AEG Selected to Operate Aqueduct VLT Casino

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New York Gov. David Paterson and legislative leaders have tapped Aqueduct Entertainment Group to run a sprawling new video lottery terminal casino at Aqueduct.

But the deal comes with some strings attached by the state legislature, including that AEG must raise its up-front franchise fee payment to the state from $200 million to $300 million to match the highest offer that had come from Penn National Gaming Inc. A series of other demands have also been imposed at the last minute Jan. 29 in order to gain legislative approval, including a serious vetting of all individuals tied to AEG before a contract will be awarded.

“After an extensive review of the five remaining bids to operate the video lottery terminals at Aqueduct racetrack, I have chosen and the (legislative) leaders have agreed upon the organization that best fulfills our selection criteria," Paterson said in a statement. "AEG has both the financial viability and ability to pay the required upfront licensing fee."

The bidding brings to an end, depending on AEG meeting the conditions before a final deal is signed, wrangling that has delayed construction of the Aqueduct casino since it was first approved in 2001.

"All of the groups have valid proposals, but AEG presented a comprehensive bid that enjoys community support and also offers strong marketing appeal," Paterson said.

The deal required the sign-off by Assembly Speaker Sheldon Silver and Senate Democratic Conference Leader John Sampson. Silver was said to have the most issues with AEG as an operator for the next three decades at the Queens facility. But Dan Weiller, a Silver spokesman, said several important conditions were placed on the selection.

Weiller said besides the up-front licensing fee being increased to $300 million, the winning bidder must also use the existing MGM Mirage casino footprint—from an earlier, failed process to get another VLT casino at the track—in order to piggyback onto previous environmental reviews awarded that project. That will quicken the construction time.

To satisfy concerns about some potential investors of AEG, the Assembly also inserted language to ensure that all investors at any level, partners, directors, managers, and contract-holders must obtain licenses from the state Lottery Division, which will require a round of background checks. Also, it prohibits a license to anyone who has been convicted of a series of major and minor crimes over the past 15 years, such as tax evasion or fraud, from getting a license to be involved in the venture.

Finally, Weiller said, any changes that have to be made to meet any conditions for a final contract with the state have to again be unanimously approved by the governor and the two legislative leaders.

One of the losing bidding groups was quick to criticize the choice. "We were extremely shocked and dismayed by the governor’s announcement given we offered over $100 million more to the state than AEG in our bid," Penn National Gaming Inc. said in a statement. "In addition, our proposal complies with the conditions outlined by the (Assembly) Speaker for the winning bidder.

"We remain committed to this project, and will await further details about the selection process before commenting further."

That PNGI talked of still remaining interested in the VLT casino highlighted some initial reactions by some other officials that the new conditions imposed on AEG might not be so easy to reach—thereby giving the possibility the process could re-open.

“New Yorkers have waited long enough for the Aqueduct agreement to be reached, and now we have to ensure the real work begins as soon as possible,” said Sampson, the Senate leader, in a statement.

AEG officials declined to be interviewed. In a statement, the AEG team did not specifically address whether it can meet all of the new conditions they will have to meet to get the final casino deal signed.

“As we have said from day one, Aqueduct Entertainment Group has the best team to design, develop and operate the facility,” Jeffrey Levine, CEO of Levine Builders and AEG partner, said in a statement. “We know we will be a great partner with the state and the residents of Queens for years to come. We look forward to completing the memorandum of understanding and beginning construction."

But the other bidders were quick to pounce on the conditions demanded by Silver as evidence that the process is far from over.

“We were disappointed in the governor’s statement. We clearly have presented the state with the superior proposal backed by a team that is best equipped to deliver on its promises to the community and to New York’s taxpayers,” the SL Green-led team said in a statement.

“Our understanding is that the decision is contingent upon certain further conditions being met. We question whether the AEG group can meet such conditions, and we are awaiting word on that,” the SL Green group added. “We stand ready to re-engage state officials should AEG fail to meet the conditions outlined by the (Assembly) Speaker."

“We remain interested in the project,” said Darren Dopp, a spokesman for the Delaware North-led group of bidders.

Assemblywoman Audrey Pheffer, a Queens Democrat who represents the Aqueduct area, said she was supportive of either AEG or the SL Green bid. “This is a very exciting time,” she said of the long delay the neighborhood has seen in the string of past failed attempts to bring a casino to the track.

Pheffer said she believes all sides have learned from the past mistakes and that a deal is now close to fruition. “But we’ve been here before,” she said, of a process that will now involve teams of lawyers to get a final memorandum of understanding between the state and AEG.

Pheffer added that another important round of talks will involve AEG being able to work with NYRA. “They have to develop a working relationship,” she said. Pheffer added that the AEG plans were “a little more aggressive” than others when it came to developing lands now in use by NYRA.

“I think everybody wants to go forward,” she said. “We need the money, and I’m hoping everybody will come with a sense of real conciliation and move forward."

NYRA President Charles Hayward and a spokesman did not respond to emails seeking comment.

Word of Paterson’s surprise movement to AEG was first reported by The Blood-Horse earlier Jan. 29. Behind closed doors, Paterson’s aides had been pushing for a partnership led by SL Green, a Manhattan developer, and Hard Rock Entertainment, the Seminole Indian company.

AEG since last year has been the choice of Senate President Malcolm Smith, a Queens Democrat whose political mentor, Rev. Floyd Flake, a prominent African American leader in New York City, has ties to the AEG bid. AEG includes The Navegante Group, a Las Vegas casino company; former MGM executive Larry Woolf; Turner Construction Co.; and a real estate group that has financial ties to a group founded by Flake.

Flake was most recently in the news suggesting he might support Attorney General Andrew Cuomo to run for governor against Paterson in what promises to be, if it happens, a divisive Democratic primary. Flake, however, did not close the door to supporting Paterson.

Paterson is the state's first African-American governor, and there are signs that a number of key black Democrats are getting set to ask Paterson to step aside for a Cuomo run, possibly as soon as the weekend of Jan. 30. Paterson's poll numbers have been improving, though they are still in the political basement, and Cuomo has five times as much money in the campaign bank as the governor.

A Flake endorsement of Paterson could be used by allies of the governor to slow down Cuomo’s inroads with black Democratic leaders.

The matter is filled with fiscal and political implications. The state is facing a $7.4-billion budget deficit, and Paterson is threatening to halt payments to schools and other groups in late March if there is no budget deal.

The developments came a day after a group of Queens City Council members called on Paterson to select the Peebles/MGM Mirage bidding group.

"There are a myriad of reasons why we are recommending this bid; however, what stands out is their track record of quality development throughout the country, their focus on inclusion of minority and women-owned business in the development, and their commitment on providing stable economic opportunities for our community," wrote council member Leroy Comrie in a letter to Paterson and legislative leaders.

Paterson has been under mounting pressure to pick an Aqueduct operator. The state is losing $1 million a day for every day the casino’s planned 4,500 VLTs aren't operating.

The Aqueduct casino was first approved by the legislature and then-Gov. George Pataki in 2001. The casino’s proceeds will be shared between the operator, the state, the New York Racing Association, and for purses and breeding funds.