Cautionary Statement Regarding Forward-Looking Information

This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding our strategies, objectives and plans for future development or acquisitions of properties or operations, as well as expectations, future operating results and other information that is not historical information. When used in this report, the terms or phrases such as "anticipates", "believes", "projects", "plans", "intends", "expects", "estimates", "could", "would", "will likely continue", and variations of such words or similar expressions are intended to identify forward-looking statements. Although our expectations, beliefs and projections are expressed in good faith and with what we believe is a reasonable basis, there can be no assurance that these expectations, beliefs and projections will be realized.

There are a number of risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements which are included elsewhere in this report. Such risks, uncertainties and other important factors include, but are not limited to:

º •
º our dependence on our West Virginia, Pennsylvania and Ohio casinos for the majority of our revenues and cash flows;

º •
º competitive and general economic conditions in our markets;

º •
º the successful operation of our video lottery terminals ("VLTs") gaming facility at Scioto Downs, our racetrack in Columbus, Ohio;

º •
º the effect of economic, credit and capital market conditions on the economy and the gaming and entertainment industry;

º •
º weather or road conditions limiting access to our properties;

º •
º volatility and disruption of the capital and credit markets;

º •
º changes in, or failure to comply with, laws, regulations or the conditions of our West Virginia, Pennsylvania and Ohio gaming and racing licenses (or the failure to obtain renewals thereof), accounting standards or environmental laws (including adverse changes in the rates of taxation on gaming revenues) and delays in regulatory licensing processes;

º •
º construction factors relating to maintenance and expansion of operations;

º •
º the outcome of legal proceedings;

º •
º dependence upon key personnel and the ability to attract new personnel;

º •
º the ability to retain and attract customers;

º •
º the effect of war, terrorism, natural disasters and other catastrophic events;

º •
º the effect of disruptions to our systems and infrastructure;

º •
º our substantial indebtedness;

º •
º the ability to refinance existing debt, or obtain additional financing, if and when needed, the cost of refinancing, and the impact of leverage and debt service requirements;

º •
º our ability to comply with certain covenants in our debt documents;

º •
º the other factors set forth in Part I, Items 1A. "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2011.

In light of these and other risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur. Any forward-looking statement speaks only as of the date on which that statement is made. We do not intend to update publicly any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as may be required by law.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes which are contained elsewhere in this report.

Overview

We were incorporated in March 1988 in Delaware under the name "Secamur Corporation," a wholly-owned subsidiary of Buffalo Equities, Inc. In 1996, we were renamed MTR Gaming Group, Inc. and, since 1998, we have operated only in the racing, gaming and entertainment businesses.

Through our wholly-owned subsidiaries, we own and operate Mountaineer Casino, Racetrack & Resort in Chester, West Virginia ("Mountaineer"), Presque Isle Downs & Casino in Erie, Pennsylvania ("Presque Isle Downs"), and Scioto Downs in Columbus, Ohio. We consider these three properties, which are located in contiguous states, to be our core assets. Scioto Downs, through its subsidiary RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of Churchill Downs, Inc.

Our Properties:

We operate racino properties, all of which include gaming and dining facilities, and some of which include hotel, retail and other amenities. The majority of our revenue is gaming revenue, derived primarily from gaming on slot machines and, to a lesser extent, table games. Other revenues are derived from our racing operations, hotel, dining, retail and entertainment offerings. Our gaming operations are highly dependent on the volume and spending levels of our customers, which, in turn, may affect the prices we can charge for our hotel, dining and other amenities. Our properties generate significant operating cash flow, which is essential to debt service and to funding maintenance capital expenditures.

Mountaineer currently operates 2,138 slot machines, 14 poker tables and 47 casino table games, including blackjack, craps, roulette and other games, and offers live thoroughbred horse racing during the months of March through December, operating 210 live race days with on-site pari-mutuel wagering year-round.

Presque Isle Downs currently operates 2,031 slot machines, 44 casino table games and a nine-table poker room, which we began operating on October 3, 2011. In addition, Presque Isle Downs offers live thoroughbred horse racing during the months of May through September, operating 100 live race days with pari-mutuel wagering year-round.

Scioto Downs began operating its newly constructed VLT gaming facility in June 2012, and currently operates 2,117 VLTs. In addition, Scioto Downs offers live harness horse racing from May through September, operating 57 live racing days with pari-mutuel wagering, prior to the opening of the VLT facility, during the months of May through October. Scioto Downs had an agreement with Beulah Park, which was to expire on December 31, 2012, that allowed for each facility's simulcasting to be operational only during its live race meets. Upon the opening of our VLT facility the agreement was terminated, as permitted by the provisions of the contract, and accordingly Scioto Downs will offer year round simulcasting.

Property Development:

During the third quarter of 2012, we completed the final phase of construction on our gaming facility at Scioto Downs. The gaming facility build out, which was fully operational in August 2012, is approximately 132,000 square feet, including 65,000 square feet of gaming space to accommodate up to 2,500 VLTs and four food and beverage outlets. The property currently includes a 100-seat casual dining restaurant and center bar/lounge and an approximately 300-seat buffet and a sports bar, both of which opened in August 2012. Development, construction and equipment costs are expected to be approximately $125.0 million over a required three-year period of which we have expended a total of approximately $110.7 million through September 30, 2012. Additional information regarding our gaming facility construction is discussed in detail in the section entitled "Liquidity and Capital Resources" below.

During the second quarter of 2012, we entered into an agreement to manage and operate a new Wyndham property hotel to be located adjacent to our Presque Isle Downs property. The hotel broke ground in July 2012 and is expected to open in fall 2013.

Key Performance Metrics:

Certain key operating statistics specific to the gaming industry are used to review our property results. These include slot handle and table game drop, which are volume indicators, and "win" or "hold" percentage. For the nine months ended September 30, 2012, our property slot win percentage is in the range of 7% to 9% of slot handle, and our table game win percentage is in the range of 19% to 20% of table game drop. We also review daily net win per slot and table as a measure of overall gaming performance. For the nine months ended September 30, 2012, our property daily net win per slot is in the range of $208 to $231, and our daily net win per table is $1,121 and $1,540 for Presque Isle Downs and Mountaineer, respectively.

In addition, average daily room rate ("ADR") and revenue per available room ("RevPAR") are used to measure our hotel volume and efficiency. For the nine months ended September 30, 2012, our ADR was $83 excluding complimentary rooms and $47 including complimentary rooms. RevPAR for the three and nine months ended September 30, 2012 was approximately $46 and $44, respectively.

Financial Summary:

The significant factors affecting our results for the three months ended September 30, 2012, compared to the three months ended September 30, 2011, were:

º •
º The increase in net revenues of $31.0 million for the three months ended September 30, 2012, compared to the prior year period, was primarily due to the opening of our gaming facility at Scioto Downs, offset by a decrease in revenue at Presque Isle Downs.

º •
º For the third quarter of 2012, our Presque Isle Downs and Mountaineer operations continued to see a negative impact from the May 2012 opening of a casino in Cleveland, Ohio. During the third quarter of 2012, compared to the same period prior year, Presque Isle Downs slot and table game revenue declined approximately 12.1% and 31.1%, respectively, and Mountaineer table game revenue declined 26.8%. Mountaineer slot revenue increased 0.5% over the same period.

All of our properties experience varying competitive pressures, from casinos in western Pennsylvania, western New York, northern West Virginia and eastern Ohio. We believe the expansion of gaming in Ohio, which includes a casino that opened in Columbus in October 2012 and additional casinos in Cincinnati and Toledo, as well as, the installation of VLTs at existing horse race tracks including Thistledown and Northfield Park, which are both located in the Cleveland area, and the relocation of a racetrack to Youngstown, will have a negative impact on

our results of operations at all our properties and such impact may be material. We intend to be proactive in our efforts to mitigate the effects of such competition, which include expanding marketing initiatives and proactively managing our cost structures at the properties. Information regarding litigation seeking to prevent gaming activities in Ohio is discussed in detail in Part II, Item 1. "Legal Proceedings" below.

º •
º The increase of $1.0 million in interest expense for the three months ended September 30, 2012, compared to the prior year period was due to the August 2011 refinancing where we issued $565 million 11.5% Senior Secured Second Lien Notes and whose proceeds were used to refinance our former debt obligations and finance development of the Scioto Downs gaming facility. The increase was partially offset by $0.1 million of capitalized interest related to the construction of our gaming facility at Scioto Downs. There was no capitalized interest in the same period of the prior year.

Results of Operations

Three and Nine Months Ended September 30, 2012 Compared to Three and Nine Months
Ended September 30, 2011

    The results of continuing operations are summarized below:

                                              Three Months Ended       Nine Months Ended
                                                September 30,            September 30,
                                               2012        2011        2012        2011
                                                      (unaudited, in thousands)
 Revenues:
 Gaming                                      $ 132,020   $ 102,598   $ 339,664   $ 291,178
 Pari-mutuel commissions                         3,824       3,898       8,347       8,277
 Food, beverage and lodging                     11,105       9,408      27,765      24,725
 Other                                           3,583       2,695       8,141       8,457

 Revenues                                      150,532     118,599     383,917     332,637
 Less promotional allowances                    (3,876 )    (2,962 )   (10,194 )    (8,144 )

 Net revenues                                  146,656     115,637     373,723     324,493

 Operating expenses:
 Gaming                                         76,630      68,681     204,006     185,835
 Pari-mutuel commissions                         3,831       3,965       8,746       9,159
 Food, beverage, lodging                         8,604       6,686      21,112      18,028
 Other                                           2,358       1,814       5,596       4,803
 Marketing and promotions                        6,065       3,440      12,846       9,678
 General and administrative                     17,799      13,389      46,119      39,971
 Project opening costs                             222         154       2,718         161
 Depreciation                                    7,880       7,022      19,979      21,076
 Gain on the sale or disposal of property            -         (16 )        (4 )      (212 )

 Total operating expenses                      123,389     105,135     321,118     288,499

 Operating income                               23,267      10,502      52,605      35,994
 Interest expense, net                         (17,202 )   (16,211 )   (50,483 )   (42,927 )
 Loss on debt extinguishment                         -     (34,364 )         -     (34,364 )
 Provision for income taxes                       (729 )    (1,444 )    (2,077 )    (3,091 )

 Income (loss) from continuing operations    $   5,336   $ (41,517 ) $      45   $ (44,388 )

Financial results for the three months ended September 30, 2012 compared to the three months ended September 30, 2011

Net Revenues

Net revenues for the three months ended September 30, 2012, comprised of $135.8 million in gaming and pari-mutuel revenues (93% of total net revenues), $14.7 million of non-gaming revenues (10% of total net revenues) less $3.9 million of promotional allowances (-3% of total net revenues), increased $31.0 million, or 26.8%, compared to net revenues for the three months ended September 30, 2011, comprised of $106.5 million in gaming and pari-mutuel revenues (92% of total net revenues), $12.1 million of non-gaming revenues (11% of total net revenues) less $2.9 million of promotional allowances (-3% of total net revenues). The increase was primarily attributable to the following components.

Gaming

Gaming revenues are comprised of the net win from our slot operations, table games and poker. Gaming revenues for the three months ended September 30, 2012 of $132.0 million represents a $29.4 million, or 28.7%, increase compared to the prior year period. The increase of $29.4 million is comprised of an increase in slot and poker revenue of $33.0 million and $0.1 million, respectively, offset by a decrease in table gaming revenue of $3.7 million. The increase in slot revenue was primarily due to the opening of our gaming facility at Scioto Downs which provided incremental gaming revenue of $38.2 million, offset by a decrease at Presque Isle Downs of $5.4 million due to continued competitive pressures. The increase in poker revenue was primarily attributable to the introduction of poker at our Presque Isle Downs facility in October 2011. The decrease in table gaming revenue was due to continued competitive pressures.

Gaming revenue at Mountaineer decreased by $2.1 million, or 4.0%, to $50.0 million for the three months ended September 30, 2012, compared to the prior year period. The decrease is comprised of a decrease in table gaming and poker revenue of $2.0 million and $0.3 million, respectively, offset by an increase in slot revenue of $0.2 million. The decrease in table gaming revenue was due to the continued pressure from competition within our target market including the opening of the Cleveland casino. We attribute the slot revenue increase to Mountaineer's continued disciplined marketing approach which included providing consistent promotional offerings and the launch of an improved loyalty program during the second quarter of 2012, partially offset by the impact of the Cleveland casino.

Gaming revenue at Presque Isle Downs decreased by $6.7 million, or 13.2%, to $43.8 million for the three months ended September 30, 2012, compared to the prior year period. The decrease is comprised of a decrease in slot and table gaming revenue of $5.4 million and $1.7 million, respectively, offset by an increase in poker revenue of $0.4 million. We attribute the decrease in slot and table gaming revenue to the competitive pressures from casinos within our target market including the opening of the Cleveland casino. The increase in poker revenue was due to the opening of the poker room in October 2011.

The opening of the gaming facility at Scioto Downs provided incremental gaming revenue of $38.2 million for the three months ended September 30, 2012. In October 2012, a new casino opened in Columbus, Ohio and, as expected, we have seen a decline in our gaming revenues at Scioto Downs. We believe the opening of the additional casino will be a catalyst in growing the gaming revenues for the Columbus region to levels consistent with other markets of its size. We will continue to be proactive in our efforts to grow our revenues and customer database to maintain a share of the market while managing our expenses in order to maximize margins.

Pari-Mutuel Commissions

Pari-mutuel commissions consist of commissions earned from thoroughbred and harness racing and importing/exporting of simulcast signals from/to other race tracks. Pari-mutuel commissions for the three months ended September 30, 2012 of $3.8 million are relatively flat compared to the prior year period.

Pari-mutuel commissions at Mountaineer, Presque Isle Downs and Scioto Downs remained flat at $1.8 million, $1.2 million and $0.8 million, respectively, for the three months ended September 30, 2012, compared to the prior year period.

Food, Beverage and Lodging

Revenue from our food, beverage and lodging operations for the three months ended September 30, 2012 of $11.1 million represents a $1.7 million, or 18.0%, increase compared to the prior year period. The increase was primarily attributable to Scioto Downs, with the opening of its casual dining restaurant and center bar/lounge in June 2012 and the opening of its sports bar and buffet in August 2012.

Food, beverage and lodging revenue at Mountaineer decreased by $0.4 million, or 7.6%, to $5.5 million for the three months ended September 30, 2012, compared to the prior year period. The decrease of $0.4 million is comprised solely of a decrease in food and beverage revenue. Lodging revenues remained flat over the same period.

Food and beverage revenue at Presque Isle Downs for the three months ended September 30, 2012 of $3.4 million represent a $0.2 million, or 5.9% increase from the prior period.

Food and beverage revenue at Scioto Downs increased by $2.0 million, or 693%, to $2.2 million for the three months ended September 30, 2012, compared to the prior year period. The increase was attributable to the opening of our gaming facility which included new food and beverage amenities as described above.

Other Revenues

Other revenues are primarily derived from operations of Mountaineer's Spa, Fitness Center, retail outlets and golf course; from the sale of programs, admission fees, and lottery tickets; from check cashing and ATM services and from special events at our entertainment and convention centers. Other revenues for the three months ended September 30, 2012 of $3.6 million represent a $0.9 million, or 32.9%, increase compared to the prior year period. The increase is comprised primarily of a $0.5 million increase at both our Scioto Downs and Mountaineer properties. The increase at Scioto Downs is primarily attributed to increased retail sales and commissions earned from check cashing and ATM services due to the new gaming facility and the increase at Mountaineer is largely due to increased entertainment revenues.

Promotional Allowances

Promotional allowances increased by $0.9 million, or 30.9%, to $3.9 million for the three months ended September 30, 2012, compared to the prior year period. The increase was primarily attributable to the opening of our gaming facility at Scioto Downs coupled with increased offerings for our customers through the launch of the new loyalty program during the second quarter of 2012 and increased rated play frequency at our properties.

Operating Expenses

Gaming

Gaming expense for the three months ended September 30, 2012 of $76.6 million represents a $7.9 million, or 11.6%, increase compared to the prior year period. The increase of $7.9 million is comprised of an increase in gaming taxes and assessments of $6.2 million and other gaming operating costs of $1.7 million. The third quarter of 2011 includes a $5.8 million charge for the estimate of Presque Isle Downs proportionate assessment of amounts due under an administrative order executed by the Pennsylvania Gaming Control Board in July 2011. Excluding this gaming assessment charge in 2011, gaming taxes increased $11.8 million during the third quarter of 2012 compared to the prior year which is consistent with the increase in gaming revenues. Gaming taxes and assessments as a percentage of gaming revenues varies by the states in which our properties operate. On a blended basis, our gaming taxes and assessments as a percentage of gaming revenue decreased to 51.6% for the three months ended September 30, 2012 compared to 54.7% (excluding the $5.8 million charge for other gaming assessment costs) for the prior year period largely due to a lower effective tax rate of 42.5% on slots revenue at our facility at Scotio Downs. Our gaming taxes and assessments as a percentage of gaming revenue for the three months ended September 30, 2012 were 54.2% and 56.0%, respectively, at Mountaineer and Presque Isle Downs.

Pari-Mutuel

Pari-mutuel expense of $3.8 million represents a $0.1 million, or 3.4%, decrease compared to the prior year period.

Food, Beverage and Lodging

Food, beverage and lodging expense increased by $1.9 million, or 28.7%, to $8.6 million for the three months ended September 30, 2012, compared to the prior year period. The increase was primarily due to the increase in food, beverage and lodging revenues. Our gross profit margin for the three months ended September 30, 2012 decreased to 22.5% from 28.9% in the same period prior year. The gross profit margin was primarily impacted by the initial start-up costs of our food and beverage operations at Scioto Downs.

Other

Other expense increased by $0.5 million, or 30.0%, to $2.4 million for the three months ended September 30, 2012, compared to the prior year period. The increase was primarily due to the cost of entertainment at our Mountaineer property.

Marketing and Promotions

Marketing and promotions expense increased by $2.6 million, or 76.3%, to $6.1 million for the three months ended September 30, 2012, compared to the prior year period. The increase was primarily due to the opening of the Scioto Downs gaming facility, which contributed $1.6 million, increased marketing promotions at our other properties, and the December 2011 addition of our Chief Marketing Officer.

General and Administrative

General and administrative expense increased by $4.4 million, or 32.9%, to $17.8 million for the three months ended September 30, 2012, compared to the period year period. Significant factors contributing to the increase in general and administrative expenses were:

º •
º an increase in general and administrative costs at Scioto Downs of approximately $3.0 million over the same prior year period. The increase is attributable to increasing staffing levels, consulting costs, utility costs and general operating expenses associated with operations of the new gaming facility;

º •
º an increase in other compensation under the annual incentive plan in the aggregate amount of $0.7 million, as compared to the prior year period; and

º •
º severance related costs of $0.3 million.

Project Opening Costs

Project opening costs remained flat at $0.2 million for the three months ended September 30, 2012 compared to the prior year period. The costs for the three months ended September 30, 2012 are related to the opening of our Scioto Downs gaming facility and are comprised of direct salaries and wages, legal and consulting fees, utilities and advertising. The costs for the three months ended September 30, 2011 were related to the opening of the poker room at our Presque Isle Downs gaming facility in October 2011.

Depreciation

Depreciation expense increased by $0.9 million, or 12.2%, to $7.9 million for the three months ended September 30, 2012, compared to the prior year period. The increase is attributed to a $3.0 million increase in depreciation at Scioto Downs from the completion of Phase I and Phase II of the gaming facility, offset by a $1.9 million decrease at Presque Isle Downs as the majority of their slot machines were fully depreciated during the first quarter of 2012 and a $0.2 million decrease at Mountaineer.

Interest Expense, net

Interest expense, net increased by $1.0 million or 6.1% to $17.2 million for the three months ended September 30, 2012, compared to the prior year period. The increase primarily relates to the refinancing transaction that occurred in August 2011, where we issued $565 million of 11.5% Senior Secured Second Lien Notes and whose proceeds were used to refinance our former debt obligations and finance development of the Scioto Downs gaming facility. The increase was partially offset by $0.1 million of capitalized interest related to the construction of our gaming facility at Scioto Downs. There was no capitalized interest in the same period of the prior year.

Loss on Debt Extinguishment

During the third quarter of 2011, we incurred a loss on the extinguishment of debt in the aggregate amount of approximately $34.4 million as a result of the repurchase of our previous $125.0 million Senior Subordinated Notes and $260.0 million Senior Secured Notes on August 1, 2011. The loss reflects the . . .