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Thursday, February 18, 2010

Reality Check

The Daily News is now reporting that federal investigators are indeed interested in the Aqueduct racino selection process; and not just in Senator Malcolm Smith's relationship to non-profit groups to whom he's directed member funds to.

But wait a minute....hold on there, Mr. Kenneth Lovett, Daily News Albany Bureau Chief. You're basing this supposed news article on an anonymous and quite self-serving quote from an unnamed losing bidder? Seriously? Why don't you get back to us with something a little more substantial and credible. Like a confirmed story about a subpoena delivered to the governor's mansion.

Not to say it's not true of course; I have no idea. [Fred Dicker, reporting in the Post, at least names the company that the anonymous source is associated with.] But I just would find it hard to believe that the Justice Department would be interested in this matter at this time, no matter how opaque and fishy it might seem. However, as we've said, there are some prominent and extremely powerful people in the nation's capitol who would love to see Governor Paterson go away into the night for once and for all.

The Daily News along with, and especially, the New York Post have been going absolutely ballistic over this from the moment the governor made his fateful selection. So, it was no surprise to see the story of the release of the bidders' documents plastered on the front pages.

OK, I think it's time to step back, take a deeeeeep breath, and have a reality check. These two papers would have found something to complain about somewhere in AEG's bid, no matter what. So let's take a look at exactly what is so horrible, how we've been Aque-duped, as the headline says. I'm going to play a little bit of devil's advocate here...but not that much, and to make a larger point later on.

The articles in each of the papers, here and here, make two main points. The first is that AEG's initial offer of upfront money was only $150 million, which was behind the other bidders. But, so what? This is old news, and we are well aware that all of the bidders were allowed to increase their offers. AEG then met the governor's demand to increase the offer to a minimum of $200 million. But, while it's pointed out that this still was behind Penn National's $301 million, nobody bothers to mention that the latter started out with a token offer of $5 million before getting into the game. The fact is that, however they got there, AEG is now committed to come up with the $300 million required by Sheldon Silver.

The other main argument is that AEG initially came in on the low end of the financial projections, and then raised them once the offers were revised.

James Featherstonhaugh, a lobbyist for rival Delaware North, said, "There's no reason why their numbers have changed. Nobody else's number did." [NY Post]
But, for their part, AEG said their initial numbers were ""very conservative," while "these new numbers more accurately reflect the market conditions and revenue potential that our group can bring to the state." [Daily News] Hmmm, seems a somewhat reasonable argument.

And besides, though less emphatically, I'm going to again say here, so what? Projections are just that; guesses, and they are often quite wrong once reality takes over.

We're also told, in another Post article, of an "expert" who tells us: "A consortium is only as strong as its weakest link, and all the links here, with the exception of Siemens [one of AEG's partners], lack financial firepower." But conveniently ignored is the fact that Deutsche Bank is said to be a non-equity financial backer of the project. And remember, once AEG comes up with the $300 million, its immediate financial needs are minimal; the state will issue bonds to pay up to $250 million in construction costs. Additionally, we're told by the News, that AEG, in its pre-emptive release of the documents, didn't disclose that Karl O'Farrell was originally part of the group before being dumped last year. Yeah, so?

How does any of the above impact on the ability of this company to construct a racino (with state funds)? Even the Post editorial quotes another "expert" who says: "Their construction résumé is solid. It appears AEG would get Aqueduct open and running." And isn't that the most important thing at this stage of the game?

I say this not because I think the process was clean - it stunk. And not because I think there was no political favoritism and shenanigans, not because I don't think there should be any investigations, and NOT because I think AEG was the most qualified bidder! I think it's clear that they were not! However, in all of this criticism and hand wringing, I have not read a single word about what is to become of the racing industry in this state if, as the Daily News advocates, we "Scratch Aqueduct Deal." Not one word about the fact that NYRA is mere months away from being insolvent; thoroughbred racing months away from being shut down. And nary a mere mention of the franchise agreement which requires the state to supply operating funds to NYRA at this point, with no racino in sight. If the deal is scuttled, what then? As NYRA runs out of money, will we then see front page headlines in the Post and the News that read: DEADBEAT DAVE: State reneges on its written obligation to fund NYRA tracks in absence of racino?

I didn't think so.


Anonymous said...

And not a single mention of which bidder had the best long term plan for success in a competitive market, which is all that should matter since the up front payments are immaterial when compared to projected long term revenue.

Great job Alan pointing out the flimsy arguments of these reporters. I supported SLG but my mythical wager was on AEG, fully understanding local politics.

It may very well be true that AEG is not the most qualified to run this joint, but to toss them now based for the reasons stated would be ridiculous.

If they come up with the cash, give them the green light. If they do not, award the franchise to the runner up, select the runner up.

The last thing anyone needs is a further delay.

Anonymous said...


This is the first sensible article I have read since the firestorm started about the selection of AEG. I am no expert here but having read the documents about the projections it would appear that AEG's projections were in fact realistic and if this meant they were last, then so be it. AEG seemed to start about $350 win per day per VLT. Yonkers is nearly 20% below this (a high of $311 in early 2009).

Those projections were exactly that, PROJECTIONS.

I would therefore ask the losing bidders if they believe so much in their projections, then GUARANTEE those numbers. I know NYRA, horsemen and NY Taxpayers would love this but somehow I very much doubt it. Somehow I feel they will all backtrack a mile. Words are cheap.

So this brings me to "What is Delaware North up to"? They failed to come up with their guaranteed payment of $370 million up-front the last time when they won. If I were them I would be keeping my head down at this time.

It looks like these investigations are now in progress. The process under which AEG was chosen is the same process put in place by Spitzer which choose NYRA for a 25 year extension in 2007 and then Delaware North in its failed bid in 2008.

Investigations have a funny way of not being contained and so does Delaware North really want the light which is now being shone on the selection of AEG to shine on it. Somehow I also doubt NYRA would want an investigation of its process to be re-opened when the whisper ws that the fix was in for NYRA from the beginning.

Anonymous said...

All the 'noise' on the selection of AEG seems to be coming from Penn National and Delaware North. Anon 8:14AM, you are 'spot-on' about Delaware North. I have wondered why they did not pay a penalty for screwing up the last time. If nothing else they should be made to pay NYRA its losses instead of taxpayers. If nothing else I hope these investigations result in this happening because otherwise Saratoga will be in serious trouble this summer and we can lay the blame squarely at the feet of Delaware North for this happening.

Penn National claim to be the most qualified bidder. From what I have read they certainly were not. They did not have a construction team, the community did not like their plan from what I have read and lets be honest their racing program is second class at best.

I also read in the Penn National documents that their $250 million up-front payment (later raised to $301 million, conveniently copied from AEG's $301 million payment which seems to have been offered for extra VLT's but I may have misread this) was conditional on the State paying NYRA from April 2010 and several other conditions. This is far from being an unconditional up-front payment of $301 million as their spokesmen have claimed.

Anonymous said...

The runner up seems to have been SL Green who seem to be keeping allow profile. Very sensible if you ask me.

Anonymous said...

February 18, 2010 ι By BRENDAN SCOTT, NY Post correspondent

ALBANY – Gov. Paterson this morning brushed off swirling reports about the widening probe into the Aqueduct "racino" decision and predicted the feds would come up empty-handed.

“I don’t think we’re going to find anything,” Paterson said during an interview on WOR 710AM. The Democratic governor insisted the politically connected winner, Aqueduct Entertainment Group, got a fair vetting despite today’s Post report that federal investigators had reached out to losing bidders to discuss the much maligned selection process.

Paterson also belittled concerns about a midstream accounting change that catapulted AEG from last to first among bidders in terms of how much money they could raise for the state.

The Post revealed the startling revision Wednesday after Paterson finally relented to pressure and released some bid documents.

“I knew when we put out all the documents publicly that someone would find something and say that’s the reason we selected them,” Paterson said. “We had a long process. There were all kinds of indicators that helped us reach a decision.”

Anonymous said...

Two weeks ago we had just about every newspaper, blog, TV station (certainly here in NY) and person speculating that there was about to be a huge Spitzeresque scandal about Governor Paterson relating to sex, drugs or some other dark secret. Yesterday we discovered on the front page of the NY Times it was about a long term aide to the Governor who seems to have had some juvenile problems and by all accounts has cleaned up his old ways. Governor Paterson should be praised for is part in helping kids go straight.

The medias' role in spreading and adding fire to these false rumors was disgraceful. I do believe the NY Times should be brought to account for allowing these rumors to continue to swirl knowing that they were incorrect. This is not what a free press, especially one of the caliber of the NY Times, should allow to happen.

I have also read that this scandal was going to be small compared to the Aqueduct Racino scandal. The press are beating the Governor up over projections that each bidder submitted as if those should be taken on face value as a guarantee of future performance by those individual bidders.

Somehow I suspect this Aqueduct Racino is all once again a storm in a teacup. Will we see apologies from the NY media once this is proven? Somehow I doubt it.

I have not been a fan of Governor Paterson in the past but I am coming to realize that there is at the very least a well organized force(s) against him who are using very dirty and dishonest tactics and outright lies to destroy him and undermine his chances of being re-elected Governor.

This should not be tolerated in our democracy.

Anonymous said...

I have read the link to the documents released by Governor Paterson's office on February 16, 2010. Penn National is claiming to be the highest bidder but this is disingenuous because its $300 million is conditional on the State picking up the tab for NYRA as well as other conditions. This could amount to $50-$100 million before there is sufficient revenue flow from the VLT's to plug the NYRA operating shortfall. Therefore its up-front payment being the largest is a bogus claim.

Also Penn National originally offered the State $5 million in the first round of bids. It is now crying foul because each bidder was given an opportunity to change its bid numbers.

As far as I am concerned Penn National, its management and spokespersons have been telling blatant lies which have now been exposed by the release of the documents by Governor Paterson's office.

As for Delaware North, it cost the taxpayers of New York hundreds of millions by its false bid in 2008 with its promise of a $370 million up-front payment to the State which never materialized. Not only should it not have been allowed to be in the bidding process this time around, it should in fact be investigated for the con it pulled on Albany and face the full force of the law for its corrupt actions.

Alan, the conclusion to your excellent article could also have read:

"Delaware North's failure to pay its promised $370 million to the State in 2008 has caused the collapse of Thoroughbred racing in New York and the closure of the historic Saratoga racetrack."

Lets hope there is a better conclusion to this matter.

Anonymous said...

I am really surprised if not shocked by Alan's blase reaction to the AEG pick. It's a total inside, political job and everybody knows it. It has nothing to do with their chances of success and everything to do with politics. Period.

How long will it be before AEG is back at the well, hat in hand, asking for a bailout? This is just the final straw in the whole Aqueduct VLT fiasco proving that Albany political shenanigans have finally brought paralysis to the once mighty and proud Empire State!

And meanwhile NYRA continues to burn while all of the greedy vultures are trying to rip off a piece of the Aqueduct deal. The whole affair is an outrage in the extreme. Enough, already, time for the Tea Party to rise up in NY before it is too late.

Throughbred racing in NY is about to be sacrificed on the altar of political insiders and hacks and all the while blaming NYRA for the disaster they have created and perpetuated! AEG is the final, disgraceful straw. NY racing is on the verge of collapse and all Alan can do is wring his hands and say, "Gee, AEG is not so bad after all?" /S/greenmtnpunter

Alan Mann said...

Green Mtn - If you weren't so busy reading all of your Tea Party propaganda and arming yourself to defend against the tyrannical federal government, you'd know that I'm totally outraged by the AEG pick. Yes, it was a political inside job. But are they qualified and able to build and run a racino? I think the answer is probably yes. The point is that either they need to be allowed to proceed, or the state needs to fund NYRA until someone else is chosen. I mean, what are you planning to do in August otherwise?

Anonymous said...

Is there anyone more political than NYRA?

Give me a break.

SaratogaSpa said...

All politics aside, as Alan has pointed out, even the Post basically concedes AEG has the best construction plan to actually build this darn thing. Lets face it, Turner Construction Corp. (one of the AEG partners) can build things well, fast and it will look impressive when it is done.

Anonymous said...

Reviewing the documents released by The Governor's office this week, it would appear that Penn National Gaming, INC's upfront Licensing Fee of $301 million had several contingencies as follows:

Penn National Gaming, INC. Submission August 13, 2009:

Extract from Penn National Submission August 13, 2010:

Based on our discussions and our further consideration of this opportunity, we are pleased to be able to increase our offer to pay to the State an upfront Licensing Fee of $250 million and to further offer that we would be willing to pay such fee upon execution of mutually satisfactory operating agreements. Our offer is contingent on the resolution of the items noted on our prior c0ommunications, which include, but not limited to:

1) Retention of control of the access and parking in regards to any NYRA or non-gaming/mixed use development
2) Protection in the manner of the refundability of the fee on a pro-rata basis over the term of the right to operate Aqueduct VLT's if the state allows tribal gaming south of Yonkers Raceway or East of Walt Whitman Road/Route 110
3) A cap of $1M on pre-existing and NYRA generated environmental liability
4) NYRA expenses to be paid from the $250 million fee
5) The Aqueduct ground lease not to exceed one-half of one percent of gaming revenue.

Penn National Gaming, INC Submission November 6, 2009:

Penn National Gaming, INC increased its upfront Licensing Fee to $301 million. Given that it did not withdraw the contingencies, one has to assume that the $301 million payment also came with the same contingencies as stated in the August 13 letter set out above.

Both letters were signed by:
Steven T. Snyder
Sr. VP Corporate Development
Penn National Gaming, INC

I wonder how Peter Carlino, the CEO of Penn National, will respond to the Fed's probe of his bid when they contact him?

Anonymous said...

Alan, didn't you mean to say that you "hope" AEG is able to pull it off???? That's really what we have here: Little more than hope now that we have the rank amateurs poised at the feeding trough. Sorry to be so cyncial but how can one not be?

Government at all levels continues to operate to insure it's self interest and aggrandizement first and let the devilish people take the hindmost. The government is failing at every turn and refuses to reform itself.
We see through the scam.

What is it going to take to get the "change" we must have NOW? We keep accepting the unacceptable, don't we? No choice, you will probably say? Political gridlock has brought ruin to the Golden State and the once mighty and proud Empire State seems close behind. Cheer me up, Alan, will ya? /S/greenmtnpunter

Anonymous said...

I personally want NYRA to go out of business; this franchise has not been profitable in a decade. The franchise has something like 26 directors, who are supposedly to advise on financial decisions, but have they? Twenty-six directors for what? All the management at NYRA make well over $300,000 per year, plus a nonpareil pension plan and benefits. The organization is basically a 'good ole boys' club' that should be squashed!

The first step is to create a new organization to operate racing in New York, then for the state to build their own casino - to hell with any association with the current NYRA.

Anonymous said...

Fred G./H.B.
The final two sentences of the News article clearly indicate their agenda...Aqueduct is a dump, the neighborhood is dilapidated, and the slots should be at Belmont..outside of NYC. I live near the track for the past 40 years, remember the days when the lot on conduit was filled and the neighborhood thrived, as the track declined, and slid into disrepair, so did the neighborhood. This is last chance to revive both the track and the area. What is the agenda of the News to urge it's demise?

Anonymous said...

One more time: There is no NY racing franchise in the past ten years that could have succeeded with the business model NYRA was legislated into. No franchise. How many times do we have to go over this same ground? It is the self-serving politicians who are to blame by making NYRA the whipping boy. How many years since VLT legislation was enacted? Those Albany pols are a disgrace but what really gets me is that so many still swallow their bullshit hook, line and sinker. /S/greenmtnpunter

Anonymous said...

Fred Dicker and The Post are already turning on AEG in today's piece. The casino pro's are saying "No way, Jose", these guys are dreaming. Then there is the dirty laundry that is already starting to appear. This is all so deja vu.

Next chapter, we wait more months for them to go through the motions of this and that investigation, the usual BS cover up, disinformation, propaganda, etc and at the end the shit hits the fan and, voila, still no VLT revenue. The joke's on the NY racing industry once again.

NY racing forced to call it a day when the legislature refuses to fund the deficit, perhaps making it through the Belmont Stakes in a gallant last stand, all the while the pols blaming NYRA, and Bush, as usual. Yep, the pols did a really great job once again. They could give a damn about NY racing. But rest assured that one day they will have the VLT's cranking out beaucoup bucks for all their wasteful spending. /S/greenmtnpunter

Anonymous said...

I may not always agree with you, though I basically do in this specific case, but your blog remains the most unbiased discussion of this issue.

Anonymous said...

Alan unbiased? You must live in Fantasyland. Alan is a Marxist.

Anonymous said...

If Marxist means one cares about the disadvantaged in society, the environment and health care for all, then I am also a good Marxist too. Alan, keep up the good work.

steve in nc said...

Hey anti-Marxist anon...

Forgive me if I'm wrong in presuming you're a Palin fan. Regardless, since you seem to be willing to read views you disagree with or you wouldn't post here, check out this column by a man urging Sarah to run.

It sums up how I feel about the current GOP approach to politics and your posts.

Anonymous said...

A letter in The Saratogian:

"This is to the guy who called Sound off and said that NYRA is looking for a bailout. I suggest that he get his facts right. NYRA is looking for the VLT revenue that was approved 8 years ago, and part of the deal with NYRA and the state was that they were going to have the VLTs by last April. Now it’s been 10 months and they still don’t have them. That’s why they don’t have money. Joe Dalton just testified before the state Senate that the state was in default on this contract, not NYRA. So the people who say NYRA is looking for a bailout have their facts wrong."
A letter in The Saratogian

El Angelo said...

Yes AEG is a political insider job, but c'mon, was ANYONE going to be picked for the racino without insider connections?

For possibly the first time ever, I agree with GMP: NYRA is built to fail under the current model, structures and payouts. They're constantly making matters worse by doing zero to improve their product, customer service or Q rating, but the deck is stacked against them.

Anonymous said...

The deck is stacked against NYRA because they worked an inside deal to keep things as they were and orchestrate a new 25 year franchise extension when it was clear that all the other bidders had better proposals to finally fix NY racing. This is now coming back to haunt them. They have nobody to blame but themselves.

I cannot see the Legislature bailing out NYRA in the current financial environment if the AEG falls apart. NYRA had better hope and pray the AEG MOU gets signed and they live to fight another day.

Anonymous said...

Sorry, anti-NYRA Anon, you just can't admit that you have been fooled again by the pols. Unfortunately, by the time you do see the light, NYracing may be suspended. Suspended because after 9 years there is still no Aqu VLT revenue which is acritical component of the NY racing model. What part of this don't you see? Or just don't want to see? /S/greenmtnpunter

Anonymous said...

Being "built to fail" under the current model is not unique to NYRA, it is true of the entire industry. The overwhelming tax burden simply eliminated any chance at success for a year round operation.

The governments "take" was "negotiated" over a hundred years ago, when racing was trying to survive due to gambling prohibition. The track owners were willing to pay this ransom to obtain what was then a monopoly on gambling, well worth it at the time but riduculous in the current environment where they now compete with the States themselves. In what other industry does the taxing authority directly compete for customers? None (at least until last year). Talk about a conflict of interest.

The only meets truly flourishing without VLT's are seasonal high quality meets run at popular vacation spots. Even Kentucky is struggling to compete and despite its success Saratoga loses money when you include purses paid.

As for anti-NYRA anon, please educate yourself as to the facts, you have picked the wrong forum to argue your case.

Everyone here is aware of the entire history and the LEGAL OBLIGATION of the State to FUND, not bail out, NYRA if the VLT deal comes crashing down once again.

IF the State refuses it will end up back in court with NYRA voiding the deal and re-asserting their land claims.

Anyone think Albany wants to go down that path again?

Didn't think so, NYRA will get their funding, either from the AEG or Albany.

Anonymous said...

NYRA salaries come under heavy criticism - see Bloodhorse:

.....But a Paterson administration official lashed out at the salary levels as excessive.

“There’s a lot of concern over the exorbitant salaries that we’re just learning about now after years of asking them to release this information,” said a Paterson official who spoke on condition of anonymity.

The official noted the information comes also after state comptroller Thomas DiNapoli threatened to subpoena NYRA for the financial information.

The official said NYRA is preparing to seek a state bailout at the time the government is facing an $8.2-billion deficit and everything from schools to parks are in line for massive cutbacks.

“This is an organization that had to file for bankruptcy two years ago. It’s an organization that taxpayers of the state of New York had to bail out to the tune of more than $100 million,” the official said of NYRA. “This is an organization that continues to run in the red, and it’s an organization that continues to not only be inefficient but is also secretive. Every time they’ve been asked to release information they have resisted, and now you know why. Now they public will begin to know why they don’t want to be transparent, and don’t want to open their books. They don’t want people to know who much they are getting paid.”

The official said there are concerns whether NYRA has done an “apples-to-apples” comparison of its executive salaries to other racing entities.......

Anonymous said...

Daily News also has an article

NYRA honchos want state to pony up higher salaries

Anonymous said...

For comaparitive purposed, Churchill Downs executive salary;

Mr. Robert L. Evans , 57
Chief Exec. Officer, Pres $ 904k

Mr. William E. Mudd , 39
Chief Financial Officer, Principal Accounting Officer $ 506k

Mr. William C. Carstanjen , 42
Chief Operating Officer and Sr. VP $ 622K

Mr. Steve Sexton , 50
Exec. VP of Racing Operations and Pres of Churchill Entertainment Group $ 423k $ 0