New York's top fiscal officer is warning a state agency that its delay in approving a VLT casino contract for Aqueduct racetrack is costing the state needed revenues and risking bankruptcy for the New York Racing Association.
State Comptroller Alan Hevesi, in a scathing letter to the state Division of Lottery, strongly suggested that — with a battle underway to craft a new Thoroughbred racetrack franchise in New York — more is driving the VLT delay than normal bureaucratic reviews.
"It is not in the best interests of the state's taxpayers or the future of Thoroughbred racing in New York, or the state's finances, to create the appearance that the state is deliberately forcing the current franchisee to fail," Hevesi said of NYRA.
A contract permitting MGM Mirage to proceed with construction of the long-stalled Aqueduct casino has been pending before the lottery agency for four months; the lottery agency has jurisdiction over the state's VLT programs at racetracks. MGM will not go ahead with the $180 million project, which it is financing in a deal with NYRA, until it gets the final go-ahead from the lottery agency.
Hevesi, who has sharply criticized NYRA's finances in the past before saying the racing group has made improvements in its operations over the past year or so, suggested forces in the state may be trying to push NYRA into insolvency and that the delay is embroiled in the fight over the future Thoroughbred franchise in New York.
The matter comes as NYRA is battling with three other groups — representing the leading horse companies in North America and an assortment of financiers, horsemen, trainers, and gambling companies — for the rights to the franchise to operate Aqueduct, Belmont, and Saratoga racetracks that expires at the end of 2007.
"Is there really an interest in forcing NYRA into bankruptcy? Is it in the interest of New York state to have this critically important asset (and industry) undervalued? Is it actually someone's intention to change the dynamic of what is purported to be an open and fair competitive process to select the next franchisee?" Hevesi wrote in his Sept. 15 letter, a copy of which was obtained by The Blood-Horse.
NYRA has said it will be broke by the end of the year unless it gets the remaining $19 million of a $30 million loan package approved earlier this year by the Legislature. A state oversight panel will not release the funds because officials say the vehicle to re-pay the loans — the Aqueduct casino — is not yet under construction. But officials with NYRA and MGM say the final contracts must still be approved by the state before the work can begin.
Hevesi warned that the state government's fiscal plan includes an assumption that the VLT casino will be open by October 2007. The plan envisions $300 million in revenue during the first year of operation of up to 5,000 VLT machines. When fully operational, the state expects $600 million annually in revenue sharing from the devices.
"Delay in establishing this facility creates a substantial risk to the state's financial plan, potentially exacerbating the out-year gaps to be faced by a new Executive, which my office already estimates could exceed $13 billion," Hevesi wrote.
Gov. George Pataki is leaving office at the end of the year.
Hevesi warned that NYRA's short-term health "is reliant upon the promise of revenues from the development and operation of a VLT facility at Aqueduct."
The letter from Hevesi comes several days after MGM officials re-affirmed to the state that it is prepared to go forth with the VLT project.
"While the state has anticipated revenues from the VLTs at Aqueduct providing financing to NYRA to move ahead with development of VLTs at Aqueduct and stated its commitment to ensure timely development of VLTs at Aqueduct, it continues its failure to approve the NYRA/MGM agreement. Absent approval of the agreement, the development of a VLT facility at Aqueduct and its promised revenue for the state's general fund and for the repayment of loans and deficiency appropriations will not occur and NYRA will face bankruptcy," Hevesi, a Democrat, wrote.
Hevesi urged the lottery office, which is an agency under the control of the Republican governor, to take steps "to ensure these risks are not realized as the result of bureaucratic delay or a lack of appropriate direction." He said, if the agency has problems with the proposed contract, it should work with NYRA and MGM "expeditiously to craft a new deal."
NYRA backers have privately suggested some franchise competitors would not mourn if NYRA has to declare bankruptcy. The current bidding process underway includes provisions that another entity could be appointed from the group if NYRA is unable to continue operations. NYRA backers, though, have also said a bankruptcy proceeding could help its claim that it owns the land at Aqueduct, Belmont, and Saratoga; the state has insisted the land is no longer controlled by NYRA once the franchise expires at the end of 2007.
In its letter to state officials, MGM last week went out of its way to note that the VLT contract it entered into with NYRA extends beyond 2007 — no matter who holds the racing franchise.
The stakes are huge, since all players in the bidding process realize the potential for revenues from an Aqueduct VLT. Moreover, the franchise bidding package also includes provisions for VLTs at Belmont.
Lottery officials could not be reached Monday night.