Strife Building Over New York VLT Proceeds

Internal industry spate recently spread to the halls of the state Capitol.

A battle simmering for months in New York over video lottery distributions from the casino located at Aqueduct Racetrack has erupted into a full-fledged public dispute involving Thoroughbred owners and breeders, state and county officials, and the Malaysian-based company that runs the casino at the Queens track.

At issue is an infusion of cash flowing since October to the Nassau County Off-Track Betting Corp. from 460 video lottery terminals—out of 5,500 total VLTs—at Aqueduct's Resorts World casino. The internal industry spate recently spread to the halls of the state Capitol, where lawmakers are now vowing to address the matter during upcoming negotiations over a new 2017 state budget.

In a recent Senate racing committee hearing, representatives of the New York Thoroughbred Breeders and the New York Thoroughbred Horsemen's Association accused Genting Americas, the operator of the Aqueduct casino, of diverting to Nassau OTB a portion of VLT proceeds that had been going to the state's racing industry, including the New York Racing Association.

Genting Americas, meanwhile, says it is strictly abiding by state law and that the racing industry is losing sight of a major infusion of future revenues that will be directed to NYRA, purses, and breeding operations when 1,000 new VLT devices do arrive at Aqueduct at some point in the future.

Provisions in the 2016 New York state budget permitted Nassau's allotment of 1,000 VLT devices to be transferred across county lines to Aqueduct and turn its operation over to Genting at Resorts World. The state last spring gave permission for Nassau OTB to strike a deal with Genting in which the OTB would eventually get $25 million annually in revenue sharing from the addition of 1,000 VLTs at Aqueduct.

Racing interests criticized the deal at the time because the revenue-sharing payments from those machines would be less than the other gambling devices at Aqueduct. Pursuant to pre-existing provisions of the law, these “Nassau” VLTs contribute less to breeders (.50% vs. 1.5%), purses (2.3% vs. 7.5%) and NYRA (1.3% vs. 3.0% for operations and .90% vs. 4.0% for capital), and contribute only if total VLT revenue for the equine sector drops below 2013 levels, according to Jeff Cannizzo, NYTB executive director.

Even as the deal progressed, racing industry and some lawmakers expected the money going to Nassau OTB would come from the physical addition of new VLT gambling machines, which are devices that look and play like slots but are, instead, run out of a central computer system controlled by the state gaming commission. 

Instead of adding new machines, Genting last October began an initial flow of dollars—which officials say will total $9 million in the first year—by re-directing revenues from 460 existing machines from NYRA and racing industry accounts to Nassau OTB. 

Officials from the New York breeders and horsemen's group have all but accused Genting of engaging in a bait and switch.

"We do not believe that the state intended the Nassau OTB VLTs to deprive breeders, horsemen and NYRA of substantial revenues, but the fact remains that this new arrangement is extremely detrimental to the breeding and racing sectors,'' said Cannizzo.

In a recent Senate hearing, Cannizzo accused Genting of cherry-picking VLT revenues to help Nassau OTB by earmarking proceeds from the top-performing 460 VLT machines at Aqueduct. He said the Nassau OTB VLTs at Genting generate a $739 win per machine rate, more than twice the $361 WPM generated by the other machines. A review of weekly reports maintained by the gaming commission verified these win per machine metrics.

"This is an outright loss for equine sector, which now receives revenue not only from fewer, but also less profitable machines," Cannizzo said after the meeting. "The dollar amount is staggering. Projecting from figures for the last few months of 2016 and using 2015 figures as a baseline, breeders may lose nearly $1.8 million in revenue this year, purses could take a hit of $9.1 million, and NYRA could lose $8.5 million for capital improvement and operations. These projected losses, based on 460 machines, have the potential of being twice as much if Genting reassigns 540 more machines over to Nassau OTB use, to make up the full thousand."

Genting officials strongly dispute the criticism. "Their claims are patently false,'' said Michael Levoff, a Gentings Americas spokesman.

Company officials say Genting struck a deal with Nassau OTB that was approved by the state and required it to start paying Nassau $9 million beginning in June 2016, four months before revenue from the 460 machines were re-directed to Nassau. Per the agreement, by year three, Genting would be paying $25 million.

The state acted after an attempt to locate a new OTB-owned casino in Nassau County floundered in the face of community and political opposition. New York, as part of a statewide casino expansion effort, in 2013 okayed the placement of two casinos—each with 1,000 VLT machines—in Nassau and Suffolk counties on Long Island. Backers of the measure letting Nassau OTB benefit from casino proceeds at Aqueduct say the alternative—the placement of a new casino on Long Island in close proximity to Aqueduct—would have cannibalized the track's casino revenues, which are spread between the state, the racing industry, and Genting.

Genting officials say a request was submitted to the state's gaming commission last October for space to accommodate the addition of 460 new VLT machines. Reaching the full, 1,000 VLT level is part of a plan—not yet submitted to state officials for okay—for a $300 million expansion to house the additional VLTs, a hotel, and entertainment space. The expansion plan requires various state and municipal approvals.

"While seeking approvals to add incremental (VLT) units, we have designated existing units in order to meet out newfound obligations (to Nassau OTB),'' Levoff said. "But we have always intended and still intend to add to our gaming floor, grow the market and generate additional revenues for all stakeholders.''

Rick Violette Jr., president of the horsemen's group, stressed to senators at a recent hearing that the NYRA purse account could fall by up to $10 million in the coming year because of the Genting/Nassau arrangement.

Two veteran state lawmakers have already shown their leanings in the dispute. Senator John Bonacic, a Republican who heads the Senate racing and wagering committee, vowed in a recent hearing to work to fix what he called "this punitive arrangement" with the VLT proceeds now streaming to Nassau OTB.

Assemblyman Gary Pretlow, a Democrat who chairs the Assembly racing and wagering committee, said he warned last year of the situation now being fought over. "The assumption was it was additional machines. Instead, they just took the machines off-line,'' he said.

"It's ludicrous. It's just going to hurt breeding and it's going to hurt the horsemen,'' he added.