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, 2005.
|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 No.)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

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

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

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

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

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



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As of June 30, 2005, the aggregate market value of the Class A Subordinate Voting Stock held by non-affiliates of the registrant was approximately $213,718,093 (based on the
closing sale price of $5.64 per share of Class A Subordinate Voting Stock reported on The Nasdaq National Market on June 30, 2005, the last day of the registrant's most recently
completed second quarter). As of June 30, 2005, non-affiliates held no shares of Class B Stock. There is no active market for such stock.

The
number of shares of Class A Subordinate Voting Stock of the registrant outstanding as of March 8, 2006 was 48,921,259.

The
number of shares of Class B Stock of the registrant outstanding as of March 8, 2006 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, 2005 are incorporated by reference in Part II, Item 5 and Part III of
this Annual Report to the extent stated herein. Except with respect to information specifically incorporated by reference in this Annual Report, the documents incorporated by reference are not deemed
to be filed as part hereof.

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INDEX

|                                                                                                                     |  | Page
|-------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I                                                                                                               |  |     
|Item 1. Business                                                                                                     |  | 4   
|Item 1A. Risk Factors                                                                                                |  | 36  
|Item 1B. Unresolved Staff Comments                                                                                   |  | 52  
|Item 2. Properties                                                                                                   |  | 52  
|Item 3. Legal Proceedings                                                                                            |  | 52  
|Item 4. Submission of Matters to a Vote of Security Holders                                                          |  | 52  
|PART II                                                                                                              |  |     
|Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 53  
|Item 6. Selected Financial Data                                                                                      |  | 54  
|Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 56  
|Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                                  |  | 87  
|Item 8. Financial Statements and Supplementary Data                                                                  |  | 88  
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 129 
|Item 9A. Controls and Procedures                                                                                     |  | 129 
|Item 9B. Other Information                                                                                           |  |     
|PART III                                                                                                             |  |     
|Item 10. Directors and Executive Officers of the Registrant                                                          |  | 129 
|Item 11. Executive Compensation                                                                                      |  | 129 
|Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              |  | 130 
|Item 13. Certain Relationships and Related Transactions                                                              |  | 130 
|Item 14. Principal Accountant Fees and Services                                                                      |  | 130 
|PART IV                                                                                                              |  |     
|Item 15. Exhibits and Financial Statement Schedules                                                                  |  | 130 
|SIGNATURES                                                                                                           |  | 131 
|EXHIBIT INDEX                                                                                                        |  |     

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Part I
Item 1. Business

Available Information

We file 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 we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information on the hours of operation of
the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC.

We
maintain a website that contains information about us, none of which is incorporated by reference in, or shall be deemed included in, this Annual Report. It is accessible at www.magnaentertainment.com.
Through our website, stockholders and the general public may access free of charge (other than any connection charges from
internet service providers) filings we make 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. Any reference to our website is an inactive textual reference
only.

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

Special Note Regarding Forward-Looking Information

This Annual Report, including "Management's Discussion and Analysis of Results of Financial Condition and Results of Operations" 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 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 redevelopment projects, transactions or other objectives will be achieved; estimates
of costs relating to environmental remediation and restoration; proposed new racetracks or other developments, products and services; expectations as to the timing and receipt of government approvals
and regulatory changes in gaming and other racing laws and regulations; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements,
or other matters will not have a material adverse effect on our consolidated financial position, operating results, prospects or liquidity; projections, predictions, expectations, estimates, beliefs
or forecasts as to our financial and operating results and future economic performance; and other matters that are not historical facts.

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

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

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Forward-looking
statements speak only as of the date the statements were 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 and Ebreichsdorf, Austria. Based on
revenues, we are North America's number one owner and operator of horse racetracks and 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. We currently operate or manage eleven thoroughbred racetracks, one standardbred (harness racing) racetrack and one racetrack that runs both
thoroughbred and standardbred meets, as well as the simulcast wagering venues at these tracks. In October 2005, we completed the sale of our interest in Flamboro Downs, a standardbred racetrack
in Ontario, Canada, and in September 2005, we completed the sale of our interest in the Maryland-Virginia Racing Circuit, Inc. ("MVRC"), which managed the operations of Colonial Downs, a
thoroughbred and standardbred racetrack. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations  Recent Developments
and Initiatives". On December 31, 2004, we ceased operations at Bay Meadows, near San Francisco, and Multnomah Greyhound Park, in Oregon, as these were operations in leased facilities and the
leases 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"). HRTV is currently distributed to more than 12 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 distribute 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. ("AmTote"), a provider of totalisator services to the
pari-mutuel industry. To support certain of our thoroughbred racetracks, we own and operate thoroughbred training centers situated near San Diego, California, in Palm Beach County, Florida
and in the Baltimore, Maryland area. We also own and operate production facilities in Austria and in North Carolina for StreuFex, a straw-based horse bedding product.

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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, South America, the Caribbean, the United Kingdom, Ireland, Germany and Austria. We intend to expand the distribution of this content in these
markets and, to the extent permitted by various regulatory regimes, in additional markets, particularly emerging electronic media-based markets, such as wagering via interactive television and the
Internet.

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 our newest racetrack, Magna Racino, which we built
near Vienna, Austria. 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).

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. In November 2005, we announced that we had entered into an agreement to sell our residential development
property in the United States and the proposed sale was subject to the completion of due diligence by the purchaser by February 28, 2006 and a closing by March 30, 2006. The
agreement was amended on February 27, 2006 extending the due diligence completion date to March 15, 2006. On March 15, 2006 we further amended the agreement by extending the due
diligence completion date to April 3, 2006 and the closing date to April 28, 2006. 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 Limited Liability Company Agreement with
Forest City Enterprises, Inc. concerning the proposed development of "The Village at Gulfstream Park", a mixed-use retail, entertainment and residential project on a
portion of the Gulfstream Park Property. Please see "Our Properties  Gulfstream Park" below. While we are exploring the development of some of our real estate,
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, 2005) and may also sell our residential
developments and certain other real estate in order to generate additional capital for our racing business. See "Our Real Estate Portfolio" below.

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. 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. In
December 2005, The Meadows filed a Conditional/Category 1 gaming license application with the Pennsylvania Gaming Control Board. In addition, alternative gaming legislation has passed in
Florida and an initiative is currently underway to implement legislation governing slot machine operations at certain pari-mutuel facilities in Broward County, Florida. 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 and the authorization of slot machines in the county was approved. On December 8, 2005, legislation authorizing the operation of slot
machines within existing, licensed Broward County, Florida pari-mutel facilities that have conducted live racing or games during each of 2002 and 2003 was passed by the Florida
Legislature. On January 4, 2006, the Governor of Florida signed the legislation into law. The Division of Pari-mutuel Wagering will oversee the conduct of slot machine operations and will be
required to develop the governing rules and regulations by July 2006, failing which the facilities will be entitled to operate pursuant to temporary licenses. We are working closely with State
and Division officials and with Gulfstream Park's horsemen and breeders to pursue the remaining steps to implementation of slot machine gaming at Gulfstream Park and, provided that we are able to
obtain adequate funding and are able to reach agreements with the horsemen and breeders, we expect to be operational by the summer of 2006. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations  Recent Developments and Initiatives". Under new legislation which was approved by the citizens of the State of
Oklahoma in a referendum held on November 2, 2004, Remington Park is permitted to operate electronic gaming machines. In November 2005, we opened a gaming facility with
650 electronic gaming machines, the current maximum permitted by the legislation at Remington Park. See "Government Regulation  Alternative
Gaming  Oklahoma" below.

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In
July 2005 we announced that as part of our strategic plan, our Board of Directors approved a Recapitalization Plan which is intended to recapitalize our balance sheet over the
following 12 months through the sale of certain non-strategic assets, with proceeds realized from those asset sales being applied to reduce debt. Please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations  Recent Developments and Initiatives".

In
November 2005, we entered into a share purchase agreement with PA Meadows, LLC, a company jointly owned by William Paulos and William Wortman, controlling shareholders of
Millennium Gaming, Inc., and a fund managed by Oaktree Capital Management, LLC ("Oaktree" and together, with PA Meadows, LLC, "Millennium-Oaktree"), providing for the acquisition
by Millennium-Oaktree of all of the outstanding shares of Washington Trotting Association, Inc. ("WTA"), Mountain Laurel Racing, Inc. ("MLR") and MEC Pennsylvania Racing, Inc.
("PAR"), each wholly-owned subsidiaries of ours. WTA, MLR and PAR are the entities through which we currently own and operate The Meadows (the "Meadows Entities"). The sale is scheduled to
close following receipt of approval from the Pennsylvania Harness Racing Commission, receipt by WTA of a Conditional/Category 1 slot license pursuant to the Pennsylvania Race Horse Development
and Gaming Act, and certain other customary closing conditions. Under the terms of the share purchase agreement, Millennium-Oaktree will pay us $225 million, subject to a $39 million
holdback, and we will continue to manage racing operations at The Meadows on behalf of Millenium-Oaktree pursuant to a minimum 5-year racing services agreement.

In
February 2006, we announced the formation of PariMax, Inc. ("PariMax"), a new company to oversee the development of our various electronic distribution platforms,
including XpressBet®, HRTV, MagnaBet, RaceONTV and our 30% stake in AmTote. See "PariMax" below.

In
March 2006, we announced that our Board of Directors initiated a search for a new chief executive officer. Tom Hodgson, our current President and CEO, joined us in early 2005 to
develop and implement our Recapitalization Plan. Under his leadership, the Recapitalization Plan was substantially completed. A search will be conducted by our Corporate Governance and Compensation
Committee, in conjunction with an executive search firm, to find a new CEO with in-depth knowledge and experience in the horseracing and gaming industry. Mr. Hodgson will leave his positions
with us and step down from our Board of Directors at the end of March, at which time Frank Stronach, our Chairman, will assume the role of Interim Chief Executive Officer.

Please
see our financial statements beginning on page 88 for financial information concerning our business and segments, including a geographic breakdown of revenues and information
concerning long-lived assets.

Our Strategy

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

Further Developing Our In-Home Simulcasting and Wagering Services

In order to advance efforts to increase our overall customer base we recently formed PariMax. PariMax business units aggregate content from both MEC and
non-MEC racetracks, creating economies of scale as we repackage and deliver this content in compelling formats to various customer segments. We believe this approach can enable us to
cost-effectively present live horse racing action to an increasing number of locations for an increasing number of hours per week, thus growing our reach to new customers and growing
frequency among existing customers. This growth would benefit PariMax, MEC-owned tracks, and non-MEC tracks, which elect to utilize PariMax services. For the domestic,
in-home wagering market, these services include XpressBet®, which offers account wagering on over 100 North American racetracks via the Internet and by telephone.
XpressBet® is complemented by HorseRacing TV, our specialty television network focused on horse racing. HRTV is distributed to more than 12 million cable
and satellite television subscribers and enables fans to watch live racing content from all over the United States, as well as Australia, Hong Kong and Great Britain. We believe that broad
television distribution will help increase future interest in horse racing and attract additional wagering customers. At present, HorseRacing TV is carried on cable in 18 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.

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

Entering New Markets

PariMax will oversee the development of new markets for MEC around the world. We currently distribute our content to inter-track and off-track venues
in the United States, Canada, Mexico, South America, the Caribbean, the United Kingdom, Ireland, Germany and Austria. Most of our international expansion in 2005 was driven by
organizations now under PariMax oversight. MagnaBet entered a partnership in Europe with leading German-language sports broadcaster Premiere. This led to the introduction of PremiereWin,
a horse racing focused television channel featuring U.S. racing content in the evening hours. In support of the PremiereWin broadcast, MagnaBet developed two web sites, Race Is On
and Pferde Profi, which delivered MagnaBet's account wagering services to the target audience of PremiereWin television viewers in Germany and Austria. These platforms generated
significant revenue growth for MagnaBet in 2005. RaceONTV continued to offer a North American racing-driven, simulcast distribution service to customers in Austria, Germany
and Peru during 2005.

Our
international strategy in 2005 was particularly focused on the British market, and that focus led to several recent developments. For the in-home market, in
January 2006, we entered into a memorandum of understanding with CDI and Racing UK, a media rights company and subscription television channel owned by thirty-one leading British
racecourses, to develop a new subscription television channel called "Racing World" to broadcast our racing content and CDI racing content, as well as content from other North American and
international racetracks, into the United Kingdom and Ireland. Additionally, Racing World will be the exclusive distributor of MEC and CDI wagering rights to the in-home market, and
will also aggregate other U.S. tracks for distribution. To aid in its penetration of the competitive British home wagering market, our subsidiary XpressBet, Inc. has joined with The
Betting Site Limited, a joint venture between Racing UK and The Racing Post, to provide its wagering services through a newly developed integrated betting interface appearing on The Betting Site
(www.thebettingsite.co.uk). This new service launched in March 2006 when Racing World launched on the Sky platform in the U.K. and Ireland.

In
the more traditional, licensed betting office market, RaceONTV has launched a service with Ladbrokes which provides U.S. horse racing to the new Ladbrokes Xtra
service in Britain and Ireland. Ladbrokes Xtra currently serves several hundred Ladbrokes shops, and we expect it to roll out to all of Ladbrokes over 2000 licensed betting offices over the course of
2006. We believe the British and Irish markets have great potential for evening distribution of U.S. product, and our strategy is to continue to explore partnerships that allow us to
strategically and cost-effectively deploy in these markets. We also believe that, subject to applicable regulation, significant opportunities exist to expand the distribution of our
content through the further development of our international distribution network.

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

In order to increase our customer base, we intend to improve the quality of the entertainment experience at our racetracks by offering a variety of experiences
with horse racing as the feature attraction. In pursuit of this strategy, we have begun and intend to continue to redevelop and modernize various of our facilities. In 2004, we commenced the
redevelopment of Gulfstream Park, located just outside Miami, Florida. This redevelopment has included the construction of new wider and longer racing surfaces, which allows Gulfstream Park to run a
longer live racing season and offer larger field sizes as well as a new grandstand/entertainment facility, each of which we expect to result in greater attendance and handle. In January 2006,
the new Gulfstream Park opened for the 2006 winter meet. The redeveloped Gulfstream Park offers customers a number of different dining options and, when fully completed, will improve the quality of
the entertainment experience.

Employing "Best Practice" Improvements at our Racetracks

Through our acquisitions, we own some of the largest and what we believe to be some of the highest-quality thoroughbred racetracks in North America, as measured
in terms of total handle, average daily attendance and average daily wagering, both on and off-track. We believe that the increased scale and integration of our racetrack operations and
related wagering operations will afford us the opportunity to both grow our revenues and achieve significant operational synergies through the implementation of best practices, cost reductions
realized from economies of scale and increased efficiencies. We intend to improve the quality of the live racing experience for our customers and horsemen by upgrading and expanding our physical
facilities, technology and business processes in order to attract more customers and the best available horses, trainers and jockeys.

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

In order to broaden our market appeal and thereby increase attendance and revenues, we intend to pursue alternative gaming opportunities, where available.
Alternative gaming legislation that authorizes slot machines, video lottery terminals (VLTs) or electronic gaming at certain designated locations has been approved in Oklahoma, where our racetrack
Remington Park is located, in Pennsylvania, where our racetrack The Meadows is located and Broward County, Florida, where our Gulfstream Park racetrack is located. Under new legislation which was
approved by the citizens of the State of Oklahoma in a referendum held on November 2, 2004, Remington Park is permitted to operate electronic gaming machines. We have obtained the licenses and
built the necessary facilities to operate electronic gaming at Remington Park and in November 2005, we opened a gaming facility with 650 electronic gaming machines, the current maximum
permitted by the legislation at Remington Park. See "Government Regulation  Alternative Gaming  Oklahoma" below.

The
Meadows, in Pennsylvania, is subject to a share purchase agreement providing for the acquisition by PA Meadows, LLC, a company jointly owned by William Paulos and William
Wortman, controlling shareholders of Millennium Gaming, Inc., and a fund managed by Oaktree Capital Management, LLC ("Oaktree" and together, with PA Meadows, LLC,
"Millennium-Oaktree") of all of the outstanding shares of certain wholly-owned subsidiaries through which we currently own and operate The Meadows (see "Our
Content  The Meadows"). License applications have been submitted and discussions are ongoing with the purchasers with respect to a construction program for The
Meadows slot machines.

In
Florida, we intend to apply for a slot machine operator license and complete construction to allow for slot machine operations as soon as possible in anticipation of operating
1,500 slot machines at Gulfstream Park in the second half of 2006. Alternative gaming legislation is also being seriously considered in other states in which we operate pari-mutuel
facilities and if such legislation is approved, we would expect to apply for the applicable licenses and build the necessary facilities as soon as practicable.

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Developing Our Significant Real Estate Assets

We have a significant portfolio of high quality real estate located in densely populated urban markets. Included in this real estate portfolio is land adjacent to
several of our racetracks, Santa Anita Park, Gulfstream Park, Golden Gate Fields, Lone Star Park at Grand Prairie, Laurel Park and Magna Racino. We are considering a variety of options
with respect to this land, including entertainment and retail-based developments that could be undertaken in conjunction with business partners who could be expected to provide the necessary marketing
and development expertise, as well as the necessary financing. In pursuit of this strategy, we have entered into a Limited Liability Company Agreement with Forest City Enterprises, Inc.
concerning the proposed development of a combined retail and entertainment development called "The Village at Gulfstream Park" featuring the Gulfstream Park race
track 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.

Intellectual Property Management

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

Our History

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

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

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

As
of March 8, 2006, MI Developments Inc. owns, directly or indirectly, all of our outstanding Class B Stock and 4,362,328 shares of our Class A
Subordinate Voting Stock. As a result, MI Developments Inc. is able to exercise approximately 96% of the total voting power attached to all of our outstanding stock, and therefore is able to
elect all our directors and to control us. Each company has its own board of directors and management team, although we share the same Chairman and Vice-Chairman. In addition, our Board of
Directors has established a committee of independent directors to whom they have delegated the responsibility of reviewing any proposed related party transactions, including any proposed transactions
between us and MI Developments Inc. or between us and our original parent company, Magna International Inc. Sales or a spin-off or other distribution of our stock by MI
Development Inc. or by certain of our other significant stockholders under our registration statements could depress our stock price. See "Risk
Factors  Risks Relating to Our Securities".

Overview of the Horse Racing Industry

Pari-Mutuel Wagering

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

Recent History

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

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

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

The Growth in Off-track and Inter-track Wagering

Pari-mutuel wagering on thoroughbred horse racing in the United States increased from $10.4 billion in 1995 to $15.2 billion in
2003, before receding to $14.6 billion in 2005, according to The Jockey Club. This increase from 1995 resulted primarily from the growth of off-track and inter-track wagering, which
has grown by approximately 47% from $8.7 billion in 1996 to $12.8 billion in 2005. The decrease during the last two years results primarily from an increase in the number of wagering
options available to the general public, including lotteries, casinos and poker. This increased competition is both from on-line options and more traditional bricks and mortar
establishments. Simulcasting live racing events to off-track and inter-track venues has been facilitated by technological advances and the introduction of legislative changes.

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

|                 |  | 1995 |        | 1996 |   | 1997   |  | 1998 |        | 1999 |   | 2000   |  | 2001 |        | 2002 |   | 2003   |  | 2004 |        | 2005
|---------------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ----
|Total Handle     |  | $    | 10.429 |      | $ | 11.627 |  | $    | 12.542 |      | $ | 13.115 |  | $    | 13.724 |      | $ | 14.321 |  | $    | 14.550 |     
|On-Track Handle  |  |      | *      |      | $ | 2.944  |  | $    | 2.703  |      | $ | 2.498  |  | $    | 2.359  |      | $ | 2.270  |  | $    | 2.112  |     
|Off-Track Handle |  |      | *      |      | $ | 8.683  |  | $    | 9.839  |      | $ | 10.617 |  | $    | 11.365 |      | $ | 12.051 |  | $    | 12.438 |     

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

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

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

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, Great Lakes Downs is in Muskegon, Michigan, and Portland Meadows is near Portland, Oregon. Maroñas, a racetrack to which we provide
management services, is in Montevideo, Uruguay. Our newest racetrack, Magna Racino, is located near Vienna, Austria.

2006 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, 2005 - April 23, 2006 and September 27, 2006 - October 29, 2006
|Gulfstream Park                 |  | January 4, 2006 - April 23, 2006                                            
|Golden Gate Fields              |  | February 8, 2006 - May 7, 2006, August 24, 2006 - October 15, 2006          
|Laurel Park                     |  | December 26, 2005 - April 15, 2006, September 8, 2006 - December 31, 2006   
|Lone Star Park at Grand Prairie |  | April 13, 2006 - July 23, 2006 and October 6, 2006 - December 2, 2006       
|Pimlico Race Course             |  | April 22, 2006 - June 10, 2006                                              
|The Meadows                     |  | January 3, 2006 - December 30, 2006                                         
|Thistledown                     |  | April 14, 2006 - November 27, 2006                                          
|Remington Park                  |  | March 10, 2006 - June 4, 2006 and August 4, 2006 - November 28, 2006        
|Portland Meadows                |  | January 1, 2006 - May 7, 2006 and October 22, 2006 - December 31, 2006      
|Great Lakes Downs               |  | May 6, 2006 - October 31, 2006                                              
|Magna Racino                   |  | March 12, 2006 - December 3, 2006                                           

Our Properties

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

Santa Anita Park

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

Santa
Anita Park opened for thoroughbred horse racing in 1934 and hosts The Santa Anita Meet. The Santa Anita Meet generally commences on December 26 and runs until the end of
April each year. In addition, we lease Santa Anita Park to The Oak Tree Racing Association, which is an unaffiliated not-for-profit California association that holds a license
to host The Oak Tree Meet for five to six weeks each fall. Pursuant to this lease, we receive rent that consists primarily of a percentage of the on-track handle wagered on races run at
Santa Anita Park and a percentage of The Oak Tree Racing Association net commissions from fees earned on racing content, exported from or imported to Santa Anita Park. Santa Anita Park was the site of
the Breeders' Cup World Thoroughbred Championships in 2003 during The Oak Tree Meet. Santa Anita Park has one of the longest racing schedules of the top North American racetracks,
totaling approximately 110 to 116 racing days each year (including The Oak Tree Meet). Average daily attendance in 2005 was approximately 8,200 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 2005, approximately $1.250 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 $846.7 million in 2005. Of this amount, approximately $694.6 million in wagers
were placed at other wagering venues to which we exported Santa Anita Park's races via simulcast and through various account wagering operations. Santa Anita Park exports its simulcast signal to
approximately 1,000 off-track and inter-track wagering facilities in 23 countries. Throughout the year, Santa Anita Park operates as an inter-track wagering facility where
customers can wager on races that are imported to Santa Anita Park from other racetracks.

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

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

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  Recent 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.

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

The
redevelopment of Gulfstream Park, which commenced in 2004, continued through 2005. As a result of the redevelopment, the 2005 Gulfstream meet was run from temporary facilities and
therefore, 2005 attendance and on-track handle decreased compared to previous years. In the fourth quarter of 2004, significant modifications and enhancements to Gulfstream Park's racing
surfaces were completed and a new dirt and turf racetrack, featuring a 11/8-mile main track and one-mile turf course were opened. The project also includes the
construction of a modern clubhouse/grandstand offering an array of restaurants and entertainment facilities. Gulfstream Park opened for its 2006 live race meet on January 4, 2006. Racing and
patron areas were sufficiently complete to open the meet. Construction is ongoing and best efforts are being made to complete the facility as soon as possible and minimize interference with the 2006
live race meet. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations  Recent Developments and Initiatives".

Gulfstream
Park had total handle during 2005 of approximately $797.4 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 $670.7 million in 2005. Of this amount, approximately $615.3 million in wagers were placed at other wagering venues to which we exported Gulfstream Park's signal and
through various account wagering operations.

In
May 2005, we entered into a Limited Liability Company Agreement with Forest City concerning the planned development of The Village at Gulfstream Park. The proposed
first phase of The Village at Gulfstream Park is an innovative integration of a state-of-the-art lifestyle shopping and entertainment environment with
Gulfstream Park that is expected to incorporate approximately 400,000 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 Limited Liability Company
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  Recent Developments and Initiatives".

On
December 8, 2005, legislation authorizing the operation of slot machines within existing, licensed Broward County, Florida pari-mutel facilities that have conducted
live racing or games during each of 2002 and 2003 was passed by the Florida Legislature. On January 4, 2006, the Governor of Florida signed the legislation into law. The Division of Pari-mutuel
Wagering will oversee the conduct of slot machine operations and will be required to develop the governing rules and regulations by July 2006, failing which the facilities will be entitled to
operate pursuant to temporary licenses. We are working closely with State and Division officials and with Gulfstream Park's horsemen and breeders to pursue the remaining steps to implementation of
slot machine gaming at Gulfstream Park and, provided that we are able to obtain adequate funding and are able to reach agreements with the horsemen and breeders, we expect to have slot machines
operating during 2006. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations  Recent Developments
and Initiatives".

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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" below).

Golden
Gate Fields' racing season lasts for approximately 105 racing days. The season is split throughout the year and has varied for the last few years. Due to the change of
dates in 2005, we only ran 96 days in 2005. Average daily attendance in 2005 was approximately 2,400 customers per live racing day.

Golden
Gate Fields had total handle during 2005 of approximately $457.6 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 $257.2 million in 2005. Of this
amount, approximately $231.6 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.

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  Recent 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. 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 2005 was 135 days compared to 58 racing days in 2004. There were less live racing dates in 2004 due to the redevelopment of Laurel Park's
racing surfaces. Live thoroughbred racing is generally conducted at Laurel Park from September to mid-April, when Pimlico opens for its spring meet. Average daily attendance at Laurel Park
in 2005 was approximately 3,300 customers per live racing day.

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Laurel
Park's handle was approximately $441.8 million in 2005, 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 $295.4 million in 2005. Of this amount,
approximately $271.6 million in wagers were placed at other wagering venues to which we exported Laurel Park's signal via simulcast and through various account wagering operations.

Laurel
Park's facilities include a grandstand with seating for approximately 5,200 customers, a new 11/8-mile dirt track with a seven and one
half-furlong chute which opened in January 2005, and a new 7/8-mile turf course which opened in September 2005. Laurel Park has stalls for
approximately 1,000 horses and parking facilities sufficient to accommodate approximately 8,000 cars.

Lone Star Park at Grand Prairie

On October 23, 2002, we acquired Lone Star Park at Grand Prairie ("Lone Star Park"), which operates thoroughbred and American quarter horse meets and is
located on approximately 285 acres of land in the City of Grand Prairie, Texas, approximately 12 miles west of Dallas. There are approximately 5.1 million people living within a
40-mile radius of Lone Star Park.

Lone
Star Park is one of the newest horse racing facilities in the United States, having opened for live thoroughbred and quarter horse racing in 1997. Lone Star Park's
thoroughbred meet generally commences each year in early April and continues through mid-July. Its quarter horse meet generally commences each year in early October and continues through
November. Average daily attendance during the 2005 spring thoroughbred meet was approximately 7,000 customers per live race day and 3,200 customers during the fall quarter horse meet. In
addition to its live racing facilities, Lone Star Park contains a state-of-the-art 36,000 square foot simulcast pavilion, which operates
year-round.

Lone
Star Park had total handle during 2005 of approximately $333.5 million, which includes wagers made at Lone Star Park on its races, wagers made on Lone Star Park races at
other wagering venues and through various account wagering operations, and wagers made at Lone Star Park on races imported to its inter-track facility. Wagers on Lone Star Park's races totaled
approximately $165.5 million in 2005. Of this amount, approximately $129.5 million in wagers were placed at other wagering venues to which we exported Lone Star Park's signal and through
various account wagering operations.

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

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

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

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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 20, 2006, will mark the 131st 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 60 racing days in a Spring meet, between early April and mid-June. Historically, after its Summer
meet, racing would resume at Laurel Park in September and run through December. The Spring meet features 10 graded stakes races, including the middle jewel of thoroughbred racing's Triple
Crown, the Preakness Stakes®, which is run annually on the third Saturday in May. Average daily attendance in 2005 was approximately 3,500 customers per live racing day.

Pimlico's
handle was approximately $305.2 million in 2005, 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 $203.8 million in 2005. Of this amount, approximately
$188.4 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 $247.9 million in handle in 2005, 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 $110.1 million in 2005. Of this amount, approximately
$103.8 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.

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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. The Meadows filed a Conditional/Category 1 gaming license application with the Pennsylvania Gaming
Control Board in December 2005.

In
November 2005, we entered into a share purchase agreement with PA Meadows, LLC, a company jointly owned by William Paulos and William Wortman, controlling shareholders
of Millennium Gaming, Inc., and a fund managed by Oaktree Capital Management, LLC ("Oaktree" and together, with PA Meadows, LLC, "Millennium-Oaktree"), providing for the
acquisition by Millennium-Oaktree of all of the outstanding shares of Washington Trotting Association, Inc. ("WTA"), Mountain Laurel Racing, Inc. ("MLR") and MEC Pennsylvania
Racing, Inc. ("PAR"), each wholly-owned subsidiaries of ours. WTA, MLR and PAR are the entities through which we currently own and operate The Meadows (the "Meadows Entities"). The sale
is scheduled to close following receipt of approval from the Pennsylvania Harness Racing Commission, receipt by WTA of a Conditional/Category 1 slot license pursuant to the Pennsylvania Race
Horse Development and Gaming Act, and certain other customary closing conditions. Under the terms of the share purchase agreement, Millennium-Oaktree will pay us $225 million, subject to a
hold-back amount of $39 million, and we will continue to manage racing operations at The Meadows on behalf of Millennium-Oaktree pursuant to a minimum 5-year racing
services agreement.

Thistledown

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

Thistledown
has one of the longest racing seasons of all North American thoroughbred racetracks, consisting of approximately 185 racing days between April and November.
Thistledown hosts the Summit, Thistledown, Randall and Cranwood meets. Annually, Thistledown hosts the Ohio Derby, which is the premier graded stakes race in Ohio.

Thistledown's
handle was approximately $234.0 million in 2005, 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 $143.2 million in 2005. Of this amount, approximately $121.4 million in wagers were placed at other wagering venues to which we exported Thistledown's races
via simulcast and through various account wagering operations. Thistledown exports its simulcast signal to as many as 700 off-track and inter-track wagering facilities in the
United States. Throughout the year, Thistledown operates as an inter-track wagering facility where customers can wager on races that are imported to Thistledown from other racetracks.

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

Remington Park

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

In
2005, the racing schedule consisted of two meets totaling 98 days of live racing days, which included a 32 day quarter horse meet from mid-March through
early June and a 66 day thoroughbred meet from early August through the end of November 2005. In 2006, Remington Park has been approved for 118 days of live racing, consisting of
50 days of quarter horse racing from mid-March through early June and a 68 day thoroughbred meet from early August through late November.

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Remington
Park's handle was approximately $106.5 million in 2005, 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 $48.1 million in 2005. Of this amount, approximately $41.1 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 500 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, Remington Park is permitted to operate electronic
gaming machines. In November 2005, we opened a gaming facility with 650 electronic gaming machines, the current maximum amount permitted by the legislation at Remington Park. See
"Government Regulation  Alternative Gaming  Oklahoma" below. During 2005, the machines generated an average daily net win
per unit of $225. Under the terms of the legislation, gaming operations at the racetrack are permitted for up to 18 hours per day, not to exceed 106 hours per week. The distribution of
revenues from the racetrack's electronic gaming operations will vary based on the annual gross revenues of the racetrack from gaming less all monetary payouts ("Adjusted Gross Revenues"). The
legislation allocates between 10% and 30% of the Adjusted Gross Revenues to the State, primarily for the funding of education, between 20% and 30% for the benefit of the horsemen and the remaining 50%
to 60% to the racetrack, out of which the racetrack operator will pay its capital and operating costs. Remington Park may be eligible for an additional 50 machines in each of 2008 and 2010. It
is anticipated that the gaming facility will significantly improve Remington Park's operating results and contribute to the horse racing industry through increased purses.

Portland Meadows

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

Portland
Meadows generated approximately $68.9 million in handle during the 2005 calendar year, including wagers made at Portland Meadows on its races, wagers made at other
wagering venues and through various account wagering operations on Portland Meadows' races and wagers on imported races at Portland Meadows and 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 $18.1 million in 2005. Of this amount, approximately
$15.9 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. Throughout the year, Portland Meadows operates as a simulcast
wagering facility where customers can wager on races that are imported to Portland Meadows from other racetracks.

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

Great Lakes Downs

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

Great
Lakes Downs, which commenced operations in January 1999, offers approximately 100 live racing days beginning in May and ending in early November of each year.

Great
Lakes Downs' handle was approximately $62.6 million in 2005, 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 $50.8 million in 2005. Of this amount, approximately $48.2 million in wagers were placed at other wagering venues to which we exported Great Lakes Downs'
races via simulcast and through various account wagering operations. Great Lakes Downs exports its simulcast signal to approximately 250 off-track and inter-track wagering
facilities in the United States. Throughout the year, Great Lakes Downs operates as an inter-track wagering facility where customers can wager on races that are imported to Great Lakes Downs
from other racetracks.

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

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. On May 17, 2005, the Michigan Office of Racing Commission granted us the license for the
Romulus track.

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Magna Racino

Our newest racetrack, Magna Racino opened on April 4, 2004 and is situated on approximately 650 acres in Ebreichsdorf, just outside
Vienna, Austria. There are approximately 2.5 million people living within a 30-mile radius of Magna Racino. During 2005, Magna Racino was visited by over
130,000 guests and held a meet consisting of 45 live racing days between mid-March and late November. In 2006, Magna Racino has been approved for 41 days
of live racing, between mid-March and early December.

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

Magna
Racino's handle was approximately $4.5 million in 2005, 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.

Training Centers

Palm Meadows®

On October 18, 2000, we acquired 481 acres of land in Palm Beach County, Florida for a total purchase price of $22.9 million. The property is
located approximately 40 miles north of Gulfstream Park. We have developed Palm Meadows® on this land, a horse boarding and training center, which is operated in conjunction with
Gulfstream Park. We believe that Palm Meadows® will help us to continue to attract high-quality horses to Gulfstream Park. We believe that this in turn will allow us to
increase both our number of live races and the total amount wagered on our races.

The
facility opened in November 2002 and currently includes a 11/8-mile dirt track, a one-mile turf course, stalls for up to
1,440 horses, administrative offices, dormitories, a viewing stand and a 60,000 square foot compost building.

In
November 2005, one of our subsidiaries that owns approximately 157 acres of excess real estate in Palm Beach County, Florida, entered into an agreement to sell the real
property to Toll Bros, Inc., a Pennsylvania real estate development company for $51.0 million in cash. The proposed sale was subject to the completion of due diligence by the purchaser
by February 28, 2006 and a closing by March 30, 2006. The agreement was amended on February 27, 2006 extending the due diligence completion date to March 15, 2006. On
March 15, 2006 we further amended the agreement by extending the due diligence completion date to April 3, 2006 and the closing date to April 28, 2006.

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.

PariMax

In February 2006, our Board of Directors approved the formation of PariMax, Inc., a new company to oversee the development of our various electronic
distribution platforms including XpressBet®, HRTV, MagnaBet, RaceONTV and our 30% stake in AmTote. PariMax will focus on the development of complete
wagering solutions and will concentrate on serving the global wagering market by developing product lines which meet the needs of both distribution partners and end consumers worldwide. For
distribution partners, RaceONTV will provide simulcasting and wagering solutions for betting shops internationally. AmTote will continue to provide a variety of wagering interfaces and
connectivity products for racetracks, OTBs, and account wagering providers, both domestically and abroad. For consumers, XpressBet® and MagnaBet will be PariMax's account
wagering platforms, which provide video streaming and wagering opportunities to an increasingly international customer base. Consumers will be further served by PariMax supported television channels,
including HRTV in the United States, Racing World in the United Kingdom and Ireland (a planned joint venture between MEC, Churchill Downs Inc., and Racing UK)
and PremiereWin (a MEC television partner) in central Europe.

XpressBet®

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

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

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Wagering
through an XpressBet® account is permitted only after XpressBet® has verified the account holder's identity, address and age and the account has been
funded. XpressBet® account holders can wager on over 100 North American racetracks and internationally on races in Australia, South Africa 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 wagering accounts. The takeout revenue is reduced
by host track fees, purse account funds, source market fees and other operating expenses. For the year ended December 31, 2005, total handle wagered through XpressBet® was
approximately $135.1 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.

We
launched MagnaBet in Austria in September 2004, where its operations are located, and in Germany in December 2004. Wagering through a MagnaBet
account is permitted only 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 purse account funds, source market fees and other operating expenses. For the year ended December 31, 2005, total handle wagered through MagnaBet was
approximately $11.5 million.

Television Distribution

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

HorseRacing TV

HorseRacing TV is a television network focused on horse racing. HorseRacing TV carries horse racing from racetracks located throughout
North America as well as commentary and related content, combined into a single signal produced by Santa Anita Park's award-winning television department. In January 2003, we launched
HorseRacing TV on our first cable television system (Time Warner San Diego) and we have quickly grown
the network's distribution to over 12 million cable and satellite subscribers nationally. HorseRacing TV has entered into a national distribution agreement with Dish
Network (Echostar Communications Corp.) that makes HRTV available in all 50 U.S. states. Additionally, HorseRacing TV has entered into agreements
with certain national/regional cable television operators, including Comcast, to make HorseRacing TV available via cable distribution in 18 states. HorseRacing TV is
also available on RTN (see below).

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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, an 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 and Germany. MEC Sport und 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 offered only 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.

Racing World

On January 5, 2006, we entered into a memorandum of understanding with CDI and Racing UK, a media rights company and subscription television channel
owned by thirty-one leading British racecourses, to develop a new subscription television channel called "Racing World" to broadcast our racing content and CDI racing content, as
well as content from other North American and international racetracks, into the United Kingdom and Ireland.

In
addition, the parties are currently negotiating the terms of a definitive agreement. XpressBet® has been granted the rights to provide, on a non-exclusive
basis, account wagering and audio-visual streaming services enabling customers in the United Kingdom and Ireland to wager on the Racing World Content. To this end, XpressBet® has
executed a letter of intent with The Betting Site Limited (http://www.thebettingsite.co.uk), a joint venture between Racing UK and The Racing Post, providing for the development of an integrated
betting interface enabling UK and Irish customers to open an account with XpressBet®.

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Other Television Distribution

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

Magna 5 Pick 5

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

Sunshine Millions®

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

California
breds won five out of eight races when they competed head to head against Florida breds during the fourth edition of the Sunshine Millions® held on
January 28, 2006. This event was covered on a national one and one-half hour NBC broadcast. Overnight ratings for the 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 $32 million for the 2006 edition of the Sunshine Millions®.

StreuFex

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

Dixon Downs Development

On March 3, 2003, we filed an application for various local approvals with the City of Dixon, California relating to the phased development of a
destination entertainment and retail complex. The centerpiece of the development would be a thoroughbred horse racing track to be constructed on a 260-acre site in Dixon's Northeast
Quadrant, approximately 20 miles from Sacramento. Portions of the proposed site were purchased in 2001 and 2002. The environmental impact analysis of the project has been initiated and the
related studies have been prepared. Extensive site visits by city officials to other of our racetracks occurred in 2005. Several public information sessions were conducted by the City of Dixon during
2005. We expect to complete the environmental review of the project, the negotiations with the City of Dixon regarding the terms of development and the necessary public hearings by
mid-2006.

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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
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.

On
May 17, 2005, The Office of Racing Commissioner (Michigan) issued an order awarding a racetrack license to our subsidiary, Michigan Racing, Inc., which order is subject
to certain conditions regarding the performance of obligations pertaining to the construction of the facility at the Romulus site. Since the issuance of this order, two appeals have been filed. The
first appeal was filed by the parties who operate Northville Downs, an existing harness racetrack located in Northville, Michigan. The second appeal was filed by Triple Creek Associates, LLC, a
competing applicant for the license issued to our subsidiary, Michigan Racing, Inc. The appeal filed by Northville Downs was initially dismissed by the circuit
court assigned to hear the appeal. A motion for leave to appeal this ruling is now pending before the Michigan Court of Appeals We do not know when the Michigan Court of Appeals will issue its ruling.

The
appeal filed by Triple Creek Associates, LLC is still pending before the Circuit Court for Ingham County Michigan, where it was filed originally. We have intervened as a party
in this matter. We do not know when the Ingham County Circuit Court will render a decision on this appeal or, if the appeal is unsuccessful, whether Triple Creek Associates, LLC will seek
further leave to appeal.

Recent Developments

For a summary of certain transactions and other projects that were underway in 2005 in addition to the foregoing, please see "Management Discussion and Analysis
of Financial Condition and Results of Operations  Recent Developments and Initiatives".

Competition

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

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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 continue to develop our account wagering operations, including telephone, Internet and interactive television wagering, we expect our competition with other account wagering
operators to also increase. In addition, our ability to conduct account wagering on races from racetracks that we do not own is dependent on our ability to enter into agreements with those racetracks
whereby we obtain account wagering rights. Certain racetracks, including those currently owned by CDI, 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, on terms that
are acceptable to us, to racing content from racetracks not owned by us for our account wagering operations as a result of these exclusive arrangements or otherwise.

Government Regulation



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

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

We
currently satisfy the applicable licensing requirements of the racing and gambling regulatory authorities in each state or province where we maintain racetracks and/or carry on
business, including the California Horse Racing Board, the Florida Department of Business and Professional Regulation Division of Pari-Mutuel Wagering, the Texas Racing Commission, the
Maryland Racing Commission, the Virginia Racing Commission, the Oklahoma Horse Racing Commission, the Ohio State Racing Commission, the Office of the Racing Commissioner of the Michigan Department of
Agriculture, the Pennsylvania State Harness Racing Commission, the Nevada Gaming Commission, the New Jersey Casino Control Commission, the Oregon Racing Commission and the Government of the
Province of Lower Austria. Please see our discussion of our wholly-owned subsidiary, XpressBet, Inc., for a list of the jurisdictions where it is licensed or has received regulatory approval to
conduct interstate account wagering. With respect to our racetracks, licenses to conduct live horse racing and to participate in simulcast wagering are required, and there is no assurance that these
licenses will be granted, renewed or maintained in good standing, as applicable.

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

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

In
Florida, the Division of Pari-Mutuel Wagering considers applications for annual licenses for thoroughbred, standardbred and quarter horse meetings with
pari-mutuel wagering. Tax laws in Florida have historically discouraged the three Miami-area racetracks, Gulfstream Park, Hialeah Park (which no longer hosts live racing) and
Calder Race Course, from applying for race days outside of their traditional racing season, so the race days for these Miami-area racetracks did not overlap. Effective July 1, 2001,
a new tax structure eliminated this deterrent. While a revised tax structure has enabled Gulfstream Park to apply for and receive additional race days since 2002, the deregulation of the race day
allocation process may, in the future, cause an overlap in racing seasons which could result in Gulfstream Park facing direct competition from other Miami-area racetracks. Gulfstream Park
is currently in a dispute with the Division of Pari-Mutual Wagering over Gulfstream Park's ability to conduct simulcast wagering while it is not running its meet. In July 2004, a
court ruling was made in Gulfstream Park's favor and found that Section 550.615(6) of the Florida Statutes, which prohibited such form of simulcasting, was unconstitutional and struck the
statute down. In September 2005 the ruling was appealed and the appeal court affirmed the trial court ruling in favor of Gulfstream Park. Currently an injunction is in place preventing Gulfstream Park
from conducting simulcast wagering when its meet ends in April 2006 and an appeal by the Division of Pari-Mutuel Wagering is with the Florida Supreme Court and a decision is likely
to be reached by the end of 2006.

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

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

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In
Oklahoma, the Oklahoma Horse Racing Commission regulates all aspects of live thoroughbred and mixed breed (quarter horse, paint horse and appaloosa) horse racing with
pari-mutuel wagering, as well as alternative gaming operations by licensed tracks, as will be discussed in more detail below. The Commission considers and approves annual licenses for
thoroughbred and mixed breed race meetings. Currently, there are four racetracks in Oklahoma that are licensed to offer a live race meet with pari-mutuel wagering. Since it opened in 1988,
Remington Park has been the only racetrack in the Oklahoma City metropolitan area licensed to conduct live horse racing and pari-mutuel wagering.

In
Michigan, the Office of Racing Commissioner approves annual licenses for thoroughbred, standardbred and mixed breed (quarter horse, paint horse, appaloosa and arabian) race meetings
with pari-mutuel wagering. In 2004, the Office of Racing Commissioner issued a racetrack license to a party seeking to construct a thoroughbred racetrack east of Lansing, Michigan. To
date, construction on that track has not begun. In addition, on May 17, 2005, the Office of Racing Commissioner issued a racetrack license to our wholly-owned subsidiary, Michigan
Racing, Inc. for it to construct and conduct thoroughbred racing at a proposed racetrack to be located in Romulus, Michigan. See " Recent Developments" for an update
as to the status of that license and the litigation surrounding it. Other than the two recently licensed but not-yet-constructed racetracks described in the preceding
sentences, there are currently no thoroughbred-exclusive racetracks in Michigan other than Great Lakes Downs. However, the Office of Racing Commissioner has licensed standardbred race meetings at five
existing racetracks in Michigan and one mixed breed (thoroughbred, quarter horse, paint horse, appaloosa and Arabian) race meeting at existing racetrack in central Michigan.

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

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

In
Austria, horse race meets are conducted at the Magna Racino by the Austrian Race Horse Owners Club under agreement with us. The Austrian Race Horse Owners Club conducts
standardbred (harness) and thoroughbred horse race meets pursuant to licenses issued by the Direktorium des Jockeyclub für Österreich (thoroughbred) and the Zentrale
für Traberzucht und Rennen in Österreich (standardbred harness). There is no 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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In
addition to conducting live horse racing with pari-mutuel wagering at our various tracks in the United States, we conduct telephone and Internet account wagering
through our subsidiary, XpressBet, Inc., and the entities that hold the licenses to conduct horseracing and pari-mutuel wagering at The Meadows. XpressBet, Inc. currently
holds a license to serve as a multi-jurisdictional account wagering hub by the Oregon Racing Commission which expires June 30, 2006. The Oregon license enables XpressBet, Inc. to open
accounts and accept wagering instructions on behalf of U.S citizens in respect of horse and dog races and to open accounts and accept wagering instructions on behalf of
non-U.S. citizens in respect of horse races. XpressBet, Inc. also holds account wagering licenses issued by the California Horse Racing Board, the Idaho Racing Commission,
the Virginia Racing Commission and the Washington Horse Racing Commission. XpressBet, Inc. also has received regulatory approvals from the Massachusetts Racing Commission and the Maryland
Racing Commission to open accounts and place wagers on behalf of residents from those states. The two entities that conduct horseracing and pari-mutuel wagering at The Meadows are entitled
to serve as a Pennsylvania-based account wagering hub by virtue of their annual licenses to conduct standardbred racing and pari-mutuel wagering. XpressBet, Inc. has an agreement
with the entities that conduct horseracing and pari-mutuel wagering at The Meadows to provide account wagering services to those entities' account holders and to conduct their respective
account wagering operations under the trade name XpressBet®. In accordance with its multi-jurisdictional hub license from Oregon and, to the extent applicable, state-based requirements
imposed by states where it is licensed or otherwise approved, XpressBet, Inc. opens wagering accounts on behalf of residents from various states and countries and processes wagering
instructions from those account holders in respect of races conducted throughout the United States and in other countries.

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

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



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.

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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 backside. 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. See " Recent Developments" for a further
discussion regarding the share purchase agreement entered into in respect of the Meadows Entities and the application made by WTA for a Conditional/Category 1 gaming license.



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, has been permitted to operate 650 electronic gaming machines, subject to increases of an additional 50 machines in each of the third and fifth years after the issuance of
the applicable license. The Oklahoma Horse Racing Commission is empowered under the legislation to oversee licensees' licenses and operations. The Commission has promulgated temporary regulations
regarding the licensure of electronic gaming operators and the operation of the electronic gaming machines, and it continues to work on the promulgation of permanent regulations in these areas. We
have and will continue to closely monitor and participate in this process. On August 11, 2005 we received our license to operate 650 electronic gaming machines in 2005 and we opened for
business on November 21, 2005. On November 17, 2005 we received our 2006 license.



On November 2, 2004, Amendment 4 to the Florida State Constitution was approved, permitting the governing bodies of Broward and Miami-Dade
counties to each hold a county-wide referendum on whether to authorize slot machines within existing, licensed pari-mutuel facilities that have conducted live racing during
each of the last two years. On March 9, 2005, voters in Broward County, where Gulfstream Park is located, approved the referendum by a majority vote. Subsequently, on December 8, 2005,
the state legislature adopted legislation to allow for and govern the slot machine operators of Gulfstream Park and the three other qualifying Broward County pari-mutuel facilities. Under
the terms of this legislation, Florida Statutes Chapter 551, Gulfstream Park and the three other pari-mutuel facilities in Broward County are permitted to operate up to
1,500 slot machines at each of their gaming facilities. The slot machine nonrefundable, annual license fee is $3.0 million and there is a required $250,000 annual minimum contributor to
responsible gaming. We will be permitted to offer gaming for a maximum of 16 hours per day, 365 days a year. The tax payable to the state is 50% of Gulfstream Park's gross gaming
revenues. In
addition, under the legislation, we are required to have written agreements with the Florida Horsemen's Benevolent and Protective Associations and the Florida Thoroughbred Breeders'
Association, Inc. prior to the renewal of a gaming license. We currently have agreements with each of these parties, but the agreements were reached prior to the legislation being passed and
will need to be substantially revised. We are in discussions regarding these agreements. 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 1.7% 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. This agreement also provides for further payments of an additional 1.5% on the first $250 million
of gross gaming revenues in excess to go into escrow or account for the relevant city, until Gulfstream Park reaches agreement with the city thereby replacing the escrow. This potential agreement is
under discussion.

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The
Legislation requires the Division of Pari-Mutuel Wagering to issue us a temporary license, provided we are in good standing under our pari-mutuel license,
180 days following the effective date of the Act (this would be July 3, 2006) if the Division of Pari-Mutuel Wagering has not by then adopted rules allowing for the issuance
of permanent slot machine licenses. The temporary license would then become a permanent license once the rules are adopted, provided we meet the licensing requirements.



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

Our Real Estate Portfolio

As of December 31, 2005, the aggregate net book values of our real estate properties are as follows:

|                                         |  | ($ millions)
|---------------------------------------- |  | ------------
|Revenue-Producing Racing Real Estate     |  | 730.1       
|Excess Racing Real Estate                |  | 96.3        
|Development Real Estate                  |  | 43.8        
|Revenue-Producing Non-Racing Real Estate |  | 77.3        
|Non-Core Real Estate                     |  | 2.5         
|                                         |  |             
|Total                                    |  | 950.0       
|                                         |  |             

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.

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.

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; 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.

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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 long-term 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.

Environmental Matters

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

With
respect to significant capital expenditures, the Water Quality Board Permit for the discharge of surface waste water at Santa Anita Park is currently being renewed. In order to
renew the permit, Santa Anita Park will be required to perform certain remedial work to its existing barns and uncovered backstretch areas. The cost of such remediation is currently estimated at
$5.0 million over four years. Consideration is also being given to incorporate the need for environmental remediation with other capital improvements to the backstretch. No citations on
violations are contemplated provided that Santa Anita Park proceeds with the remediation work.

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

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Employees

As of December 31, 2005, we employed approximately 5,200 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.

Item 1A.    Risk Factors

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

If
any of the following risks, or any of the risks described in the other documents we file with the SEC and Canadian securities regulatory authorities, actually occur or increase, our
business, financial condition, operating results and prospects could be materially adversely affected. In that case, 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 2006 we will require additional financing to fund our current planned operations and the implementation of our
strategic plan, but we may not be able to obtain such financing on satisfactory terms, if at all.

We
expect that during 2006, we will be required to seek additional debt and/or equity financing in order to fund our current planned operations and the implementation of our strategic
plan, including capitalizing on future growth opportunities. We also intend to generate cash by selling some of our real estate holdings and other assets in order to fund our current planned
operations and certain portions of our strategic plan. If additional financing or other sources of funds are not available to us as needed, or are not available on terms that are acceptable to us, our
business, operations and financial condition may be materially adversely affected, including, among other things, our ability to add alternative gaming to our racetracks where permitted or improve or
expand our operations as planned.

We
have already entered into numerous financing arrangements secured by significant portions of our assets, which 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.

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

Our
senior revolving credit facility, which matures on July 31, 2006, requires us to maintain earnings before interest, taxes, depreciation and amortization of not less than
$11.0 million at Santa Anita Park and $4.0 million at Golden Gate Fields, respectively, calculated on a rolling 12 month basis. 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. At December 31, 2005, we were not in compliance with one of the financial covenants contained in the credit agreement. A waiver was obtained from the lender for
the financial covenant breach at December 31, 2005. 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.



Our bridge loan with a subsidiary of our parent company, MI Developments Inc., which matures on August 31, 2006, requires us to maintain earnings
before interest, taxes, depreciation and amortization of not less than $11.0 million at Santa Anita Park and $4.0 million at Golden Gate Fields, respectively, calculated on a rolling
12 month basis. This bridge loan was originally secured by a second charge on the assets of Golden Gate Fields, a third charge on the assets of Santa Anita Park and a first charge over the
assets of The Meadows and was guaranteed by certain of our subsidiaries, including those which own and operate Golden Gate Fields, Santa Anita Park, The Meadows, Gulfstream Park, Palm Meadows and San
Luis Rey Downs. Additionally, in the first quarter of 2006, first charges on the lands owned by four MEC subsidiaries were put in place as additional security. The lands are those commonly referred to
by us as Thistledown, the Dixon Land, San Luis Rey Downs and the New York Porter lands. In addition, a guarantee was provided by those subsidiaries which own and/or operate Thistledown and the
New York Porter lands. Our bridge loan 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. At December 31, 2005, we were not in compliance with one of the financial covenants contained in the bridge loan agreement. A waiver was obtained from the
lender for the financial covenant breach at December 31, 2005. It is possible that we may not be able to meet the financial covenants under our bridge loan 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 bridge loan 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 bridge loan, demand immediate payment of all amounts borrowed by us and require adequate
security or collateral for all outstanding security under the bridge loan, 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.

In
addition, the bridge loan provides that, subject to certain specified exemptions, the proceeds of any debt or equity offering or asset sale must be used to reduce outstanding
indebtedness under the bridge loan or other specified indebtedness. This restriction severely limits our ability to use the proceeds of any debt or equity offering or asset sale to grow our business.

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

Beginning
on January 1, 2007, each of our Gulfstream Park Construction Loan, which matures in 2016, and Remington Park Construction Loan, which matures in 2015, require
that repayment of interest on the amounts outstanding. These interest payments will limit the amount of funds available to invest back into the racetracks. In addition, the Remington Construction Loan
further provides that certain cash from the operations of Remington Park must be used to pay deferred interest on the loan, plus a portion of the principal under the loan equal to the deferred
interest on the Gulfstream Park Construction Loan. This requirement will further limit the funds available to grow our business.

Each of our senior revolving credit facility and our bridge loan matures in 2006.

Our
$50.0 million senior revolving credit facility matures on July 31, 2006 and our $100.0 million bridge loan matures on August 31, 2006. We will need to be
able to repay these facilities when they become due, extend the terms of the agreements or find alternative financing arrangements acceptable to us. There is no guarantee that we will be able to do
so. This would adversely affect our ability to repay our debt securities and would adversely affect the trading price of our Class A Subordinate Voting Stock.

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

We
generated earnings of approximately $0, $9.6 million, $0 and $2.2 million, for the years ended December 31, 2005, 2004, 2003 and 2002, respectively, from
non-core real estate sales. Although we may realize some gains from sales of our 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
70.6% of our revenue for the year ended December 31, 2005. 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.

In the state of Maryland, our operating agreement with the owner of Rosecroft Raceway expired 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 Maryland Operating Agreement has been in effect
since June 9, 2004 and expired on April 30, 2005, however, both parties continue to informally operate under its terms until a new agreement can be finalized.

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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 no longer pool their wagering revenue and distribute net wagering revenue as they did under the Maryland Revenue Sharing Agreement. For a period from
April 19, 2004 until June 9, 2004, The Maryland Jockey Club and Rosecroft each conducted simulcast wagering under a combination of state law, which precluded The
Maryland Jockey Club from operating after 6:15 p.m. without Rosecroft's consent, and the federal Interstate Horseracing Act, which provides that, without the consent of The Maryland Jockey
Club, Rosecroft cannot accept simulcast wagering on horse racing during the times that either Pimlico or Laurel Park is running live races.

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 pays 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 on all 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. In addition, the Company is uncertain
whether the Maryland General Assembly will pass legislation that addresses the simulcast issue, including the possibility of giving broader simulcast rights to the owners of Rosecroft. Any failure to
reach a long-term agreement with Rosecroft similar to the Maryland Revenue Sharing Agreement or the Maryland Operating Agreement or any enactment of legislation that gives broader
simulcast rights to Rosecroft could have a material adverse effect on 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 outstanding Class B Stock, which is entitled to 20 votes per share, and approximately 4.36 million shares of our
Class A Stock, and therefore is able to exercise approximately 96% of the total voting power of our outstanding stock. It is therefore able to elect all our directors and to control us.
As a result, MI Developments Inc. is able to cause or prevent a change in our control.

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

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

We may not be able to attract or retain the personnel necessary to achieve our business objectives, in particular in respect of our search for a successor Chief
Executive Officer.

Our future success depends in part on our continued ability to hire, assimilate in a timely manner and retain qualified personnel, particularly in key senior
management positions and particularly as it pertains to our Chief Executive Officer. The loss of key managers could have a material adverse effect on our business, results of operations and financial
condition. We may find it difficult to attract and retain a qualified Chief Executive Officer because of our management changes, the uncertainty facing our business, and the specific horseracing and
gaming industry knowledge we are searching for. If we are not successful in promptly hiring a successor Chief Executive Officer, we may not have the personnel necessary to achieve our business
objectives.

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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 and Gaming 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, Pennsylvania passed legislation enabling racetracks to apply for licenses to operate
slots or other legal electronic gaming machines and we have filed an application with the Pennsylvania State Gaming Control Board for a license to conduct slots at The Meadows racetrack in
Pennsylvania. See "Our Properties  The Meadows" above for more details. In addition, on December 8, 2005 voters in Broward County approved a local
referendum that would permit electronic gaming to be conducted by pari-mutuel operators located in that county. Chapter 551 of the Florida Statutes was signed into law by Governor
Jeb Bush on January 4, 2006. Under the terms of this legislation, Gulfstream Park and three other pari-mutuel facilities in Broward County are permitted up to 1,500 slot
machines at each of their gaming facilities. The Florida Division of Pari-Mutuel Wagering is currently in the process of drafting rules to regulate gaming at these four
pari-mutuel facilities.

There
is a provision in the legislation that requires the Division of Pari-Mutuel Wagering to issue us a temporary license, provided we are in good standing under our
pari-mutuel license, 180 days following the effective date of the Act (this would be July 3, 2006) if it has not by then adopted rules allowing for the issuance of permanent
slot machine licenses within such time period. The temporary license would then roll into a permanent license once the rules are adopted, provided we meet the licensing requirements. See "Our
Properties  Gulfstream Park" above for more details.

Notwithstanding
the passage of legislation permitting slots and electronic gaming in Pennsylvania and 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.

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The
regulatory risks and uncertainties that are inherent in the conduct of alternative gaming also apply in other jurisdictions outside the United States. The Magna
Racino, located approximately 20 miles south of Vienna, Austria, serves as landlord to 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.

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

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

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

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

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

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

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

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

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

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

The high degree of regulation in the pari-mutuel and gaming industry is a significant obstacle to our growth strategy, especially with respect to
alternative gaming at racetracks and account wagering, including telephone, interactive television and Internet-based wagering. We currently are only able to offer
non-pari-mutuel gaming at Remington Park in the United States, expect to be able to open facilities at Gulfstream Park in 2006 and gaming will be legal at The Meadows in
2006.

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

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

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. In 2005, a similar bill
was introduced in the U.S. House of Representatives containing exemptions which we believe are intended at the very least to permit such funding for pari-mutuel account wagering
under certain conditions in states that authorize pari-mutuel account wagering. It is unclear, however, whether and to what extent such exemptions will remain in the current legislation or
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. In February 2006, another bill was introduced in the U.S. House of Representatives which seeks to amend the Federal Wire Act by placing further limits on the conduct
of internet gaming. We believe that this bill, as with the current Unlawful Internet Gambling Funding Prohibition Act, includes an exemption for pari-mutuel wagers placed pursuant to the
Federal Interstate Horseracing Act. As with any piece of legislation, however, it is difficult to predict the ultimate chances for passage of these or future bills. We nonetheless anticipate 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, including account
wagering.

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Furthermore,
even in the absence of such 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.

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

In
the spring of 2005, the World Trade Organization Appellate Body ruled that a claim from the island country of Antigua regarding U.S. federal policy regarding international
gambling may have merit due to an apparent inconsistency in how the U.S. treats interstate pari-mutuel wagers under the Interstate Horseracing Act and all other sports wagers, both
on an interstate and international basis. The WTO Appellate Body ruled that the Interstate Horseracing Act raised questions regarding whether the U.S. has taken a consistently negative position
regarding internet wagering across state and international boundaries. As a part of its ruling, the WTO Appellate Body ordered the U.S. to clarify its position on interstate
pari-mutuel wagering on or before April 3, 2006. One of the options available to Congress and the White House is to outlaw or restrict substantially the conduct of interstate
simulcast wagering and account wagering. If the Federal government elects to take such an approach, it will have a material adverse effect on our business, financial condition and operating results
and financial performance. Alternatively, if offshore wagering is permitted into the United States, that also could have a material adverse effect on our revenues and financial performance.

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

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

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Ongoing litigation concerning our proposed facility in Romulus, Michigan, could threaten the license issued for that facility or cause us to expend greater sums
to defend it.

On
May 17, 2005, the Michigan Office of Racing Commissioner awarded a racetrack license to our subsidiary, Michigan Racing, Inc., that would allow us to construct and
operate a thoroughbred racetrack in Romulus, Michigan. Appeals to this award have been filed by an existing racetrack operator in Northville, Michigan, and by a competing applicant who proposed an
alternative site in the Detroit metropolitan area. If either appeal succeeds in reversing or negating the license awarded to us, we could face either substantial losses associated with the
unsuccessful efforts to secure and maintain this license or additional costs associated with reestablishing our right to receive this license.

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

In
February 2006, the CHRB passed a motion which would require all thoroughbred racetracks in California to install synthetic racing surfaces by the end of 2007 or lose race
dates. We are currently evaluating the options available at Santa Anita and Golden Gate Fields and are in discussions with the CHRB, but it is unclear that we will be able to meet the timeline set out
by the CHRB. It is possible that this could put our 2008 racing meets at Santa Anita and Golden Gate Fields in jeopardy and this would have a material adverse effect on our financial conditions and
operating results.

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

We
face significant competition in each of the jurisdictions in which we operate racetracks and we expect this competition to intensify as new racetrack operators enter our markets and
existing competitors expand their operations and consolidate management of multiple racetracks. In addition, the introduction of legislation enabling slot machines or 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, CDI, 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.

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

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

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

Internet
and other account wagering gaming services allow their customers to wager on a wide variety of sporting events and casino games from home. Christiansen Capital
Advisors LLC estimated global consumer spending on Internet gaming in 2004 at $8.2 million and in the United States alone this spending amounted to $4.2 million in 2004.
Although many on-line wagering services are operating from offshore locations in violation of U.S. law by accepting wagers from U.S. residents, they may divert wagering dollars from
legitimate wagering venues such as our racetracks and account wagering operations. Moreover, our racetrack operations generally require greater ongoing capital expenditures in order to expand our
business than the capital expenditures required by Internet and other account wagering gaming operators. Currently, we cannot offer the diverse gaming options provided by many Internet and other
account wagering gaming operators and may face significantly greater costs in operating our business. Our inability to compete successfully with these operators could hurt our business.

44

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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.

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

In
general, the pari-mutuel wagering industry is adversely affected by negative information that can erode bettor confidence. Any materially negative information discovered
as a result of FBI or any other investigation, and any negative information concerning the internal controls and security of totalisator systems resulting from pari-mutuel wagering
activities, such as the fraudulent conduct in connection with certain Pick 6 wagers made on the 2002 Breeders' Cup hosted by Arlington Park in Chicago, Illinois, 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.

45

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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.

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

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

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

Horse
population is a factor in a racetrack's profitability because it generally affects the average number of horses (i.e., the average "field size") that run in races. Larger
field sizes generally mean increased wagering and higher wagering revenues due to a number of factors, including the availability of exotic bets (such as "exacta" and "trifecta" wagers). Various
factors have led to both short-term and long-term declines in the horse population in certain areas of the country, including competition from racetracks in other areas,
increased costs and changing economic returns for owners and breeders, and the effects of the Mare Reproductive Loss Syndrome, which caused a large number of mares in Kentucky to sustain late term
abortions or early embryonic loss in 2001 and the spread of various debilitating and contagious equine diseases, such as the neurologic form of Equine Herpes Virus-1 and Strangles, which
is caused by the organismStreptococcus equi. If any of our tracks are faced with a sustained outbreak of a contagious equine
disease, or if we are unable to attract horse owners to stable and race their horses at our tracks by offering a competitive environment, including improved facilities, well-maintained
racetracks, better living conditions for backstretch personnel involved in the care and training of horses stabled at our tracks, and a competitive purse structure, our profitability could decrease.

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, 2005, we employed approximately 5,200 employees, approximately 3,000 of whom were represented by unions. A strike or other work stoppage by our employees
could lead to lost revenues and have a material adverse effect on our business, financial condition, operating results and prospects.

Legislation
enacted in California in 2002 could facilitate the organization of backstretch personnel in that state. A strike by backstretch personnel could, even though they are not our
employees, lead to lost revenues and therefore adversely affect our operating results.

An earthquake in California could interrupt our operations at Santa Anita Park 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.

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

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



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 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.

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.

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Real Estate Ownership and Development Risks

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

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

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

We
have completed the redevelopment of the racing surfaces and the redevelopment of the grandstand and backstretch facilities at Gulfstream Park in Florida. We have also completed the
redevelopment of the dirt racing surfaces and the turf track at Laurel Park. These redevelopments resulted in write-downs in 2004 of $26.3 million and $0.4 million, respectively. The
redevelopment at Gulfstream Park 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 may not be able to complete expansion or redevelopment projects successfully and on time, which would materially adversely affect our growth and our operating
results.

We
intend to further develop our racetracks and expand our gaming activities as permitted. 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, Gulfstream Park was forced to run its 2005 meet from temporary facilities which reduced total on-track wagering at Gulfstream Park and attendance in 2005. In
addition, we encountered delays in the rebuilding of the racetrack surfaces at Laurel Park, which resulted in a late re-opening of Laurel Park for its 2004 - 2005
meet and a loss of certain race dates. Even if completed in a timely manner, our expansion projects may not be successful, which would affect our growth and could have a material adverse effect on our
future profitability.

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

We
are subject to a wide range of requirements under environmental laws and regulations relating to waste water discharge, waste management and storage of hazardous substances.
Compliance with environmental laws and regulations can, in some circumstances, require significant capital expenditures. Moreover, violations can result in significant penalties and, in some cases,
interruption or cessation of operations. For example, the Water Quality Board Permit for the discharge of surface waste water at Santa Anita Park is currently being renewed at Santa Anita Park; such
renewal will require certain remedial work to its existing barns and uncovered backstretch areas. The cost of such remediation is currently estimated at $5.0 million over four years. No
citations on violations are contemplated; provided that Santa Anita Park proceeds with the remediation work.

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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 "Our Business  Environmental Matters".

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

At
times, it may be difficult for us to dispose of or otherwise monetize some of our non-core real estate, excess racing real estate and revenue-producing
non-racing real estate. The costs of holding real estate may be high and 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.

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:

50

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

As
of March 8, 2006, MI Developments Inc. owned, directly or indirectly, 4,362,328 shares of our Class A Subordinate Voting Stock and 58,466,056 shares
of our Class B Stock (which are convertible into shares of our Class A Subordinate Voting Stock on a one-for-one basis). In addition, we have an effective
registration statement that permits the secondary sale of shares of our Class A Subordinate Voting Stock by some of our stockholders who received those shares in connection with our past
acquisitions. A total of 4,793,043 shares were initially registered pursuant to that registration statement. In December 2002, we issued $75.0 million aggregate principal amount
of our 71/4% Convertible Subordinated Notes due December 15, 2009 that are currently convertible into 8,823,529 shares of our Class A Subordinate Voting Stock
(subject to certain potential adjustments). In June 2003, we issued $150.0 million aggregate principal amount of our 8.55% Convertible Subordinated Notes due June 15, 2010 that
are convertible into 21,276,595 shares of our Class A Subordinate Voting Stock. We have effective registration statements filed with the SEC covering all such shares of our
Class A Subordinate Voting Stock issuable upon the conversion of such notes. Sales of a substantial number of shares of our Class A Subordinate Voting Stock, either by MI
Developments Inc. or upon conversion of our Convertible Notes could depress the prevailing market price of our Class A Subordinate Voting Stock.

On
August 2, 2005, Greenlight Capital, Inc and certain of its affiliates filed an oppression application in the Ontario Superior Court of Justice against MI
Developments Inc. and certain of its current and former directors and officers. The application seeks, among other things, the spin-off or sale by MI Developments Inc. of its
holdings of our shares. Any such spin-off, sale or other distribution could depress the prevailing market price of our Class A Subordinate Voting Stock. In particular, such a
spin-off could result in our shares being distributed to MI Developments Inc. shareholders, who may not wish to hold our shares and who therefore may quickly sell a large number of
our shares on the Nasdaq Stock Market or the TSX, which would likely create large downward pressure on the price of our stock.

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



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



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



Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties

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

Item 3.    Legal Proceedings

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

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

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

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Part II

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

Trading History

Our Class A Subordinate Voting Stock is listed and traded on the Nasdaq National Market ("Nasdaq") under the symbol "MECA" and listed and traded on the
Toronto Stock Exchange ("TSX") under the symbol "MEC.SV.A". 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 
|----- | ------------------------------------- | ------ | - | ----
|
|2004: |                                       |        |   |     
|      | First Quarter                         |        | $ | 5.46
|      | Second Quarter                        |        | $ | 5.52
|      | Third Quarter                         |        | $ | 6.12
|      | Fourth Quarter                        |        | $ | 5.90
|2005: |                                       |        |   |     
|      | First Quarter                         |        | $ | 7.12
|      | Second Quarter                        |        | $ | 6.36
|      | Third Quarter                         |        | $ | 7.19
|      | Fourth Quarter                        |        | $ | 7.91
|2006: |                                       |        |   |     
|      | First Quarter (through March 8, 2006) |        | $ | 7.55

On
March 8, 2006, the last sale price of the Class A Subordinate Voting Stock as reported by Nasdaq was $6.39 and by the TSX was Cdn. $7.52.

Our
Class B Stock is unlisted and not actively traded.

The
number of security holders of record as of March 8, 2006 was as follows: Class A Subordinate Voting Stock: 601; 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.

Securities Authorized for Issuance Under Equity Compensation Plans

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
"Executive CompensationLong-Term Incentive Plan", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of
December 31, 2005.

Recent Sales of Unregistered Securities

None.

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Issuer Purchases of Equity 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, 2001, 2002, 2003, 2004 and 2005 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, 2001 (as filed with our Annual Report for the fiscal 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), December 31, 2004
(as filed with our Annual Report for the year ended December 31, 2004) and December 31, 2005 (included in this Report). The selected financial and operating information should
also be read in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Annual Report.



|                                                                                                                                 |  | Years Ended December 31, |        
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|
|Racing and Gaming Revenues                                                                                                       |  | $                        | 459,411
|Real Estate and Other Revenues                                                                                                   |  |                          | 59,650 
|                                                                                                                                 |  |                          |        
|Total Revenues                                                                                                                   |  | $                        | 519,061
|                                                                                                                                 |  |                          |        
|Racing and Gaming Costs and Expenses                                                                                             |  | $                        | 427,042
|Real Estate and Other Costs and Expenses                                                                                         |  |                          | 37,090 
|Pre-development, pre-opening and other                                                                                           |  |                          | 3,240  
|Depreciation and amortization                                                                                                    |  |                          | 26,194 
|Write-down of long-lived and intangible assets                                                                                   |  |                          |       
|Write-down of excess real estate                                                                                                 |  |                          |       
|Equity income                                                                                                                    |  |                          |       
|Interest expense, net                                                                                                            |  |                          | 2,682  
|                                                                                                                                 |  |                          |        
|Income (loss) before income taxes                                                                                                |  | $                        | 22,813 
|                                                                                                                                 |  |                          |        
|Net income (loss) from continuing operations                                                                                     |  | $                        | 13,464 
|Net income (loss) from discontinued operations                                                                                   |  |                          |       
|                                                                                                                                 |  |                          |        
|Net income (loss)                                                                                                                |  | $                        | 13,464 
|                                                                                                                                 |  |                          |        
|Earnings (loss) per share for Class A Subordinate Voting Stock, Class B Stock and Exchangeable Share:                            |  |                          |        
|Basic and Diluted                                                                                                                |  |                          |        
|Continuing operations                                                                                                            |  | $                        | 0.16   
|Discontinued operations                                                                                                          |  |                          |       
|                                                                                                                                 |  |                          |        
|Earnings (loss) per share                                                                                                        |  | $                        | (0.16  
|                                                                                                                                 |  |                          |        
|Average number of shares of Class A Subordinate Voting Stock, Class B Stock and Exchangeable Shares outstanding during the year: |  |                          |        
|Basic                                                                                                                            |  |                          | 82,930 
|Diluted                                                                                                                          |  |                          | 83,242 

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|                                     |  | Years Ended December 31, |        
|------------------------------------ |  | ------------------------ | -------
|
|EBITDA from continuing operations(2) |  | $                        | 51,689 
|Capital expenditures(3)              |  |                          | 32,278 
|Cash provided from (used for)        |  |                          |        
|Operating activities                 |  |                          | 25,629 
|Investing activities                 |  |                          | (7,546 
|Financing activities                 |  |                          | (10,159

|
|

|                                             |  | 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.

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

Reconciliation of Non-GAAP to GAAP Financial Measures

|                                                                                        |  | Years Ended December 31, |       
|--------------------------------------------------------------------------------------- |  | ------------------------ | ------
|
|
|Earnings (Loss) Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA") |  |                          |       
|Income (loss) before income taxes from continuing operations                            |  | $                        | 22,813
|Interest expense, net                                                                   |  |                          | 2,682 
|Depreciation and amortization                                                           |  |                          | 26,194
|                                                                                        |  |                          |       
|EBITDA                                                                                  |  | $                        | 51,689
|                                                                                        |  |                          |       

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, 2005.

Overview

Magna Entertainment Corp. ("MEC", "we" or the "Company") owns and operates horse racetracks in California, Florida, Maryland, Texas, Oklahoma, Pennsylvania, Ohio,
Michigan, Oregon 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. We currently operate or manage eleven thoroughbred racetracks, one standardbred (harness racing)
racetrack and one racetrack that runs both thoroughbred and standardbred meets, as well as the simulcast wagering venues at these tracks. In October 2005, we completed the sale of Flamboro
Downs, a standardbred racetrack and in September 2005, we completed the sale of our interest in Maryland-Virginia Racing Circuit, Inc. ("MVRC"), which managed the operations of Colonial
Downs, a thoroughbred and standardbred racetrack. On December 31, 2004, we ceased operations at Bay Meadows and Multnomah Greyhound Park as 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"). HRTV is currently distributed to more than 12 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 distribute 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. ("AmTote"), a provider of totalisator services to the pari-mutuel industry. To support certain of our
thoroughbred racetracks, we own and operate thoroughbred training centers situated near San Diego, California, in Palm Beach County, Florida and in the Baltimore, Maryland area. We also own and
operate production facilities in Austria and in North Carolina for StreuFex, a straw-based horse bedding product.

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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. In November 2005, we announced that we had entered into an agreement to sell our residential development
property in the United States and the proposed sale is subject to the completion of due diligence by the purchaser by April 3, 2006 and a closing by April 28, 2006. 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 Limited Liability Company Agreement with Forest City Enterprises, Inc. with respect to the planned development of "The Village at Gulfstream
Park", a mixed-use retail, entertainment and residential project on a portion of the Gulfstream Park property. While we are exploring the development of some of our real
estate, 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, 2005) 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 United States generally accepted accounting principles
("GAAP").

Recent Developments and Initiatives

On February 27, 2006, we announced the formation of PariMax Inc., a new company to oversee the development of our various electronic distribution
platforms including XpressBet®, HRTV, MagnaBet, RaceONTV and our 30% stake in AmTote. PariMax will focus on the development of complete wagering
solutions and will concentrate on serving the global wagering market by developing product lines which meet the needs of both distribution partners and end consumers worldwide.

On
January 9, 2006, we announced that we had entered into a memorandum of understanding with Churchill Downs Incorporated ("CDI") and Racing UK, a media rights company and
subscription television channel owned by 31 British racecourses, for media rights and to develop a subscription television channel called "Racing World" to broadcast races from MEC and CDI
racetracks, as well as other North American and international racetracks, into the United Kingdom and Ireland. Racing World would be the exclusive distributor of MEC and CDI wagering rights to
the in-home market, and will also aggregate other racetracks for distribution. The new international television channel would bring the best North American and international racing to British and
Irish viewers. The subscription channel launched in March 2006.

On
December 8, 2005, we announced that legislation authorizing the operation of slot machines within existing, licensed Broward County, Florida pari-mutuel facilities
that have conducted live racing or games during each of 2002 and 2003 had been passed by the Florida Legislature. Our Gulfstream Park racetrack, located in Broward County, is a licensed
pari-mutuel facility that has conducted live racing during each of 2002 and 2003. Under the legislation, a qualifying facility will be entitled to offer up to 1,500 Class III
slot machines, subject to a state tax rate of 50% on gross gaming revenues ("GGR"). All proceeds from that tax will be used to supplement Florida education. Each facility will also be subject to a
$3.0 million annual license fee intended to cover administrative costs. In addition, each facility has entered into separate contracts under which Broward County and the city in which the
facility conducts pari-mutuel gaming will receive an aggregate of 3.2% of that facility's GGR not exceeding $250.0 million and 4.5% of that facility's GGR in excess of
$250.0 million. On January 4, 2006, the Governor of Florida signed the legislation into law and the Division of Pari-mutuel Wagering will oversee the conduct of slot machine operations
and will be required to develop the governing rules and regulations within 180 days, failing which the facilities will be entitled to operate pursuant to temporary licenses. We are currently
considering redevelopment opportunities with respect to a slot facility at Gulfstream Park and, provided that we are able to obtain adequate funding and are able to reach agreements with the horsemen
and breeders, we expect the slot facility to be operational during 2006.

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

On
November 9, 2005, we announced that we had entered into a share purchase agreement with PA Meadows, LLC, a company jointly owned by William Paulos and William Wortman,
controlling shareholders of Millennium Gaming, Inc. and a fund managed by Oaktree Capital Management, LLC ("Oaktree" and together, with PA Meadows, LLC, "Millennium-Oaktree"),
providing for the acquisition by Millennium-Oaktree of all of the outstanding shares of Washington Trotting Association, Inc., Mountain Laurel Racing, Inc. and MEC Pennsylvania
Racing, Inc., each wholly-owned subsidiaries through which we currently own and operate The Meadows, our standardbred racetrack in Pennsylvania. The sale is scheduled to close following receipt
of approval from the Pennsylvania Harness Racing Commission, receipt by The Meadows of a Conditional Category 1 slot license pursuant to the Pennsylvania Race Horse Development and Gaming Act,
and satisfaction of certain other customary closing conditions. Under the terms of the share purchase agreement, Millennium-Oaktree will pay the Company $225.0 million and we will continue to
manage the racing operations at The Meadows on behalf of Millennium-Oaktree pursuant to a minimum five-year racing services agreement. The purchase price is payable in cash at closing,
subject to a holdback amount of $39.0 million, which will be released over time in accordance with the terms of the share purchase agreement.

On
November 3, 2005, we announced that one of our subsidiaries that owns approximately 157 acres of excess real estate in Palm Beach County, Florida (our residential
development property in the United States previously referred to) had entered into an agreement to sell the real property to Toll Bros, Inc., a Pennsylvania real estate development
company for $51.0 million in cash. The proposed sale is subject to the completion of due diligence by the purchaser by April 3, 2006 and a closing by April 28, 2006.

On
October 19, 2005, we announced that we had completed the sale of all of the outstanding shares of Ontario Racing Inc. ("ORI"), a wholly-owned subsidiary of the Company,
which owned and operated Flamboro Downs, a standardbred racetrack and site holder for slot machines operated by the Ontario Lottery and Gaming Corporation, located in Hamilton, Ontario, Canada. The
purchaser, Great Canadian Gaming Corporation ("GCGC"), paid aggregate consideration of Cdn. $50.7 million and US $23.6 million, in cash and by the assumption of ORI's existing debt. In
accordance with the terms of our bridge loan agreement with a subsidiary of our parent company, MI Developments Inc. ("MID") and the terms of our senior secured revolving credit facility, we
were required to use the net proceeds from the sale of Flamboro Downs to pay down the principal amount owing under the two loans in equal portions. However, both MID and the lender under the senior
secured revolving credit facility agreed to mutually waive this repayment requirement, subject to certain other amendments, including provisions for repayment upon closing of certain future asset
sales.

On
September 30, 2005, we announced the completion of the sale to Colonial Downs, L.P. of all of the outstanding shares of MVRC, our indirect subsidiary, which managed the
operations of Colonial Downs, a thoroughbred and standardbred racetrack located in New Kent, Virginia pursuant to a management agreement. On closing we received cash consideration of
$6.8 million, net of transaction costs, and a one-year interest bearing note in the principal amount of $3.0 million.

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On
July 27, 2005, we amended and extended our $50.0 million senior secured revolving credit facility. The primary amendments to the agreement included extending the term to
July 31, 2006, the financial covenants are now earnings before interest, taxes, depreciation and amortization ("EBITDA") maintenance tests relating to Santa Anita Park and Golden Gate Fields,
the addition of mandatory repayment provisions and interest rates have been changed such that
borrowings are now available by way of U.S. Base Rate loans plus 3% or the London Interbank Offered Rate ("LIBOR") plus 4%. We have also agreed with the lender of this facility that upon
closing of certain future asset sales, we will use such proceeds to repay, in part, this facility.

On
July 22, 2005, we announced that as part of our strategic plan, our Board of Directors approved a Recapitalization Plan which is intended to recapitalize our balance sheet over
the following 12 months through the sale of certain non-strategic assets, with proceeds realized from those asset sales being applied to reduce debt. The Recapitalization Plan also
contemplates possible partnerships to pursue alternative gaming opportunities at our racetracks and the possible raising of equity in 2006. The proceeds of such an equity offering would be used to
further reduce debt and for general corporate purposes. In connection with this Recapitalization Plan, on July 27, 2005, we entered into two new loan arrangements with MID. The first loan
effectively replaced the existing $77.0 million construction loan commitment for The Meadows racetrack and slots facility in Pennsylvania with a loan of up to $34.2 million to fund the
development, design and construction of the alternative gaming facility at Remington Park in Oklahoma. The second loan is for a non-revolving bridge loan facility of up to
$100.0 million. In addition, certain terms of the existing $115.0 million Gulfstream Park loan were amended.

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 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 the Company, 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 was passed in each of Pennsylvania and Oklahoma in 2004 and in Florida in early
2006.

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. 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 have submitted an application for a Conditional Category 1 slot license in connection with and reflecting, the transaction announced on November 9, 2005 with
Millenium-Oaktree as noted above.

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The
redevelopment of Gulfstream Park, which commenced in 2004, continued through 2005. The project includes significant modifications and enhancements to the racing surfaces and stable
area, including the construction of a new, wider turf course, which was completed prior to the start of the 2005 race meet. The project also 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 has been increased from $145.0 million to $171.5 million which
is partially financed through the $115.0 million Gulfstream Park project financing facility from MID. The most significant portion of the budget increase relates to the construction of the
clubhouse as a result of additional material and labor costs, changes in scope and damage and delays resulting from recent hurricanes. Funding for the additional construction costs at Gulfstream Park
will be provided pursuant to a loan of up to $13.5 million from BE&K, Inc., the parent company of Suitt Construction Co. Inc., the general contractor for the Gulfstream
Park redevelopment project and from our general corporate funds, including the net proceeds from the sale of Flamboro Downs. As security for the loan from BE&K, Inc., certain of our
subsidiaries that own land in Ocala, Florida will provide a guarantee to BE&K, Inc., which will be secured by a mortgage over the land in Ocala. On November 17, 2005, our subsidiary that
owns Gulfstream Park signed a loan agreement with BE&K, Inc., which had not been drawn upon as at December 31, 2005. Since the project included the demolition of a substantial portion of
the existing buildings and related structures, temporary facilities were erected to house the 2005 race meet and best efforts were made to minimize the disruption to the live racing operations,
however, as with any disruption to the racing operations during a race meet, revenues and earnings generated during the 2005 race meet were negatively impacted compared to prior year results. On
October 24, 2005, South Florida was struck by Hurricane Wilma and Gulfstream Park sustained damage. Despite hurricane damage, Gulfstream Park opened for its 2006 live race meet on
January 4, 2006. Racing and patron areas were sufficiently complete to open the meet. Construction is on-going and best efforts are being made to complete the facility as soon as
possible and minimize interference with the 2006 live race meet. Interference with the racing operations will result in a reduction in revenues and earnings generated at Gulfstream Park during the
meet.

On
May 17, 2005, one of our wholly-owned subsidiaries was awarded a license to construct and operate a horse racetrack in the Greater Detroit area. The license is subject to a
number of conditions, including among others, the commencement of construction of a racetrack at the proposed site no later than September 1, 2007 and the commencement of live racing no later
than October 1, 2009. The proposed site for the new racetrack is in the City of Romulus, Michigan on a property which is situated less than two miles from the Detroit Metropolitan Airport and
less than 25 miles from the center of the business districts of both Detroit and Ann Arbor. In October 2003, a subsidiary of MID purchased vacant land in Romulus, Michigan, which 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. On February 20, 2006, the option was extended to April 3, 2006. If we are unable to renew or further
extend this option agreement with MID, then we may incur a write-down of certain costs that have been incurred with respect to this specific property. At December 31, 2005, we have
incurred approximately $2.9 million of costs related to this property and in pursuit of the license.

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 expired on April 30, 2005, however, both
parties continue to informally operate under its terms until a new agreement can be finalized. 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.

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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 property. Forest City has paid $2.0 million to MEC in consideration for their right to work
exclusively with MEC on this project. This deposit has been included in other accrued liabilities on our consolidated balance sheets. In 2005, a Limited Liability Company Agreement was entered into
with Forest City concerning the planned development of "The Village at Gulfstream Park". The Limited Liability Company Agreement contemplates the development of a mixed-use
project consisting of residential units, parking, restaurants, hotels, entertainment, retail outlets and other commercial uses on a portion of the Gulfstream Park property. Under the Limited Liability
Company Agreement, Forest City is required to contribute up to a maximum of $15.0 million as an initial capital contribution. The $2.0 million deposit received to date from Forest City
shall constitute the final $2.0 million of the initial capital contribution. We are obligated to contribute 50% of any and all equity amounts in excess of $15.0 million as and when
needed, however, to December 31, 2005, we have not made any such contributions. In the event the development does not proceed, we may have an obligation to fund a portion of those
pre-development costs incurred to that point in time. The Limited Liability Company Agreement further contemplates additional agreements including a ground lease, a reciprocal easement
agreement, a development agreement, a leasing agreement and a management agreement to be executed in due course and upon satisfaction of certain conditions.

In
April 2004, we signed a Letter of Intent to explore the possibility of joint ventures between Caruso Affiliates Holdings and certain of our affiliates to develop certain
undeveloped lands surrounding Santa Anita Park and Golden Gate Fields racetracks. Upon execution of this Letter of Intent, we agreed to fund 50% of approved pre-development costs in
accordance with a preliminary business plan for each of these projects, with the goal of entering into Operating Agreements by May 31, 2005, which has been extended by mutual agreement of the
parties to March 29, 2006. To date, we have expended approximately $1.8 million on this initiative, of which $1.4 million was paid during 2005. These amounts have been recorded as
fixed assets on our consolidated balance sheets. We are continuing to explore these developmental opportunities, but to December 31, 2005 we have not entered into definitive Operating
Agreements on either of these potential developments. Under the terms of the Letter of Intent, we may be responsible to fund additional costs, however to December 31, 2005, we have not made any
such payments.

The
lease on our Bay Meadows site expired December 31, 2004, and as a result 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.

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Racing Operations

Information about our racing operations is set forth below:

|                                      |  |           |  |      |   | Year ended December 31, 2005                                
|------------------------------------- |  | --------- |  | ---- | - | ------------------------------------------------------------
|
|                                      |  |           |  |      |   |                                                             
|Santa Anita Park  Los Angeles        |  | Dec. 1998 |  | 10.9 |   | Jan. 1 to Apr. 18 and
Dec. 26 to 31                         
|                                      |  |           |  |      |   | The Oak Tree Meet
Sep. 28 to Nov. 6                         
|Gulfstream Park
Miami                |  | Sep. 1999 |  | 4.3  |   | Jan. 3 to Apr. 24                                           
|Laurel Park
Baltimore                |  | Nov. 2002 |  | 6.6  |   | Jan. 26 to Apr. 17 and
Sep. 7 to Dec. 31                    
|Golden Gate Fields
San Francisco     |  | Dec. 1999 |  | 5.2  |   | Jan. 1 to Jan. 30,
May 11 to Jun. 19 and
Oct. 19 to Dec. 31 
|Pimlico Race Course
Baltimore        |  | Nov. 2002 |  | 5.2  |   | Jan. 5 to Jan. 17,
Apr. 20 to Jun. 12 and
Aug. 12 to Aug. 26
|Lone Star Park
Dallas                |  | Oct. 2002 |  | 5.1  |   | Apr. 14 to Jul. 17 and
Sep. 30 to Nov. 27                   
|The Meadows
Pittsburgh               |  | Apr. 2001 |  | 2.8  |   | All year                                                    
|Thistledown
Cleveland                |  | Nov. 1999 |  | 3.0  |   | Apr. 7 to Dec. 23                                           
|XpressBet®
National                  |  | Apr. 2001 |  | N/A  |   | All year                                                    
|Remington Park
Oklahoma City         |  | Nov. 1999 |  | 1.1  |   | Mar. 19 to Jun. 5 and
Aug. 5 to Nov. 27                     
|Portland Meadows
Portland            |  | Jul. 2001 |  | 2.0  |   | Jan. 1 to Apr. 24 and
Oct. 16 to Dec. 31                    
|Great Lakes Downs
Muskegon, Michigan |  | Feb. 2000 |  | 1.2  |   | Apr. 25 to Nov. 5                                           
|Magna Racino
Ebreichsdorf, Austria  |  | Apr. 2004 |  | 2.5  |   | Mar. 13 to Nov. 20                                          
|                                     
|TOTAL:                                |  |           |  |      | $ | 596.1                                                       
|                                     

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

We
also generate non-wagering revenues consisting primarily of food and beverage sales, program sales, admissions income, parking revenues, sponsorship revenues and rental
fees and other.

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

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Set
forth below is a list of the total live race days by racetrack for the years ended December 31, 2005, 2004 and 2003:

|                    |  | Years ended December 31,
|------------------- |  | ------------------------
|
|Largest Racetracks  |  |                         
|Santa Anita Park(1) |  | 85                      
|Gulfstream Park     |  | 86                      
|Golden Gate Fields  |  | 96                      
|Bay Meadows(2)      |  |                        
|Laurel Park         |  | 135                     
|Lone Star Park      |  | 100                     
|Pimlico Race Course |  | 59                      
|                    |  |                         
|                    |  | 561                     
|                    |  |                         
|Other Racetracks(3) |  |                         
|The Meadows         |  | 206                     
|Thistledown         |  | 185                     
|Remington Park      |  | 98                      
|Portland Meadows    |  | 70                      
|Great Lakes Downs   |  | 100                     
|Magna Racino       |  | 45                      
|                    |  |                         
|                    |  | 704                     
|                    |  |                         
|Total               |  | 1,265                   
|                    |  |                         

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

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

Seasonality

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

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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, 2005, the aggregate net book values of our real estate properties is as follows:

|                                         |  | $ millions
|---------------------------------------- |  | ----------
|Revenue-Producing Racing Real Estate     |  | 730.1     
|Excess Racing Real Estate                |  | 96.3      
|Development Real Estate                  |  | 43.8      
|Revenue-Producing Non-Racing Real Estate |  | 77.3      
|Non-Core Real Estate                     |  | 2.5       
|                                         |  |           
|                                         |  | 950.0     
|                                         |  |           

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 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.

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

Our
significant accounting policies are included in Note 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, less charges for contributory assets
assumed to be owned by third parties is less than the carrying value of the racing license.

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

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

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Future Income Tax Assets

At December 31, 2005, we recorded future tax assets (net of related valuation allowances) in respect of loss carryforwards and other deductible
temporary differences. We evaluate quarterly the realizability of our future tax assets by assessing our
valuation allowance and by adjusting the allowance as necessary. The assessment considers forecasts of future taxable income and tax planning strategies that could be implemented to realize the future
tax assets. Should operations not yield future taxable income or if tax planning strategies could not be implemented, then there could be a material impact on our consolidated tax expense or recovery
and on the amount of future tax assets reported on our consolidated balance sheets.

Stock-Based Compensation

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 value method under APB Opinion No. 25 ("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. We account for stock based compensation under
the intrinsic value method and provide pro-forma disclosure as required by SFAS 123. 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 statement of operations based on their fair values. Pro-forma disclosure is no longer an alternative.
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 16 of 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. Statement 123(R) must be adopted no later than January 1, 2006. The Company will be implementing the
revised standard in the first quarter of 2006 and expects that the impact will be consistent with the pro-forma results that have been previously disclosed in our consolidated financial
statements.

Litigation

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

Off-Balance Sheet Arrangements

At December 31, 2005, we do not have any material off-balance sheet arrangements which should be disclosed.

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Related Party Transactions

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

Results of Operations

The following is a discussion and comparison of our results of operations and financial position for the years ended December 31, 2005, 2004 and 2003.

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

Racing and gaming operations

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

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

| |  |  |  | California revenues below the prior year by $69.3 million or 26.2% due to:                                                                                                                                                                                                                                                                                                                                                                          
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |  |  | Florida revenues below the prior year by $5.5 million or 6.9% due to the disruption of the racing operations as a result of the redevelopment project at Gulfstream Park. The live race meet conducted in the first half of 2005 operated out of
temporary facilities and best efforts were made to minimize the negative impact of the disruption;                                                                                                 
| |  |  |  | Northern U.S. operations below the prior year by $1.5 million or 1.6% due primarily to the expiry of the Multnomah Greyhound Park lease on December 31, 2004;                                                                                                                                                                                                                                                                                       
| |  |  |  | Southern U.S. operations below the prior year by $1.2 million or 1.3% due to reductions in attendance and wagering at Lone Star Park due to increased competition from nearby casinos, decreased horse population as a result of intense
competition for horses and higher purse offerings at neighbouring tracks, partially offset by increases in gaming revenues at Remington Park with the opening of its casino facility in late November 2005;
| |  |  |  | Increased revenues in our Maryland operations, where revenues were above the prior year by $8.7 million or 8.5% due to a record setting Preakness® in terms of admissions, handle and wagering and as a result of the new turf course at Laurel
Park, which since being available for racing, has resulted in increased field sizes and increased handle;                                                                                           

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| |  |  |  | Increased revenues in our European operations, where revenues were above the prior year by $5.4 million or 72.8% due to the opening of the Magna Racino in the second quarter of 2004 and increased wagering
activity through MagnaBet; and
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | Increased revenues in our technology operations, where revenues were above the prior year period by $1.4 million or 4.9% due to increased wagering activity through XpressBet® and additional advertising revenues generated by
HRTV.       

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

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

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

| |  |  |  | a decrease of $23.3 million in our California operations primarily as a result of the expiry of the Bay Meadows lease;                                                                                                                                                                                          
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | a decrease of $2.9 million in our Northern U.S. operations primarily due to the expiry of the Multnomah Greyhound Park lease on December 31, 2004;                                                                                                                                                              
| |  |  |  | a decrease of $1.7 million in our Southern U.S. operations primarily due to reduced marketing costs and other expense reductions at Lone Star Park, partially offset by increases in operating costs related to the casino facility at Remington
Park which opened in late November 2005; partially offset by   
| |  |  |  | an increase of $3.1 million in our Maryland operations primarily due to a $1.9 million provision for an amount due from the horsemen with respect to their contribution to the costs of simulcasting in 2004 and 2005 as well as increased costs
incurred to generate additional revenues at the Preakness®; and
| |  |  |  | an increase of $3.2 million in our Florida operations as cost savings and expense reductions were offset by $5.7 million of amortization relating to the temporary facility construction costs at Gulfstream Park, which were amortized over
Gulfstream Park's 2005 race meet.                                  

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

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

| |  |  |  | a decrease of $5.4 million as a result of the expiry of the Bay Meadows lease; offset by                                                                                       
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | an increase of $2.3 million in our European operations due to the start-up during 2004 of certain of our European operations compared to a full year of operations in 2005; and

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

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

Real estate and other operations

Revenues from real estate and other operations decreased $15.1 million from $40.0 million in 2004 to $24.9 million in 2005. The decrease in
revenues is primarily attributable to:

| |  |  |  | in 2004, four Non-Core Real Estate properties were sold which generated revenues of $16.4 million and income before income taxes of $9.6 million, whereas in 2005, there were no sales of Non-Core Real Estate;
partially offset by
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | an increase in golf and other revenues of $1.2 million primarily due to increased revenues at our Magna Golf Club as a result of increased membership activity.                                                                    

Predevelopment, pre-opening and other costs

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

Depreciation and amortization

Depreciation and amortization increased $2.6 million from $36.6 million in 2004 to $39.2 million in 2005, primarily due to increased
depreciation in our European operations primarily at the Magna Racino, which commenced operations and depreciation of fixed assets on April 4, 2004 and increased depreciation at
certain of our facilities on recent fixed asset additions.

Interest income and expense

Our net interest expense in 2005 increased $13.4 million to $35.1 million from $21.7 million in 2004. The higher net interest expense is
primarily attributable to increased borrowings on our senior secured revolving credit facility and on our bridge loan facility with MID and in our European and golf operations.    In 2005,
$5.9 million of interest was capitalized with respect to projects under development, compared to $4.0 million in 2004.

Write-down of long-lived and intangible assets

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

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Income tax benefit

We recorded an income tax benefit of $0.6 million on a loss before income taxes of $103.7 million in 2005, whereas in 2004, we recorded an income
tax benefit of $3.8 million on a loss before income taxes of $102.6 million. The income tax benefit in 2005 of $0.6 million represents primarily certain Austrian income tax losses
benefited, partially offset by income tax expense recognized by certain U.S. operations. The income tax benefit in 2004 of $3.8 million represents a reduction in enacted income tax rates
in Austria, which resulted in a revaluation of our European net future tax liabilities, partially offset by income tax expense recognized by certain U.S. operations.

Discontinued operations

Discontinued operations in 2005 and 2004 include the operations of Flamboro Downs and MVRC. The following table presents revenues and earnings (loss) from
discontinued operations for 2005 and 2004:

|                                         |  | Year ended December 31,
|---------------------------------------- |  | -----------------------
|
|Revenues                                 |  | $                      
|Costs and expenses                       |  |                        
|                                         |  |                        
|                                         |  |                        
|Depreciation and amortization            |  |                        
|Interest expense, net                    |  |                        
|Write-down of racing license(i)          |  |                        
|                                         |  |                        
|Income (loss) before gain on disposition |  |                        
|Gain on disposition(ii)                  |  |                        
|                                         |  |                        
|Income (loss) before income taxes        |  |                        
|Income tax expense (benefit)             |  |                        
|                                         |  |                        
|Net income (loss)                        |  | $                      
|                                         |  |                        

---

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

Racing and gaming operations

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

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

| |  |  |  | California revenues below the prior year by $12.8 million or 4.6% due to:                                                                                                                                                                                                                                                 
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |   |  |                                                                                                                                                                                                                                                                                                                          
| |  |   |  |                                                                                                                                                                                                                                                                                                                          
| |  |  |  | Northern U.S. operations below the prior year by $3.6 million or 3.7% due primarily to fewer live race days at Thistledown and Portland Meadows coupled with lower average daily attendance at certain of the racetracks included in this
segment and a reduction in the number of OTB locations in our Oregon operations;
| |  |  |  | Increased revenues in our European operations, where revenues were above the prior year by $6.5 million due to the opening of the Magna Racino in the second quarter of 2004;                                                                                                                                            
| |  |  |  | Increased revenues in our Maryland operations, where revenues were above the prior year by $2.0 million or 2.0% due to increased attendance and wagering at Pimlico on the Preakness Stakes®;                                                                                                                             
| |  |  |  | Florida revenues above the prior year by $1.7 million or 2.2% due to increased stall rent at Palm Meadows®, our thoroughbred training center in Palm Beach County, Florida; and                                                                                                                                           
| |  |  |  | A decrease of $2.6 million of revenues earned through inter-company transactions from our racetracks, account wagering operations and separate OTB facilities.                                                                                                                                                            

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

Operating
costs in our racing and gaming operations increased $24.4 million or 9.7% to $276.3 million in 2004, from $251.9 million in 2003, primarily due to:

| |  |  |  | an increase of $21.3 million in our European operations due to the opening of the Magna Racino for live racing, pre-operating and start-up costs related to RaceONTV and MagnaBet;                                                                                                                                                             
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | an increase of $3.9 million in our technology operations due to additional distribution and production costs at HRTV as a result of the Dish Network carriage agreement;                                                                                                                                                                        
| |  |  |  | an increase of $3.2 million in our Southern U.S. operations primarily due to costs incurred at Lone Star Park in connection with hosting the 2004 Breeders' Cup; partially offset by                                                                                                                                                             
| |  |  |  | a decrease of $4.5 million in our California operations primarily as a result of the inclusion of $8.5 million with regard to the sale of the excess land at Golden Gate Fields in 2003, partially offset by increased costs in 2004 at Santa
Anita Park with the opening of an entertainment facility, including a new restaurant and sports bar.

72

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

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

| |  |  |  | an increase of $2.8 million in our European operations due to the start-up in 2004 of certain of our European operations; partially offset by
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | decreases at several of our facilities as a result of focused efforts to reduce costs.                                                       

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

Real estate and other operations

Revenues from real estate and other operations increased $18.2 million from $21.8 million in 2003 to $40.0 million in 2004. The increase in
revenues is primarily attributable to:

| |  |  |  | in 2004, four Non-Core Real Estate properties were sold which generated revenues of $16.4 million and income before income taxes of $9.6 million, whereas in 2003, there was only one sale of Non-Core Real Estate
which generated revenues of $2.6 million which was equal to the carrying value of the property; and
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | an increase in golf and other revenues of $4.5 million primarily due to 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.                                                                                 

Predevelopment, pre-opening and other costs

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

Depreciation and amortization

Depreciation and amortization increased $5.3 million from $31.3 million in 2003 to $36.6 million in 2004, primarily due to depreciation at
Magna Racino, which commenced operations on April 4, 2004 and increased depreciation at our Palm Meadows® training center related to additional stall and dormitory
construction, partially offset by reduced depreciation at Gulfstream Park as a result of the write-down of long-lived assets recorded in the second quarter of 2004 and at
Remington Park as a result of the write-down of long-lived assets recorded in the fourth quarter of 2003.

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Interest income and expense

Our net interest expense in 2004 increased $10.0 million to $21.7 million in 2004 from $11.7 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 2003.

Write-down of long-lived assets

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

Income tax benefit

We recorded an income tax benefit of $3.8 million on a loss before income taxes of $102.6 million in 2004, whereas in 2003 we recorded an income tax
benefit of $63.5 million on a loss before income taxes of $169.9 million. The income tax benefit in 2004 of $3.8 million represents a reduction in enacted income tax rates in
Austria, which resulted in a revaluation of our European net future tax liabilities, partially offset by income tax expense recognized by certain U.S. operations. Our effective income tax rate
for 2003 was 37.4%.

Discontinued operations

Discontinued operations in 2004 and 2003 include the operations of Flamboro Downs and MVRC. The following table presents revenues and earnings from discontinued
operations for 2004 and 2003:

|                              |  | Year ended December 31, |       
|----------------------------- |  | ----------------------- | ------
|
|Revenues                      |  | $                       | 29,104
|Costs and expenses            |  |                         | 20,471
|                              |  |                         |       
|                              |  |                         | 8,633 
|Depreciation and amortization |  |                         | 894   
|Interest expense, net         |  |                         | 2,416 
|Equity income                 |  |                         |      
|                              |  |                         |       
|Income before income taxes    |  |                         | 5,323 
|Income tax expense            |  |                         | 2,108 
|                              |  |                         |       
|Net income                    |  | $                       | 3,215 
|                              |  |                         |       

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

Racing and gaming operations

In 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 14 live race days in 2003, compared to the prior year, primarily due to 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.

In
2003, revenues from our racing and gaming operations increased $142.2 million or 27.2% to $664.8 million, compared to $522.6 million in 2002, primarily due to:

| |  |  |  | Increased revenues in our Maryland operations, where revenues were above the prior year by $95.5 million due to the acquisition of The Maryland Jockey Club in November 2002;                                                                                                   
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | Southern U.S. operations were above the prior year by $57.3 million due to the acquisition of Lone Star Park at Grand Prairie in October 2002;                                                                                                                                  
| |  |  |  | Increased revenues in our Technology operations, where revenues were above the prior year by $23.1 million due to a change in reporting whereby all account wagering activity was recorded through XpressBet® in 2003, whereas it had previously
been recognized in The Meadows;
| |  |  |  | California revenues above the prior year by $4.8 million or 1.8% due to:                                                                                                                                                                                                        
| |  |   |  |                                                                                                                                                                                                                                                                                
| |  |   |  |                                                                                                                                                                                                                                                                                
| |  |  |  | Northern U.S. operations below the prior year by $23.4 million or 19.3% primarily due to a decline of $20.4 million at The Meadows as the account wagering activities were no longer being recorded in The Meadows but were now being
recorded in XpressBet®; and               
| |  |  |  | Florida revenues below the prior year by $3.5 million or 4.3% due to lower levels of handle and pari-mutuel wagering at Gulfstream Park as a result of lower average daily attendance and decreased on-track wagering activity at the
facility.                                 

Pari-mutuel
purses, awards and other increased $54.7 million or 19.8% to $330.7 million in 2003, from $276.0 million in 2002, primarily due to the
increase in pari-mutuel wagering revenues in 2003. As a percentage of pari-mutuel wagering revenues, pari-mutuel purses, awards and other decreased from 61.2% in
2002 to 59.8% in 2003, 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 and purse subsidies
received by The Maryland Jockey Club which lowered their purse expense.

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Operating
costs in our racing and gaming operations increased $68.5 million to $251.9 million in 2003, from $183.4 million in 2002, primarily due to:

| |  |  |  | an increase of $35.5 million in our Maryland operations due to the acquisition of The Maryland Jockey Club in November 2002;                                                                                                                                                                                                                                 
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | an increase of $24.0 million in our Southern U.S. operations due to the acquisition of Lone Star Park at Grand Prairie in October 2002;                                                                                                                                                                                                                      
| |  |  |  | an increase of $16.5 million in our California operations primarily as a result of the inclusion of $8.5 million of costs related to the sale of the excess land at Golden Gate Fields in 2003, additional rent expense incurred at our Bay
Meadows facility of $2.9 million and increased costs incurred in the inaugural running of the Sunshine Millions;
| |  |  |  | an increase of $4.3 million in our Technology operations due to a change in reporting whereby all account wagering activity was now recorded through XpressBet®, whereas it had previously been recognized in The Meadows; and                                                                                                                               
| |  |  |  | an increase of $3.3 million in our Florida operations primarily due to the opening of the Palm Meadows training facility and the costs associated with the operation of the training facility and increased costs incurred in the inaugural running
of the Sunshine Millions; partially offset by                                                           
| |  |  |  | a decrease of $11.7 million in our Northern U.S. operations primarily due to a change in reporting whereby all account wagering activity was now recorded through XpressBet®, whereas it had previously been recognized in The
Meadows.                                                                                                                      

As
a percentage of total racing and gaming revenues, operating costs increased from 35.1% in 2002 to 37.9% in 2003. The increase in operating costs as a percentage of total racing and
gaming 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 27.2% in 2003.

General
and administrative expenses in our racing and gaming operations increased $24.3 million from $41.5 million in 2002 to $65.8 million in 2003 primarily due to:

| |  |  |  | an increase of $8.0 million in our Maryland operations due to the timing of the acquisition of The Maryland Jockey Club in November 2002;           
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | an increase of $4.6 million in our Southern U.S. operations due to the timing of the acquisition of Lone Star Park at Grand Prairie in October 2002;
| |  |  |  | an increase of $4.0 million in our Technology operations due to the timing of the launch of XpressBet® in 2002 and the launch of HRTV in 2003; and 
| |  |  |  | higher costs of our head office.                                                                                                                    

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Real estate and other operations

Revenues from real estate and other operations decreased $4.8 million from $26.6 million in 2002 to $21.8 million in 2003. The decrease in
revenues is primarily attributable to:

| |  |  |  | in 2002, four Non-Core Real Estate properties were sold which generated revenues of $8.9 million and income before income taxes of $2.2 million. In 2003, there was only one sale of Non-Core Real Estate which
generated revenue of $2.6 million which was equal to the carrying value of the property; and
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | an increase in golf and other revenues of $1.4 million primarily due to increased revenues from our Magna Golf Club operations as a result of new members.                                                                                                                                                  

Predevelopment, pre-opening and other costs

Predevelopment, pre-opening and other costs were $8.8 million in 2003, compared to $2.3 million in 2002. Predevelopment,
pre-opening and other costs of $8.8 million in 2003 represent $4.2 million incurred pursuing alternative gaming opportunities, $0.8 million of information technology
costs which were determined to have no future benefit, $0.7 million of disposal costs related to excess real estate at Golden Gate Fields and $3.1 million of costs relating to
developmental initiatives undertaken to enhance our racing operations. In 2002, the predevelopment, pre-opening and other costs of $2.3 million related to developmental initiatives
undertaken to enhance our racing operations.

Write-downs of long-lived and intangible assets and excess real estate

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. In 2002, 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 and based on the results, the earnings forecasts for these two racetracks were revised and we recognized an impairment in value of $14.7 million related to our long-lived
assets and an impairment in value of racing licenses of $2.8 million. In addition, in 2002, we recognized a write-down of excess real estate of $5.8 million with respect to
the sale of excess real estate located at Golden Gate Fields whereby the consideration received on the sale of this excess real estate exceeded the carrying value of the property.

Depreciation and amortization

Depreciation and amortization increased $8.5 million to $31.3 million in 2003 from $22.8 million in 2002, primarily as a result of our recent
acquisitions recording additional depreciation and amortization of $7.1 million and increased depreciation and amortization on recent fixed asset additions.

Interest income and expense

Our net interest expense for 2003 increased $11.0 million to $11.7 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 and Lone Star Park at Grand Prairie. 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.

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Income tax benefit

We recorded an income tax benefit of $63.5 million on losses before income taxes of $169.9 million in 2003, compared to an income tax benefit of
$8.6 million on losses before income taxes of $23.5 million in 2002. Our effective income tax rate in 2003 was 37.4%, compared to 36.6% in 2002, primarily due to increased
non-deductible expenditures.

Discontinued operations

Discontinued operations in 2003 and 2002 include the operations of Flamboro Downs and MVRC. The following table presents revenues and earnings from discontinued
operations for 2003 and 2002:

|                              |  | Year ended December 31, |       
|----------------------------- |  | ----------------------- | ------
|
|Revenues                      |  | $                       | 22,337
|Costs and expenses            |  |                         | 14,449
|                              |  |                         |       
|                              |  |                         | 7,888 
|Depreciation and amortization |  |                         | 582   
|Interest expense, net         |  |                         | 1,894 
|Equity income                 |  |                         | (992  
|                              |  |                         |       
|Income before income taxes    |  |                         | 6,404 
|Income tax expense            |  |                         | 5,123 
|                              |  |                         |       
|Net income                    |  | $                       | 1,281 
|                              |  |                         |       

Liquidity and Capital Resources

Year Ended December 31, 2005

Operating activities

Cash provided by operations before changes in non-cash working capital decreased $20.8 million to a use of cash of $70.8 million in 2005
from a use of cash of $50.0 million in 2004, primarily due to decreased earnings adjusted for the write-downs of long-lived and intangible assets. In 2005, cash provided by
non-cash working capital balances was $5.9 million compared to cash provided from non-cash working capital balances of $9.1 million in 2004. Cash provided by
non-cash working capital balances of $5.9 million in 2005 is primarily due to an increase in accounts payable and income taxes payable, partially offset by an increase in accounts
receivable and a decrease in deferred revenue at December 31, 2005 compared to the respective balances at December 31, 2004.

Investment activities

Cash used in investment activities in 2005 was $145.5 million, including expenditures of $149.5 million on real estate property and fixed asset
additions and $1.8 million on other asset additions, partially offset by $5.8 million of net proceeds received on the disposal of real estate properties and fixed assets. Expenditures on
real estate property and fixed asset additions in 2005 of $149.5 million consisted of $91.0 million on the Gulfstream Park redevelopment, $25.6 million on the Remington Park
gaming facility, $11.0 million at The Maryland Jockey Club, $8.7 million on maintenance capital improvements and $13.2 million of expenditures related to other racetrack property
enhancements, infrastructure and development costs on certain of our properties and technology operations.

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Financing activities

Cash provided by financing activities was $171.4 million in 2005 arising from advances and long-term debt from our parent company of
$156.5 million, the issuance of debt of $27.7 million, net advances on our bank indebtedness of $2.8 million, partially offset by repayments of long-term debt of
$15.6 million. The advances and long-term debt from our parent company of $156.5 million consists of $70.6 million on the bridge loan, $66.2 million on the
Gulfstream Park project financing arrangement and $19.7 million on the Remington Park project financing arrangement. The issuance of debt of $27.7 million represents $27.5 million
of debt incurred by the Magna Golf Club through a financing arrangement, which is secured by an assignment of the future amounts receivable under the Magna Golf Club access agreement and
$0.2 million on an equipment loan at The Maryland Jockey Club. The net advances of $2.8 million on our bank indebtedness relates to a $3.0 million bank term line of credit at one
of our European subsidiaries.

Year Ended December 31, 2004

Operating activities

Cash provided by operations before changes in non-cash working capital decreased $46.0 million to a use of cash of $50.0 million in 2004
from a use of cash of $4.0 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 $9.1 million compared to cash provided from non-cash working capital balances of $14.9 million in 2003. Cash provided from
non-cash working capital balances of $9.1 million in 2004 is primarily due to an increase in accounts receivable, partially offset by increases in accounts payable, accrued salaries
and wages, other accrued liabilities and deferred revenues at December 31, 2004 compared to the respective balances at December 31, 2003.

Investment activities

Cash used in investment activities in 2004 was $119.9 million, including expenditures of $139.2 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 Park redevelopment, $36.6 million on Magna Racino,
$19.4 million at The Maryland Jockey Club, $12.1 million for construction at our Palm Meadows training center, $9.0 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 $119.2 million in 2004 arising from the issuance of debt of $119.2 million, $23.4 million from
long-term debt from our parent company (net of loan origination expenses of $3.0 million) related to the Gulfstream Park project financing arrangement, 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
$53.8 million. The issuance of debt of $119.2 million is comprised of $75.0 million of debt incurred by The Santa Anita Companies, Inc., 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 used in operations before changes in non-cash working capital decreased $23.7 million to a use of cash of $4.0 million in 2003 from
a source of cash of $19.7 million in 2002 primarily due to lower net income. In 2003, cash provided by non-cash working capital balances was $14.9 million compared to cash
provided by non-cash working capital balances of $0.3 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 $109.0 million, including expenditures of $105.7 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 $15.9 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 $102.7 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 $15.7 million.

Working Capital, Cash and Other Resources

Our net working capital, excluding assets and liabilities held for sale and discontinued operations, was ($160.9) million at December 31, 2005, compared to
($42.1) million at December 31, 2004.

On
July 22, 2005, we announced that as part of our strategic plan, the Board of Directors approved a Recapitalization Plan, which is intended to recapitalize our balance sheet
over the following 12 months through the sale of certain non-strategic assets, with proceeds realized from those asset sales being applied to reduce debt. The Recapitalization Plan
also contemplates a possible partnership to pursue alternative gaming opportunities at our racetracks and the possible raising of equity in 2006. The proceeds of such an equity offering would be used
to further reduce debt and for general corporate purposes. In connection with this Recapitalization Plan, in July 2005, we entered into two loan agreements with MID. The first loan agreement
effectively replaced the existing $77.0 million construction loan commitment for The Meadows racetrack and slots facility in Pennsylvania with a loan for up to $34.2 million to fund the
development, design and construction of the alternative gaming facility at Remington Park in Oklahoma. No advances had been made under The Meadows project financing. In addition, certain terms of the
existing $115.0 million Gulfstream Park loan were amended. The second loan agreement provided for a non-revolving bridge loan facility of up to $100.0 million.

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A
subsidiary of MID has provided a non-revolving bridge loan facility of up to $100.0 million. $50.0 million was available to us as of the closing of the bridge
loan, a second tranche of $25.0 million was made available to us on October 17, 2005 and a third tranche of $25.0 million was made available to us on February 10, 2006. The
bridge loan terminates on August 31, 2006. An arrangement fee of $1.0 million was paid on closing, a second arrangement fee of $0.5 million was paid when the second tranche was
made available to us and an additional arrangement fee of $0.5 million was paid when the third tranche of the loan was made available to us. There is a commitment fee of 1.0% per year on the
undrawn portion of the $100.0 million maximum amount of the loan commitment, payable quarterly in arrears. At our option, the loan bears interest either at: (1) floating rate, with
annual interest equal to the greater of (a) U.S. Base rate, as announced from time to time, plus 5.5% and (b) 9.0% (with interest in each case payable monthly in arrears); or
(2) fixed rate with annual interest equal to the greater of: (a) LIBOR plus 6.5% and (b) 9.0%, subject to certain conditions. The overall weighted average interest rate on the
advances under the bridge loan at December 31, 2005 was 10.9%. The bridge loan may be repaid at any time, in whole or in part, without penalty. The bridge loan requires that the net proceeds of
any equity offering be used to reduce outstanding indebtedness under the bridge loan, subject to specified amounts required to be paid to reduce other indebtedness. Also, subject to specified
exceptions, the proceeds of any debt offering or asset sale must be used to reduce outstanding indebtedness under the bridge loan or other specified indebtedness. The bridge loan is secured by
substantially all of MEC's assets and guaranteed by certain of our subsidiaries. The guarantees are secured by first ranking security over the lands owned by The Meadows (ahead of the Gulfstream Park
project financing), second ranking security over the lands owned by Golden Gate Fields (behind an existing third party lender) and third ranking security over the lands owned by Santa Anita Park
(behind existing third party lenders). In addition, we have pledged the shares and licences of certain subsidiaries (or provided negative pledges where a pledge is not available due to
regulatory constraints or due to a prior pledge to an existing third party lender). As security for the loan, we have also assigned all inter-company loans made between us and our subsidiaries and all
insurance proceeds to the lender, and taken out title insurance for all real property subject to registered security. The bridge loan is cross-defaulted to all other obligations of MEC and its
subsidiaries to the lender and to the Company's other principal indebtedness. The security over the lands owned by The Meadows may be subordinated to new third party financings of up to
U.S. $200.0 million for the redevelopment of The Meadows. During the year ended December 31, 2005, $74.1 million was advanced on this bridge loan, such that at
December 31, 2005, $74.1 million was outstanding under the bridge loan. Net loan origination expenses of $2.6 million have been recorded as a reduction of the outstanding bridge
loan balance. The bridge loan balance is being accreted to its face value over the term to maturity. In addition, during the year ended December 31, 2005, $0.2 million of commitment fees
and $2.3 million of interest expense was incurred related to the bridge loan, of which $0.6 million was outstanding at December 31, 2005. The Company and MID entered into an
agreement to amend the bridge loan agreement to provide that (i) we place $13.0 million from the Flamboro Downs sale proceeds into escrow with MID, and such additional amounts as
necessary to ensure that future Gulfstream Park construction costs can be funded, (ii) MID waive its negative pledge over our land in Ocala, Florida, (iii) Gulfstream Park enter into a
definitive agreement with BE&K, Inc., for debt financing of $13.5 million to be used to pay for construction costs for the Gulfstream Park construction project, (iv) we will use
commercially reasonable efforts to sell certain assets and use the proceeds of such sales to pay down the bridge loan, and (v) in the event that we did not enter into definitive agreements
prior to December 1, 2005 to sell certain additional assets or repay the full balance of the bridge loan by January 15, 2006, MID would be granted mortgages on certain additional
properties owned by us. Upon the closing of the sale of certain assets, we will also be required to put into escrow with MID, the amount required to pre-pay the loan from BE&K, Inc.
On November 17, 2005, Gulfstream Park signed a loan agreement with BE&K, Inc., which to December 31, 2005 had not been drawn upon. On February 9, 2006, the bridge loan was
amended such that certain subsidiaries were added as guarantors of the bridge loan. The guarantees are secured by charges over the lands commonly known as San Luis Rey Downs in California, Dixon Downs
in California, the New York lands in New York and the Thistledown lands in Ohio, and by pledges of the shares of certain subsidiaries. At December 31, 2005, we had placed
$13.7 million into escrow with MID, which is included in accounts receivable on the consolidated balance sheets. In accordance with the terms of the senior secured revolving credit facility and
the bridge loan agreement, we were required to use the net proceeds from the sale of Flamboro Downs to pay down the principal amount owing under the two loans in equal portions. However, both MID and
the lender under the senior secured revolving credit facility agreed to mutually waive this repayment requirement, subject to certain other amendments, including provisions for repayment upon closing
of certain future asset sales.

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In
December 2004, certain of our subsidiaries entered into a $115.0 million project financing arrangement with MID for the reconstruction of facilities at Gulfstream Park.
This project financing arrangement was amended on July 27, 2005 in connection with the Remington Park loan as described below. 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, 2007, payment of interest will be deferred. Commencing January 1, 2007, we will make monthly blended payments of principal and interest
based on a 25-year amortization period commencing on the completion date. The loan contains cross-guarantee, cross-default and cross-collateralization provisions. The loan is guaranteed by
our subsidiaries that own and operate The Meadows, Remington Park and the Palm Meadows training center and is collateralized principally by security over the lands forming part of the operations at
Gulfstream Park, Remington Park, Palm Meadows and The Meadows and over all other assets of Gulfstream Park, Remington Park, Palm Meadows and The Meadows, excluding licenses and permits. During the
year ended December 31, 2005, $67.0 million (for the year ended December 31, 2004  $26.4 million) was advanced such that at
December 31, 2005, $97.1 million was outstanding under the Gulfstream Park loan, which includes $3.7 million of accrued interest. Net loan origination expenses of
$3.5 million have been recorded as a reduction of the outstanding loan balance. The loan balance is being accreted to its face value over the term to maturity.

MID
provided project financing of $34.2 million to finance the build-out of the casino facility at Remington Park. Advances under the loan are made by way of progress
draw advances to fund the capital expenditures relating to the development, design and construction of the casino facility, including the purchase and installation of electronic gaming machines. The
loan has a ten-year term from the completion date of the reconstruction project, which was November 28, 2005. Prior to the completion date, amounts outstanding under the loan bore
interest at a floating rate equal to 2.55% per annum above MID's notional cost of LIBOR borrowing under its floating rate credit facility, compounded monthly. After the completion date, amounts
outstanding under the loan bear interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2007, payment of interest will be deferred. Commencing
January 1, 2007, we will make monthly blended payments of principal and interest based on a 25-year amortization period commencing on the completion date. Certain cash from the
operations of Remington Park must be used to pay deferred interest on the loan plus a portion of the principal under the loan equal to the deferred interest on the Gulfstream Park construction loan.
The loan is secured by all assets of Remington Park, excluding licenses and permits. The loan is also secured by a charge over the lands owned by Gulfstream Park and a charge over the Palm Meadows
training center and contains cross-guarantee, cross-default and cross-collateralization provisions. As at December 31, 2005, $20.7 million has been advanced under the loan and
$0.3 million of interest has accrued on the loan, such that at December 31, 2005, $21.0 million was outstanding under this loan. Net loan origination expenses of
$1.1 million have been recorded as a reduction of the outstanding loan balance and the loan balance will be accreted to its face value over the term to maturity.

One
of our subsidiaries, The Santa Anita Companies, Inc. ("SAC"), is party to a secured term loan facility that matures on October 7, 2007, however may be extended 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 LIBOR plus 2.0% per annum.
Effective November 30, 2005, we have entered into an interest rate swap contract and fixed the rate of interest at 7.05% per annum to October 7, 2007 on a notional amount of
$10.0 million. Effective November 1, 2004, we have entered into an interest rate swap contract and fixed the rate of interest at 5.38% per annum to October 31, 2007 on a notional
amount of 40% of the outstanding balance under this secured term loan facility. 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. The loan contains cross-default provisions with respect to our $50.0 million senior secured revolving credit facility and our bridge loan from MID. At
December 31, 2005, $69.2 million was outstanding under this fully drawn facility.

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Loans
under our $50.0 million senior secured revolving credit 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. At December 31, 2005, we had borrowed $27.3 million and issued letters of credit totaling $21.7 million under this
facility, such that $1.0 million was unused and available. Effective July 27, 2005, the facility's term was extended to July 31, 2006, the financial covenants were amended and are
now EBITDA maintenance tests relating to Santa Anita Park and Golden Gate Fields, mandatory repayment provisions were added and interest rates have been changed such that borrowings are now available
by way of U.S. Base rate loans plus 3% or LIBOR plus 4%.

In
June 2003, we issued $150.0 million of 8.55% convertible subordinated notes, which are convertible at any time at the option of the holders into shares of our
Class A Subordinate Voting Stock at a conversion price of $7.05 per share, subject
to adjustment under certain circumstances, and mature on June 15, 2010. The notes are redeemable at the principal amount together with accrued and unpaid interest, at our option, under certain
conditions in the period from June 2, 2006 to June 2, 2008. At December 31, 2005, all of the notes remained outstanding.

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

In
December 2004, one of our European subsidiaries entered into a loan arrangement which is secured 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 last installment has been made in 2014. The interest rate implicit in the arrangement is 5.17%. At December 31, 2005, $20.9 million was outstanding under this arrangement. On
February 18, 2005, one of our Canadian subsidiaries entered into a financing arrangement that is secured by an assignment of the future amounts receivable under the Magna Golf Club access
agreement for the years 2006 through 2008. We received proceeds of Cdn. $13.7 million that is repayable in three annual installments of Cdn. $5.0 million commencing January 1,
2006 until the third installment has been made in 2008. The interest rate implicit in the arrangement is 5.08%. At December 31, 2005, $11.7 million was outstanding under this
arrangement. On April 5, 2005, the same Canadian subsidiary entered into a loan agreement that is secured by an assignment of the future amounts receivable under the Magna Golf Club access
agreement for the years 2009 through 2014. We received proceeds of Cdn. $20.5 million that is repayable in six annual installments of Cdn. $5.0 million commencing January 1, 2009
until the last installment has been made in 2014. The loan bears interest at a rate of 6.36% per annum. At December 31, 2005, $17.6 million was outstanding under this arrangement.

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, 2005, $17.8 million was outstanding on this facility which matures on February 9, 2007.

One
of our European subsidiaries has a 15.0 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, 2005, $17.8 million was outstanding under this facility, which matures on
December 15, 2006.

83

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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, 2005, this obligation has been reflected on our balance sheet as long-term debt due after one year.

Also,
two of our subsidiaries, which are part of The Maryland Jockey Club, are party to secured term loan facilities that bear interest at the U.S. Prime rate or LIBOR plus 2.6%
and 7.0% per annum, respectively. Both term loans have interest rate adjustment clauses that reset to the market rate for U.S. Treasury security of an equivalent term plus 2.6% at set dates
prescribed in the agreements. At December 31, 2005, $13.7 million and $4.3 million, respectively, were outstanding under these fully drawn term loan facilities which mature on
December 1, 2013 and June 7, 2017, respectively.

A
subsidiary of the Company, Pimlico Racing Association, Inc., has a $10.0 million term loan facility, which matures on December 15, 2019. The term loan facility,
which bears interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum, is secured by deeds of trust on land, buildings and improvements and security interests in all other assets of
the subsidiary and certain affiliates of The Maryland Jockey Club. At December 31, 2005, $9.6 million was outstanding under this term loan facility.

At
December 31, 2005, we had cash and cash equivalents of $50.9 million, bank indebtedness of $30.3 million and total shareholders' equity of $459.6 million.
At December 31, 2005, we were not in compliance with one of the financial covenants of our senior secured revolving credit facility and our bridge loan facility. In February 2006, the
lender of our senior secured revolving credit facility and MID agreed to waive compliance with the financial covenant contained in both loan agreements in relation to Golden Gate Fields. Under both
loan agreements, the financial covenant related to the earnings before interest, income taxes, depreciation and amortization of Golden Gate Fields. Earnings in the fourth quarter at Golden Gate Fields
were below expectation primarily as a result of a change in the racing calendar which resulted in six fewer live race days than planned. This is a situation specific to the fourth quarter of 2005
which is not expected to recur again or negatively impact financial covenant calculations at the quarter end dates remaining in the terms of these facilities. We were in compliance with all other debt
agreements and related covenants as at December 31, 2005.

We
believe that our current cash resources, cash flow from our racing and gaming and real estate operations as well as proceeds from the anticipated sales of real estate holdings and
other assets including The Meadows and our residential development property in Palm Beach County, Florida, will be sufficient to finance our operations and our maintenance capital expenditure program
during the next year. In order to implement our strategic plan, including the addition of a slots facility at Gulfstream Park and capitalizing on future growth opportunities, we will be required to
seek additional financing and funds from one or more possible sources, which may include MID, asset sales, project financings for racing and/or alternative gaming developments, investments by partners
in certain of our racetracks and other business operations and debt or equity offerings through public or private sources. If additional financing or other sources of funds are not available to us as
needed, or are not available on terms that are acceptable to us, our ability to add alternative gaming to our racetracks where and when permitted or improve or expand our operations as planned may be
adversely affected.

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Contractual Obligations and Commitments

Our commitments to make future payments consist primarily of repayments of long-term debt including capital lease obligations, amounts due to our
parent, obligations under operating and facility leases, construction commitments and other long-term liabilities. Our contractual obligations and commitments at December 31, 2005
are as follows:

|($ thousands)                                    |  | Less than 1 year |  | 1 to 3 years |  | 3 to 5 years |  | More than 5 years |  | Total  
|------------------------------------------------ |  | ---------------- |  | ------------ |  | ------------ |  | ----------------- |  | -------
|Long-term debt                                   |  | 38,033           |  | 62,334       |  | 69,361       |  | 51,135            |  | 220,863
|Amounts due to Parent                            |  | 74,712           |  | 3,178        |  | 2,654        |  | 112,313           |  | 192,857
|Convertible subordinated notes                   |  |                 |  |             |  | 225,000      |  |                  |  | 225,000
|Capital lease obligations                        |  | 1,320            |  | 2,904        |  | 2,904        |  | 28,512            |  | 35,640 
|Operating leases(1)                              |  | 1,225            |  | 1,829        |  | 420          |  |                  |  | 3,474  
|Facility leases                                  |  | 1,491            |  | 2,566        |  | 1,636        |  | 1,509             |  | 7,202  
|Construction and development project commitments |  | 20,100           |  |             |  |             |  |                  |  | 20,100 
|Other long-term liabilities                      |  | 2,254            |  | 3,481        |  | 2,329        |  | 4,808             |  | 12,872 
|                                                 |  |                  |  |              |  |              |  |                   |  |        
|                                                 |  | 139,135          |  | 76,292       |  | 304,304      |  | 198,277           |  | 718,008
|                                                 |  |                  |  |              |  |              |  |                   |  |        

The racetrack and associated land under capital lease at Lone Star Park at Grand Prairie is included in the Grand Prairie Metropolitan Utility and
Reclamation District ("GPMURD"). Lone Star Park entered into an agreement with GPMURD whereby it is required to make certain payments to GPMURD in lieu of property taxes. Such payments
include amounts necessary to cover GPMURD operating expenses and debt service for certain bonds issued by GPMURD to fund improvements on the land up to the debt service requirements.
Lone Star Park incurred $1.8 million in regards to this arrangement in the year ended December 31, 2005.

We
have a 30% equity interest in AmTote, a provider of totalisator services to the pari-mutuel industry. We have an option (the "First Option") to acquire an
additional 30% equity interest in AmTote, exercisable at any time during the three year period commencing after the date of acquisition. If we exercise the First Option, we have a second option to
acquire the remaining 40% equity interest in AmTote, exercisable at any time during the three year period commencing after the date of exercise of the First Option. The shareholders of AmTote also
have the right to sell to us their remaining equity interest during the 120 day period following the exercise of the First Option.

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.

85

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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, 2005 and our current credit facilities, a 1% per annum increase or decrease in interest rates on our short-term credit facility and other variable
rate borrowings would not materially affect our annual future earnings and cash flows. Based on borrowing rates currently available to us, the carrying amount of our debt approximates its fair value.

In
order to mitigate a portion of the interest rate risk associated with The Santa Anita Companies, Inc. term loan facility, we have entered into two interest rate swap contracts.
Effective November 30, 2005, we have entered into an interest rate swap contract and fixed the rate of interest at 7.05% per annum to October 7, 2007 on a notional amount of
$10.0 million. Effective November 1, 2004, we have entered into an interest rate swap contract and fixed the rate of interest at 5.38% per annum to October 31, 2007 on a notional
amount of 40% of the outstanding balance under this secured term loan facility, which is $69.2 million as at December 31, 2005.

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 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. Statement 123(R) must be adopted no later than January 1, 2006. The Company will be implementing the revised standard in the first quarter of 2006 and expects
that the impact will be consistent with the pro-forma results that have been previously disclosed.

Forward-looking Statements

This
Report, contains "forward-looking statements" within the meaning of applicable securities legislation, including the Securities Act of 1933, as amended, and the Securities 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 redevelopment projects, transactions or other
objectives will be achieved; estimates of costs relating to environmental remediation and restoration; proposed new racetracks or other developments, products and services; expectations as to the
timing and receipt of government approvals and regulatory changes in gaming and other racing laws and regulations; expectations that claims, lawsuits, environmental costs, commitments, contingent
liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidated financial position, operating results, prospects or liquidity; projections,
predictions, expectations, estimates, beliefs or forecasts as to our financial and operating results and future economic performance; and other matters that are not historical facts.

86

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

Important
factors that could cause such differences include, but are not limited to, the factors discussed below under "Management's Discussion and Analysis of Results of Operations and
Financial Position" and "Risk Factors" sections of our subsequent public filings.

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

87

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Item 8.    Financial Statements and Supplementary Data

REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Shareholders ofMagna Entertainment Corp.

We
have audited the accompanying consolidated balance sheets of Magna Entertainment Corp. as of December 31, 2005 and 2004, and the related consolidated statements of operations
and comprehensive loss, changes in shareholders' equity and cash flows for each of the years in the three year period ended December 31, 2005. 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, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the years in the three year period ended December 31, 2005, 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.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Magna Entertainment Corp.'s internal
control over financial reporting as of December 31, 2005, based on criteria established in Internal Control  Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated February 3, 2006 expressed an unqualified opinion thereon.

As
described in note 2 to these consolidated financial statements, the Company changed its accounting policies for the valuation of acquired intangible assets other than
goodwill.

|                                                                                                                                        |  | /s/ Ernst & Young LLP
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------
|Toronto, Canada                                                                                                                         |  | Ernst & Young LLP    
|February 3, 2006,
except for Note 20(a)(i) as to which the date is February 9, 2006 and Note 23 as to which the date is March 15, 2006.

88

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

|                                                    |                                            |                         |    | Years ended December 31, |         
|--------------------------------------------------- | ------------------------------------------ | ----------------------- | -- | ------------------------ | --------
|
|
|Revenues                                            |                                            | 19,20                   |    |                          |         
|Racing and gaming                                   |                                            |                         |    |                          |         
|                                                    | Pari-mutuel wagering                       |                         |    |                          | $       
|                                                    | Gaming                                     |                         |    |                          |         
|                                                    | Non-wagering                               |                         | 8  |                          |         
|                                                    |                                            |                         |    |                          |         
|                                                    |                                            |                         |    |                          | 599,785 
|                                                    |                                            |                         |    |                          |         
|Real estate and other                               |                                            |                         |    |                          |         
|                                                    | Sale of real estate                        |                         |    |                          |         
|                                                    | Golf and other                             |                         |    |                          |         
|                                                    |                                            |                         |    |                          |         
|                                                    |                                            |                         |    |                          | 24,870  
|                                                    |                                            |                         |    |                          |         
|                                                    |                                            |                         |    |                          | 624,655 
|                                                    |                                            |                         |    |                          |         
|Costs and expenses                                  |                                            |                         |    |                          |         
|Racing and gaming                                   |                                            |                         |    |                          |         
|                                                    | Pari-mutuel purses, awards and other       |                         |    |                          |         
|                                                    | Gaming taxes, purses and other             |                         |    |                          |         
|                                                    | Operating costs                            |                         | 8  |                          |         
|                                                    | General and administrative                 |                         |    |                          |         
|Real estate and other                               |                                            |                         |    |                          |         
|                                                    | Cost of real estate sold                   |                         |    |                          |         
|                                                    | Operating costs                            |                         |    |                          |         
|                                                    | General and administrative                 |                         |    |                          |         
|Predevelopment, pre-opening and other costs         |                                            |                         |    |                          | 11,882  
|Depreciation and amortization                       |                                            |                         |    |                          | 39,222  
|Interest expense, net                               |                                            | 14                      |    |                          | 35,132  
|Write-down of long-lived and intangible assets      |                                            | 7                       |    |                          |        
|Equity income                                       |                                            |                         |    |                          | (1,122  
|                                                    |                                            |                         |    |                          |         
|                                                    |                                            |                         |    |                          | 728,363 
|                                                    |                                            |                         |    |                          |         
|Loss from continuing operations before income taxes |                                            |                         |    |                          | (103,708
|Income tax benefit                                  |                                            | 12                      |    |                          | (598    
|                                                    |                                            |                         |    |                          |         
|Net loss from continuing operations                 |                                            |                         |    |                          | (103,110
|Net income (loss) from discontinued operations      |                                            | 5                       |    |                          | (2,183  
|                                                    |                                            |                         |    |                          |         
|Net loss                                            |                                            |                         |    |                          | (105,293
|Other comprehensive income (loss)                   |                                            |                         |    |                          |         
|                                                    | Foreign currency translation adjustment    |                         | 17 |                          |         
|                                                    | Change in fair value of interest rate swap |                         | 18 |                          |         
|                                                    |                                            |                         |    |                          |         
|Comprehensive loss                                  |                                            |                         |    | $                        | (119,849
|                                                    |                                            |                         |    |                          |         
|Earnings (loss) per share for Class A Subordinate   |                                            |                         |    |                          |         
|                                                    | Voting Stock or Class B Stock              |                         |    |                          |         
|                                                    | Basic and Diluted                          |                         |    |                          |         
|                                                    |                                            | Continuing operations   |    | 16                       |         
|                                                    |                                            | Discontinued operations |    | 16                       |         
|                                                    |                                            |                         |    |                          |         
|Total loss per share                                |                                            |                         |    | $                        | (0.98   
|                                                    |                                            |                         |    |                          |         
|Average number of shares of Class A Subordinate     |                                            |                         |    |                          |         
|                                                    | Voting Stock or Class B Stock outstanding  |                         |    |                          |         
|                                                    | during the year (in thousands):            |                         |    |                          |         
|                                                    | Basic and Diluted                          |                         | 16 |                          |         
|                                                    |                                            |                         |    |                          |         

See accompanying notes

89

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

|                                                                                            |                                                            |                          |    | Years ended December 31, |         
|------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------ | -- | ------------------------ | --------
|
|
|Cash provided from (used for):                                                              |                                                            |                          |    |                          |         
|OPERATING ACTIVITIES:                                                                       |                                                            |                          |    |                          |         
|Net loss from continuing operations                                                         |                                                            |                          |    | $                        | (103,110
|Adjustments to reconcile net loss to net cash provided from (used for) operating activities |                                                            |                          |    |                          |         
|                                                                                            | Depreciation and amortization                              |                          |    |                          |         
|                                                                                            | Future income taxes                                        |                          | 12 |                          |         
|                                                                                            | Gain on disposal of real estate properties                 |                          |    |                          |         
|                                                                                            | Loss (gain) on disposal of fixed assets                    |                          |    |                          |         
|                                                                                            | Write-down of long-lived and intangible assets             |                          | 7  |                          |         
|                                                                                            | Equity income                                              |                          |    |                          |         
|                                                                                            | Amortization of loan origination costs                     |                          |    |                          |         
|                                                                                            | Amortization of convertible subordinated notes issue costs |                          | 15 |                          |         
|                                                                                            | Issuance of Class A Subordinate Voting Stock under the     |                          |    |                          |         
|                                                                                            |                                                            | Long-term Incentive Plan |    | 16                       |         
|                                                                                            |                                                            |                          |    |                          |         
|                                                                                            |                                                            |                          |    |                          | (70,828 
|                                                                                            |                                                            |                          |    |                          |         
|Changes in non-cash working capital                                                         |                                                            |                          |    |                          |         
|                                                                                            | Restricted cash                                            |                          |    |                          |         
|                                                                                            | Accounts receivable                                        |                          |    |                          |         
|                                                                                            | Income taxes receivable/payable                            |                          |    |                          |         
|                                                                                            | Prepaid expenses and other                                 |                          |    |                          |         
|                                                                                            | Accounts payable                                           |                          |    |                          |         
|                                                                                            | Accrued salaries and wages                                 |                          |    |                          |         
|                                                                                            | Customer deposits                                          |                          |    |                          |         
|                                                                                            | Other accrued liabilities                                  |                          |    |                          |         
|                                                                                            | Deferred revenue                                           |                          |    |                          |         
|                                                                                            |                                                            |                          |    |                          |         
|                                                                                            |                                                            |                          |    |                          | 5,924   
|                                                                                            |                                                            |                          |    |                          |         
|                                                                                            |                                                            |                          |    |                          | (64,904 
|                                                                                            |                                                            |                          |    |                          |         
|INVESTING ACTIVITIES:                                                                       |                                                            |                          |    |                          |         
|Real estate property additions                                                              |                                                            |                          |    |                          | (143,555
|Fixed asset additions                                                                       |                                                            |                          |    |                          | (5,994  
|Other asset additions                                                                       |                                                            |                          |    |                          | (1,779  
|Proceeds on real estate sold to a related party                                             |                                                            | 20                       |    |                          | 1,400   
|Proceeds on disposal of real estate properties                                              |                                                            |                          |    |                          | 4,403   
|Proceeds on disposal of fixed assets                                                        |                                                            |                          |    |                          |        
|                                                                                            |                                                            |                          |    |                          |         
|                                                                                            |                                                            |                          |    |                          | (145,525
|                                                                                            |                                                            |                          |    |                          |         
|FINANCING ACTIVITIES:                                                                       |                                                            |                          |    |                          |         
|Net increase (decrease) in bank indebtedness                                                |                                                            | 13                       |    |                          | 2,760   
|Issuance of long-term debt                                                                  |                                                            |                          |    |                          | 27,714  
|Proceeds from advances and long-term debt with parent                                       |                                                            | 20                       |    |                          | 156,519 
|Repayment of long-term debt                                                                 |                                                            |                          |    |                          | (15,553 
|Issuance of share capital                                                                   |                                                            | 16                       |    |                          |        
|Issuance of convertible subordinated notes                                                  |                                                            | 15                       |    |                          |        
|                                                                                            |                                                            |                          |    |                          |         
|                                                                                            |                                                            |                          |    |                          | 171,440 
|                                                                                            |                                                            |                          |    |                          |         
|Effect of exchange rate changes on cash and cash equivalents                                |                                                            |                          |    |                          | 704     
|                                                                                            |                                                            |                          |    |                          |         
|Net cash flows provided from (used for) continuing operations                               |                                                            |                          |    |                          | (38,285 
|Net cash flows provided from (used for) discontinued operations                             |                                                            | 5                        |    |                          | 29,162  
|                                                                                            |                                                            |                          |    |                          |         
|Net increase (decrease) in cash and cash equivalents during the year                        |                                                            |                          |    |                          | (9,123  
|Cash and cash equivalents, beginning of year                                                |                                                            |                          |    |                          | 60,005  
|                                                                                            |                                                            |                          |    |                          |         
|Cash and cash equivalents, end of year                                                      |                                                            |                          |    | $                        | 50,882  
|                                                                                            |                                                            |                          |    |                          |         

See accompanying notes

90

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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                  |       |    |              |          
|                                            | Assets held for sale                        |       | 4  |              |          
|                                            | Discontinued operations                     |       | 5  |              |          
|                                            |                                             |       |    |              |          
|                                            |                                             |       |    |              | 224,887  
|                                            |                                             |       |    |              |          
|Real estate properties, net                 |                                             | 9     |    |              | 950,041  
|Fixed assets, net                           |                                             | 10    |    |              | 62,016   
|Racing licenses                             |                                             |       |    |              | 109,868  
|Other assets, net                           |                                             | 11    |    |              | 14,976   
|Future tax assets                           |                                             | 12    |    |              | 52,457   
|Assets held for sale                        |                                             | 4     |    |              |         
|Discontinued operations                     |                                             | 5     |    |              |         
|                                            |                                             |       |    |              |          
|                                            |                                             |       |    | $            | 1,414,245
|                                            |                                             |       |    |              |          
|LIABILITIES AND SHAREHOLDERS' EQUITY        |                                            
|Current liabilities:                        |                                             |       |    |              |          
|                                            | Bank indebtedness                           |       | 13 |              | $        
|                                            | Accounts payable                            |       |    |              |          
|                                            | Accrued salaries and wages                  |       |    |              |          
|                                            | Customer deposits                           |       |    |              |          
|                                            | Other accrued liabilities                   |       |    |              |          
|                                            | Income taxes payable                        |       |    |              |          
|                                            | Long-term debt due within one year          |       | 14 |              |          
|                                            | Due to parent                               |       | 20 |              |          
|                                            | Deferred revenue                            |       |    |              |          
|                                            | Liabilities related to assets held for sale |       | 4  |              |          
|                                            | Discontinued operations                     |       | 5  |              |          
|                                            |                                             |       |    |              |          
|                                            |                                             |       |    |              | 323,801  
|                                            |                                             |       |    |              |          
|Long-term debt                              |                                             | 14    |    |              | 182,830  
|Long-term debt due to parent                |                                             | 20    |    |              | 113,500  
|Convertible subordinated notes              |                                             | 15    |    |              | 220,347  
|Other long-term liabilities                 |                                             | 22    |    |              | 12,872   
|Future tax liabilities                      |                                             | 12    |    |              | 101,301  
|Liabilities related to assets held for sale |                                             | 4     |    |              |         
|Discontinued operations                     |                                             | 5     |    |              |         
|                                            |                                             |       |    |              |          
|                                            |                                             |       |    |              | 954,651  
|                                            |                                             |       |    |              |          
|Commitments and contingencies               |                                             | 20,21 |    |              |          
|Shareholders' equity:                       |                                             |       |    |              |          
|Class A Subordinate Voting Stock            |                                             |       |    |              |          
|                                            | (Issued: 2005  48,895; 2004  48,879)      |       | 16 |              |          
|Class B Stock                               |                                             |       |    |              |          
|                                            | (Issued: 2005 and 2004  58,466)            |       | 16 |              |          
|Contributed surplus                         |                                             | 20    |    |              | 17,943   
|Deficit                                     |                                             |       |    |              | (308,947 
|Accumulated comprehensive income            |                                             | 17,18 |    |              | 38,399   
|                                            |                                             |       |    |              |          
|                                            |                                             |       |    |              | 459,594  
|                                            |                                             |       |    |              |          
|                                            |                                             |       |    | $            | 1,414,245
|                                            |                                             |       |    |              |          

On
behalf of the Board:

|/s/ W. Thomas Hodgson
Director | /s/ William J. Menear
Director
|------------------------------ | ------------------------------

See accompanying notes

91

---



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

|                                                             |                                              | Class A Subordinate Voting Stock |         | Class B Stock |   | Contributed Surplus |  | Deficit |        | Accumulated Comprehensive Income (Loss) |  
|------------------------------------------------------------ | -------------------------------------------- | -------------------------------- | ------- | ------------- | - | ------------------- |  | ------- | ------ | --------------------------------------- | -
|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 17)            |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Change in fair value of interest rate swap (note 18)         |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Issue of Class A Subordinate Voting Stock                    |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|                                                             | under the Long-term Incentive Plan (note 16) |                                  |         | 144           |   |                     |  |         |        |                                         |  
|Issue of Class A Subordinate Voting Stock                    |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|                                                             | on exercise of stock options (note 16)       |                                  |         | 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 17)            |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Change in fair value of interest rate swap (note 18)         |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Issue of Class A Subordinate Voting Stock                    |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|                                                             | under the Long-term Incentive Plan (note 16) |                                  |         | 123           |   |                     |  |         |        |                                         |  
|Issue of Class A Subordinate Voting Stock                    |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|                                                             | on exercise of stock options (note 16)       |                                  |         | 852           |   |                     |  |         |        |                                         |  
|                                                             |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Balances at December 31, 2004                                |                                              |                                  | 318,003 |               |   | 394,094             |  |         | 17,282 |                                         |  
|Activity for the year ended December 31, 2005:               |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Net loss                                                     |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Foreign currency translation adjustment (note 17)            |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Change in fair value of interest rate swap (note 18)         |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Issue of Class A Subordinate Voting Stock                    |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|                                                             | under the Long-term Incentive Plan (note 16) |                                  |         | 102           |   |                     |  |         |        |                                         |  
|Net gain on sale of real estate to a related party (note 20) |                                              |                                  |         |               |   |                     |  |         | 661    |                                         |  
|                                                             |                                              |                                  |         |               |   |                     |  |         |        |                                         |  
|Balances at December 31, 2005                                |                                              | $                                | 318,105 |               | $ | 394,094             |  | $       | 17,943 |                                         | $
|                                                             |                                              |                                  |         |               |   |                     |  |         |        |                                         |  

See accompanying notes

92

---





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.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



93

---





94

---





95

---





Years ended December 31,2005

2004

2003Net loss, as reported

$
(105,293
)
$
(95,636
)
$
(105,097
)Pro-forma stock compensation expense determined under the fair value method, net of tax


(877
)

(972
)

(2,181
)Pro-forma net loss

$
(106,170
)
$
(96,608
)
$
(107,278
)Loss per shareBasic  as reported

$
(0.98
)
$
(0.89
)
$
(0.98
)Basic  pro-forma

$
(0.99
)
$
(0.90
)
$
(1.00
)Diluted  as reported

$
(0.98
)
$
(0.89
)
$
(0.98
)Diluted  pro-forma

$
(0.99
)
$
(0.90
)
$
(1.00
)








96

---





97

---





2.     ACCOUNTING CHANGE



3.     ACQUISITIONS





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


32,855Obligation with respect to the extension of the slot agreement


3,495$
59,405






98

---





4.     ASSETS HELD FOR SALE



December 31,2005

2004ASSETSCurrent assets:Restricted cash

$
443

$
192Accounts receivable


450


272Income taxes receivable


857


593Prepaid expenses and other


969


806Real estate properties, net


26,562


Fixed assets, net


1,576


Racing license


58,266


Other assets, net


200


Future tax assets


397


89,720


1,863Real estate properties, net





26,830Fixed assets, net





1,971Racing license





58,266Other assets, net





252Future tax assets





581


87,900$
89,720

$
89,763


99

---



December 31,2005

2004LIABILITIESCurrent liabilities:Accounts payable

$
2,012

$
2,046Accrued salaries and wages


44


259Other accrued liabilities


623


725Deferred revenue


312


301Future tax liabilities


24,746


27,737


3,331Future tax liabilities





25,016$
27,737

$
28,347




5.     DISCONTINUED OPERATIONS



100

---





Years ended December 31,2005

2004

2003Revenues

$
22,483

$
29,104

$
22,337Costs and expenses


17,342


20,471


14,4495,141


8,633


7,888Depreciation and amortization


783


894


582Interest expense, net


1,566


2,416


1,894Write-down of racing license


14,961





Equity income








(992
)Income (loss) before gain on disposition


(12,169
)

5,323


6,404Gain on disposition


9,837





Income (loss) before income taxes


(2,332
)

5,323


6,404Income tax expense (benefit)


(149
)

2,108


5,123Net income (loss)

$
(2,183
)
$
3,215

$
1,281


|
|

Years ended December 31,2005

2004

2003Cash provided from (used for):Operating activities

$
994

$
4,342

$
2,895Investing activities


35,972


(784
)

(227
)Financing activities


(6,989
)

(1,845
)

(1,812
)Effect of exchange rate changes on cash and cash equivalents


(1,451
)

(2,484
)

(5,262
)Net increase (decrease) in cash and cash equivalents during the year from operations


28,526


(771
)

(4,406
)Payments from (to) the Company's continuing operations


(29,162
)

(2,798
)

8,565Net increase (decrease) in cash and cash equivalents during the year


(636
)

(3,569
)

4,159Cash and cash equivalents, beginning of year


636


4,205


46Cash and cash equivalents, end of year

$


$
636

$
4,205




December 31,2005

2004ASSETSCurrent assets:Cash and cash equivalents

$


$
636Restricted cash





2,055Accounts receivable





2,315Income taxes receivable





258Prepaid expenses and other





134


5,398Real estate properties, net





19,896Fixed assets, net





1,325Racing license





72,759Future tax assets





276


94,256$


$
99,654


101

---





December 31,2005

2004LIABILITIESCurrent liabilities:Accounts payable

$


$
2,901Accrued salaries and wages





6Other accrued liabilities





621Long-term debt due within one year





4,362Deferred revenue





977


8,867Long-term debt





39,003Future tax liabilities





18,271


57,274$


$
66,141


6.     SALE AND LEASE ARRANGEMENT OF GREAT LAKES DOWNS



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



Years ended December 31,2005

2004(i)

2003(ii)Gulfstream Park

$


$
26,252

$
49,078The Maryland Jockey Club





433


47,712Bay Meadows








20,294Multnomah Greyhound Park








5,538Remington Park








4,780Portland Meadows








3,754Thistledown








3,700$


$
26,685

$
134,856




102

---







8.     WRITE-DOWN OF EXCESS REAL ESTATE



103

---



9.     REAL ESTATE PROPERTIES



December 31,2005

2004Revenue-producing racing real estateCostLand and improvements

$
206,873

$
208,841Buildings


495,018


395,338Construction in progress


119,247


104,583821,138


708,762Accumulated depreciationBuildings


(91,005
)

(68,280
)Revenue-producing racing real estate, net


730,133


640,482Excess racing real estate


96,303


98,332Development real estateCostLand and improvements


40,611


39,494Construction in progress


3,155


1,222Development real estate


43,766


40,716Revenue-producing non-racing real estateCostLand and improvements


37,130


37,543Buildings


51,299


56,95788,429


94,500Accumulated depreciationBuildings


(11,090
)

(11,025
)Revenue-producing non-racing real estate, net


77,339


83,475Non-core real estateCostLand and improvements


2,482


2,487Buildings


71


742,553


2,561Accumulated depreciationBuildings


(53
)

(49
)Non-core real estate, net


2,500


2,512$
950,041

$
865,517




104

---



10.   FIXED ASSETS



December 31,2005

2004Revenue-producing racing fixed assetsCostMachinery and equipment

$
62,755

$
42,662Furniture and fixtures


49,594


46,064112,349


88,726Accumulated depreciationMachinery and equipment


(24,969
)

(20,019
)Furniture and fixtures


(29,800
)

(25,499
)Revenue-producing racing fixed assets, net


57,580


43,208Revenue-producing non-racing fixed assetsCostMachinery and equipment


5,541


4,693Furniture and fixtures


7,897


8,10213,438


12,795Accumulated depreciationMachinery and equipment


(4,033
)

(3,280
)Furniture and fixtures


(4,969
)

(4,481
)Revenue-producing non-racing fixed assets, net


4,436


5,034$
62,016

$
48,242




11.   OTHER ASSETS



December 31,2005

2004Long-term receivables and other

$
8,099

$
8,093Equity investment


5,878


5,708Fair value of interest rate swaps (note 18(c))


586


Goodwill


413


740$
14,976

$
14,541


105

---



12.   INCOME TAXES



Years ended December 31,2005

2004

2003Expected provision:Federal statutory income tax rate (35%)

$
(36,298
)
$
(35,920
)
$
(59,450
)State income tax, net of federal benefit


309


586


(6,223
)Tax losses not benefited (utilized)


29,499


30,624


(1,082
)Foreign rate differentials


1,080


87


(42
)Change in enacted income tax rates





(5,108
)

Foreign dividends


1,599


1,894


Non-deductible expenses


2,985


4,530


2,617Other


228


(470
)

701Income tax benefit

$
(598
)
$
(3,777
)
$
(63,479
)




Years:2008 to 2010

$
3,1002012 to 2018


4,7002020 to 2025


204,100$
211,900




Years ended December 31,2005

2004

2003United States

$
(77,377
)
$
(84,978
)
$
(171,292
)Foreign


(26,331
)

(17,650
)

1,435$
(103,708
)
$
(102,628
)
$
(169,857
)




Years ended December 31,2005

2004

2003Current income tax provisionUnited States

$
746

$
679

$
698Foreign


4,652


996


2,9445,398


1,675


3,642Future income tax provision (benefit)United States


(75
)

14


(63,661
)Foreign


(5,921
)

(5,466
)

(3,460
)(5,996
)

(5,452
)

(67,121
)$
(598
)
$
(3,777
)
$
(63,479
)


106

---





Years ended December 31,2005

2004

2003Tax deferral on sale of real estate

$
(570
)
$
1,956

$
2,536Amortization of purchase accounting fair value increments, for tax purposes in excess of book


1,131


1,928


1,901Tax gain in excess of book gain on disposal of real estate property


(198
)

(1,404
)

(6,403
)Tax benefit of charitable contribution carry-forward








(269
)Tax benefit of loss carry-forwards


(29,080
)

(31,220
)

(10,932
)Fee revenue in excess of tax (tax in excess of book)


459


66


(1,305
)Securitization of future amounts receivable under access fee agreements


(4,176
)




Write-down of assets for book purposes








(53,194
)Increase (reduction) in valuation allowance


27,685


30,853


(920
)Change in enacted income tax rates





(5,108
)

Other


(1,247
)

(2,523
)

1,465$
(5,996
)
$
(5,452
)
$
(67,121
)




December 31,2005

2004AssetsReal estate properties tax value in excess of book value

$
20,456

$
20,850Tax benefit of loss carry-forwardsPre-acquisition


3,525


4,282Post-acquisition


97,121


49,012Tax benefit of charitable contribution carry-forward


1,400


1,400Benefit of various tax credit carry-forwards


2,749


2,700125,251


78,244Valuation allowanceValuation allowance against tax basis of loss carry-forwardsPre-acquisition


(3,349
)

(4,107
)Post-acquisition


(59,451
)

(29,755
)Valuation allowance against tax basis of real estateproperties in excess of book value


(9,994
)

(9,994
)Future tax assets

$
52,457

$
34,388LiabilitiesReal estate properties book basis in excess of tax basis

$
68,744

$
62,547Other assets book basis in excess of tax basis


20,553


22,038Foreign branch tax deferral and other


12,004


5,046Future tax liabilities

$
101,301

$
89,631




107

---





13.   BANK INDEBTEDNESS





14.   DEBT AND COMMITMENTS



December 31,2005

2004Term loan facility, bearing interest at LIBOR plus 2.0% per annum (6.3% at December 31, 2005) with a maturity date of October 7, 2007, subject to a further extension at the Company's option to October 7,
2009. The facility is guaranteed by 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, 2005, the term loan is fully drawn and is repayable in monthly principal amounts of $417 thousand until
maturity.

$
69,167

$
73,750Loan of Euros 17.6 million, bearing interest at an implicit rate of 5.17% per annum, secured by an assignment of future amounts receivable under the Fontana Sports access agreement, repayable in nine annual
principal and interest payments of Euros 2.5 million commencing January 1, 2006 until the last installment has been made in 2014.


20,880


23,869Obligation to pay $18.3 million on exercise of either the put or call option to acquire the remaining voting and equity interests in MJC, bearing interest at the six-month LIBOR (4.6% at December 31, 2005).
The Company can exercise the call option at any time during the period starting 48 months and ending 60 months after November 27, 2002 (the date on which MJC was acquired), and the put option can be exercised by the other party at
any time during the first five years after November 27, 2002.


18,312


18,312Term loan facility of Euros 15.0 million, bearing interest at 4.0% per annum with a maturity date of February 9, 2007, secured by a pledge of land and a guarantee by the Company.


17,761


20,304Term loan facility of Euros 15.0 million, bearing interest at EURIBOR plus 2% per annum (4.3% at December 31, 2005) with a maturity date of December 15, 2006, secured by a first and second mortgage on
land in Austria owned by the European subsidiary.


17,761


20,304Loan of Cdn. $20.5 million, bearing interest at a rate of 6.36% per annum, secured by an assignment of the future amounts receivable under the Magna Golf Club access agreement for the years 2009 through 2014,
repayable in six annual principal and interest payments of Cdn. $5.0 million commencing January 1, 2009 until the last installment has been made in 2014.


17,595





108

---



December 31,2005

2004Capital lease (imputed interest rate of 8.5%) maturing April 1, 2027, secured by buildings and improvements at Lone Star Park at Grand Prairie.


15,520


15,520Term loan facilities, bearing interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum (7.0% at December 31, 2005) until December 1, 2008, with a maturity date of December 1, 2013. On
December 1, 2008, the interest rate is reset to the market rate for a United States Treasury security of an equivalent term plus 2.6%. The term loans are repayable in quarterly principal and interest payments. The loans are secured by deeds
of trust on land, buildings and improvements and security interests in all other assets of certain affiliates of The Maryland Jockey Club.


13,698


17,786Financing arrangement of Cdn. $13.7 million, bearing interest at an implicit rate of 5.08% per annum, secured by an assignment of the future amounts receivable under the Magna Golf Club access agreement for the
years 2006 through 2008, repayable in three annual principal and interest payments of Cdn. $5.0 million commencing January 1, 2006 until the third installment has been made in 2008.


11,733


Term loan facility, bearing interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum (7.0% at December 31, 2005), with a maturity date of December 15, 2019. The term loan is repayable in
quarterly principal and interest payments. The loan is secured by deeds of trust on land, buildings and improvements and security interests in all other assets of certain affiliates of The Maryland Jockey Club.


9,608


10,000Term 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.


4,274


4,501Bank term loan of Euros 2.9 million, bearing interest at EURIBOR plus 0.625% per annum (3.1% at December 31, 2005). The term loan is due in July 2006. A European subsidiary has provided two first
mortgages on real estate properties as security for this facility.


3,442


7,870Other loans to various subsidiaries from various banks and city governments, including equipment loans and a term loan, with interest rates ranging from 4.0% to 8.1%.


1,112


1,180Unsecured promissory note bearing interest at 6.1% per annum, which matured on September 14, 2005.





2,500$
220,863

$
215,896Less: due within one year


(38,033
)

(13,401
)$
182,830

$
202,495




2006

$
38,0332007


49,0072008


13,3272009


61,4012010


7,960Thereafter


51,135$
220,863


109

---







2006

$
1,3202007


1,4522008


1,4522009


1,4522010


1,452Thereafter


28,512Total payments


35,640Less: capital lease minimum payments representing interest


(20,120
)Present value of lease payments

$
15,520




Years ended December 31,2005

2004

2003Interest cost, gross

$
42,117

$
26,747

$
20,629Less: Interest capitalized


(5,864
)

(4,043
)

(7,281
)Interest expense


36,253


22,704


13,348Interest income


(1,121
)

(1,029
)

(1,622
)Interest expense, net

$
35,132

$
21,675

$
11,726




15.   CONVERTIBLE SUBORDINATED NOTES



110

---





16.   CAPITAL STOCK AND LONG-TERM INCENTIVE PLAN









Class A Subordinate
Voting Stock

Class B Stock

TotalNumber of
shares

Stated
value

Number of
shares

Stated
value

Number of
shares

Stated
valueIssued and outstanding at
December 31, 2002

48,647,831

$
316,855

58,466,056

$
394,094

107,113,887

$
710,949Issued on exercise of Stock Options

6,000


29






6,000


29Issued under the Long- term Incentive Plan

25,965


144






25,965


144Issued and outstanding at
December 31, 2003

48,679,796


317,028

58,466,056


394,094

107,145,852


711,122Issued on exercise of Stock Options

175,000


852






175,000


852Issued under the Long- term Incentive Plan

24,000


123






24,000


123Issued and outstanding at
December 31, 2004

48,878,796


318,003

58,466,056


394,094

107,344,852


712,097Issued under the Long-term Incentive Plan

16,567


102






16,567


102Issued and outstanding at December 31, 2005

48,895,363

$
318,105

58,466,056

$
394,094

107,361,419

$
712,199


111

---





Years ended December 31,2005

2004

2003Net loss from continuing operations

$
(103,110
)
$
(98,851
)
$
(106,378
)Net income (loss) from discontinued operations


(2,183
)

3,215


1,281Net loss

$
(105,293
)
$
(95,636
)
$
(105,097
)Weighted average shares outstanding


107,356,108


107,323,300


107,143,107Net effect of dilutive instruments(i)








Diluted weighted average shares outstanding


107,356,108


107,323,300


107,143,107Earnings (loss) per share:Basic and DilutedContinuing operations

$
(0.96
)
$
(0.92
)
$
(0.99
)Discontinued operations


(0.02
)

0.03


0.01Total loss per share

$
(0.98
)
$
(0.89
)
$
(0.98
)




Number of SharesClass A Subordinate Voting Stock outstanding at December 31, 2005

48,895Class B Stock outstanding at December 31, 2005

58,466Options to purchase Class A Subordinate Voting Stock

4,8288.55% Convertible Subordinated Notes, convertible at $7.05 per share

21,2767.25% Convertible Subordinated Notes, convertible at $8.50 per share

8,824Performance share awards of Class A Subordinate Voting Stock

199142,488






112

---





Shares Subject to Option

Weighted Average
Exercise Price2005

2004

2003

2005

2004

2003Balance, Beginning of Year

4,500,500

4,841,500

5,361,833

$
6.18

$
6.14

$
6.18Granted

720,000

200,000

640,000


6.55


6.41


6.93Exercised



(175,000
)
(6,000
)




4.87


4.88Forfeited(i)

(393,000
)
(366,000
)
(1,154,333
)

7.39


6.30


6.78Balance, End of Year

4,827,500

4,500,500

4,841,500

$
6.14

$
6.18

$
6.14






Options Outstanding

Options Exercisable2005

2004

2003

2005

2004

2003Number


4,827,500


4,500,500


4,841,500


4,127,715


3,909,430


3,996,811Weighted averageexercise price

$
6.14

$
6.18

$
6.14

$
6.07

$
6.14

$
6.10Weighted averageremaining contractuallife (years)


5.1


5.6


6.6


4.5


5.3


6.3




Years ended December 31,2005

2004

2003Risk free interest rates

4.0%

3.0%

2.0%Dividend yields



0.84%

0.84%Volatility factor of expected market price ofClass A Subordinate Voting Stock

0.547

0.574

0.534Weighted average expected life (years)

4.00

4.00

4.00




113

---





Years ended December 31,2005

2004

2003Net loss, as reported

$
(105,293
)
$
(95,636
)
$
(105,097
)Pro-forma stock compensation expense determinedunder the fair value method, net of tax


(877
)

(972
)

(2,181
)Pro-forma net loss

$
(106,170
)
$
(96,608
)
$
(107,278
)Loss per shareBasic  as reported

$
(0.98
)
$
(0.89
)
$
(0.98
)Basic  pro-forma

$
(0.99
)
$
(0.90
)
$
(1.00
)Diluted  as reported

$
(0.98
)
$
(0.89
)
$
(0.98
)Diluted  pro-forma

$
(0.99
)
$
(0.90
)
$
(1.00
)




17.   CURRENCY TRANSLATION ADJUSTMENT



18.   FINANCIAL INSTRUMENTS







114

---







19.   SEGMENT INFORMATION



115

---





Years ended December 31,2005

2004

2003RevenuesCalifornia operations (i)

$
195,527

$
264,777

$
277,561Florida operations


74,542


80,035


78,320Maryland operations


111,252


102,521


100,489Southern U.S. operations


89,793


91,008


90,588Northern U.S. operations (i)


92,532


94,039


97,633European operations


12,816


7,417


890Technology operations


31,088


29,649


29,452607,550


669,446


674,933Corporate and other


116


936


423Eliminations


(7,881
)

(7,926
)

(10,528
)Total racing and gaming operations


599,785


662,456


664,828Sale of real estate





16,387


2,649Golf and other


24,870


23,630


19,121Total real estate and other operations


24,870


40,017


21,770Total revenues

$
624,655

$
702,473

$
686,598


|
|

Years ended December 31,2005

2004(ii)

2003(iii)Earnings (loss) before interest, income taxes, depreciation and amortization ("EBITDA")California operations (i)

$
16,674

$
25,366

$
11,365Florida operations


(254
)

(17,987
)

(41,495
)Maryland operations


4,956


4,903


(43,037
)Southern U.S. operations


4,665


3,915


(1,522
)Northern U.S. operations (i)


(191
)

(2,265
)

(14,851
)European operations


(19,481
)

(20,963
)

(131
)Technology operations


(4,329
)

(2,798
)

(26
)2,040


(9,829
)

(89,697
)Corporate and other


(24,071
)

(27,597
)

(28,542
)Predevelopment, pre-opening and other costs


(11,882
)

(20,508
)

(8,767
)Total racing and gaming operations


(33,913
)

(57,934
)

(127,006
)Sale of real estate





9,625


31Golf and other


4,559


3,972


159Total real estate and other operations


4,559


13,597


190Total EBITDA

$
(29,354
)
$
(44,337
)
$
(126,816
)






116

---





December 31,2005

2004Total AssetsCalifornia operations

$
295,066

$
310,026Florida operations


303,069


205,149Maryland operations


178,022


167,682Southern U.S. operations


140,786


105,024Northern U.S. operations


40,307


39,657European operations


132,921


176,906Technology operations


17,298


15,4391,107,469


1,019,883Corporate and other


115,038


74,701Total racing and gaming operations


1,222,507


1,094,584Non-Core Real Estate


2,500


2,512Golf and other


99,518


116,840Total real estate and other operations


102,018


119,352Total assets from continuing operations


1,324,525


1,213,936Total assets held for sale


89,720


89,763Total assets from discontinued operations





99,654Total assets

$
1,414,245

$
1,403,353


|
|

Years ended December 31,2005

2004

2003Real estate properties and fixed asset additionsRacing and gaming operations

$
148,548

$
136,238

$
102,713Real estate and other operations


1,001


2,918


3,018Total real estate properties and fixed asset additions

$
149,549

$
139,156

$
105,731




Year ended December 31, 2005Racing and Gaming Operations

Real Estate and Other Operations

TotalEBITDA (loss) from continuing operations

$
(33,913
)
$
4,559

$
(29,354
)Interest expense, net


33,274


1,858


35,132Depreciation and amortization


36,017


3,205


39,222Loss from continuing operationsbefore income taxes

$
(103,204
)
$
(504
)

(103,708
)Income tax benefit








(598
)Net loss from continuing operations








(103,110
)Net loss from discontinued operations








(2,183
)Net loss







$
(105,293
)


117

---



|
|

Year ended December 31, 2004Racing and
Gaming
Operations

Real Estate
and Other
Operations

TotalEBITDA (loss) from continuing operations

$
(57,934
)
$
13,597

$
(44,337
)Interest expense (income), net


23,040


(1,365
)

21,675Depreciation and amortization


33,601


3,015


36,616Income (loss) from continuing operationsbefore income taxes

$
(114,575
)
$
11,947


(102,628
)Income tax benefit








(3,777
)Net loss from continuing operations








(98,851
)Net income from discontinued operations








3,215Net loss







$
(95,636
)


|
|

Year ended December 31, 2003Racing and
Other
Operations

Real Estate
and Other
Operations

TotalEBITDA (loss) from continuing operations

$
(127,006
)
$
190

$
(126,816
)Interest expense (income), net


12,117


(391
)

11,726Depreciation and amortization


28,443


2,872


31,315Loss from continuing operationsbefore income taxes

$
(167,566
)
$
(2,291
)

(169,857
)Income tax benefit








(63,479
)Net loss from continuing operations








(106,378
)Net income from discontinued operations








1,281Net loss







$
(105,097
)




Years ended December 31,2005

2004

2003United States

$
589,229

$
661,390

$
668,477Canada


11,668


14,744


8,481Europe


23,758


26,339


9,640$
624,655

$
702,473

$
686,598




December 31,2005

2004United States

$
919,971

$
794,397Canada


66,547


65,550Europe


150,383


178,221Total from continuing operations


1,136,901


1,038,168Total assets held for sale


86,604


87,319Total from discontinued operations





93,980$
1,223,505

$
1,219,467


118

---



20.     TRANSACTIONS WITH RELATED PARTIES



December 31,2005

2004Bridge loan facility, including accrued interest and commitmentfees payable of $0.6 million(i)

$
72,060

$
Gulfstream Park project financing, including long-term accrued interestpayable of $3.7 million(ii)


93,646


23,408Remington Park project financing, including long-term accrued interestpayable of $0.3 million(iii)


19,854


$
185,560

$
23,408Less: due within one year


(72,060
)

$
113,500

$
23,408






119

---





120

---







2006

$
72,0602007


1,9652008


1,0882009


1,2082010


1,342Thereafter


107,897$
185,560




121

---







21.   COMMITMENTS AND CONTINGENCIES



122

---





2006

$
2,7172007


2,4232008


1,9722009


1,1562010


899Thereafter


1,509$
10,676




123

---





124

---





22.   OTHER LONG-TERM LIABILITIES



December 31,2005

2004Deferred initiation fees and other revenue

$
11,446

$
11,555Fair value of interest rate swap (note 18(c))





106Pension liability


453


173Other


973


85$
12,872

$
11,919




Years ended December 31,2005

2004

2003Components of net periodic pension cost:Service cost

$
532

$
437

$
413Interest cost on projected benefit obligation


690


685


647Actual return on plan assets


(840
)

(825
)

(1,015
)Net amortization and deferral


342


271


452Net periodic pension cost

$
724

$
568

$
497




Years ended December 31,2005

2004

2003Change in benefit obligation:Benefit obligation at beginning of year

$
14,104

$
11,711

$
12,237Service cost


532


437


413Interest cost


690


685


647Benefits paid


(623
)

(569
)

(540
)Actuarial (gains) losses


(111
)

1,840


(1,046
)Benefit obligation at end of year


14,592


14,104


11,711Change in plan assets:Fair value of plan assets at beginning of year


10,688


9,962


9,062Actual return on plan assets


840


825


1,015Company contributions


444


470


425Benefits paid


(623
)

(569
)

(540
)Fair value of plan assets at end of year


11,349


10,688


9,962Funded status of plan (underfunded)


(3,243
)

(3,416
)

(1,749
)Unrecognized net gain


2,790


3,243


1,675Net pension liability

$
(453
)
$
(173
)
$
(74
)


125

---





Years ended December 31,2005

2004

2003Weighted average discount rate

5.0%

5.0%

6.0%Weighted average rate of increase in compensation levels

4.0%

4.0%

5.0%Expected long-term rate of return

6.0%

6.0%

6.0%




23.   SUBSEQUENT EVENTS



126

---







MAGNA ENTERTAINMENT CORP.  SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION  December 31, 2005(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.)                |        | 52,781 |                          | 52,500 |                                             |      |                         |      |                                                 
|                                   | Gulfstream Park (Hallandale, Florida, U.S.A.)                 |        | 14,201 |                          | 14,201 |                                             |      |                         |      |                                                 
|                                   | Lone Star Park (Grand Prairie, Texas, U.S.A.)                 |        |       |                          | 4,245  |                                             |      |                         |      |                                                 
|                                   | Maryland Jockey Club (Baltimore, Maryland, U.S.A.)            |        |       |                          | 10,900 |                                             |      |                         |      |                                                 
|                                   | MEC Grundstucksentwicklungs GmbH (Niederoesterreich, Austria) |        |       |                          | 9,974  |                                             |      |                         | 3,651 |                                                 
|Real Estate Held for Development   |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 
|Racing Operations                  |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 
|                                   | Dixon Downs (Dixon, California, U.S.A.)                       |        |       |                          | 6,584  |                                             |      |                         | 9,194 |                                                 
|                                   | Ocala (Ocala, Florida, U.S.A.)                                |        | 8,439  |                          | 7,227  |                                             |      |                         | 1,212 |                                                 
|Real Estate Operations             |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 
|                                   | New York, U.S.A.                                              |        |       |                          | 725    |                                             |      |                         | 2,188 |                                                 
|                                   | Ontario, Canada                                               |        |       |                          | 2,334  |                                             |      |                         | 6,941 |                                                 
|                                   | Niederoesterreich, Austria                                    |        |       |                          | 6,804  |                                             |      |                         |      |                                                 
|Non-Core Real Estate               |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 
|Land                               |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 
|                                   | Florida, U.S.A.                                               |        |       |                          | 1,918  |                                             |      |                         | 540   |                                                 
|Residential Properties             |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 
|                                   | Niederoesterreich, Austria                                    |        |       |                          | 18     |                                             | 1,553 |                         | 4     |                                                 
|Residential Property Held for Sale |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 
|Real Estate Operations             |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 
|                                   | Palm Meadows Estates (Boynton, Florida, U.S.A.)               |        |       |                          | 7,488  |                                             |      |                         | 2,920 |                                                 
|                                   |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 
|                                   |                                                               | 75,421 |        | 124,918                  |        | 1,553                                       |       | 26,650                  |       | (1,567                                          
|                                   |                                                               |        |        |                          |        |                                             |       |                         |       |                                                 

127

---



|Description                        |                                                               | Accumulated Depreciation |    | Date of Construction |     | Date Acquired |      | Life on which Depreciation in Latest Income Statement is Computed
|---------------------------------- | ------------------------------------------------------------- | ------------------------ | -- | -------------------- | --- | ------------- | ---- | -----------------------------------------------------------------
|Excess Real Estate                 |                                                               |                          |    |                      |     |               |      |                                                                  
|Racing Operations                  |                                                               |                          |    |                      |     |               |      |                                                                  
|                                   | Santa Anita Park (Arcadia, California, U.S.A.)                |                          |   |                      | n/a |               | 1998 |                                                                  
|                                   | Gulfstream Park (Hallandale, Florida, U.S.A.)                 |                          |   |                      | n/a |               | 1999 |                                                                  
|                                   | Lone Star Park (Grand Prairie, Texas, U.S.A.)                 |                          |   |                      | n/a |               | 2002 |                                                                  
|                                   | Maryland Jockey Club (Baltimore, Maryland, U.S.A.)            |                          |   |                      | n/a |               | 2002 |                                                                  
|                                   | MEC Grundstucksentwicklungs GmbH (Niederoesterreich, Austria) |                          |   |                      | n/a |               | 1996 |                                                                  
|Real Estate Held for Development   |                                                               |                          |    |                      |     |               |      |                                                                  
|Racing Operations                  |                                                               |                          |    |                      |     |               |      |                                                                  
|                                   | Dixon Downs (Dixon, California, U.S.A.)                       |                          |   |                      | n/a |               | 2001 |                                                                  
|                                   | Ocala (Ocala, Florida, U.S.A.)                                |                          |   |                      | n/a |               | 2002 |                                                                  
|Real Estate Operations             |                                                               |                          |    |                      |     |               |      |                                                                  
|                                   | New York, U.S.A.                                              |                          |   |                      | n/a |               | 1998 |                                                                  
|                                   | Ontario, Canada                                               |                          |   |                      | n/a |               | 1997 |                                                                  
|                                   | Niederoesterreich, Austria                                    |                          |   |                      | n/a |               | 1994 |                                                                  
|Non-Core Real Estate               |                                                               |                          |    |                      |     |               |      |                                                                  
|Land                               |                                                               |                          |    |                      |     |               |      |                                                                  
|                                   | Florida, U.S.A.                                               |                          |   |                      | n/a |               | 1994 |                                                                  
|Residential Properties             |                                                               |                          |    |                      |     |               |      |                                                                  
|                                   | Niederoesterreich, Austria                                    |                          | 53 |                      | n/a |               | 1998 |                                                                  
|Residential Property Held for Sale |                                                               |                          |    |                      |     |               |      |                                                                  
|Real Estate Operations             |                                                               |                          |    |                      |     |               |      |                                                                  
|                                   | Palm Meadows Estates (Boynton, Florida, U.S.A.)               |                          |   |                      | n/a |               | 2000 |                                                                  
|                                   |                                                               |                          |    |                      |     |               |      |                                                                  
|                                   |                                                               | 53                       |    |                      |     |               |      |                                                                  
|                                   |                                                               |                          |    |                      |     |               |      |                                                                  

128

---



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

None.

Item 9A.    Controls and Procedures

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

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, 2005, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and
Chief Financial Officer, the Chief Executive officer and Chief Financial Officer have concluded that the Company maintained effective internal control over financial reporting as of
December 31, 2005.

Based
on an evaluation carried out, as of December 31, 2005, 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.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors and Shareholders of Magna Entertainment Corp.

We
have audited management's assessment, included in the accompanying Management's Report on Internal Controls Over Financial Reporting under Item 9A, that Magna Entertainment
Corp. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Magna Entertainment
Corp.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, management's assessment that Magna Entertainment Corp. maintained effective internal control over financial reporting as of December 31, 2005 is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, Magna Entertainment Corp. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2005, based on the COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Magna Entertainment
Corp. as of December 31, 2005 and 2004, and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity and cash flows for each of the three years
in the period ended December 31, 2005 of Magna Entertainment Corp. and our report dated February 3, 2006, except for Note 20[a][i]
as to which the date is February 9, 2006 and Note 23 as to which the date is March 15, 2006 expressed an unqualified opinion thereon.

|February 3, 2006 |  |  |  | /s/ERNST & YOUNG LLP
|---------------- |  |  |  | --------------------
|Toronto, Canada  |  |  |  | Ernst & Young LLP   

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, 2005.

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, 2005.

129

---



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, 2005.

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, 2005.

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, 2005.

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, 2005 are included in Part II, Item 8 of this
Report:



Please
refer to the exhibit index below.

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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 16th day of March, 2006.

| |  | 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 and Chief Executive Officer and Director (Principal Executive Officer)   |  | March 16, 2006
|/s/BLAKE TOHANABlake Tohana           |  | Executive Vice-President and Chief Financial Officer (Principal Financial Officer) |  | March 16, 2006
|/s/MARY LYN SEYMOURMary Lyn Seymour   |  | Controller (Principal Accounting Officer)                                          |  | March 16, 2006
|/s/JOHN R. BARNETTJohn R. Barnett     |  | Director                                                                           |  | March 16, 2006
|/s/JERRY D. CAMPBELLJerry D. Campbell |  | Director                                                                           |  | March 16, 2006
|/s/LOUIS E. LATAIFLouis E. Lataif     |  | Director                                                                           |  | March 16, 2006
|/s/EDWARD C. LUMLEYEdward C. Lumley   |  | Director                                                                           |  | March 16, 2006
|/s/WILLIAM J. MENEARWilliam J. Menear |  | Director                                                                           |  | March 16, 2006
|/s/DENNIS MILLSDennis Mills           |  | Director                                                                           |  | March 16, 2006

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|/s/GINO RONCELLIGino Roncelli   |  | Director              |  | March 16, 2006
|------------------------------- |  | --------------------- |  | --------------
|/s/FRANK STRONACHFrank Stronach |  | Chairman and Director |  | March 16, 2006

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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)).        
|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)). 

133

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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 |  | 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).

134

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|10.15 |  | First Amendment to Asset Purchase Agreement among MEC Lone Star, L.P., Lone Star Race Park, Ltd. and LSJC Development Corporation made as of September 30, 2002. (incorporated by reference to
exhibit 2.1 to registrant's Report on Form 8-K filed on November 6, 2002).                                                                                                                                                                                                                          
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | 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).                                                                                                                                                                                                                           
|10.17 |  | 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).
|10.18 |  | 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).                                                                                                                              
|10.19 |  | 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).                                                                                                                                                                                                                                  
|10.20 |  | 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).                                                                                                                                                                                                                                                   
|10.21 |  | 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).                                                                                                                                                                                                                                                                              
|10.22 |  | 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).                                                                                                                                                                                                                     

135

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|10.23 |  | 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).                                                                    
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24 |  | 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).                                                                                                             
|10.25 |  | 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).                                                                 
|10.26 |  | 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. (incorporated by
reference to the corresponding exhibit number of the Registrant's Report on Form 10-K filed on March 15, 2005 for the fiscal year ended December 31, 2004).  
|10.27 |  | 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. (incorporated by
reference to the corresponding exhibit number of the Registrant's Report on Form 10-K filed on March 15, 2005 for the fiscal year ended December 31, 2004).
|10.28 |  | Magna Golf Club Preferred Access Agreement dated November 1, 2004 between MEC Holdings (Canada) Inc. and Magna International Inc. (incorporated by reference to the corresponding exhibit number of the
Registrant's Report on Form 10-K filed on March 15, 2005 for the fiscal year ended December 31, 2004).                                                      
|10.29 |  | Preferred Access Agreement made November 1, 2004 between Magna International Europe AG and Fontana Beteiligungs AG. (incorporated by reference to the corresponding exhibit number of the Registrant's Report on
Form 10-K filed on March 15, 2005 for the fiscal year ended December 31, 2004).                                                                    
|10.30 |  | Offer for Purchase of Receivables dated December 30, 2004 between Fontana Beteiligungs AG and Magna International Europe AG to Bank Austria Creditanstalt AG. (incorporated by reference to the corresponding exhibit
number of the Registrant's Report on Form 10-K filed on March 15, 2005 for the fiscal year ended December 31, 2004).                          
|10.31 |  | Offer for Purchase of Receivables dated February 17, 2005 between MEC Holdings (Canada) Inc. and Magna International Inc. to bank Austria Creditanstalt AG. (incorporated by reference to the corresponding
exhibit number of the Registrant's Report on Form 10-K filed on March 15, 2005 for the fiscal year ended December 31, 2004).                            
|10.32 |  | Employment Agreement between the Registrant and W. Thomas Hodgson dated March 22, 2005 (incorporated by reference to exhibit 10.1 of the Registrant's Report on Form 10-Q filed on May 10,
2005).                                                                                                                                                                   
|10.33 |  | Employment Agreement between the Registrant and Paul Cellucci dated February 3, 2005 (incorporated by reference to exhibit 10.1 of the Registrant's Report on Form 10-Q filed on May 10,
2005).                                                                                                                                                                     
|10.34 |  | Form of Election for Performance Shares in Lieu of Guaranteed Bonus for W. Thomas Hodgson, Jim McAlpine, Donald Amos, Paul Cellucci, Blake Tohana and certain other employees of the Registrant (incorporated by reference to
exhibit 10.1 of the Registrant's Report on Form 8-K filed on May 9, 2005).                                                            
|10.35 |  | Agreement in principle dated July 6, 2005 with respect to the proposed Acquisition of all the Issued and Outstanding Shares of Ontario Racing Inc. by Great Canadian Gaming Corporation or its nominee from the
Registrant (incorporated by reference to exhibit 99.1 of the Registrant's Report on Form 8-K filed on July 12, 2005).                               
|10.36 |  | Term Sheet for Bridge Loan between the Registrant and MI Developments Inc. dated as of July 21, 2005 (incorporated by reference to exhibit 99.1 of the Registrant's Report on Form 8-K filed on
July 22, 2005).                                                                                                                                                     
|10.37 |  | Term Sheet for Remington Construction Loan between the Registrant and MI Developments Inc. dated as of July 21, 2005 (incorporated by reference to exhibit 99.1 of the Registrant's Report on Form 8-K
filed on July 22, 2005).                                                                                                                                     
|10.38 |  | Loan Agreement dated April 5, 2005 between MEC Holdings (Canada) Inc. and Bank Austria Creditanstalt (incorporated by reference to exhibit 10.1 to the registrant's Report on Form 10-Q filed on
August 9, 2005).                                                                                                                                                   

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|10.39 |  | Form of Indemnity Agreement dated as of October 31, 2005 (incorporated by reference to exhibit 10.1 of the registrant's Report on Form 8-K filed on November 2, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.40 |  | Fifth 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 July 22, 2005 (incorporated by reference
to exhibit 10.5 to the registrant's Report on Form 10-Q filed on November 9, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.41 |  | Stock Purchase Agreement, dated November 8, 2005 between the registrant and PA Meadows, LLC. (incorporated by reference to exhibit 10.1 of the Registrant's Report on Form 10-Q filed on November 9,
2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.42 |  | Loan Agreement between the Registrant and Remington Park, Inc., MID Islandi SF, GPRA Thoroughbred Training Center, Inc. and Gulfstream Park Racing Association, Inc. made as of July 22, 2005.
(The exhibits to this agreement have not been included and will be furnished to the SEC upon request.). (Incorporated by reference to exhibit 10.1 of the Registrant's Report on Form 10-Q filed on November 9, 2005).                                                                                                                                                                                                                                                                                                                 
|10.43 |  | Share Purchase Agreement between the Registrant, 207682 Ontario Inc. and Great Canadian Gaming Corporation dated as of August 16, 2005. (The exhibits to this agreement have not been included and will
be furnished to the SEC upon request). (Incorporated by reference to exhibit 10.1 of the Registrant's Report on Form 10-Q filed on November 9, 2005).                                                                                                                                                                                                                                                                                                                                                                         
|10.44 |  | Amended and Restated Loan Agreement between Gulfstream Park Racing Association, Inc., MID Islandi SF., MEC Pennsylvania Racing, Inc., Washington Trotting Association, Inc., Mountain Laurel Racing, Inc.,
 Remington Park, Inc. and GPRA Thoroughbred Training Center, Inc. made as of July 22, 2005. (The exhibits to this agreement have not been included and will be furnished to the SEC upon request). (Incorporated by reference to
exhibit 10.1 of the Registrant's Report on Form 10-Q filed on November 9, 2005).                                                                                                                                                                                                          
|10.45 |  | Bridge Loan Agreement between the Registrant, MID Islandi SF., MEC Pennsulvania Racing, Inc., Washington Trotting Association, Inc., Mountain Laurel Racing, Inc., Pacific Racing Association, MEC Land
Holdings (California) Inc., The Santa Anita Companies, Inc., Los Angeles Turf Club, Incorporated, Gulfstream Park Racing Association, Inc., GPRA Thoroughbred Training Center Inc., SLRD Thoroughbred Training Center, Inc.,
MEC Dixon, Inc. and Sunshine Meadows Racing Inc., made as of July 22, 2005. (The exhibits to this agreement have not been included and will be furnished to the SEC upon request). (Incorporated by reference to exhibit 10.1 of
the Registrant's Report on Form 10-Q filed on November 9, 2005).
|10.46 |  | Agreement of Sale between Palm Meadows Estates, LLC and Toll Bros., Inc. made November 3, 2005 (incorporated by reference to exhibit 10.1 of the registrant's Report on Form 8-K filed on
November 11, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.47 |  | First Amending Agreement made as of the 1st day of February, 2006 between the registrant and MID Islandi SF, et al. (incorporated by reference to Exhibit 10.1 of the registrant's Report on
Form 8-K filed on February 9, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|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.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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