06/29/2010 11:00PM

Latest Aqueduct casino process draws fewer bids


Three groups submitted bids to operate a casino for the next 30 years at Aqueduct racetrack in Queens by Tuesday's deadline, a sharp decline from the six groups that had paid a $1 million entry fee last month to be considered as bidders and the six groups that participated in a round of bidding last year.

The smaller number of bidders is likely a reflection of two factors - the financial requirements being imposed on the bidding groups in an economy that is still sputtering, and a new process that is intended to shield the evaluation of the groups from political influence. Some groups interested in the project may not have been able to make the numbers work, while others may have thrown in the towel in recognition that they can't make the political process work for them.

The three groups - the casino and racetrack operator Penn National Gaming Inc., the Malaysia-based casino company Genting New York, and a partnership of SL Green, Hard Rock, and the Clairvest Group -- are seeking the right to operate a casino that is expected to be one of the highest-grossing gambling properties on the East Coast (though it also will be one of the highest-taxed casinos as well). Both Penn National and the SL Green partnership have participated in previous rounds of bidding, while Genting, a privately held company that operates lucrative casinos in the Far East, is bringing deep pockets into the bidding for the first time.

The New York Lottery will conduct the evaluation of the bidders and will release its recommendation Aug. 3. Though the operator will still need to be approved by the state's legislative leaders, the lottery's selection will likely be the ultimate winner in the wake of criticism of the selection of a politically connected partnership earlier this year -- a decision that was scrapped.

Bidders are being required to promise at least $300 million to the state as an upfront entry fee. In the previous rounds, there was no cap, even though most bidders promised an amount to the state that equaled and many times exceeded the present cap.

Several other aspects of the evaluation have changed in this round. According to lottery officials, the committee evaluating the bids will not review the bidders' financial contribution to the state until the groups have been scored on their plans for the casino and its operation, unlike in previous rounds, when the contribution was considered simultaneously with other factors.

The economic and political environment also has changed. In addition to continuing weakness all across the debt-ridden casino sector and the prospect that the Shinnecock Native American tribe may open a Long Island casino to compete with Aqueduct within the next three to four years after being officially recognized as a tribe two weeks ago, the New York legislature is considering taking an additional 1 percent of the revenue from casino operators as part of their current budget negotiations. Though that amount is relatively small, it's an indicator that in cash-strapped times, legislatures are viewing casinos as cash cows that can be tapped.

"Maybe the $300 million is too daunting right now," said Rick Violette, president of the New York Thoroughbred Horsemen's Association. "Then you've got the 1 percent tax, and maybe that tipped the scales."

Delaware North Gaming and Entertainment, which had participated in previous rounds of bidding, was one of the companies that dropped out in this most recent round. In a prepared statement, William Bissett, the company's chief executive officer, said that the company decided not to pursue the license because of a variety of concerns, including "non-refundability" of the minimum $300 million license fee, the unpredictability of state tax rates on casinos, and the "indefinite amount of financial support that the developer will be required to provide to the New York Racing Association."

Though those concerns point to valid reasons for Delaware North to drop its bid, the statement also is self-serving, by warning legislators not to dig too deep into operators' existing revenue streams. Delaware North already owns two racetrack casinos in New York -- Finger Lakes Gaming and Racing in western New York and Fairgrounds Gaming and Raceway near Buffalo -- and operates a casino at Saratoga Raceway in Saratoga Springs. Delaware North also may not be able to make the Aqueduct numbers work under its business model, which emphasizes minimal investments and high margins.

For the New York racing industry, the number of bidders isn't considered a problem. The New York Racing Association, which operates Aqueduct, Belmont, and Saratoga, will share approximately $60 million in annual subsidies from the casino with its horsemen, an amount of money that will likely solve the association's persistent financial problems.

"All we're waiting for is the first ka-ching," Violette said.