtain a Type II SAS 70 report from its third totalisator service provider, Amtote International, Inc.

To
address this material weakness, it is the Company's intention to use its best efforts to pursue one of the following three courses of action:



The
Company expects to conclude its testing and evaluation of its internal control over financial reporting (as defined in Rule 13a-15(f) or
Rule 15d-15(f) of the U.S. Securities Exchange Act of 1934, as amended) and management's assessment of such internal control over financial reporting prior to filing
its amended annual report on Form 10-K/A within the 45-day period provided by the exemptive order issued by the U.S. Securities and Exchange Commission in Release
No. 50754 on November 30, 2004. In accordance with the exemptive order, the Form 10-K/A will include management's annual report on internal control over financial
reporting required by Item 308(a) of Regulation S-K and the related attestation report of the registered public accounting firm required by
Item 308(a) of Regulation S-K. As of December 31, 2004, 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.

Based
on an evaluation carried out, as of December 31, 2004, under the supervision and with the participation of the Company's management, including its Chief Executive Officer
and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15(d)-15(e) under the U.S. Securities Exchange Act of 1934) are effective.

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, 2004.

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, 2004.

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, 2004.

124

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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 "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, 2004.

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 "Principal Accountant Fees and Services", which Proxy Statement will be filed with the Securities and Exchange Commission within
120 days after our fiscal year end of December 31, 2004.

Part IV

Item 15.    Exhibits, Financial Statement Schedules

The
following Consolidated Financial Statements of Magna Entertainment Corp. as at or for the year ended December 31, 2004 are included in Part II, Item 8 of this
Report:



We
filed the following reports with the SEC on Form 8-K during the quarter ended December 31, 2004:

On
October 14, 2004, we filed a current report on Form 8-K reporting that that on October 8, 2004, we entered into a Term Loan Credit Agreement by and
between Wells Fargo Bank, National Association ("Bank") and our wholly-owned subsidiary, The Santa Anita Companies, Inc. ("Borrower") to amend and extend the secured term credit facility
between the Borrower and the Bank.

On
October 20, 2004, we filed a current report on Form 8-K reporting that on October 14, 2004, a Second Amending Agreement was entered into by and
between Bank of Montreal (the "Bank"), acting as both lender and agent, the Issuer, as borrower, and the Issuer's wholly-owned subsidiaries Bay Meadows Operating Company LLC, Gulfstream
Park Racing Association, Inc., Pacific Racing Association, MEC Land Holdings (California) Inc., The Santa Anita Companies, Inc. and Los Angeles Turf Club, Incorporated as
guarantors (the "Guarantors").

On
November 1, 2004, we filed a current report on Form 8-K reporting the issuance of a press release on November 1, 2004 that announced our unaudited
financial results for the nine-month period ended September 30, 2004.

On
November 1, 2004, we filed a current report on Form 8-K reporting wholly-owned subsidiaries of the Issuer entered into access agreements with Magna
International Inc. and one of its subsidiaries for their use of the golf courses and associated clubhouse, meeting, dining and other facilities at the Magna Golf Club in Aurora, Ontario and
Fontana Sports in Oberwaltersdorf, Austria.

125

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On
November 5, 2004, we filed a current report on Form 8-K reporting the results posted by the Oklahoma State Election Board of State Question 712.

On
December 9, 2004, we filed a current report on Form 8-K reporting the entering into of a binding construction loan term sheet with MI
Developments Inc.



Please
refer to the exhibit index below.

126

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on this 14th day of March, 2005.

| |  | 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/W. THOMAS HODGSONW. Thomas Hodgson |  | President Chief Executive Officer and Director (Principal Executive Officer)       |  | March 14, 2005
|/s/BLAKE TOHANABlake Tohana           |  | Executive Vice-President and Chief Financial Officer (Principal Financial Officer) |  | March 14, 2005
|/s/MARY LYN SEYMOURMary Lyn Seymour   |  | Controller (Principal Accounting Officer)                                          |  | March 14, 2005
|/s/JOHN R. BARNETTJohn R. Barnett     |  | Director                                                                           |  | March 14, 2005
|/s/JERRY D. CAMPBELLJerry D. Campbell |  | Director                                                                           |  | March 14, 2005
|/s/LOUIS E. LATAIFLouis E. Lataif     |  | Director                                                                           |  | March 14, 2005
|/s/EDWARD C. LUMLEYEdward C. Lumley   |  | Director                                                                           |  | March 14, 2005
|/s/JIM MCALPINEJim McAlpine           |  | Director                                                                           |  | March 14, 2005
|/s/WILLIAM J. MENEARWilliam J. Menear |  | Director                                                                           |  | March 14, 2005
|/s/DENNIS MILLSDennis Mills           |  | Director                                                                           |  | March 14, 2005

127

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|/s/GINO RONCELLIGino Roncelli   |  | Director              |  | March 14, 2005
|------------------------------- |  | --------------------- |  | --------------
|/s/FRANK STRONACHFrank Stronach |  | Chairman and Director |  | March 14, 2005

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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 10-Q filed on May 10, 2004).                                                                                                                                                                             
|4.1         |  | Form of Stock Certificate for Class A Subordinate Voting Stock (incorporated by reference to exhibit 4 of the registrant's Registration Statement on Form S-1 originally filed on January 14, 2000
(File number 333-94791).                                                                                                                     
|4.2         |  | Indenture dated as of December 2, 2002, between Magna Entertainment Corp. and The Bank of New York, as trustee, including the form of 71/4% Convertible Subordinated Notes due
December 15, 2009. (incorporated 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)). 

129

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|10.5  |  | 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)).                                                                                                                                                           
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6  |  | 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).                                                                                                                                                                                                                                                      
|10.7  |  | Employment Agreement between the Company and 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).                                                                                                                                                                                                                               
|10.8  |  | 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).                                                                                                                                     
|10.9  |  | 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).                                                                                                                                     
|10.10 |  | 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).                                                                                                                                      
|10.11 |  | 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).                                                                                                                                                                                          
|10.12 |  | 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).                                                                                                                            
|10.13 |  | 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).                                                                                                                                 
|10.14 |  | 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)).                                                                                                                                                                                               
|10.15 |  | 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).
|10.16 |  | 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).                                                                                                                                                                        

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|10.17 |  | 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).                                                                                                                                                                                                                           
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 |  | 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).
|10.19 |  | 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).                                                                                                                              
|10.20 |  | Amended and Restated Credit Agreement between the Company and the Bank of Montreal, et al, dated as of October 10, 2003. (incorporated by reference to exhibit 10.25 to the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2003).                                                                                                                                                                                                                                  
|10.21 |  | 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).                                                                                                                                                                                                                                                   
|10.22 |  | Employment Agreement between the Company and Blake Tohana dated July 1, 2003 (incorporated by reference to exhibit 10.29 to the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003).                                                                                                                                                                                                                                                                              
|10.23 |  | 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).                                                                                                                                                                                                                                                           
|10.24 |  | 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).                                                                                                                                                                                                                                              
|10.25 |  | 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).                                                                                                                                                                                                                                                   
|10.26 |  | 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).                                                                                                                                                                                                                                                                    
|10.27 |  | Loan Agreement dated March 5, 2004 between MEC Grundstucksentwicklungs GmbH and Raiffeisenlandesbank Niederosterreich-Wien AG in the amount of Euro 15,000,000 (incorporated by reference to Exhibit 10.1
to the registrant's Form 10-Q for the Quarter ended March 31, 2004).                                                                                                                                                                                                                     
|10.28 |  | First Amending Agreement to the Amended and Restated Credit Agreement, dated as of June 2, 2003, between the registrant and the Bank of Montreal, et al, dated as of June 8, 2004 (incorporated by reference
to exhibit 10.2 to the registrant's Form 10-Q for the Quarter ended June 30, 2004).                                                                                                                                                                                                   

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|10.29              |  | Term Loan Credit Agreement dated as of October 8, 2004 between Wells Fargo Bank, National Association and The Santa Anita Companies, Inc. (incorporated by reference to exhibit 10.1 to the registrant's
Report on Form 8-K filed on October 14, 2004).                                                                                      
|------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.30              |  | Second Amending Agreement to the Amended and Restated Credit Agreement, dated as of June 2, 2003, between the registrant and the Bank of Montreal, et al, made as of October 14, 2004 (incorporated by
reference to exhibit 10.1 to the registrant's Report on Form 8-K filed on October 20, 2004).                                          
|10.31              |  | Third Amending Agreement to the Amended and Restated Credit Agreement, dated as of June 2, 2003, between the registrant and the Bank of Montreal, et al, made as of December 7, 2004.*                                                                                                                                                       
|10.32              |  | Fourth Amending Agreement to the Amended and Restated Credit Agreement, dated as of June 2, 2003, between the registrant and the Bank of Montreal, et al, made as of February 18, 2005.*                                                                                                                                                     
|10.33              |  | Magna Golf Club Preferred Access Agreement dated November 1, 2004 between MEC Holdings (Canada) Inc. and Magna International Inc.*                                                                                                                                                                                                           
|10.34              |  | Preferred Access Agreement made November 1, 2004, between Magna International Europe AG and Fontana Beteiligungs AG.*                                                                                                                                                                                                                        
|10.35              |  | Construction Loan Term Sheet with MI Developments Inc. for Gulfstream Park and The Meadows dated December 9, 2004 (incorporated by reference to the registrant's Report on Form 8-K filed on December 9,
2004).                                                                                                                              
|10.36              |  | Loan Agreement dated December 9, 2004 among Gulfstream Park Racing Association, Inc., MID Islandi SF, MEC Pennsylvania Racing, Inc., Washington Trotting Association, Inc. and Mountain Laurel Racing,
 Inc. (The ancillary agreements referenced in this agreement have been omitted but will be furnished to the Commission upon request.)*
|10.37              |  | Offer for Purchase of Receivables dated December 30, 2004 between Fontana Beteiligungs AG and Magna International Europe AG to Bank Austria Creditanstalt AG*                                                                                                                                                                                
|10.38              |  | Offer for Purchase of Receivables dated February 17, 2005 between MEC Holdings (Canada) Inc. and Magna International Inc. to Bank Austria Creditanstalt AG*                                                                                                                                                                                  
|12                 |  | Statement re: Computation of Earnings to Fixed Charges*                                                                                                                                                                                                                                                                                      
|14                 |  | Code of Business Conduct*                                                                                                                                                                                                                                                                                                                    
|21                 |  | Subsidiaries of the Registrant*                                                                                                                                                                                                                                                                                                              
|23                 |  | Consent of Ernst & Young LLP*                                                                                                                                                                                                                                                                                                                
|24                 |  | Power of Attorney*                                                                                                                                                                                                                                                                                                                           
|31.1               |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.*                                                                                                                                                                                                          
|31.2               |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.*                                                                                                                                                                                                          
|32.1               |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                 
|32.2               |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                 
|                   |  |                                                                                                                                                                                                                                                                                                                                              
|                   |  |                                                                                                                                                                                                                                                                                                                                              
|*  Filed herewith.

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