: New York’s Big Gamble State May Turn Tracks, Video Lottery Over To New Racing Franchise

The race to win New York State’s horse racing franchise is making its final turn toward the homestretch with revitalized racing and millions of dollars in gambling proceeds at stake.

On Sept. 29, the Ad Hoc Committee on the Future of Racing, a nine-person panel appointed by the Governor’s Office, will recommend a bidder to Gov. George Pataki. One of the four companies bidding – Excelsior Racing Associates LLC; Empire Racing Associates Inc., Capital Play Pty Limited of Australia; and the current franchise holder, the New York Racing Association – will win control of Belmont Park, Aqueduct and Saratoga Race Course.

The three tracks draw $2.8 billion in bets every year, according to the Friends of New York Racing, a group that advocates for improving New York State horse racing. In addition, the 4,500 video lottery terminals approved for use at Aqueduct in South Ozone Park will generate $1.2 million per day for the state, according to NYRA president Charles Hayward.

The quest for colossal cash, however, is not without its problems. The NYRA, which has held the New York state racing franchise since 1955, faced allegations of corruption and mismanagement before the appointment of Hayward in 2004. It suffers from money woes, a result of an overall industry decline in the state, and the New York Racing and Wagering Board report estimates that the NYRA lost $20 million in 2005.

Despite such losses, New York has been set on using gambling to pull in state revenue since the Sept. 11 attacks. Through legislation in October 2001, the state loosened restraints on gambling, which made way for the VLTs in Aqueduct.

What Are VLT’s?

Bennett Liebman, coordinator of the Racing and Wagering Law Program at Albany Law School, said the definition of a VLT was key.

“All that is being authorized is an electronic display of an instant lotto ticket,” he said. “Anything that’s not lotto is illegal.”

He explained that even though a VLT looks and functions like a slot machine, which is illegal in New York, its distinction is that it is controlled by a central computer. While a slot machine’s winnings are determined by an independent spinning wheel, VLT pay-outs are pre-programmed.

Once the VLTs were ruled constitutional, there were still more challenges ahead. Now the actual installation of the machines – set for completion in October 2007 – has hit a snag.

NYRA is still waiting on $19 million from the state, money promised to NYRA in 2005 when it teetered on the edge of bankruptcy. A missing New York Lottery signature on an agreement with MGM, the casino giant that will install and manage the machines, prevents the money from being released. MGM has already invested $180 million in the VLT facility. It can’t begin construction until the state stalemate is resolved. Hayward said that in addition to completing the job to pay back MGM, it is also important for the people of New York who will benefit from the VLT revenue.

A whopping 70 percent of the revenue, an estimated $435 million a year, will go to state education, and the remainder will pack prize purses and be dispersed among breeders and owners.

Not Everyone Is Happy

Not everyone believes the new VLTs are a positive addition. State Sen. Frank Padavan (R-Bellerose) has been a vigorous opponent of the machines at Aqueduct. Padavan’s report “All Gambling, All the Time: Turning the Empire State into a Gambling State,” emphasizes the $35 billion spent on gambling in New York state each year. Proponents of gambling point to the millions of dollars raised for state education, but Padavan warns of addiction, crime, and economic fall-out on families.

“The state has an interest in gambling,” said David Markey, counsel for Padavan. “It makes it difficult for the state to address the problems with it.”

And there are problems to address.

Mariangela Milea of the New York Council on Problem Gambling said the increased accessibility of gambling in New York has produced more problem gamblers.

“Within a 50-mile radius of gambling facilities, bankruptcy increases,” she said. When a casino opened near Buffalo, N.Y. in 1996, Milea said a 15 percent increase in bankruptcies was attributed to problem gambling. From 2003 to 2005, calls to the New York Council on Problem Gambling jumped 28 percent due to the casino and lottery boom, Milea said.

“It’s one of the fastest growing public health issues in the state, and it needs to be addressed,” she said. “As gambling opportunities have proliferated, the services have increased. There are 10 treatment programs and 11 prevention programs throughout the state, but it’s still not enough.”

Riding The Welcome Wagon

Problem gambling may be a state-wide concern, but the residents of Ozone Park welcome the VLTs.

“The general feeling is that in this community, we are very concerned as to the future of the race track because there are always rumors about its eventual closing,” Community Board 10 Chairwoman Betty Braton said. “We are open to the idea of VLTs because it means horse racing would continue.”

She said that because Aqueduct is already a gambling facility, adding VLTs would not make it more likely to cause addictive gambling. The people in Ozone Park are more concerned with what would become of the land if the track shut down. Based on its C8 zoning, the land could be used for any number of projects, including an automotive shop or a warehouse.

“It would not be amenable to the people who live there,” she said.

All About The Franchise

If the people of Ozone Park support the VLTs because they will keep the race track in business, another significant factor in maintaining New York’s race tracks comes back to the bidding battle.

The big franchise decision will rest on whether a non-profit organization, like the NYRA, or one of the three for-profit companies, will run New York’s race tracks.

NYRA wants to keep the non-profit system that puts revenue back into the facilities and prize purses instead of shareholders’ pockets.

“The racing business is a tough business,” Hayward said. “We think that a non-profit generates more return to the industry than profit.”

Four out of the top five race tracks in the country are non-profit he said, and increasing purse prizes attract more people.

But for now, NYRA’s most pressing problem is the fate of the VLTs. Last Friday, in a letter to the director of the New York Lottery, State Comptroller Alan Hevesi reprimanded the state. He wrote that “a delay in establishing this facility creates a substantial risk to the State Financial Plan,” and asked for an explanation.

“Is it actually someone’s intention to change the dynamic of what is purported to be an open and fair competitive process to select the next franchise?” he wrote.

As the bidding battle reaches its pinnacle and the bells and blips of VLTs join the sound of galloping hooves, one thing remains certain: when the stakes get higher, the course gets longer and more difficult.