Another Setback for AEG's Aqueduct VLT Deal

AEG was surprise choice to operate video lottery terminals at New York track.

The Aqueduct Entertainment Group bid to run a casino at Aqueduct racetrack took another setback, with the withdrawal of two of its most prominent African-American investors.

The departures of Rev. Floyd Flake and rapper Jay-Z come at a time state and federal investigators have been looking into how the administration of Gov. David Paterson and legislative leaders recently tapped AEG to run the long-stalled casino.

Flake, who held less than a 1% share in the AEG group, said his participation in the casino venture "has become a distraction that has taken me and my attention away from the community projects I created and nurtured.’’

In a written statement, he said he still supports AEG’s "vision for the revitalization of my community.’’

Representatives of Jay-Z, who also held a less than 1% equity share in AEG, could not immediately be reached for comment, but AEG sources confirmed the two partners are out.

AEG officials sought to portray the project as going forward, even though Paterson recently said the state was no longer counting on its $300 million up-front payment by the agreed-to deadline of March 31. The state was banking on the AEG payment to help close a state deficit in the fiscal year that ends in a few weeks.

"Aqueduct Entertainment Group is continuing to move forward to complete the (memorandum of understanding),’’ said Jeffrey Levine, chief executive officer of Levine Builders and one of the AEG partners, ‘’ so that we can pay the state $300 million by March 31 and break ground on this vital job-creating project as soon as possible.’’

Levine said AEG has complied with all the state’s application instructions put forward by the Lottery Division, the agency overseeing the VLT project.

The casino was first approved by the Legislature in 2001, but a series of political, legal and financial delays and different bidding procedures during three different gubernatorial administrations has delayed matters.

Senate Democrats were the prime pushers of the AEG bid; Flake and Senate President Malcolm Smith have been close for years. Paterson surprised the sides when he suddenly announced more than a month ago his support for AEG, a move Assembly Speaker Sheldon Silver agreed to – with conditions. But no deal is expected to be signed until at least the state inspector general’s office finishes up a probe into the awards process.

Paterson said AEG has a deadline of today, March 9, to supply a final data for the MOU talks. At a time when the bidding process is now the subject of investigation, Paterson said he has, based on his lawyers’ advice, recused himself from the final round of talks involving AEG.

“It has nothing to do with the process or my role,’’ Paterson said of the decision to take himself out of the MOU discussions. He declined to elaborate.

“We’ll just wait and see whether that application is valid,’’ he said of the AEG plan.

A source close to AEG said Flake and Jay-Z dropped out primarily because they did not want their private financial records being leaked out to the media. “They are very, very concerned about it,’’ said an AEG source who spoke on condition of anonymity.

The source noted that the reverend and the rapper both had less than 3% invested in the deal, and that the state traditionally in bids does not require the sorts of financial disclosure of such small investors.

“They don’t believe that with all the investigations and everything going on that their personal information will remain private,’’ the AEG source said.

The remaining partners of AEG have gone through the financial disclosure process. “Basically, we’re moving forward,’’ the source said of talks this week with the state and New York Racing Association officials. “We’re very close to shutting down the MOU and we have $300 million ready to go and we’re moving forward."