07/06/2004 11:00PM

Court hits New York slots

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NEW YORK - A state appeals court ruled on Wednesday that a portion of a law allowing slot machines at New York racetracks was unconstitutional but that the machines themselves were legal. Representatives on both sides expressed disappointment in the ruling and said they expected it would be appealed.

In a 5-0 decision, the state Supreme Court's Appellate Division ruled that the legislation violated the state constitution by awarding some of the revenue from the machines, which are authorized by the state lottery, to horsemen and breeding funds. The court said that New York's constitution restricts lottery revenues to fund public education. Because racetracks are considered vendors, their share of the revenue was not affected by the ruling.

At the same time, the court ruled that slot machines authorized by the lottery are legal in New York, meaning that legislators could rewrite the law to comply with the court's interpretation. Some officials called that aspect of the decision a victory for the racetracks.

"All that needs to be done is to rejigger the rules," said Bennett Liebman, the coordinator of the Racing and Wagering Program at the Government Law Center at Albany Law School. Liebman said that the finding that the machines are legal is "probably a big plus for racetracks."

A collection of anti-gambling groups, business groups, and constitutional lawyers brought a lawsuit against the state shortly after legislators passed a law allowing slot-machine gambling at racetracks in 2001. In part, the groups said that the establishment of slot-machine gambling ran afoul of constitutional restrictions on gambling in the state.

Joseph Dalton, the president of the Saratoga Chamber of Commerce and a plaintiff in the lawsuit, said that Wednesday's ruling was "disappointing." Dalton opposed the legislation because of what he contends would be negative economic impacts on communities, including Saratoga, but he supported the part of the law that guaranteed that horse racing would benefit from the machines, known as video lottery terminals or VLT's.

"We see these machines sucking money out of the local community and going to state coffers, which seems to be a bottomless pit," Dalton said. "And then it's unconstitutional for it to be going to breeders' funds and purses? This whole legislation was formed to help the racing industry."

Dalton said his group planned to appeal.

A spokesman for New York Gov. George Pataki, the defendant in the lawsuit as representative of the state, said the administration is reviewing the ruling.

"We do expect that the ruling will be appealed," said Kevin Quinn, the spokesman.

Another plaintiff, Cornelius Murray, a constitutional lawyer, said he was pleased the court ruled that slot-machine money could not go to horsemen. But Murray said he would appeal the ruling based on the court's contention that New York could sign compacts with Native American tribes to conduct casino gambling. Murray is opposed to casino gambling on Native American reservations in New York.

"The lottery exists to fund education, not to put dollars in the pockets of horsemen and breeders," Murray said. "The lottery is not for that, and this legislation was a transparent attempt to circumvent that requirement."

Murray said that the earliest a court would issue a ruling in an appeal would be early 2005.

The 2001 legislation legalized slots at eight racetracks. Only four of the tracks have opened slot-machine parlors, including Saratoga Raceway, in part because of difficulty finding financing. The legislation gave tracks 20.25 percent of the revenue from the machines while giving horsemen and breeders' funds 7.5 percent. Sixty percent of the proceeds was for education.

Dennis Brida, the president of the New York Thoroughbred Breeders, said he was hopeful that legislators would rewrite the law to allow horsemen and breeders to benefit.

"I think that the intention of the legislature and the governor was for these VLT's to come in as they have in other states to benefit the breeding industry and racetracks, as well as education," Brida said. "If that is their will, they'll find a way to do it."

The stalled operations include the New York Racing Association, which was given the right to operate 4,500 slot machines at Aqueduct Racetrack. NYRA's partner in the project, MGM Grand, has been reluctant to finance construction to house the slots because of concerns that NYRA's franchise would expire at the end of 2007, leaving MGM no protection for what is likely to be a $150 million investment.

The New York Senate passed a bill earlier this year to address MGM's concerns by binding any successor to NYRA to the terms of NYRA's contract with MGM. But the legislation was not addressed by the Assembly before legislators went on summer recess.

"It can be cured legislatively," Stephen Duncker, the co-chief operating officer of NYRA, said about the ruling. "We need a legislative action to go forward anyway, so it's not going to make it any slower, and by focusing legislators' attention on the issue, it may make it go faster."

The existing slot machines at racetracks are not expected to shut down while the ruling is appealed. So far, Saratoga Raceway, Buffalo Raceway, Finger Lakes, and Monticello Raceway have opened slot parlors, totaling approximately 5,000 machines.

Representatives of Delaware North, which owns Finger Lakes and runs the slots operations at Saratoga and Buffalo, said that its parlors will remain open, based on the Pataki administration's plan to appeal the ruling. Ron Sultemeier, president of the division at Delaware North that runs the slots operations, said that the ruling was a victory of sorts.

"The good thing was that it did affirm that the VLT's meet the definition of a lottery," Sultemeier said. "It just had a problem with giving money to the horsemen and breeders' funds."