EMPIRE IN THE EAST: Aqueduct: Now What?
by Scott Van Voorhis
June 1, 2010
Given a contorted bid process, byzantine political rivalries and a litigious set of would-be developers, is any racing deal possible at this point for Aqueduct? The state of New York aims to find out ... again.
The long-stalled racino project at the “Big A,” now 8 years old and running, would seem like a slam dunk with the potential to provide hundreds of millions in taxes for the cash-strapped Empire State, now grappling with an epic budget crisis.
But the political and legal obstacles holding back the awarding of a license are also daunting. The result is one of the strangest and most drawn-out searches by any state in the country for a casino developer, one that could very well drag on for years more.
In the latest twist, bidding for an operator has been reopened following the collapse earlier this year of a deal Gov. David Paterson had with a group of gaming industry veterans and politically connected investors calling themselves Aqueduct Entertainment Group.
This time the approval process will be different. The selection will be led by the director of the New York Lottery together with a committee of Lottery representatives and an official of the state Division of Budget. Previously the selection was in the hands of Paterson and the heads of the Assembly and state Senate — an impossible political situation if ever there was one.
Under the new process, the Slots Selection Committee, as it’s called, will have three months to present its recommendation to the governor, who had to pull back from the AEG award after it came under state and federal investigations amid accusations of backroom dealing. The AEG award was itself preceded by a deal with Delaware North Companies, which collapsed last year when the Buffalo, N.Y.-based gaming and concessions giant could not raise a $370 million up-front payment amid wobbly credit markets. Delaware North, which operates three racinos in the state —Fairgrounds Gaming & Raceway, Finger Lakes Gaming & Racetrack and Saratoga Gaming and Raceway — was to build a 184,000-square-foot casino at Aqueduct with 4,500 video lottery terminals operated under the auspices of the Lottery.
“It’s a lose-lose situation,” says Joe Kelly, a professor of business law at SUNY College Buffalo, who writes and consults extensively on gaming issues. “We are back to the drawing board. I have lived in many states. I have seen geographic peculiarities, but this takes the cake.”
There’s a long history of Aqueduct deals that have gone nowhere, stretching all the way back to 2001, when New York lawmakers first approved plans for thousands of VLTs at the storied Queens thoroughbred track.
Given the prospect of building a major gambling venue in one of the world’s largest and richest cities, there has never been a shortage of bidders. A bevy of high-powered bidders, including at various times Steve Wynn, Penn National Gaming and MGM Mirage, expressed interest. But receipt of the bids was followed by a stall game, with Paterson setting deadlines for announcing a winner that came and went.
But facing a massive state budget gap and the potential financial collapse of the New York Racing Association, Aqueduct’s operator, the governor finally announced in January that he had picked AEG. But within days of the long-awaited choice, the tentative designation began to unravel. There were questions about the involvement with the bidders of a politically powerful former congressman, the Rev. Floyd Flake. The Lottery also weighed in against the choice, questioning what it claimed were problems with the group’s investment backers.
The collapse, in turn, highlighted a contorted bid selection process, one that does not have a direct parallel anywhere in the country, as Kelly notes.
He may be New York’s chief executive, but when Paterson announced his choice of AEG, it was a more in line with a recommendation than a binding decision. Written into law, the process required that Paterson and his two legislative counterparts agree on the selection. The latter are long-time speaker of the state Assembly, Democrat Sheldon Silver of Lower Manhattan, and the state Senate president, currently Malcolm Smith, a Democrat who assumed the post on a temporary basis in January and whose district is in Queens.
On the surface, this should have led to a carefully thought-out decision. But in reality the requirement made the deal hostage to state politics and horse-trading between the various leaders.
Eager to move the deal along, Paterson reportedly abandoned his first choice to push for AEG, which was said to be Smith’s favorite.
Meanwhile, the road ahead does not look much better.
The seeming lack of firm guidelines for evaluating the different contenders looms as a major problem, Kelly says. And the possibility remains that any deal could very well end up bogged down in lawsuits. At least two frustrated bidders from the last round have bluntly criticized the process in a way that hinted of possible litigation.
Meanwhile, every day the Aqueduct deal is delayed, New York state loses $1 million in gaming revenue.
Scott Van Voorhis
Scott Van Voorhis is a veteran business and gaming writer who has covered the casino industry extensively in the Northeast and across the United States for GamblingCompliance.com and the Boston Herald.
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