HARRISBURG -- A week ago, owners of The Meadows were laying the groundwork for a casino to be built along their harness race track in Washington County.

Privately, though, they were paving the way to sell out for $225 million as part of their Canadian parent's plan to pare debt and get back on more solid financial footing.

Aurora, Ontario-based Magna Entertainment Corp. announced yesterday that it was selling the Meadows operation to PA Meadows and a fund managed by Los Angeles-based investment management firm Oaktree Capital Management.

PA Meadows is a limited liability corporation owned by veteran Las Vegas casino operators William Paulos and William Wortman, controlling shareholders of Millennium Gaming Inc. Oaktree Capital oversees some $30 billion in investments, primarily in troubled firms seeking a turnaround.

The sale will allow Magna to "significantly reduce our outstanding debt and strengthen our balance sheet," said Tom Hodgson, Magna's president and chief executive officer.

Magna will continue to manage racing operations for at least five years under a lease arrangement.

"The big thing is that Millennium will provide the financing to build the new gaming operation," said Mike Jeannot, Magna's vice president for Pennsylvania racing. "The good thing for them is that they retain our racing abilities."

Mr. Paulos said the group was interested in The Meadows because of its "spectacular location." He said the deal would be completed as soon as the state approves a conditional slots license for The Meadows.

Plans call for the group to build a temporary, 60,000 square-foot facility as soon as possible after the license approval.

Then, it will tear down the existing clubhouse and build a new facility that will include the casino and a new clubhouse.

Future plans include building a hotel and other amenities to create "a total entertainment experience."

"This is a great location -- a race track with great history," Mr. Paulos said. "As we understand it, there is a lot of potential for development in this part of Washington County, so this could be a spectacular attraction for all of southwestern Pennsylvania."

The sale is contingent upon approval from the Pennsylvania Harness Racing Commission and receipt of a casino license from the state Gaming Control Board.

Because of the continued involvement of Magna -- which already has a harness racing license and is in line for a casino license -- the track will continue to operate during the transition, said Anton J. Leppler, executive secretary for the racing commission.

Meanwhile, the commission will investigate the new owners' backgrounds.

"We have to do all the necessary vetting and make sure they meet muster," Mr. Leppler said.

The new owners "have a strong background in gaming and Magna itself didn't have that background. That's why they're partnering with these folks who have the background for a successful slots operation," Mr. Leppler said.

Millennium Gaming is the controlling shareholder of Cannery Casino Resorts, a limited liability corporation that operates Cannery Casino & Hotel and the Rampart Casino in Las Vegas. Rampart, part of a golf resort owned by Marriott Corp., was struggling until Millennium got involved a few years ago.

It's not uncommon for racetracks to hire casino operators to run that end of the business when new states approve gaming, said Joseph Weinert, vice president of industry analyst Spectrum Gaming Group of Atlantic City. Slots and table games are a special operation that requires special expertise in understanding regulations and marketing the facilities, he said.

"[Casinos] will go looking for opportunities in other states in hopes that they will get gambling approved," Mr. Weinert said. "We've maintained all along there would be no shortage of suitors for business in Pennsylvania.

"You should have experience in the gaming industry, either by bringing in people or hiring some else to run that end."

Mr. Weinert said that's exactly what happened in Delaware, where the three racetracks that have gambling hired former Atlantic City gambling executives to run their operations.

With 49 other tracks, Magna remains North America's largest owner and operator of racetracks, based on revenue.

The financially troubled company, which also operates XpressBet, an Internet and telephone wagering system, has been divesting itself of other assets recently, too.

A week ago, for example, it announced the sale of 157 acres of Florida real estate to Toll Bros. Inc., a luxury-home builder based in Horsham, Montgomery County, for $51 million. Mr. Hodgson had described the sale as one step in an overall debt-reduction plan.

It followed the sale of Magna's remaining shares in Ontario Racing's Flamboro Downs in Ontario and shares in Maryland-Virginia Racing Circuit's Colonial Downs in Virginia.

Magna's losses narrowed in the most recent quarter, to $34.5 million for the three months ended Sept. 30 vs. a loss of $50.3 million in the year-ago period. But the most recent quarter was aided by the Flamboro Downs sale. Magna actually lost $42.9 million on its continuing operations, and revenue for the quarter fell to $83.2 million vs. $95 million a year ago.

Even worse, long-term debt of $210 million, other debt obligations and ongoing expenses have made Magna cash-flow negative. That is, it's not generating enough income from all its sales to cover expenses and debt payments, and its accounts payable to vendors and other suppliers are nearly triple the payments it is receiving for services it provides, according to Magna's unaudited third-quarter statements released yesterday.

For the year's first nine months, Magna reported that it lost $60.5 million on revenue of $497.7 million vs. a loss of $54.6 million on revenue of $570.9 million for the comparable 2004 period.

Magna shares closed yesterday at $7.66, up 8 cents.