NY Waffling Frustrates Penn National Gaming

Foot-dragging and midstream rule changes look like prejudice against Penn National.

The frustrated head of Penn National Gaming is lashing out at the process being followed in New York for the awarding of an operator of the long-delayed Aqueduct casino project.

In a letter to Gov. David Paterson, Penn National’s Chairman and CEO Peter Carlino complained about the changing bidding rules that has dominated the latest selection process and worried that “it would almost appear that some might be trying to find ways to not award this contract to Penn.”

At $301 million, the Pennsylvania-based company has offered the largest up-front franchise fee payment to the cash-starved state of the five remaining bidders. Despite that, its name has not been mentioned as a leading candidate by the governor or the two legislative leaders who will be making the final selection. Instead, partnerships led by New York-based companies appear to be frontrunners.

“If our being a Pennsylvania-based company in any way prejudices us in the bid process, we wish we would have known this going in,” Carlino wrote Paterson in the Jan. 20 letter that the company released today. “We have played by the rules of the game since this process began, despite those rules being changed midstream—namely allowing others to increase their bids to match ours following the initial submission. Despite that, we re-bid, and remain the highest bidder.”

People involved in the bidding process for months have warned that New York is opening itself up to litigation, which could further delay the project, because of the way the bidding rules have changed over the past several months.

The governor and heads of the Assembly and Senate were supposed to have made a decision last summer on the Aqueduct contract. The state is losing $1 million a day in revenue-sharing for every day the casino is not open, and money the New York Racing Association says it needs for operations and purses are being stalled.

The governor and lawmakers, who are battling on other political and fiscal fronts, have been at odds over who to select. The decision must be unanimous, according to the law.

The budget for the fiscal year ending March 31 envisions $200 million coming from the successful bidder in the way of a one-time, up-front franchise fee to Albany. That is becoming increasingly unlikely a payment, given the sides are no closer to a deal and lawyers believe it will take at least a month to negotiate final terms with whatever group is selected.

Penn National says it has promised to get up to 1,200 VLTs in operation in a temporary space within 10 months of signing a deal with the state, and the permanent, 4,500-slot machine facility running one year after that. Carlino also said Penn National has the $301 million in the bank to be able to immediately pay the state.

“We hope you will appreciate our frustration and consternation over how this process continues to unfold,” Carlino wrote to Paterson.