Aqueduct Group Releases Plans As Questions On Selection Swirl

With the selection of an operator for the video lottery terminal (VLT) facility at Aqueduct Racetrack evolving into a political firestorm, Gov. David Paterson released on Tuesday, Feb. 16 all documents submitted by the competing bidders previously reviewed by his staff and members of the state legislature.

The governor announced the publication of the documents after being publicly questioned and criticized for his choice of the Aqueduct Entertainment Group (AEG) to develop a facility for 4,500 VLTs within the South Ozone Park racetrack’s grandstand as well as residual facilities including an entertainment center, a hotel, stores and restaurants.

“The final selection was based on a broad range of criteria including speed of payment, pay out over time, marketing/branding appeal, union support, construction capacity, win per slot, gaming expertise, community support ... expansion plan and lack of conditions on meeting the above criteria,” according to a statement from the Governor’s office.

As previously reported, the consortium— selected by Paterson with the blessing of legislative leaders following a lengthy review process—is comprised of a number of construction, gaming and real estate firms. The group includes a development corporation led by former Congressman Rev. Floyd Flake and individuals with ties to State Sen. Malcolm Smith, the president pro tempore of the State Senate, and the governor.

Critics of the deal—in which AEG is required to provide an upfront payment of $200 million to the state by no later than Mar. 31— charged that the selection was politically motivated; the governor vehemently denied the insinuation, declaring in a Feb. 4 statement that the organization was chosen because it provided the best possible deal for New York State.

“AEG was selected to operate video lottery terminals at Aqueduct Racetrack in a unanimous decision reached through the equal votes of the leader of the Senate (State Sen. John Sampson), the Speaker of the Assembly (Sheldon Silver) and myself,” Paterson stated. “AEG has both the financial viability and ability to pay the required upfront licensing fee. AEG complied with every request made during the review process and addressed satisfactorily all matters related to licensability.”

Nevertheless, the questions swirling around the project have reportedly prompted the U.S. Attorney’s office for the Southern District of New York and the Inspector General of New York State to launch investigations. The governor’s office noted that background licensing information for each bidder collected by the Division of Lottery “will be delivered to the U.S. Attorney’s office” in the next several weeks.

As reported, the U.S. Attorney’s office subpoenaed the Division of Lottery on Feb. 9 seeking information regarding the New Direction Local Development Corporation, an organization reportedly connected to Flake, Smith and Rep. Gregory Meeks. The governor’s counsel indicated that the inquiry has nothing to do with the selection of AEG as the winning bidder for the Aqueduct VLTs.

The documents released by the governor’s office include the solicitation letter and the draft memorandum of understanding (MOU) for the Aqueduct VLT parlor issued on Apr. 16, 2009 as well as the initial responses from the bidders the following May. The package of information also includes an independent analysis of each Aqueduct bidder conducted by Public Financial Management and submitted to the state in September of last year.

The bidding process for the Aqueduct VLT facility began again last March after a deal reached between the state and the originally selected gaming operator—Delaware North— fell through in October 2008. The company could not provide the required upfront payment of $370 million to the state.

Seven organizations submitted bids to the state last March, with the winning bidder required to provide a licensing fee of at least $200 million in order for the deal to be finalized. Among the groups that competed for the right to run the Aqueduct VLTs were AEG, Delaware North, SL Green, the Peebles Corporation (with MGM), Las Vegas gaming entrepreneur Steve Wynn and Penn National Gaming.

AEG’s bid included plans to develop a 2,500-seat theater for concerts and shows as well as a 300-room destination hotel linked to the Aqueduct grandstand. Additionally, the firm plans to develop a parking garage for 2,500 vehicles, a drop-off area for charter buses and an enclosed walkway connecting the racino with the Aqueduct Racetrack subway station.

The documents reportedly indicated that throughout the bidding and review process, AEG increased its proposed upfront payment to the state and altered its revenue projections to show greater profits.

According to the report provided by Public Financial Management, it was estimated that AEG video lottery terminals would take in an estimated $350 and $398 per day through the first five years of operation, less than the estimates for machines run by Delaware North, SL Green, Peebles, Penn National and Wynn.

The PFM report noted that AEG’s revenue estimate was “conservative” since the New York City market is “underserviced” by other gaming facilities. It concluded that the goals were “attainable and about in line with expectations for the first year of the Aqueduct facility.”