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New York Commercial Gaming is Finally in Gestation ... Maybe

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Daniel Schiffman
Publish Date
March 1, 2012
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Author: 
Daniel Schiffman

The month or so that will pass between the writing of this report and its publication is more than likely, or perhaps destined, to see changes in status, positions and arguments concerning the licensing of commercial gaming in New York. The history of modern gaming in the state can be written about definitively, and only broad strokes are of current interest. The present is transitory, and the only certainty about the immediate future is controversy.

Two generations have been born since New York’s highest court decided that lawful regulated gaming was not repugnant to the morality or public policy of this state.1 Apart from the state lottery, which was inaugurated in 1967, for most of those 47 years, New Yorkers exported their legal gaming dollars to other jurisdictions. Nevada and Puerto Rico were the primary, but modest, beneficiaries until 1978, when the serious exodus of downstate New Yorkers’ discretionary spending began flowing to neighboring New Jersey.2 Still, despite occasional talk of amending the constitution and recurring introduction of sometimes serious and sometimes token legislation to start the process,3 despite proposals to repurpose abandoned facilities4 and revitalize defunct resorts in the Catskill Mountains5 and elsewhere, New York has been inhospitable to the commercial gaming industry. Several efforts to operate small cruises to nowhere from Sheepshead Bay in Brooklyn (a base for day-trip fishing) failed, as did a more ambitious plan using a cruise ship operating from Manhattan,6 which gave rise to a short-lived New York City Gambling Commission and litigation about jurisdiction over the harbor.7

Ten years after Atlantic City’s entry into the gaming business, an indirect opportunity to domesticate some gaming activity and revenues arose through IGRA.8 But when the Mashuntucket Pequots converted their pre-IGRA bingo hall in Connecticut into the world-class Foxwoods Casino 20 years ago,9 it became another out-of-state gaming option that exacerbated the outflow of New Yorkers’ gaming dollars—and still New York showed little interest in keeping money at home. The upstate Oneida Nation’s Turning Stone Casino opened in mid-1993, and was immediately successful. It is recognized as one of the state’s leading tourism attractions, and while it cannot be said that the proceeds were exported, it remained true that the state continued to show little interest in adding gaming tax revenue to its general coffers. In Atlantic City, the 6.3 million-square-foot, 47-story, 1,800-room, 14-restaurant Revel resort is scheduled to open on Memorial Day weekend 2012, and will most certainly attract substantial patronage, and earn significant revenue, from downstate New York patrons.

During recent weeks, the current governor, Andrew Cuomo, has shown strong support for bringing this business home. He seems more committed, and is probably in a stronger position, to effectuate his plan than any of his predecessors.10 The principal stumbling block is that the state’s constitution prohibits all forms of gambling except the state lottery, pari-mutuel betting on horse races, and extremely limited local-option bingo, lotto and regulated charitable gaming.11 Amending the constitution is no easy task. Not only does it require a public referendum, but the proposed amendment must also be adopted by two successive legislatures as a prerequisite to the referendum.12 In his January 2012 annual State of the State address, Cuomo called for legislation to begin the process of amending the constitution to permit commercial casino gaming.13 His proposed language is elegant, leaving the details for future legislation.14

Cuomo’s arguments echo the 19th century creation of casinos to avoid competition from neighboring states, largely Louisiana, and the 20th century proliferation of casinos stimulated by the same reasoning. A different approach was recently suggested in Nebraska, where a state senator threatened to propose a constitutional amendment to allow commercial casinos unless Iowa and other neighboring states with nearby casinos shared proceeds and tax revenues with Nebraska. In the same vein as Cuomo, the sponsoring senator was quoted as saying, “There are 3,000 to 4,000 slot machines poised on Nebraska’s doorstep in Council Bluffs, and they’re poised there for one reason, to plunder our resources and keep the money in Iowa … .”15

Similarly, Cuomo said, “We are surrounded by gaming. ... And for us, this is not about chips and cards. This is about the jobs that the casino industry generates.”16 In his memorandum to the proposed legislation to amend the constitution,17 Cuomo wrote that New York already has gaming throughout the state. He cited the five tribal casinos and nine racinos that have more than 29,000 electronic gambling machines—more than Atlantic City and more than any other state in the Northeast or Midwest.18

“States and Canadian provinces just across our borders have legalized casino gambling. Our competitor states and provinces get the tourism, revenue and good jobs that belong here,” he said.

Cuomo makes an indisputable point. New York racinos are theoretically lottery vendors, and the machines are theoretically VLTs, but their technologies vary and the average hold is 8 percent (92 percent payout),19 which makes them virtually indistinguishable from commercial slots.

Despite 10 years of practically “blank check” legislative authorization for three Class III compacts in the once-thriving Catskill resort area,20 it remains fallow apart from a racino, and several aborted and resurrected plans for grander enterprises. An offer by purchasers, including former MGM Grand CEO and industry veteran Lawrence Woolf, was made for the name and decayed remains of the once-prominent Nevele Resort, in the hope of a constitutional amendment permitting the operation of a casino being ratified in the near future. Nevele has been shuttered since 2009 and is in foreclosure, following the failure of an $11 million effort to resurrect it as a non-gaming resort. In a hearing on Jan. 23, Woolf’s group offered $6.7 million, of which $5 million is contingent upon having a casino in operation there by January 2017.21

Currently, two competitors are vying to develop the former Concord resort, another defunct Catskill site, for which special economic incentives are offered by statute in exchange for a minimum investment of $600 million and 1,000 new full-time jobs.22 Shortly after the defeat of a proposed constitutional amendment to permit casino gaming in 1997,23 Concord filed a Chapter 11 petition. One of the competing suitors for Concord, Empire Resorts, operates a nearby racino. Empire is majority-owned and controlled by Kien Huat Realty of the Malaysian Genting Group.24

This leads to the saga and ultimate success story of the most-coveted VLT racino location in the state: Aqueduct Racetrack, near JFK International Airport and within the limits of New York City. Several Aqueduct racino deals were made and fell apart over the course of 10 years. VLTs were authorized for Aqueduct in 2001, but it was not until 2003 that Aqueduct’s operator, the New York Racing Association (NYRA),25 began negotiating for a racino with MGM Mirage.26 MGM terminated the negotiations four years later because of “unresolved issues” and the scandals involving NYRA.27 Changes in government and the reorganization of NYRA led to the state taking the lead in awarding the franchise. In successive rounds of RFPs and bidding, several reputable operators, including MGM, made proposals but then dropped out or were rejected or disqualified. The immediate former governor personally selected a consortium of an experienced operator with local figures, which was subsequently disqualified under circumstances that some saw as scandalous. In the end, Genting was the only bidder ready, willing and able to satisfy the requirements, including a $380 million license fee, and it was awarded the franchise. The 4,500-device facility was built without controversy, except for the displacement of an open-air weekend flea market in Aqueduct’s underused parking lot, and it was opened in late 2011 to instant success. Presciently, Genting built an extra level that is readily convertible to table game use, and renewed interest in a constitutional amendment followed shortly thereafter. As is often said, the Aqueduct Racino (Genting Resorts World) was an overnight success after 10 years of trying.

The importance of retaining New York City gaming revenues, and the potential for full gaming in New York City, are obvious from the results of the nine VLT racinos that operate in the state. Until Aqueduct opened, Empire City at Yonkers Raceway, located in a close New York City suburb, yielded higher net win in fiscal 2010–2011 than all of the then other seven racinos combined ($595 million of $1.11 billion total, or 53.6 percent).28 For January 2012, with nine racinos in the state and a total net win of $136.56 million, Aqueduct accounted for $50.67 million (37 percent) and Empire City $43.11 million (32 percent). Combined, these two New York City area operations yielded 69 percent of the entire net win from the state’s nine racinos.29

With the success of its racino, Genting promptly proposed the addition of a 3.8-million-square-foot convention center complex to its Aqueduct facility. As part of his “Economic Blueprint for New York,” Cuomo expressed his support for “public-private partnerships that leverage state resources to generate billions of dollars in economic growth and create thousands of jobs.” He endorsed Genting’s proposal to build the largest convention center in the nation at Aqueduct to “drive demand for hotel rooms and restaurant meals, and create new tourism revenues. The project would be a $4 billion private investment that is estimated to generate tens of thousands of jobs and create new economic activity throughout the state.”30 But there will be controversy. The existing Javits Center on the outskirts of Manhattan, which is presently undergoing extensive renovation, will be demolished if the Aqueduct center is built, and perhaps if the Aqueduct center is not built. Manhattan-based hospitality, restaurant and entertainment businesses fear that they will be cannibalized, and expressions of confusion and disappointment have already been heard from another area of Queens (Aqueduct’s location), which was to have been the site of a convention center.31

A few miles from Aqueduct lies Belmont Park,32 another track operated by NYRA, which was intentionally excluded from the legislation authorizing racinos. There have been several bids to add VLTs at Belmont. The most tenacious, and probably the most highly supported, is by the recently federally recognized Shinnecock Indian Nation, which resides on a reservation that sits on an often-congested highway in Southampton, about 80 miles from Belmont, at the entrance to “the Hamptons.” The area is known for its multi-million dollar estates that house a wealthy and prominent weekend and summer population. Local governments in the area are cooperating with the Shinnecock Nation to find a suitable off-reservation site for gaming. The Shinnecock have been struggling, appealing and litigating for recognition for many years, reportedly with substantial financial assistance from Marian Ilitch and Mike Malik through their Gateway Casino Resorts LLC. In December 2011, the Shinnecock Nation rejected a management proposal that was negotiated between Gateway and the nation’s Trustees and Gaming Authority.33 Since then, it has been reported that an agreement was ultimately reached that was overwhelmingly approved by the nation, and that Belmont Park remains its favored venue.34 Cuomo, however, disagrees about its appropriateness and viability in competition with Genting’s Resorts World at Aqueduct.35

Now back to the one thing that we can be certain of. There will be controversy. New York horsemen, breeders, farmers and agricultural industry representatives have already associated to protect the support that their industries receive from racinos.36 The New York Times, which has traditionally and consistently opposed gambling, including regulated commercial gaming,37 began the current foray with an adverse article by a regular Times columnist on the very next day following the governor’s announcement of his proposal for casinos in New York.38 The Times’ opposition was reinforced two weeks later through an op-ed column by a prominent anti-gaming advocate.39 The latest coverage as of early February was a well-researched overview that reported, “The battle is already being waged not so much between pro- and anti-gambling forces as among rival factions favoring full-scale casinos.40

Experience in jurisdiction after jurisdiction is not a guide to what may happen; it is a guide to what will happen until the current legislature votes, as well as through November 2013 if the measure to amend the constitution that was recommended by the governor is passed during the 2012 session. Should the 2011–2012 legislature reject the governor’s proposal, the earliest that commercial casino gaming might operate will be January 2016.

The economic factors may be stronger now, but the basic arguments remain unchanged.

The political divisions between the two legislative houses remain much as they were in the 1970s. There is no assurance that if the current legislature passes the measure, the next will endorse it. The 1977 legislature rejected the 1975 proposal.41 Unforeseeable and irrelevant political differences can have a fatal effect. The 1994 legislature, after 15 years of New Jersey’s lucrative casino operations and with Foxwoods in successful operation, were unable to agree upon a measure to amend the constitution, although their successors did … only to be rebuffed by their own successors. The 1994 failure had little or nothing to do with commercial gaming. The State Assembly negotiators linked the measure to a life-without-parole bill, which was rejected by the Senate negotiators.43 While times and morality (or at least the affectations of morality) have changed during the past half-century, the controversy over charitable gaming is a good indication of how passionate New Yorkers can be—and that the charitable gaming issue didn’t even have significant money and business interests at stake. The New York Times endorsed the constitutional amendment to allow local-option charitable gaming,44 but it was defeated on the first ballot count in an upstate-downstate divide.45 On recount, it was passed by 5,274 votes out of 2,989,160 votes cast.46

So, we finish this report as it began. The only certainties about the immediate future are controversy and uncertainty.


Footnotes
1    Intercontinental Hotels Corp v. Golden, 15 N.Y.2d. 9, 254 N.Y.S.2d 527 (1964).
2    Resorts International, the first Atlantic City casino, opened in the renovated Haddon Hall Hotel on May 26, 1978.
3    In January 1997, the state Senate rejected a 1995 proposed constitutional amendment to authorize commercial casinos by a 41-to-19 vote (New York Daily News, Jan. 29, 1997). Former Gov. George Pataki proposed the formation of a gambling commission in May 2004 to oversee all forms of lawful gaming, including the then-newly authorized VLT racinos, but it did not happen. Gov. Cuomo has a similar plan for a five full-time member commission, whose time may have come.
4    A 1998 study commissioned by the mayor of New York City recommended using Governors Island, an abandoned Coast Guard facility in New York Harbor, for a commercial casino complex. (New York Times, June 18, 1998.)
5    In 2001, the legislature authorized up to three off-reservation casinos in the former Catskill Mountain resort area, Exec.L. § 12, which led to some aborted business deals, protracted litigation over a finders fee for a project that was eventually abandoned, and vetos by the Department of Interior, all of which are interesting, but beyond the scope of this report.
6    Partners Plan Night Cruises For Gamblers: New York Times, Nov. 13, 1997.
7    Padavan v. City of New York, 258 A.D.2d 266; 685 N.Y.S.2d 35 (1st Dep’t., 1999).
8    25 U.S.C. § 2701 et seq. (1988).
9    Feb. 15, 1992.
10  Unsurprisingly, the arguments echo the past. “Faced with a tax-reduction campaign promise and severe projected deficits, the incoming governor noted the revenue potential of licensed casino gaming, but said that he would like to study the economic and social impact further.” (Roll Call of the States: New York. The Gaming Lawyer (IAGA/ABA) Winter, 1995, page 30-31.)
11  New York Constitution Art. 1 §9. Permitted charitable gaming is very limited in scope and form. Professor I. Nelson Rose was recently quoted in The New York Times’ Ethicist column as saying that a money-raising school football pool with candy bars as prizes “would violate the law … though no one is going to prosecute over such a small book.” Usually not, but in 2002, New York state regulators shut down a high school’s casino night dealt by 11th graders with a minimum playing age of 9. (The Journal News (Chappaqua, New York), Feb. 27-28, 2002; The Gaming Lawyer (IAGA/ABA), Summer, 2002, page 49.)
12   New York Constitution Art. 19 §1. The second Legislature may not act upon the proposal during the first three months of the term, and may then set a referendum at any time, but an expensive special election would be very unlikely, so the earliest possible practical referendum date would be the general election in November 2013.
13   Program Bill 26, available at www.governor.ny.gov/assets/documents/GPB_26_CONSTITUTIONAL_AMENDMENT_CAS....
14   ibid.
15   Omaha World-Herald, Jan. 18, 2012.
16   Cuomo Pushes Job Creation in 2012 Agenda. New York Times, Jan. 4, 2012.
17   Fn. 13, supra.
18   Oneida Daily Dispatch, Jan. 26, 2012 (www.oneidadispatch.com).
19   Tax Law § 1612(c)(3) requires minimum 90 percent payout; § 1617-a (f) allows additional free play allowance. Average payout of 92 percent is current policy.
20   Fn. 5, supra. The area thrived in the early to mid-20th century, largely as a pre-air conditioning summer respite for working and middle class New York City residents, but has been depressed since the advent of the jet age.
21   Times Herald Record: Jan. 24, 2012. RecordOnLine.com accessed Feb. 9, 2012.
22   Tax Law § 1612 (b)(1)(ii)(G).
23   Fn. 3, supra.
24   Worldwide operator, lender and investor, well-known to CEM’s readers.
25   NYRA was the subject of a corruption investigation during the intervening period. See www.ag.ny.gov/media_center/2003/jun/nyra_report.pdf.
26   Slots for Aqueduct 4,500 Electronic Bandits are at the Starting Line. New York Daily News, April 18, 2003.
27   Fn. 25, supra.
28   New York State Lottery, Accrued Sales and Profit Comparison (Unaudited) For the 12 month period ended March 31, 2011, accessed through http://nylottery.ny.gov.
29   Derived from regional sales reports accessed through http://nylottery.ny.gov.
30   www.governor.ny.gov/press/sos2012, accessed Feb. 9, 2012.
31   Queens Questions Need for 2 Convention Halls. New York Times, Feb. 9, 2012.
32   The venue for the Triple Crown’s Belmont Stakes.
33   See www.crainsdetroit.com/article/20111221/FREE/111229978. The t­­erm sheet is at www.scribd.com/doc/75613522/Term-Sheet-Shinnecock-Nation-Gateway-Casino-....
34   Newsday, Feb. 4, 2012.
35   Cuomo: Belmont casino doesn’t ‘make sense.’ www.Newsday.com, published Feb. 2, 2012, accessed Feb. 9, 2012.
36   New York Horse Racing and Agriculture Industry Alliance. www.harnesslink.com/www/Article.cgi?ID=95562, posted Feb. 7, 2012.
37   Fn. 3, supra. The Times was opposed to the unsuccessful 1975–1977 effort also. On a single Sunday in 1994, it prominently published two lengthy adverse articles titled “The False Promise of Development by Casinos” and “Legal Gambling Bedevils Louisiana.” New York Times, June 12, 1994, 5:1, 20:4.
38   Clyde Haberman: Cuomo’s Push for Casinos Not Good News for All Gamblers, published online Jan. 5, 2012, 9:17 a.m.
39   Paul Davies: New York’s Bad Bet, published Jan. 22, 2012. As disclosed by the Times, Davies is the editor of an anti-gambling blog, www.getgovernmentoutofgambling.org The Times published a brief response from Frank Fahrenkopf as a Letter to the Editor on Jan. 31.
40   Charles v. Bagli: Rivals Ready Onslaught to Sway Casino Debate, published Feb. 7, 2012.
41   Fn. 3, supra.
42   ibid.
43   New York Times, July 4, 1994, 1:6, 24:1.
44   New York Times, Editorials: Statewide Referenda, Nov. 3, 1975.
45   New York Times, Nov. 29, 1975 (viewed at www.NYTimes.com).
46   New York Times, Dec. 16, 1975, 1:4.


Daniel Schiffman devised and pioneered the litigation technique that enables licensed casinos to sue to collect gaming debts in non-gaming jurisdictions, and helped change the perception of the industry to a mainstream form of entertainment. He has worked with operators and regulators, and written and lectured extensively. Visit www.Schiffman.us.

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