The long-stalled Aqueduct casino project will now be facing yet another delay, as the company that won the rights to develop the facility is telling the state it cannot meet a deadline to make its $370 million franchise fee payment.
Delaware North, a Buffalo company, has run into the same credit market crunch facing other companies around the country – a sign of the recessionary times that could scuttle its bid to run the Aqueduct casino.
The problem, however, could force the state’s hand, as the Paterson administration has told Delaware North officials it will be forced to re-bid the entire project. Fearing possible litigation, the state, sources say, is concerned about re-opening the terms of the deal by which it awarded the lucrative contract to Delaware North.
Several hours after Delaware North said it could not meet the payment terms, the Paterson administration announced it was pulling the plug on the deal with the Buffalo company.
"We are disappointed that the downturn in the financial markets has prevented Delaware North from achieving the financing necessary to move forward on this critical economic development project. Nonetheless, the State remains committed to ensuring that Aqueduct is redeveloped,'' said Errol Cockfield, a spokesman for Gov. David Paterson.
"In cooperation with the Legislature, we will commence a new process for selection of the operator for the video lottery terminal facility at Aqueduct Racetrack,'' the spokesman said Tuesday night.
It is unclear how long the process could take, but the situation is a clear setback for the state, and the racing industry, to get the casino up and running in the next 12 months. Before the Paterson administration announced it would be re-bidding the project, racing industry sources had speculated that the state will not, given the economy, get anywhere near the $370 million Delaware North had offered for the casino rights.
Delaware North, which already runs three VLT racetrack casinos in New York state, said it still plans on paying the state the $370 million franchise fee, but that it cannot happen before the state’s fiscal year ends on March 31. The state is facing soaring deficits and is counting on the money to help balance its books.
William Bissett, president of the Delaware North’s Gaming & Entertainment subsidiary, said the company informed the state on March 10 it could not complete a deal to sign a memorandum of understanding for the casino.
“Since our bid was submitted in October 2007, there has been a deterioration of the credit and equity financial markets in this recession economy which has caused Aqueduct Gaming LLC to restructure the timing for its financial offer,’’ Bissett said in a statement. He said the company was in talks with the state to alter the timetable of the payment – but not the $370 million itself.
“We were very disappointed to learn that the state cannot accept our proposal to restructure the financial offer. Given the condition of the financial markets, our progress in finalizing the memorandum of understanding, our phased development plan approach, and our commitment to stand by our $370 million payment, we strongly believe that it is still in the State’s best interest to accept our proposal,’’ he said.
“Unfortunately, the state officials believe that a modification of this nature is not possible and that they must rebid the entire project,’’ Bissett added. “Given the continued instability in the financial markets, we feel strongly that our restructured financial offer still provides the state with the best possible outcome. A prolonged re-bid of the project would ultimately cost the state even more in terms of added delays in construction and a missed opportunity to capitalize on a phased opening as contemplated by law without the assurance of a larger payment than Delaware North has offered.’’
He said the company is still interested in the Aqueduct casino project.
The Paterson administration declined comment, but sources said state officials told Delaware North they cannot push back the payment deadline.
The Aqueduct casino was first approved in the fall of 2001, and there have been a series of delays over the years. But this has been the furthest the project has gotten, until the recession slammed the state’s economy and roiled the nation’s credit market. Delaware North officials last month said they were having to “restructure’’ the terms of its financing, and were looking for new lenders to raise the $370 million.
The casino, in what was to be the only legal gambling hall in New York City, is to feature 4,500 slot machines. Delaware North has also been negotiating with the state to change the terms of its revenue sharing provisions in the event a casino comes to Belmont racetrack. Gov. David Paterson has recently pushed to let Belmont also have slots machines, which would be a source of nearby competition for the Aqueduct casinos. Both tracks are run by the New York Racing Association.
The $370 million bid by Delaware North beat out two other competitors; the next closest bid was $250 million in up-front payments for the state.
The state estimates it is losing $1 million in casino revenue-sharing payments every day the casino is not operational. After a deal between NYRA and MGM Mirage fell apart a couple years ago, the state opened bidding for a new casino project. Delaware North owns Finger Lakes Gaming & Racetrack.