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 1934For the fiscal year ended December 31, 2006.ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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) 337 Magna Drive
Aurora, Ontario, Canada(Address of Principal Executive Offices) |  | 98-0208374(I.R.S. Employer Identification No.) L4G 7K1(Zip Code)
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------

Registrant's
telephone number, including area code: (905) 726-2462
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Subordinate Voting Stock
(Title of class)

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

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

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

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

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

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



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As of June 30, 2006, the aggregate market value of the Class A Subordinate Voting Stock held by non-affiliates of the registrant was approximately
$203,163,912 (based on the closing sale price of $5.26 per share of Class A Subordinate Voting Stock reported on The Nasdaq National Market on June 30, 2006, the last day of the
registrant's most recently completed second quarter). As of June 30, 2006, non-affiliates held no shares of Class B Stock. There is no active market for such stock.

The
number of shares of Class A Subordinate Voting Stock of the registrant outstanding as of March 8, 2007 was 49,101,415.

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

Documents Incorporated by Reference

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

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INDEX

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

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Part I

Item 1. Business

Available Information

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

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

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

Special Note Regarding Forward-Looking Information

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

Incorporation and Corporate Structure

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

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

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OUR BUSINESS

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

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

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

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

Since
December 1998, we have acquired six large racetrack operations in North America: Santa Anita Park near Los Angeles, Gulfstream Park near Miami, Golden Gate Fields near San
Francisco, Lone Star Park at Grand Prairie near Dallas, and The Maryland Jockey Club, which operates both Laurel Park, situated between Washington, D.C. and Baltimore, and Pimlico Race Course
in Baltimore, home of the Preakness Stakes®, the middle jewel in thoroughbred racing's Triple Crown. We have also acquired the racetrack operations of Thistledown near Cleveland, Remington
Park in Oklahoma City, Great Lakes Downs in Muskegon, Michigan, Portland Meadows near Portland, Oregon and our newest racetrack, Magna Racino, which we built near Vienna, Austria. In
addition, though we completed the sale of The Meadows in November 2006, we retain the right to manage and benefit from the operations of that racetrack for a five-year period. These
acquisitions have enabled us to secure the ownership rights to what we believe is some of the highest quality and most popular live horse racing content in North America, based on standard industry
measures, such as total handle, average daily attendance and average daily wagering, both on and off-track. We believe that the aggregation of this high-quality content,
combined with a strong branding strategy and the introduction of new media distribution technologies, will enhance the distribution of our content and help us develop new sources of revenues. In
January 2007, we announced that the 2007 race meet will be the last meet that will be held under our ownership at Great Lakes Downs. The decision to cease operations was based on continuing and
forecasted operational losses at the racetrack.

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

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

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

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

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

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

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

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

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

Our Strategy

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

Further Developing Our In-Home Simulcasting and Wagering Services

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

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

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

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

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

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

Entering New Markets

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

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

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

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

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

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

Employing "Best Practice" Improvements at our Racetracks

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

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

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

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

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

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

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Developing Our Significant Real Estate Assets

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

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

Selectively Acquiring and Developing Additional Content

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

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

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

Technology Leadership

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

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Intellectual Property Management

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

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

Our History

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

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

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

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

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Overview of the Horse Racing Industry

Pari-Mutuel Wagering

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

Recent History

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

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

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

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The Growth in Off-track and Inter-track Wagering

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

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

|                 |  | 1995    |  | 1996 |        | 1997 |   | 1998   |  | 1999 |        | 2000 |   | 2001   |  | 2002 |        | 2003 |   | 2004   |  | 2005 |        | 2006
|---------------- |  | ------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ----
|Total Handle     |  | $10.429 |  | $    | 11.627 |      | $ | 12.542 |  | $    | 13.115 |      | $ | 13.724 |  | $    | 14.321 |      | $ | 14.550 |  | $    | 15.062 |     
|On-Track Handle  |  | *       |  | $    | 2.944  |      | $ | 2.703  |  | $    | 2.498  |      | $ | 2.359  |  | $    | 2.270  |      | $ | 2.112  |  | $    | 2.029  |     
|Off-Track Handle |  | *       |  | $    | 8.683  |      | $ | 9.839  |  | $    | 10.617 |      | $ | 11.365 |  | $    | 12.051 |      | $ | 12.438 |  | $    | 13.033 |     

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

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

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

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

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

Our Content

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

2007 Racing Schedule

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

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

Our Properties

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

Santa Anita Park

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

Santa
Anita Park opened for thoroughbred horse racing in 1934 and hosts The Santa Anita Meet. The Santa Anita Meet generally commences on December 26 and runs until the end of
April each year. In addition, we lease Santa Anita Park to The Oak Tree Racing Association, which is an unaffiliated not-for-profit California association that holds a license
to host The Oak Tree Meet for five to six weeks each fall. Pursuant to this lease, we receive rent that consists primarily of a percentage of the on-track handle wagered on races run at
Santa Anita Park and a percentage of The Oak Tree Racing Association net commissions from fees earned on racing content, exported from or imported to Santa Anita Park. Santa Anita Park was the site of
the Breeders' Cup World Thoroughbred Championships in 2003 during The Oak Tree Meet. Santa Anita Park has one of the longest racing schedules of the top North American racetracks,
totaling approximately 110 to 116 racing days

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

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

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

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

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

Gulfstream Park

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

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

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

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

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

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

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

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

Golden Gate Fields

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

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

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

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

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

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

Laurel Park

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

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

Laurel
Park's handle was approximately $541.4 million in 2006, including wagers made at Laurel Park on its races, wagers made at other wagering venues and through various account
wagering operations on Laurel Park's races, and wagers made at Laurel Park on imported races. Wagers on Laurel Park's races totaled approximately $406.7 million in 2006. Of this amount,
approximately $380.6 million in wagers were placed at other wagering venues to which we exported Laurel Park's signal via simulcast and through various account wagering operations.

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

Lone Star Park at Grand Prairie

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

Lone
Star Park is one of the newest horse racing facilities in the United States, having opened for live thoroughbred and quarter horse racing in 1997. Lone Star Park's
thoroughbred meet generally commences each year in early April and continues through mid-July. Its quarter horse meet generally commences each year in early October and continues through
November. Average daily attendance during the 2006 spring thoroughbred meet was approximately 7,000 customers per live race day and 3,600 customers during the fall quarter horse meet. In
addition to its live racing facilities, Lone Star Park contains a state-of-the-art 36,000 square foot simulcast pavilion, which operates
year-round.

Lone
Star Park had total handle during 2006 of approximately $302.7 million, which includes wagers made at Lone Star Park on its races, wagers made on Lone Star Park races at
other wagering venues and through

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

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

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

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

Pimlico Race Course

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

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

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

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

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

The Meadows

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

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

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

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

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

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

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

Thistledown

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

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

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

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

Remington Park

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

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

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

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

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

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

Portland Meadows

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

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

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

Great Lakes Downs

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

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

Great
Lakes Downs' handle was approximately $57.2 million in 2006, including wagers made at Great Lakes Downs on its races, wagers made at other wagering venues and through
various account wagering operations on Great Lakes Downs' races, and wagers made at Great Lakes Downs on imported races. Wagers on Great Lakes Downs' races (including all venues at which wagers were
placed) totaled approximately $45.6 million in 2006. Of this amount, approximately $43.2 million in wagers were placed at other wagering venues to which we exported Great Lakes Downs'
races via simulcast and through various account wagering operations. Great Lakes Downs exports its simulcast signal to approximately 250 off-track and inter-track wagering
facilities in the United States. Throughout the year, Great Lakes Downs operates as an inter-track wagering facility where customers can wager on races that are imported to Great Lakes Downs
from other racetracks.

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

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

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

Magna Racino

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

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

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

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

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

Training Centers

Palm Meadows®

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

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Gulfstream
Park. On this land, we believe that Palm Meadows® will help us to continue to attract high-quality horses to Gulfstream Park. We believe that this in turn will allow
us to increase both our number of live races and the total amount wagered on our races.

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

San Luis Rey Downs

San Luis Rey Downs is a horse boarding and training center situated approximately 45 miles north of downtown San Diego. It is located on approximately
200 acres of land and includes over 500 horse stalls, a one-mile oval dirt main track, a 3/8-mile dirt training track, an equine exercise pool,
horse trails and related facilities and equipment. Due to its proximity to Santa Anita Park, San Luis Rey Downs supplements Santa Anita Park's stabling facilities, which we believe enables us to
continue to attract some of the top horses in North America.

Bowie Training Center

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

Account Wagering Operations

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

PariMax

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

TrackNet Media

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

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

XpressBet®

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

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

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

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

MagnaBet

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

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

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

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

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

Television Distribution

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

HorseRacing TV

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

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

RTN

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

RaceONTV

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

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

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

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

Racing World

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

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

Other Television Distribution

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

Magna 5 Pick 5

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

Sunshine Millions®

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

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

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

StreuFex

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

Dixon Downs Development

On March 3, 2003, we filed an application for various local approvals with the City of Dixon, California relating to the phased development of a
destination entertainment and retail complex. The centerpiece of the development would be a thoroughbred horse racing track to be constructed on a 260-acre site in Dixon's Northeast
Quadrant, approximately 20 miles from Sacramento. Portions of the proposed site were purchased in 2001 and 2002. The Dixon City Council approved the project in October 2006, but
opponents gathered sufficient signatures on petitions to force an election in which Dixon residents will vote
on four measures aimed at overturning the City Council's various votes approving the project. The election is scheduled for April 17, 2007 and will affect our future plans for
the property.

Michigan Racetrack Development

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

Recent Developments

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

Competition

We face numerous sources of competition. We compete with other racetracks for customers both with respect to attendance at our racetracks and in the simulcast
wagering markets. We also compete with other racetracks for horses, jockeys and backstretch personnel. Certain of our competitors operate in jurisdictions which permit alternative gaming at
racetracks, which enhances their ability to compete for horsemen by offering larger purses and attracts additional potential customers to their facilities. One of our competitors, Churchill Downs
Incorporated, has been in operation for a much longer period of time than we have and may have greater name recognition. We expect this competition from other racetracks to intensify as new gaming
operators enter

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our
markets and existing competitors expand their operations and consolidate management of multiple racetracks.

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

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

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

Government Regulation



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

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

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

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

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

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

In
Florida, the Division of Pari-Mutuel Wagering considers applications for annual licenses for thoroughbred, standardbred and quarter horse meetings with
pari-mutuel wagering. Tax laws in Florida have historically discouraged the three Miami-area racetracks, Gulfstream Park, Hialeah Park (which no longer hosts live racing) and
Calder Race Course, from applying for race days outside of their traditional racing season, so the race days for these Miami-area racetracks did not overlap. Effective July 1, 2001,
a new tax structure eliminated this deterrent. While a revised tax structure has enabled Gulfstream Park to apply for and receive additional race days since 2002, the deregulation of the race day
allocation process may, in the future, cause an overlap in racing seasons which could result in Gulfstream Park facing direct competition from other Miami-area racetracks. Gulfstream Park
is currently in a dispute with the Division of Pari-Mutual Wagering over Gulfstream Park's ability to conduct simulcast wagering while it is not running its meet. In July 2004, a
court ruling was made in Gulfstream Park's favor and found that Section 550.615(6) of the Florida Statutes, which prohibited such form of simulcasting, was unconstitutional and struck the
statute down. In September 2005, the ruling was appealed and the appeal court affirmed the trial court ruling in favor of Gulfstream Park. Currently an injunction is in place which has
prevented Gulfstream Park from conducting simulcast wagering since its meet ended in April 2006 and an appeal by the Division of Pari-Mutuel Wagering is with the Florida Supreme
Court and it is expected that a decision is likely to be reached in 2007.

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

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

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

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

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

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

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

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

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

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

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

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

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



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



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



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

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

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

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



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

Our Real Estate Portfolio

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

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

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

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

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

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Environmental Matters

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

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

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

Employees

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

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

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Item 1A. Risk Factors

RISK FACTORS

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

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

Risks Regarding Our Company

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our business is heavily concentrated at certain of our racetracks.

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

43

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Real Estate Ownership and Development Risks

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

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

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

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

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

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

46

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

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

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

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

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

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

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

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

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

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

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

47

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Risks Relating to Our Securities



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

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

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



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

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

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

48

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

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

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

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

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties

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

Item 3. Legal Proceedings

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

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

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

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

49

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Part II

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

Trading History

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

|      |                                       | Nasdaq |   | TSX 
|----- | ------------------------------------- | ------ | - | ----
|
|2005: |                                       |        |   |     
|      | First Quarter                         |        | $ | 7.12
|      | Second Quarter                        |        | $ | 6.36
|      | Third Quarter                         |        | $ | 7.19
|      | Fourth Quarter                        |        | $ | 7.91
|2006: |                                       |        |   |     
|      | First Quarter                         |        | $ | 7.55
|      | Second Quarter                        |        | $ | 6.89
|      | Third Quarter                         |        | $ | 5.84
|      | Fourth Quarter                        |        | $ | 5.58
|2007: |                                       |        |   |     
|      | First Quarter (through March 8, 2007) |        | $ | 4.57

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

Our
Class B Stock is unlisted and not actively traded.

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

Dividends and Dividend Policy

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

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.

50

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Item 6. Selected Financial Data

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

|                                                                                                                                                |  | Years Ended December 31, |        
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|
|
|Racing and Gaming Revenues                                                                                                                      |  | $                        | 522,562
|Real Estate and Other Revenues                                                                                                                  |  |                          | 14,403 
|                                                                                                                                                |  |                          |        
|Total Revenues                                                                                                                                  |  | $                        | 536,965
|                                                                                                                                                |  |                          |        
|Racing and Gaming Costs and Expenses                                                                                                            |  | $                        | 500,874
|Real Estate and Other Costs and Expenses                                                                                                        |  |                          | 12,655 
|Pre-development, pre-opening and other                                                                                                          |  |                          | 2,299  
|Depreciation and amortization                                                                                                                   |  |                          | 20,653 
|Write-down of long-lived and intangible assets                                                                                                  |  |                          | 17,493 
|Write-down of excess real estate                                                                                                                |  |                          | 5,823  
|Equity loss (income)                                                                                                                            |  |                          |       
|Gain on sale of intangible assets related to The Meadows                                                                                        |  |                          |       
|Interest expense, net                                                                                                                           |  |                          | 670    
|                                                                                                                                                |  |                          |        
|Loss from continuing operations before income taxes                                                                                             |  | $                        | (23,502
|Income tax benefit                                                                                                                              |  |                          | (8,632 
|                                                                                                                                                |  |                          |        
|Net loss from continuing operations                                                                                                             |  | $                        | (14,870
|Net income (loss) from discontinued operations                                                                                                  |  |                          | 475    
|                                                                                                                                                |  |                          |        
|Net loss                                                                                                                                        |  | $                        | (14,395
|                                                                                                                                                |  |                          |        
|Earnings (loss) per share for Class A Subordinate Voting Stock, Class B Stock and Exchangeable Share:                                           |  |                          |        
|Basic and Diluted                                                                                                                               |  |                          |        
|Continuing operations                                                                                                                           |  | $                        | (0.15  
|Discontinued operations                                                                                                                         |  |                          | 0.01   
|                                                                                                                                                |  |                          |        
|Loss per share                                                                                                                                  |  | $                        | (0.14  
|                                                                                                                                                |  |                          |        
|Average number of shares of Class A Subordinate Voting Stock, Class B Stock and Exchangeable Shares outstanding during the year (in thousands): |  |                          |        
|Basic and Diluted                                                                                                                               |  |                          | 100,674

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|                              |  | Years Ended December 31, |         
|----------------------------- |  | ------------------------ | --------
|
|
|EBITDA(3)                     |  | $                        | (2,179  
|Capital expenditures(4)       |  |                          | 89,287  
|Cash provided from (used for) |  |                          |         
|Operating activities          |  |                          | 17,595  
|Investing activities          |  |                          | (216,825
|Financing activities          |  |                          | 249,145 

|                                         |  | At December 31,
|---------------------------------------- |  | ---------------
|
|
|Cash and cash equivalents                |  | $              
|Real estate properties and fixed assets, |  |                
|net                                      |  |                
|Total assets                             |  |                
|Total debt(5)                            |  |                
|Shareholders' equity                     |  |                

---

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GAAP and Non-GAAP Financial Measures

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

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

Reconciliation of Non-GAAP to GAAP Financial Measures

|                                                                                        |  | Years Ended December 31, |        
|--------------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|
|Earnings (Loss) Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA") |  |                          |        
|Loss before income taxes from continuing operations                                     |  | $                        | (23,502
|Interest expense, net                                                                   |  |                          | 670    
|Depreciation and amortization                                                           |  |                          | 20,653 
|                                                                                        |  |                          |        
|EBITDA from continuing operations                                                       |  | $                        | (2,179 
|                                                                                        |  |                          |        

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

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

Overview

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

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

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

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

Recent Developments and Current Initiatives

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our Operations

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

|                                      |  |           |  |      |  | Year ended December 31, 2006           
|------------------------------------- |  | --------- |  | ---- |  | ---------------------------------------
|
|
|Santa Anita Park Los Angeles         |  | Dec. 1998 |  | 10.9 |  | Jan. 1 to Apr. 23 and
Dec. 26 to 31    
|                                      |  |           |  |      |  | The Oak Tree Meet
Sep. 27 to Oct. 29   
|Gulfstream Park Miami                |  | Sep. 1999 |  | 4.3  |  | Jan. 4 to Apr. 23                      
|Laurel Park
Baltimore                |  | Nov. 2002 |  | 6.6  |  | Jan. 1 to Apr. 15 and Sep. 8 to Dec. 31
|Golden Gate Fields
San Francisco     |  | Dec. 1999 |  | 5.2  |  | Feb. 8 to May 7 and Aug. 24 to Oct. 15 
|Pimlico Race Course
Baltimore        |  | Nov. 2002 |  | 5.2  |  | Apr. 22 to Jun. 10                     
|Lone Star Park
Dallas                |  | Oct. 2002 |  | 5.1  |  | Apr. 13 to Jul. 23 and
Oct. 6 to Dec. 2
|The Meadows
Pittsburgh               |  | Apr. 2001 |  | 2.8  |  | All year                               
|Thistledown Cleveland                |  | Nov. 1999 |  | 3.0  |  | Apr. 14 to Nov. 27                     
|XpressBet®
National                  |  | Apr. 2001 |  | N/A  |  | All year                               
|Remington Park
Oklahoma City         |  | Nov. 1999 |  | 1.1  |  | Mar. 10 to Jun. 4 and
Aug. 4 to Nov. 28
|Portland Meadows
Portland            |  | Jul. 2001 |  | 2.0  |  | Jan. 1 to May 7 and Oct. 22 to Dec. 31 
|Great Lakes Downs
Muskegon, Michigan |  | Feb. 2000 |  | 1.2  |  | May 6 to Oct. 31                       
|MagnaBet                             |  | Apr. 2004 |  | N/A  |  | All year                               
|Magna Racino
Ebreichsdorf, Austria  |  | Apr. 2004 |  | 2.5  |  | Mar. 13 to Nov. 20                     
|                                      |  |           |  |      |  |                                        
|Total                                 |  |           |  |      |  |                                        
|                                      |  |           |  |      |  |                                        

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

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



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

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

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

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

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

|                       |  | Years ended December 31,
|---------------------- |  | ------------------------
|
|Largest Racetracks     |  |                         
|Santa Anita Park(1)    |  | 86                      
|Gulfstream Park        |  | 87                      
|Golden Gate Fields     |  | 106                     
|Bay Meadows(2)         |  |                        
|Laurel Park(3)         |  | 152                     
|Lone Star Park         |  | 97                      
|Pimlico Race Course(3) |  | 31                      
|                       |  |                         
|                       |  | 559                     
|                       |  |                         
|Other Racetracks(4)    |  |                         
|The Meadows            |  | 208                     
|Thistledown            |  | 156                     
|Remington Park         |  | 118                     
|Portland Meadows       |  | 86                      
|Great Lakes Downs      |  | 101                     
|Magna Racino          |  | 40                      
|                       |  |                         
|                       |  | 709                     
|                       |  |                         
|Total                  |  | 1,268                   
|                       |  |                         

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

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

Seasonality

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

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

Real Estate and Other Operations

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

We
characterize our real estate as follows:

Revenue-Producing Racing Real Estate



Excess Racing Real Estate



Development Real Estate



Revenue-Producing Non-Racing Real Estate



Non-Core Real Estate



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

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

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

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

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

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Critical Accounting Policies

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

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

Impairment of Intangible and Long-Lived Assets

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

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

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

Future Income Tax Assets

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

Stock-Based Compensation

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

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

Revenue Recognition

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

Employee Defined Benefit and Postretirement Plans

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

Litigation

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

Off-Balance Sheet Arrangements

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

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Related Party Transactions

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

Results of Operations

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

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

Racing and gaming operations

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

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



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

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

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



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

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

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

Real estate and other operations

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

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

Predevelopment, pre-opening and other costs

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

Depreciation and amortization

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

Interest income and expense

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

Write-down of long-lived assets

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

Equity loss (income)

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

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Gain on sale of intangible assets related to The Meadows

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

Income tax benefit

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

Discontinued operations

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

|                                            |  | Years ended December 31, |       
|------------------------------------------- |  | ------------------------ | ------
|
|Revenues                                    |  | $                        | 14,593
|Costs and expenses                          |  |                          | 11,205
|                                            |  |                          |       
|                                            |  |                          | 3,388 
|Depreciation and amortization               |  |                          | 2,156 
|Interest expense, net                       |  |                          | 2,040 
|Impairment loss recorded on disposition (i) |  |                          | 1,202 
|                                            |  |                          |       
|Loss before gain on disposition             |  |                          | (2,010
|Gain on disposition (ii)                    |  |                          | 1,495 
|                                            |  |                          |       
|Loss before income taxes                    |  |                          | (515  
|Income tax expense                          |  |                          | 1,653 
|                                            |  |                          |       
|Net loss                                    |  | $                        | (2,168
|                                            |  |                          |       

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

Racing and gaming operations

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

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



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

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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:



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:



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

Real estate and other operations

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

Predevelopment, pre-opening and other costs

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

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Depreciation and amortization

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

Interest income and expense

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

Write-down of long-lived assets

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

Income tax benefit

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

Discontinued operations

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

|                                           |  | Years ended December 31,
|------------------------------------------ |  | ------------------------
|
|Revenues                                   |  | $                       
|Costs and expenses                         |  |                         
|                                           |  |                         
|                                           |  |                         
|Depreciation and amortization              |  |                         
|Interest expense, net                      |  |                         
|Impairment loss recorded on disposition(i) |  |                         
|                                           |  |                         
|Income (loss) before gain on disposition   |  |                         
|Gain on disposition(ii)                    |  |                         
|                                           |  |                         
|Income (loss) before income taxes          |  |                         
|Income tax expense                         |  |                         
|                                           |  |                         
|Net income (loss)                          |  | $                       
|                                           |  |                         

---

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

Racing and gaming operations

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

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



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

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



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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:



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

Real estate and other operations

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

Predevelopment, pre-opening and other costs

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

Depreciation and amortization

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

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Interest income and expense

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

Write-down of long-lived assets

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

Income tax benefit

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

Discontinued operations

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

|                              |  | Years ended December 31, |       
|----------------------------- |  | ------------------------ | ------
|
|Revenues                      |  | $                        | 48,184
|Costs and expenses            |  |                          | 33,644
|                              |  |                          |       
|                              |  |                          | 14,540
|Depreciation and amortization |  |                          | 3,848 
|Interest expense, net         |  |                          | 2,141 
|Equity income                 |  |                          |      
|                              |  |                          |       
|Income before income taxes    |  |                          | 8,551 
|Income tax expense            |  |                          | 3,270 
|                              |  |                          |       
|Net income                    |  | $                        | 5,281 
|                              |  |                          |       

Liquidity and Capital Resources

Year Ended December 31, 2006

Operating activities

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

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Investing activities

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

Financing activities

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

Year Ended December 31, 2005

Operating activities

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

Investing activities

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

Financing activities

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

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Year Ended December 31, 2004

Operating activities

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

Investing activities

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

Financing activities

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

Working Capital, Cash and Other Resources

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

Bank indebtedness

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

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

Long-term and Related Party Debt

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

80

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

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

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

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

Contractual Obligations and Commitments

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

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

---

81

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Qualitative and Quantitative Disclosures About Market Risk

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

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

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

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

Impact of Recently Issued Accounting Standards

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

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

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

82

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Forward-looking Statements

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

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

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

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

83

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Item 8. Financial Statements and Supplementary Data

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

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

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

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

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

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

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

|Toronto, Canada |  |                      
|--------------- |  | ---------------------
|March 7, 2007   |  | Chartered Accountants

84

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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                               |                         |    |                          |         
|                                                         |                                            |                         |    |                          |         
|                                                         |                                            |                         |    |                          | 697,193 
|                                                         |                                            |                         |    |                          |         
|Real estate and other                                    |                                            |                         |    |                          |         
|                                                         | Sale of real estate                        |                         |    |                          |         
|                                                         | Other                                      |                         |    |                          |         
|                                                         |                                            |                         |    |                          |         
|                                                         |                                            |                         |    |                          | 4,946   
|                                                         |                                            |                         |    |                          |         
|                                                         |                                            |                         |    |                          | 702,139 
|                                                         |                                            |                         |    |                          |         
|Costs, expenses and other income                         |                                            |                         |    |                          |         
|Racing and gaming                                        |                                            |                         |    |                          |         
|                                                         | Pari-mutuel purses, awards and other       |                         |    |                          |         
|                                                         | Gaming taxes, purses and other             |                         |    |                          |         
|                                                         | Operating costs                            |                         |    |                          |         
|                                                         | General and administrative                 |                         |    |                          |         
|Real estate and other                                    |                                            |                         |    |                          |         
|                                                         | Cost of real estate sold                   |                         |    |                          |         
|                                                         | Operating costs                            |                         |    |                          |         
|                                                         | General and administrative                 |                         |    |                          |         
|Predevelopment, pre-opening and other costs              |                                            |                         |    |                          | 14,159  
|Depreciation and amortization                            |                                            |                         |    |                          | 43,902  
|Interest expense, net                                    |                                            | 14                      |    |                          | 60,702  
|Write-down of long-lived assets                          |                                            | 8                       |    |                          | 88,627  
|Equity loss (income)                                     |                                            |                         |    |                          | 493     
|Gain on sale of intangible assets related to The Meadows |                                            | 5                       |    |                          | (126,374
|                                                         |                                            |                         |    |                          |         
|                                                         |                                            |                         |    |                          | 794,446 
|                                                         |                                            |                         |    |                          |         
|Loss from continuing operations before income taxes      |                                            |                         |    |                          | (92,307 
|Income tax benefit                                       |                                            | 12                      |    |                          | (7,124  
|                                                         |                                            |                         |    |                          |         
|Net loss from continuing operations                      |                                            |                         |    |                          | (85,183 
|Net income (loss) from discontinued operations           |                                            | 6                       |    |                          | (2,168  
|                                                         |                                            |                         |    |                          |         
|Net loss                                                 |                                            |                         |    |                          | (87,351 
|Other comprehensive income (loss)                        |                                            |                         |    |                          |         
|                                                         | Foreign currency translation adjustment    |                         | 17 |                          |         
|                                                         | Change in fair value of interest rate swap |                         | 18 |                          |         
|                                                         |                                            |                         |    |                          |         
|Comprehensive loss                                       |                                            |                         |    | $                        | (84,335 
|                                                         |                                            |                         |    |                          |         
|Earnings (loss) per share for Class A Subordinate        |                                            |                         |    |                          |         
|                                                         | Voting Stock or Class B Stock              |                         |    |                          |         
|                                                         | Basic and Diluted                          |                         |    |                          |         
|                                                         |                                            | Continuing operations   |    | 16                       |         
|                                                         |                                            | Discontinued operations |    | 16                       |         
|                                                         |                                            |                         |    |                          |         
|Loss per share                                           |                                            |                         |    | $                        | (0.81   
|                                                         |                                            |                         |    |                          |         
|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

85

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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 OF CONTINUING OPERATIONS:                                      |                                                                                              |                                                                                 |  |                          |         
|Net loss from continuing operations                                                 |                                                                                              |                                                                                 |  | $                        | (85,183 
|                                                                                    | Adjustments to reconcile net loss to net cash provided from (used for) operating activities: |                                                                                 |  |                          |         
|                                                                                    |                                                                                              | Depreciation and amortization                                                   |  |                          |         
|                                                                                    |                                                                                              | Future income taxes                                                             |  | 12                       |         
|                                                                                    |                                                                                              | Amortization of loan origination costs                                          |  |                          |         
|                                                                                    |                                                                                              | Amortization of convertible subordinated notes issue costs                      |  | 15                       |         
|                                                                                    |                                                                                              | Deferred interest expense                                                       |  | 20                       |         
|                                                                                    |                                                                                              | Write-down of long-lived assets                                                 |  | 8                        |         
|                                                                                    |                                                                                              | Write-down of development costs                                                 |  | 20                       |         
|                                                                                    |                                                                                              | Equity loss (income)                                                            |  |                          |         
|                                                                                    |                                                                                              | Gain on sale of intangible assets related to The Meadows                        |  | 5                        |         
|                                                                                    |                                                                                              | Gain on disposal of real estate properties                                      |  |                          |         
|                                                                                    |                                                                                              | (Gain) loss on disposal of fixed assets                                         |  |                          |         
|                                                                                    |                                                                                              | Stock-based compensation expense                                                |  | 3                        |         
|                                                                                    |                                                                                              | Issuance of Class A Subordinate Voting Stock under the Long-term Incentive Plan |  | 16                       |         
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|                                                                                    |                                                                                              |                                                                                 |  |                          | (66,310 
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|Changes in non-cash working capital balances:                                       |                                                                                              |                                                                                 |  |                          |         
|                                                                                    |                                                                                              | Restricted cash                                                                 |  |                          |         
|                                                                                    |                                                                                              | Accounts receivable                                                             |  |                          |         
|                                                                                    |                                                                                              | Due from parent                                                                 |  |                          |         
|                                                                                    |                                                                                              | Income taxes receivable                                                         |  |                          |         
|                                                                                    |                                                                                              | Inventories                                                                     |  |                          |         
|                                                                                    |                                                                                              | Prepaid expenses and other                                                      |  |                          |         
|                                                                                    |                                                                                              | Accounts payable                                                                |  |                          |         
|                                                                                    |                                                                                              | Accrued salaries and wages                                                      |  |                          |         
|                                                                                    |                                                                                              | Customer deposits                                                               |  |                          |         
|                                                                                    |                                                                                              | Other accrued liabilities                                                       |  |                          |         
|                                                                                    |                                                                                              | Deferred revenue                                                                |  |                          |         
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|                                                                                    |                                                                                              |                                                                                 |  |                          | 4,668   
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|                                                                                    |                                                                                              |                                                                                 |  |                          | (61,642 
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|INVESTING ACTIVITIES OF CONTINUING OPERATIONS:                                      |                                                                                              |                                                                                 |  |                          |         
|Acquisition of business, net of cash acquired                                       |                                                                                              | 4                                                                               |  |                          | (9,347  
|Proceeds on The Meadows transaction                                                 |                                                                                              | 5                                                                               |  |                          | 171,777 
|Real estate property additions                                                      |                                                                                              |                                                                                 |  |                          | (82,329 
|Fixed asset additions                                                               |                                                                                              |                                                                                 |  |                          | (7,119  
|Other asset disposals (additions)                                                   |                                                                                              |                                                                                 |  |                          | 2,539   
|Proceeds on real estate sold to a related party                                     |                                                                                              | 20                                                                              |  |                          | 5,578   
|Proceeds on disposal of real estate properties                                      |                                                                                              |                                                                                 |  |                          | 2,100   
|Proceeds on disposal of fixed assets                                                |                                                                                              |                                                                                 |  |                          | 4,328   
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|                                                                                    |                                                                                              |                                                                                 |  |                          | 87,527  
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|FINANCING ACTIVITIES OF CONTINUING OPERATIONS:                                      |                                                                                              |                                                                                 |  |                          |         
|Net increase (decrease) in bank indebtedness                                        |                                                                                              | 13                                                                              |  |                          | (20,785 
|Proceeds from advances and long-term debt with parent                               |                                                                                              | 20                                                                              |  |                          | 89,513  
|Issuance of long-term debt                                                          |                                                                                              |                                                                                 |  |                          | 12,582  
|Repayment of advances and long-term debt with parent                                |                                                                                              | 20                                                                              |  |                          | (116,800
|Repayment of long-term debt                                                         |                                                                                              |                                                                                 |  |                          | (15,816 
|Issuance of share capital                                                           |                                                                                              | 16                                                                              |  |                          |        
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|                                                                                    |                                                                                              |                                                                                 |  |                          | (51,306 
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|Effect of exchange rate changes on cash and cash equivalents                        |                                                                                              |                                                                                 |  |                          | (104    
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|Net cash flows used for continuing operations                                       |                                                                                              |                                                                                 |  |                          | (25,525 
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|Cash provided from (used for) discontinued operations:                              |                                                                                              |                                                                                 |  |                          |         
|Cash flows provided from (used for) operating activities of discontinued operations |                                                                                              |                                                                                 |  |                          | 1,372   
|Cash flows provided from (used for) investing activities of discontinued operations |                                                                                              |                                                                                 |  |                          | 63,989  
|Cash flows provided from (used for) financing activities of discontinued operations |                                                                                              |                                                                                 |  |                          | (32,427 
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|Net cash flows provided from discontinued operations                                |                                                                                              |                                                                                 |  |                          | 32,934  
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|Net increase (decrease) in cash and cash equivalents during the year                |                                                                                              |                                                                                 |  |                          | 7,409   
|Cash and cash equivalents, beginning of year                                        |                                                                                              |                                                                                 |  |                          | 50,882  
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|Cash and cash equivalents, end of year                                              |                                                                                              |                                                                                 |  |                          | 58,291  
|Less: cash and cash equivalents, end of year of discontinued operations             |                                                                                              |                                                                                 |  |                          |        
|                                                                                    |                                                                                              |                                                                                 |  |                          |         
|Cash and cash equivalents, end of year of continuing operations                     |                                                                                              |                                                                                 |  | $                        | 58,291  
|                                                                                    |                                                                                              |                                                                                 |  |                          |         

See accompanying notes

86

---





MAGNA ENTERTAINMENT CORP.    CONSOLIDATED BALANCE SHEETS    (Refer to Note 1  Going Concern)  (U.S. dollars and share amounts in thousands)

|                                     |                                                                                      |       |    | December 31, |          
|------------------------------------ | ------------------------------------------------------------------------------------ | ----- | -- | ------------ | ---------
|
|
|ASSETS                               |                                                                                      |       |    |              |          
|Current assets:                      |                                                                                      |       |    |              |          
|                                     | Cash and cash equivalents                                                            |       |    |              | $        
|                                     | Restricted cash                                                                      |       |    |              |          
|                                     | Accounts receivable                                                                  |       |    |              |          
|                                     | Due from parent                                                                      |       | 20 |              |          
|                                     | Income taxes receivable                                                              |       |    |              |          
|                                     | Inventories                                                                          |       |    |              |          
|                                     | Prepaid expenses and other                                                           |       |    |              |          
|                                     | Assets held for sale                                                                 |       | 5  |              |          
|                                     | Discontinued operations                                                              |       | 6  |              |          
|                                     |                                                                                      |       |    |              |          
|                                     |                                                                                      |       |    |              | 150,930  
|                                     |                                                                                      |       |    |              |          
|Real estate properties, net          |                                                                                      | 9     |    |              | 845,894  
|Fixed assets, net                    |                                                                                      | 10    |    |              | 93,141   
|Racing licenses                      |                                                                                      |       |    |              | 109,868  
|Other assets, net                    |                                                                                      | 11    |    |              | 4,664    
|Future tax assets                    |                                                                                      | 12    |    |              | 42,388   
|Discontinued operations              |                                                                                      | 6     |    |              |         
|                                     |                                                                                      |       |    |              |          
|                                     |                                                                                      |       |    | $            | 1,246,885
|                                     |                                                                                      |       |    |              |          
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                      |       |    |              |          
|Current liabilities:                 |                                                                                      |       |    |              |          
|                                     | Bank indebtedness                                                                    |       | 13 |              | $        
|                                     | Accounts payable                                                                     |       |    |              |          
|                                     | Accrued salaries and wages                                                           |       |    |              |          
|                                     | Customer deposits                                                                    |       |    |              |          
|                                     | Other accrued liabilities                                                            |       |    |              |          
|                                     | Long-term debt due within one year                                                   |       | 14 |              |          
|                                     | Due to parent                                                                        |       | 20 |              |          
|                                     | Deferred revenue                                                                     |       |    |              |          
|                                     | Liabilities related to assets held for sale                                          |       | 5  |              |          
|                                     | Discontinued operations                                                              |       | 6  |              |          
|                                     |                                                                                      |       |    |              |          
|                                     |                                                                                      |       |    |              | 245,131  
|                                     |                                                                                      |       |    |              |          
|Long-term debt                       |                                                                                      | 14    |    |              | 93,859   
|Long-term debt due to parent         |                                                                                      | 20    |    |              | 177,250  
|Convertible subordinated notes       |                                                                                      | 15    |    |              | 221,437  
|Other long-term liabilities          |                                                                                      | 22    |    |              | 17,484   
|Future tax liabilities               |                                                                                      | 12    |    |              | 91,106   
|Discontinued operations              |                                                                                      | 6     |    |              |         
|                                     |                                                                                      |       |    |              |          
|                                     |                                                                                      |       |    |              | 846,267  
|                                     |                                                                                      |       |    |              |          
|Commitments and contingencies        |                                                                                      | 20,21 |    |              |          
|Shareholders' equity:                |                                                                                      |       |    |              |          
|                                     | Class A Subordinate Voting Stock (Issued: 2006  49,055; 2005  48,895)              |       | 16 |              |          
|Class B Stock                        |                                                                                      |       |    |              |          
|                                     | (Convertible into Class A Subordinate Voting Stock) (Issued: 2006 and 2005  58,466) |       | 16 |              |          
|Contributed surplus                  |                                                                                      | 20    |    |              | 41,718   
|Other paid-in-capital                |                                                                                      | 3     |    |              | 1,410    
|Deficit                              |                                                                                      |       |    |              | (396,298 
|Accumulated comprehensive income     |                                                                                      | 17,18 |    |              | 40,607   
|                                     |                                                                                      |       |    |              |          
|                                     |                                                                                      |       |    |              | 400,618  
|                                     |                                                                                      |       |    |              |          
|                                     |                                                                                      |       |    | $            | 1,246,885
|                                     |                                                                                      |       |    |              |          

On behalf of the Board:

See accompanying notes

|(Signed)WILLIAM J. MENEARDirector | (Signed)MICHAEL NEUMANDirector
|--------------------------------- | ------------------------------

87

---



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

|                                                                                                                                                             |  | Class A Subordinate Voting Stock |         | Class B Stock |   | Contributed Surplus |  | Other Paid-in-Capital |        | Deficit |   | Accumulated Comprehensive Income (Loss) | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | ------- | ------------- | - | ------------------- |  | --------------------- | ------ | ------- | - | --------------------------------------- | 
|Balances at December 31, 2003                                                                                                                                |  | $                                | 317,028 |               | $ | 394,094             |  | $                     | 17,282 |         | $ |                                        | 
|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 |         |   |                                        | 
|Activity for the year ended December 31, 2006:                                                                                                               |  |                                  |         |               |   |                     |  |                       |        |         |   |                                         | 
|Net loss                                                                                                                                                     |  |                                  |         |               |   |                     |  |                       |        |         |   |                                         | 
|Foreign currency translation adjustment (note 17)                                                                                                            |  |                                  |         |               |   |                     |  |                       |        |         |   |                                         | 
|Change in fair value of interest rate swap (note 18)                                                                                                         |  |                                  |         |               |   |                     |  |                       |        |         |   |                                         | 
|Adjustment, net of tax, for change in accounting policy related to Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans (note 3) |  |                                  |         |               |   |                     |  |                       |        |         |   |                                         | 
|Issue of Class A Subordinate Voting Stock under the Long-term Incentive Plan (note 16)                                                                       |  |                                  | 982     |               |   |                     |  |                       |        |         |   |                                         | 
|Net gain on sale of real estate to a related party (note 20)                                                                                                 |  |                                  |         |               |   |                     |  |                       | 23,775 |         |   |                                         | 
|Adjustment, net of tax, for change in accounting policy related to stock option compensation expense (note 3)                                                |  |                                  |         |               |   |                     |  |                       |        |         |   | 1,410                                   | 
|                                                                                                                                                             |  |                                  |         |               |   |                     |  |                       |        |         |   |                                         | 
|Balances at December 31, 2006                                                                                                                                |  | $                                | 319,087 |               | $ | 394,094             |  | $                     | 41,718 |         | $ | 1,410                                   | 
|                                                                                                                                                             |  |                                  |         |               |   |                     |  |                       |        |         |   |                                         | 

See accompanying notes

88

---



MAGNA ENTERTAINMENT CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

1.     GOING CONCERN



2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



89

---





90

---





91

---







92

---







3.     ACCOUNTING CHANGES





93

---





December 31, 2006Prior to Adoption

Effect of Adoption

As ReportedAccrued pension and postretirement liability

$
1,827

$
1,347

$
3,174Future tax liability (asset), net

$
49,257

$
(539
)
$
48,718Accumulated comprehensive income (loss)

$
41,415

$
(808
)
$
40,607






94

---





Years ended December 31,2005

2004Net loss, as reported

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


(877
)

(972
)Pro-forma net loss

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

$
(0.98
)
$
(0.89
)Basic  pro-forma

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

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

$
(0.99
)
$
(0.90
)






4.     ACQUISITION



Non-cash working capital

$
1,203Fixed assets


12,008Other assets


127Goodwill


683Long-term debt


(1,470
)Other long-term liabilities


(980
)Future tax liabilities


(2,224
)Net assets acquired and total purchase price, net of cash acquired

$
9,347


95

---





5.     ASSETS HELD FOR SALE



96

---





December 31, 2005(restated notes 5(a)
and (b))ASSETSCurrent assets:Restricted cash

$
443Accounts receivable


450Income taxes receivable


857Inventories


157Prepaid expenses and other


812Racing license


58,266Other assets, net


200$
61,185LIABILITIESCurrent liabilities:Accounts payable

$
2,012Accrued salaries and wages


44Other accrued liabilities


623Deferred revenue


312Future tax liabilities


24,445$
27,436


6.     DISCONTINUED OPERATIONS



97

---







|                                         |  | Years ended December 31,
|---------------------------------------- |  | ------------------------
|
|Results of Operations                    |  |                         
|Revenues                                 |  | $                       
|Costs and expenses                       |  |                         
|                                         |  |                         
|                                         |  |                         
|Depreciation and amortization            |  |                         
|Interest expense, net                    |  |                         
|Impairment loss recorded on disposition  |  |                         
|                                         |  |                         
|Income (loss) before gain on disposition |  |                         
|Gain on disposition                      |  |                         
|                                         |  |                         
|Income (loss) before income taxes        |  |                         
|Income tax expense                       |  |                         
|                                         |  |                         
|Net income (loss)                        |  | $                       
|                                         |  |                         

98

---





December 31,
2005ASSETSCurrent assets:Accounts receivable

$
1,777Income taxes receivable


3Inventories


919Prepaid expenses and other


242,723Real estate properties, net


73,106Fixed assets, net


4,437Other assets, net


974Future tax assets


7,84286,359$
89,082LIABILITIESCurrent liabilities:Accounts payable

$
447Accrued salaries and wages


456Other accrued liabilities


2,806Income taxes payable


4,192Long-term debt due within one year


5,651Deferred revenue


2,05715,609Long-term debt


44,559Other long-term liabilities


11,17055,729$
71,338


7.     SALE AND LEASE ARRANGEMENT OF GREAT LAKES DOWNS



99

---





8.     WRITE-DOWN OF LONG-LIVED ASSETS



|                                    |  | Years ended December 31,
|----------------------------------- |  | ------------------------
|
|Magna Racino                       |  | $                       
|Residential development real estate |  |                         
|The Meadows                         |  |                         
|Gulfstream Park                     |  |                         
|The Maryland Jockey Club            |  |                         
|                                    |  |                         
|                                    |  | $                       
|                                    |  |                         



100

---







9.     REAL ESTATE PROPERTIES



|                                              |                          | December 31, |        
|--------------------------------------------- | ------------------------ | ------------ | -------
|
|Revenue-producing racing real estate          |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              | $      
|                                              | Buildings                |              |        
|                                              | Construction in progress |              |        
|                                              |                          |              |        
|                                              |                          |              | 866,761
|Accumulated depreciation                      |                          |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|Revenue-producing racing real estate, net     |                          |              | 688,251
|                                              |                          |              |        
|Excess racing real estate                     |                          |              | 96,951 
|                                              |                          |              |        
|Development real estate                       |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              |        
|                                              | Construction in progress |              |        
|                                              |                          |              |        
|Development real estate                       |                          |              | 50,833 
|                                              |                          |              |        
|Revenue-producing non-racing real estate      |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|                                              |                          |              | 9,931  
|Accumulated depreciation                      |                          |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|Revenue-producing non-racing real estate, net |                          |              | 9,859  
|                                              |                          |              |        
|Non-core real estate                          |                          |              |        
|Cost                                          |                          |              |        
|                                              | Land and improvements    |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|                                              |                          |              |       
|Accumulated depreciation                      |                          |              |        
|                                              | Buildings                |              |        
|                                              |                          |              |        
|Non-core real estate, net                     |                          |              |       
|                                              |                          |              |        
|                                              |                          | $            | 845,894
|                                              |                          |              |        



101

---





10.   FIXED ASSETS



|                                               |                         | December 31, |        
|---------------------------------------------- | ----------------------- | ------------ | -------
|
|Revenue-producing racing fixed assets          |                         |              |        
|Cost                                           |                         |              |        
|                                               | Machinery and equipment |              | $      
|                                               | Furniture and fixtures  |              |        
|                                               |                         |              |        
|                                               |                         |              | 173,789
|Accumulated depreciation                       |                         |              |        
|                                               | Machinery and equipment |              |        
|                                               | Furniture and fixtures  |              |        
|                                               |                         |              |        
|Revenue-producing racing fixed assets, net     |                         |              | 93,077 
|                                               |                         |              |        
|Revenue-producing non-racing fixed assets      |                         |              |        
|Cost                                           |                         |              |        
|                                               | Furniture and fixtures  |              |        
|                                               |                         |              |        
|                                               |                         |              | 584    
|Accumulated depreciation                       |                         |              |        
|                                               | Furniture and fixtures  |              |        
|                                               |                         |              |        
|Revenue-producing non-racing fixed assets, net |                         |              | 64     
|                                               |                         |              |        
|                                               |                         | $            | 93,141 
|                                               |                         |              |        



11.   OTHER ASSETS



|                                               |  | December 31,
|---------------------------------------------- |  | ------------
|
|Deferred development costs                     |  | $           
|Goodwill                                       |  |             
|Fair value of interest rate swaps (note 18(c)) |  |             
|Long-term receivables                          |  |             
|Equity investments                             |  |             
|Other                                          |  |             
|                                               |  |             
|                                               |  | $           
|                                               |  |             

102

---



12.   INCOME TAXES



|                                                      |  | Years ended December 31, |        
|----------------------------------------------------- |  | ------------------------ | -------
|
|Expected provision:                                   |  |                          |        
|Federal statutory income tax rate (35%)               |  | $                        | (32,308
|State income tax, net of federal benefit              |  |                          | 287    
|Tax losses not benefited (utilized)                   |  |                          | 6,439  
|Foreign rate differentials                            |  |                          | 9,230  
|Change in enacted income tax rates                    |  |                          |       
|Foreign dividends                                     |  |                          | 1,255  
|Non-deductible expenses                               |  |                          | 2,847  
|Tax on capital gain on like-kind exchange of property |  |                          | 2,853  
|Taxable gain on related party property sale           |  |                          | 3,351  
|Other                                                 |  |                          | (1,078 
|                                                      |  |                          |        
|Income tax benefit                                    |  | $                        | (7,124 
|                                                      |  |                          |        



Years:2008 to 2010

$
3,1002012 to 2018


4,7002020 to 2026


155,600$
163,400




|              |  | Years ended December 31, |        
|------------- |  | ------------------------ | -------
|
|United States |  | $                        | 702    
|Foreign       |  |                          | (93,009
|              |  |                          |        
|              |  | $                        | (92,307
|              |  |                          |        

103

---





|                                      |  | Years ended December 31, |        
|------------------------------------- |  | ------------------------ | -------
|
|Current income tax provision          |  |                          |        
|United States                         |  | $                        | 1,651  
|Foreign                               |  |                          | 3,205  
|                                      |  |                          |        
|                                      |  |                          | 4,856  
|                                      |  |                          |        
|Future income tax provision (benefit) |  |                          |        
|United States                         |  |                          | (180   
|Foreign                               |  |                          | (11,800
|                                      |  |                          |        
|                                      |  |                          | (11,980
|                                      |  |                          |        
|                                      |  | $                        | (7,124 
|                                      |  |                          |        



|                                                                                              |  | Years ended December 31, |        
|--------------------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|Tax deferral on sale of real estate                                                           |  | $                        |       
|Amortization of purchase accounting fair value increments, for tax purposes in excess of book |  |                          | 1,134  
|Non-deductibility of interest expense                                                         |  |                          | (4,196 
|Tax gain in excess of book gain on disposal of real estate property                           |  |                          | (3,502 
|Tax benefit of loss carry-forwards                                                            |  |                          | (3,528 
|Asset impairment write-down                                                                   |  |                          | (14,602
|Increase in valuation allowance                                                               |  |                          | 9,615  
|Change in enacted income tax rates                                                            |  |                          |       
|Other                                                                                         |  |                          | 3,099  
|                                                                                              |  |                          |        
|                                                                                              |  | $                        | (11,980
|                                                                                              |  |                          |        

104

---





|                                                                                        |                  | December 31, |        
|--------------------------------------------------------------------------------------- | ---------------- | ------------ | -------
|
|Assets                                                                                  |                  |              |        
|Real estate properties tax value in excess of book value                                |                  | $            | 22,671 
|Tax benefit of loss carry-forwards                                                      |                  |              |        
|                                                                                        | Pre-acquisition  |              |        
|                                                                                        | Post-acquisition |              |        
|Tax benefit of charitable contribution carry-forward                                    |                  |              | 1,629  
|Benefit of various tax credit carry-forwards                                            |                  |              | 3,682  
|                                                                                        |                  |              |        
|                                                                                        |                  |              | 127,233
|                                                                                        |                  |              |        
|Valuation allowance                                                                     |                  |              |        
|Valuation allowance against tax basis of loss carry-forwards                            |                  |              |        
|                                                                                        | Pre-acquisition  |              |        
|                                                                                        | Post-acquisition |              |        
|Valuation allowance against tax basis of real estate properties in excess of book value |                  |              | (9,994 
|Valuation allowance against tax benefit of credit carry-forwards                        |                  |              | (832   
|                                                                                        |                  |              |        
|Future tax assets                                                                       |                  | $            | 42,388 
|                                                                                        |                  |              |        
|Liabilities                                                                             |                  |              |        
|Real estate properties book basis in excess of tax basis                                |                  | $            | 55,684 
|Other assets book basis in excess of tax basis                                          |                  |              | 25,415 
|Foreign branch tax deferral and other                                                   |                  |              | 10,007 
|                                                                                        |                  |              |        
|Future tax liabilities                                                                  |                  | $            | 91,106 
|                                                                                        |                  |              |        



13.   BANK INDEBTEDNESS



105

---





14.   DEBT AND COMMITMENTS



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

106

---



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



107

---









2007

$
85,7542008


6,7202009


55,8732010


1,7862011


4,366Thereafter


25,114$
179,613




2007

$
1,4522008


1,4522009


1,4522010


1,4522011


1,452Thereafter


27,060Total payments


34,320Less: capital lease minimum payments representing interest


(18,801
)Present value of lease payments

$
15,519




|                           |  | Years ended December 31, |       
|-------------------------- |  | ------------------------ | ------
|
|Interest cost, gross       |  | $                        | 65,828
|Less: Interest capitalized |  |                          | (2,633
|                           |  |                          |       
|Interest expense           |  |                          | 63,195
|Interest income            |  |                          | (2,493
|                           |  |                          |       
|Interest expense, net      |  | $                        | 60,702
|                           |  |                          |       



15.   CONVERTIBLE SUBORDINATED NOTES



108

---







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, 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


712,199Issued under the Long-term Incentive Plan

159,264


982






159,264


982Issued and outstanding at December 31, 2006

49,054,627

$
319,087

58,466,056

$
394,094

107,520,683

$
713,181


109

---





|                                               |                         | Years ended December 31, |            
|---------------------------------------------- | ----------------------- | ------------------------ | -----------
|
|Net loss from continuing operations            |                         | $                        | (85,183    
|Net income (loss) from discontinued operations |                         |                          | (2,168     
|                                               |                         |                          |            
|Net loss                                       |                         | $                        | (87,351    
|                                               |                         |                          |            
|Weighted average shares outstanding            |                         |                          | 107,461,394
|Net effect of dilutive instruments(i)          |                         |                          |           
|                                               |                         |                          |            
|Diluted weighted average shares outstanding    |                         |                          | 107,461,394
|                                               |                         |                          |            
|Earnings (loss) per share:                     |                         |                          |            
|Basic and Diluted                              |                         |                          |            
|                                               | Continuing operations   |                          | $          
|                                               | Discontinued operations |                          |            
|                                               |                         |                          |            
|Loss per share                                 |                         | $                        | (0.81      
|                                               |                         |                          |            



Number
of SharesClass A Subordinate Voting Stock outstanding

49,055Class B Stock outstanding

58,466Options to purchase Class A Subordinate Voting Stock

4,9058.55% 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

180142,706






110

---





|                           |  | Shares Subject to Option |   | Weighted Average Exercise Price
|-------------------------- |  | ------------------------ | - | -------------------------------
|
|Balance, Beginning of Year |  | 4,827,500                |   | 4,500,500                      
|Granted                    |  | 200,000                  |   | 720,000                        
|Exercised                  |  |                         |   |                               
|Forfeited(i)               |  | (122,500                 | ) | (393,000                       
|                           |  |                          |   |                                
|Balance, End of Year       |  | 4,905,000                |   | 4,827,500                      
|                           |  |                          |   |                                

111

---





Options Outstanding

Options Exercisable2006

2005

2004

2006

2005

2004Number

4,905,000

4,827,500

4,500,500

4,412,968

4,127,715

3,909,430Weighted average exercise price

$6.08

$6.14

$6.18

$6.08

$6.07

$6.14Weighted average remaining contractual life (years)

4.2

5.1

5.6

3.8

4.5

5.3




|                                                                               |  | Years ended December 31, |  
|------------------------------------------------------------------------------ |  | ------------------------ | -
|
|Risk free interest rates                                                       |  | 4.4                      | %
|Dividend yields                                                                |  |                         |  
|Volatility factor of expected market price of Class A Subordinate Voting Stock |  | 0.510                    |  
|Weighted average expected life (years)                                         |  | 4.00                     |  



Years ended December 31,2005

2004Net loss, as reported

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


(877
)

(972
)Pro-forma net loss

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

$
(0.98
)
$
(0.89
)Basic  pro-forma

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

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

$
(0.99
)
$
(0.90
)




112

---







17.   FOREIGN CURRENCY TRANSLATION ADJUSTMENT



18.   FINANCIAL INSTRUMENTS







113

---





19.   SEGMENT INFORMATION



114

---





|               |                                        | Years ended December 31, |        
|-------------- | -------------------------------------- | ------------------------ | -------
|
|Revenues       |                                        |                          |        
|               | California operations(i)               |                          | $      
|               | Florida operations                     |                          |        
|               | Maryland operations                    |                          |        
|               | Southern U.S. operations               |                          |        
|               | Northern U.S. operations(i)            |                          |        
|               | European operations                    |                          |        
|               | Technology operations                  |                          |        
|               |                                        |                          |        
|               |                                        |                          | 705,200
|               | Corporate and other                    |                          |        
|               | Eliminations                           |                          |        
|               |                                        |                          |        
|               | Total racing and gaming operations     |                          |        
|               |                                        |                          |        
|               | Sale of real estate                    |                          |        
|               | Other                                  |                          |        
|               |                                        |                          |        
|               | Total real estate and other operations |                          |        
|               |                                        |                          |        
|Total revenues |                                        | $                        | 702,139
|               |                                        |                          |        

|
|

|                                                                                        |                                                          | Years ended December 31, |        
|--------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------ | -------
|
|Earnings (loss) before interest, income taxes, depreciation and amortization ("EBITDA") |                                                          |                          |        
|                                                                                        | California operations(i)                                 |                          | $      
|                                                                                        | Florida operations                                       |                          |        
|                                                                                        | Maryland operations                                      |                          |        
|                                                                                        | Southern U.S. operations                                 |                          |        
|                                                                                        | Northern U.S. operations(i)                              |                          |        
|                                                                                        | European operations                                      |                          |        
|                                                                                        | Technology operations                                    |                          |        
|                                                                                        |                                                          |                          |        
|                                                                                        |                                                          |                          | (71,857
|                                                                                        | Corporate and other                                      |                          |        
|                                                                                        | Predevelopment, pre-opening and other costs              |                          |        
|                                                                                        | Gain on sale of intangible assets related to The Meadows |                          |        
|                                                                                        |                                                          |                          |        
|                                                                                        | Total racing and gaming operations                       |                          |        
|                                                                                        |                                                          |                          |        
|                                                                                        | Sale of real estate                                      |                          |        
|                                                                                        | Other                                                    |                          |        
|                                                                                        |                                                          |                          |        
|                                                                                        | Total real estate and other operations                   |                          |        
|                                                                                        |                                                          |                          |        
|Total EBITDA                                                                            |                                                          | $                        | 12,297 
|                                                                                        |                                                          |                          |        





115

---





|                                          |                                        | December 31,
|----------------------------------------- | -------------------------------------- | ------------
|
|Total Assets                              |                                        |             
|                                          | California operations                  |             
|                                          | Florida operations                     |             
|                                          | Maryland operations                    |             
|                                          | Southern U.S. operations               |             
|                                          | Northern U.S. operations               |             
|                                          | European operations                    |             
|                                          | Technology operations                  |             
|                                          |                                        |             
|                                          |                                        |             
|                                          | Corporate and other                    |             
|                                          |                                        |             
|                                          | Total racing and gaming operations     |             
|                                          |                                        |             
|                                          | Non-Core Real Estate                   |             
|                                          | Other                                  |             
|                                          |                                        |             
|                                          | Total real estate and other operations |             
|                                          |                                        |             
|Total assets from continuing operations   |                                        |             
|Total assets held for sale                |                                        |             
|Total assets from discontinued operations |                                        |             
|                                          |                                        |             
|Total assets                              |                                        | $           
|                                          |                                        |             

|
|

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

116

---





|                                                    |  | Year ended December 31, 2006 |        
|--------------------------------------------------- |  | ---------------------------- | -------
|
|EBITDA (loss) from continuing operations            |  | $                            | 12,660 
|Interest expense (income), net                      |  |                              | 61,241 
|Depreciation and amortization                       |  |                              | 43,703 
|                                                    |  |                              |        
|Loss from continuing operations before income taxes |  | $                            | (92,284
|                                                    |  |                              |        
|Income tax benefit                                  |  |                              |        
|                                                    |  |                              |        
|Net loss from continuing operations                 |  |                              |        
|Net loss from discontinued operations               |  |                              |        
|                                                    |  |                              |        
|Net loss                                            |  |                              |        
|                                                    |  |                              |        

|
|

Year ended December 31, 2005Racing and Gaming Operations

Real Estate and Other Operations

TotalEBITDA loss from continuing operations

$
(33,913
)
$
(224
)
$
(34,137
)Interest expense (income), net


33,274


(448
)

32,826Depreciation and amortization


36,017


223


36,240Income (loss) from continuing operations before income taxes

$
(103,204
)
$
1


(103,203
)Income tax benefit








(1,239
)Net loss from continuing operations








(101,964
)Net loss from discontinued operations








(3,329
)Net loss







$
(105,293
)


|
|

Year ended December 31, 2004Racing and Gaming Operations

Real Estate and Other Operations

TotalEBITDA (loss) from continuing operations

$
(57,934
)
$
7,690

$
(50,244
)Interest expense (income), net


23,040


(1,090
)

21,950Depreciation and amortization


33,601


61


33,662Income (loss) from continuing operations before income taxes

$
(114,575
)
$
8,719


(105,856
)Income tax benefit








(4,939
)Net loss from continuing operations








(100,917
)Net income from discontinued operations








5,281Net loss







$
(95,636
)


117

---







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



|                                   |  | December 31,
|---------------------------------- |  | ------------
|
|United States                      |  | $           
|Canada                             |  |             
|Europe                             |  |             
|                                   |  |             
|Total from continuing operations   |  |             
|Total assets held for sale         |  |             
|Total from discontinued operations |  |             
|                                   |  |             
|                                   |  | $           
|                                   |  |             

20.   TRANSACTIONS WITH RELATED PARTIES



|                                                                                                                                                  |  | December 31, |        
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------
|
|Bridge loan facility, including accrued interest and commitment fees payable of nil
(December 31, 2005  $0.6 million)(i)                         |  | $            |       
|Gulfstream Park project financing-Tranche 1, including long-term accrued interest payable of $16.5 million (December 31, 2005  $3.7 million)(ii) |  |              | 131,350
|Gulfstream Park project financing-Tranche 2, including long-term accrued interest payable of $0.4 million (December 31, 2005  nil)(iii)          |  |              | 18,617 
|Remington Park project financing, including long-term accrued interest payable of $0.4 million
(December 31, 2005  $0.3 million)(iv)             |  |              | 30,391 
|                                                                                                                                                  |  |              |        
|                                                                                                                                                  |  | $            | 180,358
|Less: due within one year                                                                                                                         |  |              | (3,108 
|                                                                                                                                                  |  |              |        
|                                                                                                                                                  |  | $            | 177,250
|                                                                                                                                                  |  |              |        





118

---







119

---





2007

$
3,1082008


1,8382009


2,0372010


2,2562011


2,499Thereafter


168,620$
180,358


120

---







21.   COMMITMENTS AND CONTINGENCIES



121

---





2007

$
6,3682008


5,0742009


4,3902010


4,1302011


2,262Thereafter


6,446$
28,670




122

---





123

---





22.   OTHER LONG-TERM LIABILITIES



|                               |  | December 31,
|------------------------------ |  | ------------
|
|Finance obligation (note 5(b)) |  | $           
|Pension liability              |  |             
|Postretirement liability       |  |             
|Deferred gain                  |  |             
|Other                          |  |             
|                               |  |             
|                               |  | $           
|                               |  |             





|                                              |  | Years ended December 31, |     
|--------------------------------------------- |  | ------------------------ | ----
|
|Components of net periodic pension cost:      |  |                          |     
|Service cost                                  |  | $                        | 588 
|Interest cost on projected benefit obligation |  |                          | 837 
|Expected return on plan assets                |  |                          | (807
|Amortization of prior service cost            |  |                          | 18  
|Amortization of net loss                      |  |                          | 87  
|                                              |  |                          |     
|Net periodic pension cost                     |  | $                        | 723 
|                                              |  |                          |     

124

---





Years ended December 31,2006

2005

2004Change in benefit obligation:Benefit obligation at beginning of year

$
14,592

$
14,104

$
11,711Plans acquired through acquisition of AmTote


4,971





Service cost


588


532


437Interest cost


837


690


685Benefits paid


(643
)

(623
)

(569
)Actuarial (gains) losses


(993
)

(111
)

1,840Settlements


(285
)




Benefit obligation at end of year


19,067


14,592


14,104Change in plan assets:Fair value of plan assets at beginning of year


11,349


10,688


9,962Plans acquired through acquisition of AmTote


4,091





Actual return on plan assets


1,159


840


825Company contributions


682


444


470Benefits paid


(643
)

(623
)

(569
)Settlements


(285
)




Fair value of plan assets at end of year


16,353


11,349


10,688Funded status of plan (underfunded)


(2,714
)

(3,243
)

(3,416
)Unrecognized net gain





2,790


3,243Net pension liability

$
(2,714
)
$
(453
)
$
(173
)




|                  |  | December 31,
|----------------- |  | ------------
|
|Debt securities   |  | 51%         
|Equity securities |  | 46%         
|Real estate       |  | 3%          
|                  |  |             
|                  |  | 100%        
|                  |  |             



|                                                         |  | Years ended December 31,
|-------------------------------------------------------- |  | ------------------------
|
|Weighted average discount rate                           |  | 5.0  6.5%              
|Weighted average rate of increase in compensation levels |  | 4.0%                    
|Expected long-term rate of return                        |  | 6.0  9.0%              



125

---







|                                              |  | Year ended December 31, 2006
|--------------------------------------------- |  | ----------------------------
|Components of net periodic benefit cost:      |  |                             
|Service cost                                  |  | $                           
|Interest cost on projected benefit obligation |  |                             
|Amortization of net loss                      |  |                             
|                                              |  |                             
|Net periodic benefit cost                     |  | $                           
|                                              |  |                             



|                                                                     |  | Year ended December 31, 2006 |     
|-------------------------------------------------------------------- |  | ---------------------------- | ----
|Change in benefit obligation:                                        |  |                              |     
|Benefit obligation at beginning of year                              |  | $                            |    
|Plan acquired through acquisition of AmTote                          |  |                              | 495 
|Service cost                                                         |  |                              | 1   
|Interest cost                                                        |  |                              | 13  
|Benefits paid                                                        |  |                              | (52 
|Actuarial gains                                                      |  |                              | 3   
|                                                                     |  |                              |     
|Benefit obligation at end of year                                    |  |                              | 460 
|                                                                     |  |                              |     
|Change in plan assets:                                               |  |                              |     
|Fair value of plan assets at beginning of year                       |  |                              |    
|Company contributions                                                |  |                              | 52  
|Benefits paid                                                        |  |                              | (52 
|                                                                     |  |                              |     
|Fair value of plan assets at end of year                             |  |                              |    
|                                                                     |  |                              |     
|Funded status of plan (underfunded) and net postretirement liability |  | $                            | (460
|                                                                     |  |                              |     



|                                                                             |  | Year ended December 31, 2006
|---------------------------------------------------------------------------- |  | ----------------------------
|Weighted average discount rate                                               |  | 6.5%                        
|Health care cost trend assumed for next year                                 |  | 7.0%                        
|Rate to which the cost trend is assumed to decline (the ultimate trend rate) |  | 5.0%                        
|Year that the rate reaches the ultimate trend rate                           |  | 2009                        



126

---





|                                       |  | Defined Benefit Pension Plans |        | Postretirement Plan |   | Total
|-------------------------------------- |  | ----------------------------- | ------ | ------------------- | - | -----
|Expected employer contributions  2007 |  | $                             | 1,043  |                     | $ | 109  
|                                       |  |                               |        |                     |   |      
|Expected benefit payments              |  |                               |        |                     |   |      
|2007                                   |  | $                             | 1,255  |                     | $ | 109  
|2008                                   |  |                               | 1,328  |                     |   | 89   
|2009                                   |  |                               | 1,088  |                     |   | 82   
|2010                                   |  |                               | 1,100  |                     |   | 61   
|2011                                   |  |                               | 922    |                     |   | 46   
|2012-2016                              |  |                               | 6,299  |                     |   | 103  
|                                       |  |                               |        |                     |   |      
|                                       |  | $                             | 11,992 |                     | $ | 490  
|                                       |  |                               |        |                     |   |      



23.   SUBSEQUENT EVENTS



127

---





MAGNA ENTERTAINMENT CORP.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2006
(Amounts in thousands, U.S. dollars)

|                                                                                                                                                                                                                       |                                                               |        |        |         |        |   |   | Costs Capitalized
Subsequent to Acquisition |        |     |     |       |       | Gross Amount at which
Carried at Close of Period |   |         |        |     |     |         |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------ | ------ | ------- | ------ | - | - | ------------------------------------------- | ------ | --- | --- | ----- | ----- | ------------------------------------------------ | - | ------- | ------ | --- | --- | ------- | ------ | -
|
|
|EXCESS REAL ESTATE                                                                                                                                                                                                     |                                                               |        |        |         |        |   |   |                                             |        |     |     |       |       |                                                  |   |         |        |     |     |         |        |  
|Racing Operations                                                                                                                                                                                                      |                                                               |        |        |         |        |   |   |                                             |        |     |     |       |       |                                                  |   |         |        |     |     |         |        |  
|                                                                                                                                                                                                                       | Santa Anita Park
(Arcadia, California, U.S.A.)                |        | 52,781 |         | 52,500 |   |  |                                             |       |     | 281 |       |      |                                                  |  |         | 52,500 |     | 281 |         | 52,781 |  
|                                                                                                                                                                                                                       | Gulfstream Park
(Hallandale, Florida, U.S.A.)(i)              |        | 13,234 |         | 14,201 |   |  |                                             | (967   | )   |    |       |      |                                                  |  |         | 13,234 |     |    |         | 13,234 |  
|                                                                                                                                                                                                                       | Lone Star Park
(Grand Prairie, Texas, U.S.A.)                 |        |       |         | 4,245  |   |  |                                             |       |     |    |       |      |                                                  |  |         | 4,245  |     |    |         | 4,245  |  
|                                                                                                                                                                                                                       | Maryland Jockey Club
(Baltimore, Maryland, U.S.A.)            |        | 10,900 |         | 10,900 |   |  |                                             |       |     |    |       |      |                                                  |  |         | 10,900 |     |    |         | 10,900 |  
|                                                                                                                                                                                                                       | MEC Grundstucksentwicklumgs
GmbH (Niederoesterreich, Austria) |        |       |         | 9,974  |   |  |                                             | 3,651  |     |    |       | 2,166 |                                                  |  |         | 15,791 |     |    |         | 15,791 |  
|REAL ESTATE HELD FOR DEVELOPMENT                                                                                                                                                                                       |                                                               |        |        |         |        |   |   |                                             |        |     |     |       |       |                                                  |   |         |        |    
|Racing Operations                                                                                                                                                                                                      |                                                               |        |        |         |        |   |   |                                             |        |     |     |       |       |                                                  |   |         |        |     |     |         |        |  
|                                                                                                                                                                                                                       | Dixon Downs
(Dixon, California, U.S.A.)                       |        |       |         | 6,584  |   |  |                                             | 12,105 |     | 22  |       |      |                                                  |  |         | 18,689 |     | 22  |         | 18,711 |  
|                                                                                                                                                                                                                       | Ocala
(Ocala, Florida, U.S.A.)                                |        | 8,426  |         | 7,227  |   |  |                                             | 1,199  |     |    |       |      |                                                  |  |         | 8,426  |     |    |         | 8,426  |  
|Real Estate Operations                                                                                                                                                                                                 |                                                               |        |        |         |        |   |   |                                             |        |     |     |       |       |                                                  |   |         |        |     |     |         |        |  
|                                                                                                                                                                                                                       | New York, U.S.A.                                              |        |       |         | 725    |   |  |                                             | 2,265  |     |    |       |      |                                                  |  |         | 2,990  |     |    |         | 2,990  |  
|                                                                                                                                                                                                                       | Palm Meadows Estates
(Boynton, Florida, U.S.A.)               |        |       |         | 7,488  |   |  |                                             | 2,920  |     |    |       |      |                                                  |  |         | 10,408 |     |    |         | 10,408 |  
|                                                                                                                                                                                                                       | Ontario, Canada(ii)                                           |        |       |         | 2,334  |   |  |                                             | 6,313  |     |    |       | 1,651 |                                                  |  |         | 10,298 |     |    |         | 10,298 |  
|                                                                                                                                                                                                                       |                                                               |        |        |         |        |   |   |                                             |        |     |     |       |       |                                                  |   |         |        |     |     |         |        |  
|                                                                                                                                                                                                                       |                                                               | 74,441 |        | 116,178 |        |  |   | 27,486                                      |        | 303 |     | 3,817 |       |                                                 |   | 147,481 |        | 303 |     | 147,784 |        | 
|                                                                                                                                                                                                                       |                                                               |        |        |         |        |   |   |                                             |        |     |     |       |       |                                                  |   |         |        |     |     |         |        |  
|(i)    The following provides a reconciliation of the total amount at which real estate was carried at the beginning of the year to the amount shown in the column "Gross Amount at
which Carried at Close of Period":

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Gulfstream Park (Hallandale, Florida, U.S.A.) |                             |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | --------------------------- |  | - | ------ | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                               | Balance, beginning of year  |  | $ | 14,201 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                               | Deductions during the year: |  |   |        |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                               | Cost of real estate sold    |  |   | (967   | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                               |                             |  |   |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                               | Balance, close of year      |  | $ | 13,234 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                               |                             |  |   |       
|(ii)    On February 7, 2007, MI Developments Inc. acquired all of the Company's interests and rights in the Ontario, Canada parcel of residential development land for cash
consideration of Cdn. $12.0 million (U.S. $10.1 million). Based on this transaction, which established a fair value for the land, the Company recognized a non-cash impairment loss of $1.3 million related to this parcel of
residential development land for the year ended December 31, 2006.

128

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

None.

Item 9A. Controls and Procedures

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

Management
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal
Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based
on this evaluation of the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the
U.S. Securities Exchange Act of 1934) as of December 31, 2006, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and
Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that the Company maintained effective internal control over financial reporting as of
December 31, 2006.

Based
on this evaluation carried out, as of December 31, 2006, under the supervision and with the participation of the Company's management, including its Chief Executive Officer
and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15(d)-15(e) under the U.S. Securities Exchange Act of 1934) are effective.

There
were no changes in our internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. Ernst & Young LLP has audited this assessment of our internal control over financial reporting; their report is included
in Item 9A.

The
design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

129

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors and Shareholders of Magna Entertainment Corp.

We
have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Magna Entertainment Corp. maintained
effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO criteria"). Magna Entertainment Corp.'s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

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

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

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

In
our opinion, management's assessment that Magna Entertainment Corp. maintained effective internal control over financial reporting as at December 31, 2006, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, Magna Entertainment Corp. maintained, in all material respects, effective internal control over financial reporting as at
December 31, 2006, based on the COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Magna Entertainment
Corp. as of December 31, 2006 and 2005, and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity and cash flows for each of the three years
in the period ended December 31, 2006, and our report dated March 7, 2007 expressed an unqualified opinion thereon. Our audits also included the financial statement schedule listed in
the Index at Item 15(a).

|Toronto, Canada |  |                      
|--------------- |  | ---------------------
|March 7, 2007   |  | Chartered Accountants

130

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Part III

Item 10. Directors and Executive Officers of the Registrant

The information required herein is incorporated by reference from sections of our Proxy Statement titled "Nominees",
"Management  Executive Officers", "The Board of Directors and Committees of the Board  Audit Committee",
"Section 16(a) Beneficial Ownership Reporting Compliance" and "Code of Conduct", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our
fiscal year end of December 31, 2006.

Item 11. Executive Compensation

The information required herein is incorporated by reference from sections of our Proxy Statement titled "The Board of Directors and Committees of the
Board  Directors' Compensation", "The Board of Directors and Committees of the Board  Compensation Committee Interlocks
and Insider Participation", "Executive Compensation" and "Corporate Governance, Human Resources and Compensation Committee Report", which Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days after our fiscal year end of December 31, 2006.

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

The information required herein is incorporated by reference from the sections of our Proxy Statement titled "Equity-Based Compensation Plan Information" and
"Security Ownership", which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31, 2006.

Item 13. Certain Relationships and Related Transactions

The information required herein is incorporated by reference from the section of our Proxy Statement titled "Certain Relationships and Related Transactions",
which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31, 2006.

Item 14. Principal Accountant Fees and Services

The information required herein is incorporated by reference from the section of our Proxy Statement titled "Principal Accountant Fees and Services", which Proxy
Statement will be filed with the Securities and Exchange Commission within 120 days after our fiscal year end of December 31, 2006.

131

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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, 2006 are included in Part II, Item 8 of this
Annual Report:



Please
refer to the exhibit index below.

132

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on this 14th day of March, 2007.

| |  | 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                                                                              
|--------- |  | ----------------------------------------- |  | ----------------------------------------------------------------------------------
|By:       |  | /s/MICHAEL NEUMANMichael Neuman           |  | Chief Executive Officer and Director
(Principal Executive Officer)                
|By:       |  | /s/BLAKE TOHANABlake Tohana               |  | Executive Vice-President and Chief Financial Officer
(Principal Financial Officer)
|By:       |  | /s/MARY LYN SEYMOURMary Lyn Seymour       |  | Vice-President and Controller
(Principal Accounting Officer)                      
|By:       |  | /s/JERRY D. CAMPBELLJerry D. Campbell     |  | Director                                                                          
|By:       |  | /s/JOSEPH DE FRANCISJoseph De Francis     |  | Director                                                                          
|By:       |  | /s/LOUIS E. LATAIFLouis E. Lataif         |  | Director                                                                          
|By:       |  | /s/WILLIAM J. MENEARWilliam J. Menear     |  | Director                                                                          
|By:       |  | /s/DENNIS MILLSDennis Mills               |  | Director                                                                          
|By:       |  | /s/FRANK STRONACHFrank Stronach           |  | Chairman and
Director                                                             
|By:       |  | /s/CHARLIE J. WILLIAMSCharlie J. Williams |  | Director                                                                          

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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 herein by reference to exhibit 3.1 of the registrant's Report on Form 8-K filed on March 16, 2000).                                                                                                                                                                                       
|3.2         |  | By-Laws of Magna Entertainment Corp. (incorporated herein by reference to the corresponding exhibit number of the registrant's Report on Form 10-Q filed on May 10, 2004).                                                                                                                                                                                                 
|4.1         |  | Form of Stock Certificate for Class A Subordinate Voting Stock (incorporated by reference to exhibit 4 of the registrant's Registration Statement on Form S-1 originally filed on January 14, 2000 (File
number 333-94791).                                                                                                                                                
|4.2         |  | Indenture dated as of December 2, 2002, between Magna Entertainment Corp. and The Bank of New York, as trustee, including the form of 71/4% Convertible Subordinated Notes due
December 15, 2009. (incorporated herein by reference to exhibit 4.1 to registrant's registration statement on Form S-3 filed January 31, 2003 (File number 333-102889)).                    
|4.3         |  | Indenture dated as of June 2, 2003, between Magna Entertainment Corp. and the Bank of New York, as trustee, including the form of 8.55% Convertible Subordinated Notes due June 15, 2010 (incorporated herein
by reference to exhibit 4.1 of the registrant's Registration Statement on Form S-3 filed July 25, 2003 (file number 333-107368)).                            
|10.1        |  | Term Loan Credit Agreement dated as of November 15, 1999, as amended from time to time, between The Santa Anita Companies, Inc. and Wells Fargo Bank, National Association (incorporated herein by reference to the
exhibit 10.7 of the registrant's Registration Statement on Form S-1/A originally filed on February 14, 2000 (File number 333-94791)).                  
|10.2        |  | Magna Entertainment Corp. Long-Term Incentive Plan (incorporated herein by reference to exhibit 10.11 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1999).                                                                                                                                                                         
|10.3        |  | Amendment No. 1 to the Term Loan Credit Agreement dated as of November 15, 1999, between The Santa Anita Companies, Inc. and Wells Fargo Bank, National Association (incorporated herein by reference to
exhibit 10.21 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).                                                        
|10.4        |  | Amendment No. 2 to the Term Loan Credit Agreement dated as of November 15, 1999, between The Santa Anita Companies, Inc. and Wells Fargo Bank, National Association (incorporated herein by reference to
exhibit 10.22 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).                                                        
|10.5        |  | Amendment No. 3 to the Term Loan Credit Agreement dated as of November 1, 2001, between The Santa Anita Companies, Inc. and Wells Fargo Bank, National Association (incorporated herein by reference to
exhibit 10.16 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).                                                         
|10.6        |  | Option Agreement dated November 27, 2002 by and among the Company, Joseph LLC, Karin LLC, Joseph A. De Francis and Karin M. De Francis (incorporated herein by reference to exhibit 2.2
to registrant's Report on Form 8-K filed on December 12, 2002). (Exhibit A to this Agreement has been omitted but will be furnished supplementally to the Commission upon request.)
|10.7        |  | Employment Agreement between the Company and Blake Tohana dated July 1, 2003 (incorporated herein by reference to exhibit 10.29 to the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003).                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                                                            

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|10.8  |  | Loan Agreement dated March 5, 2004 between MEC Grundstucksentwicklungs GmbH and Raiffeisenlandesbank Niederosterreich-Wien AG in the amount of Euro 15,000,000 (incorporated herein by reference to
exhibit 10.1 to the registrant's Form 10-Q for the Quarter ended March 31, 2004).                          
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9  |  | Term Loan Credit Agreement dated as of October 8, 2004 between Wells Fargo Bank, National Association and The Santa Anita Companies, Inc. (incorporated herein by reference to exhibit 10.1 to the
registrant's Report on Form 8-K filed on October 14, 2004).                                                 
|10.10 |  | Form of Election for Performance Shares in Lieu of Guaranteed Bonus for W. Thomas Hodgson, Jim McAlpine, Donald Amos, Paul Cellucci, Blake Tohana and certain other employees of the Registrant (incorporated herein by
reference to exhibit 10.1 of the Registrant's Report on Form 8-K filed on May 9, 2005).
|10.11 |  | Form of Indemnity Agreement dated as of October 31, 2005 (incorporated herein by reference to exhibit 10.1 of the registrant's Report on Form 8-K filed on November 2, 2005).                                                                                                                                  
|10.12 |  | Amended and Restated Credit Agreement between the Registrant and the Bank of Montreal, et al., dated as of July 22, 2005 (incorporated herein by reference to exhibit 10.5 to the registrant's Report on
Form 10-Q filed on November 9, 2005).                                                                 
|10.13 |  | First Amending Agreement made as of the 1st day of February, 2006 between the registrant and MID Islandi SF, et al (incorporated herein by reference to exhibit 10.1 of the registrant's Report on
Form 8-K filed on February 9, 2006).                                                                        
|10.14 |  | Separation Agreement between the registrant and W. Thomas Hodgson dated March 31, 2006 (incorporated herein by reference to exhibit 10.3 of the registrant's Report on Form 10-Q filed on May 9,
2006).                                                                                                        
|10.15 |  | Consulting Agreement made as of April 30, 2006 among MEC Holdings (Canada) Inc., the registrant, McAlpine Capital Advisors Inc. and Jim McAlpine (incorporated herein by reference to exhibit 10.2 of the
registrant's Report on Form 10-Q filed on August 9, 2006).                                           
|10.16 |  | First Amending Agreement to the Amended and Restated Credit Agreement, dated as of July 22, 2005, between the registrant and the Bank of Montreal, et al, made as of July 26, 2006. (incorporated herein by
reference to exhibit 10.1 of the registrant's Report on Form 10-Q filed on November 9, 2006).      
|10.17 |  | Second Amending Agreement to the Amended and Restated Credit Agreement, dated as of July 22, 2005, between the registrant and the Bank of Montreal, et al, made as of November 6, 2006. (incorporated herein
by reference to exhibit 10.2 of the registrant's Report on Form 10-Q filed on November 9, 2006).  
|10.18 |  | Second Amending Agreement made as of July 26, 2006 between the registrant and MID Islandi, sf., et al. (incorporated herein by reference to exhibit 10.3 of the registrant's Report on Form 10-Q filed on
November 9, 2006).                                                                                   
|10.19 |  | Third Amending Agreement made as of September 26, 2006 between the registrant and MID Islandi SF, et al. (incorporated herein by reference to exhibit 10.4 of the registrant's Report on Form 10-Q filed
on November 9, 2006).                                                                                 
|10.20 |  | Fourth Amending Agreement made as of September 29, 2006 between the registrant and MID Islandi SF, et al. (incorporated herein by reference to exhibit 10.5 of the registrant's Report on Form 10-Q filed
on November 9, 2006).                                                                                
|10.21 |  | Fifth Amending Agreement made as of November 6, 2006 between the registrant and MID Islandi SF, et al. (incorporated herein by reference to exhibit 10.6 of the registrant's Report on Form 10-Q filed on
November 9, 2006).                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                

135

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|10.22 |  | Limited Liability Company Agreement of Santa Anita Associates, LLC between Santa Anita Commercial Enterprises, Inc. and Santa Anita Associates Holding Co., LLC, effective as of September 28, 2006
(incorporated herein by reference to exhibit 10.7 of the registrant's Report on Form 10-Q filed on November 9, 2006). (Portions of exhibit 10.7 marked with "xxx" are subject to a pending Confidential Treatment Request filed with
the Secretary of the Securities and Exchange Commission and have been filed separately with the Securities and Exchange Commission.)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.23 |  | Letter Agreement between the Registrant and Donald Amos dated October 13, 2006. (incorporated herein by reference to Exhibit 10.8 of the registrant's Report on Form 10-Q filed on November 9,
2006).                                                                                                                                                                                                                                                                                                                                                                        
|10.24 |  | Second Amended and Restated Loan Agreement made as of the 26th day of July, 2006 between Gulfstream Park Racing Association, Inc. and MID Islandi sf., et al. (incorporated herein by reference to
Exhibit 10.9 of the registrant's Report on Form 10-Q filed on November 9, 2006).                                                                                                                                                                                                                                                                                          
|10.25 |  | Amended Stock Purchase Agreement dated as of July 26, 2006 amending the Stock Purchase Agreement, dated November 8, 2005 between the registrant and PA Meadows, LLC. (incorporated herein by reference to
Exhibit 10.10 of the registrant's Report on Form 10-Q filed on November 9, 2006).                                                                                                                                                                                                                                                                                  
|10.26 |  | Post-Closing and Note Issuance Agreement, dated as of July 26, 2006 between the registrant and PA Meadows LLC. (incorporated herein by reference to Exhibit 10.11 of the registrant's Report on Form 10-Q
filed on November 9, 2006).                                                                                                                                                                                                                                                                                                                                        
|10.27 |  | Racing Services Agreement entered into as of July 26, 2006 by and among the registrant, MEC Pennsylvania Racing Services, Inc., Mountain Laurel Racing, Inc., Washington Trotting Association, Inc., MEC
Pennsylvania Racing, Inc., MEC Pennsylvania Food Service, Inc., and MEC Racing Management (incorporated herein by reference to Exhibit 10.12 of the registrant's Report on Form 10-Q filed on November 9, 2006).                                                                                                                                                    
|10.28 |  | Share Purchase Agreement made as of October 31, 2006 between Fontana Beteiligungs GmbH and Magna Steyr Metalforming AG (incorporated herein by reference to Exhibit 10.1 of the registrant's Report on
Form 8-K filed on November 7, 2006). (The schedules to this agreement (Schedule A  List of Capitalized Terms; Schedule B  Net Working Capital as of September 30, 2006; and
Schedule C  Demerger Agreement) have not been included and will be furnished to Securities and Exchange Commission upon request.)                                                      
|10.29 |  | Asset Purchase Agreement made August 25, 2006 between Magna International Inc. as the Purchaser and MEC Holdings (Canada) Inc. as the Vendor (incorporated herein by reference to Exhibit 10.1 of the
registrant's Report on Form 8-K filed on November 8, 2006). (The schedules to this agreement, which are listed in Section 1.6 of the agreement, have not been included and will be furnished to the Securities and Exchange Commission upon
request.)                                                                                                                  
|10.30 |  | Third Amended and Restated Gulfstream Loan Agreement dated December 22, 2006 between Gulfstream Park Racing Association, Inc., MID Islandi SF, Remington Park, Inc., GPRA Thoroughbred Training Center,
 Inc. and the registrant (incorporated herein by reference to Exhibit 10.1 of the registrant's Report on Form 8-K filed on December 22, 2006).                                                                                                                                                                                                                       
|10.31 |  | Sixth Amending Agreement dated December 22, 2006 between the registrant and the Guarantors and Bank of Montreal (incorporated herein by reference to Exhibit 10.2 of the registrant's Report on Form 8-K filed
on December 22, 2006).                                                                                                                                                                                                                                                                                                                                        
|10.32 |  | Employment Agreement between the Company and Michael Neuman dated February 27, 2007 (incorporated herein by reference to exhibit 10.1 to the registrant's Report on Form 8-K filed on March 5,
2007).                                                                                                                                                                                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

136

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|10.33 |  | March 4, 2007 Limited Liability Company Operating Agreement of HRTV, LLC between Churchill Downs Incorporated, Magna Entertainment Corp. and MEC HRTV HOLDCO LLC (incorporated herein by reference to
exhibit 10.1 to the registrant's Report on Form 8-K filed on March 6, 2007).                              
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.34 |  | March 4, 2007 Limited Liability Company Operating Agreement of TRACKNET MEDIA GROUP, LLC between Churchill Downs Incorporated, CD CONTENTCO HC, LLC, the registrant and MEC CONTENT HOLDCO LLC
(incorporated herein by reference to exhibit 10.2 to the registrant's Report on Form 8-K filed on March 6, 2007).
|10.35 |  | Agreement of Purchase and Sale made February 7, 2007 between MI Developments (Maryland) Inc., MI Developments Inc. and Laurel Racing Association Limited Partnership.*                                                                                                                                          
|12    |  | Statement re: Computation of Earnings to Fixed Charges.*                                                                                                                                                                                                                                                        
|14    |  | Code of Business Conduct.*                                                                                                                                                                                                                                                                                      
|21    |  | Subsidiaries of the Registrant.*                                                                                                                                                                                                                                                                                
|23    |  | Consent of Ernst & Young LLP.*                                                                                                                                                                                                                                                                                  
|24    |  | Power of Attorney.*                                                                                                                                                                                                                                                                                             
|31.1  |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.*                                                                                                                                                                             
|31.2  |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.*                                                                                                                                                                             
|32.1  |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                    
|32.2  |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                    

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