04/30/2007 11:00PM

MGM backs out of NYRA deal


The casino company MGM Grand has pulled out of its agreement to loan the New York Racing Association $190 million and act as the manager of a casino at NYRA's Aqueduct racetrack in Ozone Park, N.Y., NYRA officials said Tuesday.

The agreement, reached four years ago, had yet to be approved by the state. Aqueduct was one of eight racetracks in New York to receive legislative approval in 2001 to operate slot machines, but the track has faced persistent delays in getting the project underway and is the only approved track that has yet to open a casino.

Officials for MGM Grand did not return phone calls on Tuesday, but NYRA chairman Steven Duncker said MGM did not cite one specific reason for the pullout.

"It was an accumulation of things," Duncker said.

Delays in approving the agreement, plus inflation in the costs of construction materials over the past four years likely had an impact in the decision, according to Duncker.

NYRA will pursue several other options to raise financing for the casino, Duncker said, including raising the cash itself or partnering with another casino operator.

Under the agreement, MGM would have received an operating fee to design and manage the casino, which has been approved for 4,500 slot machines, and would have loaned NYRA $190 million in order to fund construction of the slots facility.

NYRA operates Aqueduct, Belmont, and Saratoga under a franchise agreement with the state. The franchise expires at the end of this year, and state officials are contemplating bids from companies interested in taking over the franchise.

The uncertain status of the franchise is believed to be one of the most significant reasons why approval for the casino has been delayed. All of the companies bidding for the NYRA franchise plan to use revenues from the Aqueduct casino to fund redevelopment projects at the track.

Since NYRA reached the agreement with MGM, the association was indicted on fraud charges that were later settled through a deferred-prosecution agreement. Late last year, the association filed for bankruptcy, and shortly after that filing, NYRA sued the state over the delays in getting the slot-machine casino approved. Despite those difficulties, MGM had not indicated publicly at any time that it was considering dropping the NYRA agreement.

MGM's pullout comes when New York's racetrack casinos are consistently posting per-machine numbers that have fallen well below pre-opening estimates. Casino operators have complained that the state's tax rate on slot-machine revenues - approximately 60 percent - does not provide enough incentive to build facilities that are on par with those offered by nearby Native American casinos.

Earlier this year, NYRA officials said MGM expected each slot machine at Aqueduct to generate $400 in revenue each day. Slot machines at Yonkers racetrack north of the New York metropolitan area were expected to generate similar revenue numbers, but the machines last week averaged only $180 a day, according to figures from the state lottery, which administers the machines. Any failure of the slot machines to hit revenue estimates would have a significant impact on a casino operator's return on investment.

NYRA and MGM officials have been meeting regularly with officials from the state and the lottery in order to secure approval of the agreement, but the negotiations had not borne fruit. Any deal between NYRA and the state on the Aqueduct casino would have to be approved by the bankruptcy court.

MGM is currently building a $1.1 billion casino in Macau, and its dealings with business partners in the country are being investigated by the New Jersey Gaming Commission. One of its partners in Macau is Pansy Ho, the daughter of Macau casino magnate Stanley Ho, who has reputed connections to Chinese crime families.