New York Comptroller Blasts State Lottery Division
by Tom Precious
Date Posted: 9/19/2006 11:29:10 AM
Last Updated: 9/21/2006 5:04:00 PM

New York Comptroller Alan Hevesi questions motives of state agency.
New York's top fiscal officer has warned a state agency that its delay in approving a video lottery terminal casino contract for Aqueduct is costing the state needed revenue and risking bankruptcy for the New York Racing Association.

State Comptroller Alan Hevesi, in a scathing letter to the state Lottery Division, strongly suggested that--with a battle under way to award a new Thoroughbred racing franchise in New York--the VLT delay is being driven by more 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 Division for four months; the agency has jurisdiction over the state's VLT programs at racetracks. MGM Mirage 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 Division.

Hevesi, who sharply criticized NYRA's finances in the past before saying the association 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.

NYRA is battling with three other groups--representing the leading racing companies in North America and an assortment of financiers, horsemen, trainers, and gambling companies--for the right to the franchise to operate Aqueduct, Belmont Park, and Saratoga. The franchise 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 state legislature. A state oversight panel will not release the funds because officials claim the vehicle to re-pay the loans--the Aqueduct VLT casino--is not yet under construction. But officials with NYRA and MGM said the final contracts must still be approved by the state before the work can begin.

Hevesi warned the state government's fiscal plan includes an assumption 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 VLTs. When fully operational, the state expects $600 million a year in revenue 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 in his letter.

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 came several days after MGM Mirage officials re-affirmed to the state they are prepared to move forward 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," Hevesi wrote. "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 urged the Lottery Division 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 Mirage "expeditiously to craft a new deal."

NYRA supporters have privately suggested some franchise competitors wouldn't mourn if NYRA has to declare bankruptcy. The current bidding process includes provisions that another entity could be appointed should NYRA be unable to continue operations.

The supporters, however, have also said a bankruptcy proceeding could help NYRA's claim that it owns the land on which the three tracks sit; the state has insisted the land would not longer be controlled by NYRA once the franchise expires at the end of 2007.

In its letter to state officials, MGM Mirage went out of its way to note the VLT contract it entered into with NYRA extends beyond 2007--no matter who holds the racing franchise.

The stakes are huge, because all players in the bidding process realize the potential for revenue from an Aqueduct VLT facility. Moreover, the franchise bidding package also includes provisions for VLTs at Belmont.

Lottery Division officials couldn't immediately be reached for comment.

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