08/12/2010 3:37PM

Aqueduct casino money may flow by springtime

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SARATOGA SPRINGS, N.Y. – Horsemen at New York Racing Association tracks may begin to benefit from a casino at Aqueduct racetrack by the start of the Belmont meet in late April, NYRA officials said on Thursday, one day after legislative leaders agreed to endorse the state lottery’s recommendation of an operator for the casino.

If all goes according to plan, the operator, Genting New York, expects to open a casino with 1,600 slot machines at Aqueduct by April. Horsemen will immediately receive a 6.5 percent cut of the casino’s revenue, an amount expected to come to $1.25 million a month, using a conservative figure of $400 in gross gambling revenue for each machine. At that rate, revenue generated for purses at NYRA tracks will rise 15 percent once the machines begin taking bets.

The subsidy from the machines could not come at a better time for horsemen and for NYRA, which will receive 4 percent of the gross gambling revenue for capital expenditures and an additional 3 percent for operating funds. Purses at NYRA tracks have declined over the past two years because of depressed handle, and NYRA has encountered financial difficulties over the same time frame because of the economic upheaval in the racing industry, the bankruptcy of New York City Off-Track Betting Corporation, and the association’s decision to include expected revenue from the Aqueduct casino in its 2010 budget, even though no operator for the casino had been named.

Though Genting’s operating contract must still be approved by the state’s attorney general and comptroller, the company is expected to begin work on the casino at Aqueduct near the end of August. Once the contract is approved, Genting will have 10 days to submit a $380 million payment to the state, and once the payment is made, the company can break ground.

Also at that time, Genting will assume the liability for a $25 million line of credit extended by the state to NYRA to close the gap between its operating expenses and revenues until the casino opens. NYRA has already received $8.4 million of the loan, and the association expects to seek approval from the state’s budget director for additional tranches between now and April that will bring the total liability to $25 million, according to Patrick Kehoe, NYRA’s vice president and general counsel.

Under Genting’s agreement with the state, NYRA will use its slot-machine revenue to pay back the loan. Although specific details have yet to be ironed out, however, NYRA will not be obligated to use any of the casino revenue for loan payments for six months after the devices are up and running. In addition, after that six-month grace period, Genting cannot require NYRA to use more than 25 percent of its proceeds as payments on the loan, according to the agreement.

“We didn’t want to be in a situation where we finally were getting some of the gambling revenue and then immediately have to see it all walk out the door,” Kehoe said.

As a result, the casino will likely generate at least $22 million a year for NYRA’s capital expenditures, after loan payments are deducted, and another $15 million for operating funds. That could go a long way toward addressing NYRA’s recent financial troubles.

In 2009, for example, NYRA had an operating deficit of $8.9 million, and this year, it expects to have an operating deficit of $19 million, according to a recent audit conducted by state comptroller Thomas DiNapoli. Revenues from the casino could obviously wipe those operating deficits out.

The subsidies from the casino are best expressed as a percentage of NYRA’s annual revenue. Over the years from 2006 to 2009, NYRA had revenue of approximately $150 million a year, according to the comptroller’s audit, so contributions from the casino of approximately $45 million annually are expected to boost NYRA’s annual revenue by 30 percent.

“It’s a game changer,” NYRA’s vice chairman, James Heffernan, said at a recent racing conference.