http://www.nytimes.com/2008/05/05/ny...on&oref=slogin
Short on Cash, State Hastens Plan for Casino in City
By DANNY HAKIM
May 5, 2008
For New Yorkers, a casino will soon be a mere subway ride away.
Or a racino, to use the gambling industry’s term: a gambling emporium built into the Aqueduct thoroughbred track in Queens that will include 4,500 video slot machines, but no table games.
Desperate for revenue, the state has put plans to develop a racino at Aqueduct on the fast track. While the plan has been at various stages for years, state officials are aiming to choose among the three bidders vying to develop the racino in a matter of weeks, though final agreements among state leaders often prove elusive in Albany.
But given the weakening economy and widening budget deficits, the state is motivated to expedite the process, and a bidding group led by the developer Stephen L. Green and the operators of the Hard Rock Cafe chain is even promising to open a temporary racino by the end of this year.
At stake is the $10 billion to more than $20 billion in revenue that the state will reap over the life of what would be a 30-year lease, depending on which bidder is making the projections, as well as an upfront licensing fee.
“We would hope that in roughly a year we’d have a facility open,” said Paul Francis, director of operations for Gov. David A. Paterson. There are several racinos in the state, but none at the three state-owned thoroughbred tracks: Aqueduct, Belmont and Saratoga.
Like many issues decided in the capital, the bids are secret — beyond what details the bidders were willing to release — and the winner will be chosen behind closed doors by the so-called three men in a room who run the state, Governor Paterson and Assembly Speaker Sheldon Silver, both Democrats, and the Senate majority leader, Joseph L. Bruno, the state’s top Republican.
Because the process is private, it will not be clear to what extent merit or political influence and campaign contributions affect the decision making. The secrecy, Mr. Francis said, “will help the policymakers make a decision on the merits of the proposals rather than on a political campaign that seeks to promote the merits of one bid and the demerits of an alternative proposal.”
The bids range in ambition. All of the bidders are proposing renovating the aging facilities with enough of a gloss to entice a flurry of traffic before considering a second phase of development. The state will raise $250 million through a bond offering for the construction project.
Connecticut’s Mohegan tribe, which operates the giant Mohegan Sun resort and casino, is part of a bidding group called Capital Play, which has an ambitious plan to transform Aqueduct over the next several years into a Mohegan-style entertainment complex. The group even talks of extending the AirTrain from the nearby Kennedy International Airport to the Aqueduct site. Their bidding group includes Extell Development, a major Manhattan-based real estate developer, and Plainfield Asset Management, a large hedge fund.
But the group’s upfront bid is on the low end, a $250 million investment that includes a $100 million licensing fee and $150 million to redevelop the site. The state is already counting on a $250 million licensing fee to balance the budget.
To sweeten the pot, the group is promising to spend an extra $25 million to $30 million a year on marketing above the state’s requirements, which it believes will bring in substantially more revenue over time. The group also says it intends to spend an additional $700 million on a second phase of development within a couple of years, which would be used to add a hotel and mall.
“You have to build a hotel, and retail, so it becomes a Mohegan-style complex, so it’s not focused on gaming as much as entertainment,” said Karl O’Farrell, the president and chief executive of Capital Play. “There will be good-quality restaurants, nightclubs.”
“We want it to be J.F.K.’s waiting room,” he added.
Another bidder, Delaware North, has a more scaled-back but also more immediately lucrative proposal. The group, owned by the Jacobs family of Buffalo, would pay the state a $370 million licensing fee upfront, though it would not use more than the state is offering through its bond sale to develop the site.
The group envisions a racino similar to a popular one it operates in Saratoga Springs, N.Y., which is attached to a harness racing track, and would include a large parking deck.
“It’s going to have a lot of electricity, a lot of lights and a lot of entertainment,” said William J. Bissett, president of the gambling and entertainment division of Delaware North. “It’s going to feel like a place you want to be.”
The third bidding group includes Hard Rock International, which was acquired by the Seminole Tribe of Florida in 2006, along with the real estate firm SL Green.
The group is offering $250 million as a licensing fee and a $130 million investment in the construction project. In addition, it is proposing to spend $28.5 million to finance upstate horse farms and breeding, which could appeal to Mr. Bruno, who is himself a horse breeder upstate. The group says it would spend $30 million to $100 million over the life of the lease on capital improvements.
This group is proposing to open a temporary gambling floor by the end of the year while it works on overhauling the existing facilities. And, in a proposed second phase of development, it would add a Hard Rock Cafe.
With so much money on the line, there has been a whisper campaign as the bidders vie for supremacy, and even resentment among local New York tribes that bristle at the idea that the state would let an out-of-state tribe run the racino.
“This is a New York project,” said Frederick C. Bess, chairman of the Shinnecock Indian Nation on Long Island, which has sought to develop a casino at Aqueduct and elsewhere but lacks federal tribal recognition. “I would think if any tribes would be considered, it would be a New York tribe.”
Some critics also suggest that the Mohegan Sun group would not aggressively compete to keep New Yorkers here since its business in Connecticut has been enriched by cross-state traffic.
When asked about the issue, Marc Holliday, the chief executive of SL Green, said, “I think that it’s in the interest of New York State to have a gaming operator whose sole focus is going to be on maximizing revenues at the facility in New York City and not have any competing operations in Pennsylvania, New Jersey, Connecticut or other competing areas.”
Mr. O’Farrell said, however, that Mohegan’s database of its New York customers and its system of rewards points, which can be used at any Mohegan resort, would be a competitive advantage.
The bidding process is the latest step in the state’s tortuous oversight of its thoroughbred racing franchise. In February, after years of delay, the state granted a 25-year extension to the New York Racing Association to oversee racing at the state’s three thoroughbred tracks. The association has been plagued by scandal and mismanagement and is in bankruptcy court.
While racing has often been a sinkhole for taxpayers, state officials would like to see the Aqueduct racino — and its 4,500 video lottery terminals, referred to as V.L.T.s — help plug a $5 billion deficit projected for next year.
“The State of New York has made it crystal clear to us they want revenue generated as soon as possible,” said Mr. Bissett, of Delaware North.
John McArdle, a spokesman for Mr. Bruno, said: “The sooner there’s an agreement, the sooner we can get V.L.T.s up and running and have revenue for the state. That’s the bottom line.”