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New York Minute

A state panel has recommended Vegas-style gaming licenses for three communities in upstate New York. But that's not the last word on new properties in the Empire State.

New York Minute

In December, when New York’s casino siting board recommended Class III gaming licenses for a trio of upstate communities, reaction was mixed.

Some of the losers politely conceded. Howe Caverns failed in its effort to bring gaming to tiny Schoharie County, but congratulated rival Rivers Casino, which won its bid to develop in the Capitol Region. “We wish you all the best,” the company said a statement, “and look forward to working with you on making your project a success.”

Mitchell Etess, chairman and CEO of the Mohegan Tribal Gaming Authority, was disappointed but gracious when Empire Resorts was the sole developer tapped for the Catskills (Empire and partner EPR Resorts will build the $1 billion Montreign resort). “It’s a shame the premier region doesn’t have a brand name driving it,” said Etess, scion of the famous Grossinger family of Borscht Belt hoteliers, who hoped to helm Mohegan Sun at the Concord. “But I’m happy for Sullivan (County) and wish Montreign the best of luck.”

Others were less cordial. Elliott Auerbach, former mayor of Ellenville, Ulster County, said he felt “betrayed by the state,” which passed over a $640 million proposal that would have transformed the 1903 Nevele Grand Hotel. 

And Jeff Gural, owner of Tioga Downs in Nichols, was irate. On hearing that his bid to expand the Nichols racino had lost, Gural called the selection of Lago Casino and Resort in the Finger Lakes region “a joke” and “a knife in the back.” He practically demanded a recount, saying Governor Andrew Cuomo needed to explain “why the Southern Tier got screwed.”

Cuomo must have heard the summons; he has since called for the board to consider awarding the fourth upstate license granted by a voter referendum.

Late to the Game?

In 2013, 57 percent of New York voters approved Cuomo’s casino expansion plan, which eventually could bring as many as seven Vegas-style casinos to the Empire State. The plan called for up to four casinos upstate in the first round of development. Three economically stressed areas were chosen for the new industry: the Capital Region around Albany; the Catskills-Hudson Valley area; and the Southern Tier-Finger Lakes, along the northern border of Pennsylvania. An additional three casinos could be established elsewhere in the state, including New York City, in seven years.

Stumping for the legislation, Cuomo said, “We literally hemorrhage people who go to casinos out of state. This will keep the money in this state, and it’s a major economic development vehicle.”

Or is it? Some analysts say it’s too late for New York to cash in on casinos. Along with its own inventory—five tribal gaming halls and nine racinos—the state has competition across every border, including Canada, with the exception of Vermont.

“There’s clearly an oversupply in the Northeast; go talk to the people in Atlantic City,” says Hal Vogel, of Vogel Capital Management in New York. “You’ve got Pennsylvania, Maryland, Delaware, and now Massachusetts… Chris Christie is probably going to have a casino or two across the river from the Holland Tunnel in a short period of time.

“When politicians and state legislatures need money,” Vogel says, “casinos always sound good. But in practice, this is not going to work. They’re 15 years too late.”

Gaming analyst Richard McGowan, professor of economics at Boston College, says the siting board chose three licensees instead of four “because they’re scared of what’s going on in Atlantic City, and because Massachusetts is going to be opening up.”

In the aftermath of the decision, state Senator Joe Griffo agreed that, with last year’s shocking closure of four casinos in New Jersey, it may be too late for New York to reap a bonanza from gaming. “My concern remains that the addition of three new properties to the casinos and racinos already in existence will oversaturate the market,” said Griffo, a Utica Republican whose district includes the Oneida Indians’ Turning Stone Casino in Oneida County.

Big Names, Orange County Passed Over

A total of 16 development partnerships vied for the first four licenses, from smaller operators like Greenetrack, which runs an Alabama bingo hall, to global heavy hitters like Genting, which pushed two projects during the relatively brief yearlong selection process: a $1.5 billion mega-resort near Sterling Forest, and the $830 million Resorts World Hudson Valley.

Big operators who walked away empty-handed include Caesars Entertainment, which proposed an $880 million casino in Woodbury; and Mohegan Sun, with its proposed $550 million Mohegan Sun at the Concord.

McGowan says Caesars didn’t stand a chance because of a crippling debt load, which has forced the company to undertake a complex reorganization. “Clearly the commission didn’t think Caesars had the wherewithal” to bankroll and run a casino in New York, says McGowan.

And though the board called Mohegan Sun’s proposal “compelling,” the Connecticut gaming company has its own financial problems, including $1.7 billion in debt; according to reports, a “significant” amount of that debt of will come due in 2017. To boost its financial outlook, the tribal gaming authority was hanging its hopes on a casino license in Boston or New York. It lost both times.

“They thought the best defense is a good offense, which is why they also bid on the Boston license,” which went to Steve Wynn, says McGowan. “Now they’re just trying to keep their own place open at home.” Another major operator, Hard Rock, also lost its bid to develop a $280 million resort in Rensselaer on the Hudson River.

Some big names didn’t bother with New York, at least in Phase I of the expansion. Wynn is “too busy in Boston,” says McGowan. And Sheldon Adelson of the Las Vegas Sands Corp. “wants to stay away from the U.S. He knows it’s overdone,” although some believe Adelson is keeping his powder dry for a bid on a New York City casino.

Orange County did not command a single license, though a total of six proposals were pitched for the area. The county, which is closer to metropolitan New York and its vast population base, arguably does not require the kind of economic stimulus that’s needed farther upstate, but the very fact that it was in the running caused two bidders to withdraw their proposals. They griped that any casino close to New York City would get all the business and defeat the stated purpose of the ballot initiative: “promoting job growth, increasing aid to schools, and permitting local governments to lower property taxes through revenues generated.”

“The financiers told people in Sullivan County if a casino was built in Orange County, they wouldn’t get the financing,” says Assemblyman Gary Pretlow, co-chairman of the state racing and gaming commission. “Orange County caused a lot of ‘agita’ among the other developers. It should definitely not have been in the mix.”

Three for the Money

Of 16 total proposals, the three winners were chosen according to criteria based 70 percent on “economic activity and business development,” 20 percent on “local impact and siting factors” and 10 percent on “workforce enhancement factors.” All the recommended candidates, listed below, must be vetted again by the state gaming commission before they can break ground.

Montreign/Adelaar, Town of Thompson, Sullivan County

Empire Resorts Inc. and EPR Properties will develop the resort, part of a larger $1.1 billion destination called Adelaar. The plan calls for an 18-story hotel with almost 400 luxury rooms and suites, an 86,000-square-foot casino with 2,150 slots and 61 tables, conference and banquet space, and other family-friendly amenities.

In its 17-page decision issued December 17, the siting board noted that Montreign will not cannibalize other racing, VLT and tribal gaming halls in the vicinity, and “presents the potential to revive a once-thriving resort destination.” The project will create more than 1,200 full-time jobs in an area that sorely needs them.

The proposal won because “we had the best overall development plan that included not just a casino, but a destination resort,” says Empire Executive Vice President Charlie Degliomini. “Our plan was specifically designed to drive tourism to the Catskills through a variety of amenities including a 350-room indoor waterpark lodge, entertainment village and golf course.”

And unlike its nearest competitor, Mohegan Sun, the company has strong financials: the controlling shareholder is Lim Kok Thay’s investment company, Kien Huat Realty of Malaysia, developer of the fabulously successful Resorts World New York at Aqueduct Raceway. Lim also controls Genting, the official owner of Resorts World, but Kien Huat is technically a separate company.

Empire hedged its bets with a two-tiered bid that would have allowed it to build a smaller facility if Orange County got a license. “Given we are the only winner in the region, we’re going to build a bigger project that will make us more sustainable and competitive,” says Degliomini. The casino will draw patrons from “New York, Pennsylvania, Connecticut and New Jersey—approximately a 90-mile radius,” he says. Montreign will also cross-promote the nearby Monticello Casino and Raceway, also owned by Empire Resorts.

Rivers Casino & Resort, Schenectady

The $300 million Rivers Casino & Resort is a project of Neil Bluhm’s Rush Street Gaming, operator of casinos in Des Moines, Philadelphia and Pittsburgh. Rivers is part of the larger $450 million Mohawk Harbor project, a redevelopment of a former brownfields site along the Hudson River. The casino will feature up to 1,150 slot machines, 66 table games, restaurants, lounges and banquet facilities, plus a 150-room hotel and natural areas including riverfront trails, all adjacent to the mixed-use Mohawk Harbor complex and its 50-dock harbor.

Greg Carlin, CEO of Rush Street, says he is unconcerned about oversaturation in the market. “If you look around the country, there’s frankly too much gaming in certain markets; just look at what happened last year in Mississippi, Oklahoma and Atlantic City. Despite that, we feel a right-sized project in this market makes a lot of sense and would be a good investment for us.”

The tax rate is also attractive.

“If you look at states that legalized gaming recently, the trend has been to bifurcate the table tax and the slot tax,” says Carlin. “In New York the table tax rate will be 10 percent, a much lower rate that makes sense because tables require much more labor and are more costly to operate than slot machines. In our region the tax on slots is 43 percent, but there’s no tax on free play, which is also a smart way to incent operators to maximize revenue. If one of the aims of the act is to create jobs, certainly having a lower tax makes sense. And that’s what they’ve done in New York.”

The competing Hard Rock proposal was strong, the board noted, but Rivers offered “a more comprehensive and well-measured” application, with sufficient equity capital on hand to complete the project. The development is expected to create almost 900 full-time jobs.

Lago Resort & Casino, Tyre, Seneca County

To accommodate Amish and Mennonite residents of this farm community in New York’s Finger Lakes region, the developers of the Lago Resort & Casino have pledged to add horse-and-buggy lanes to new, widened four-lane highways that will lead to a 94,000-square-foot gaming hall. Lago will have 2,000 slot machines, 85 gaming tables, a 1,700-seat theater, a 207-room hotel, and according to one report, “a pool area big enough for 900 people.”

The project from Rochester-area mall developer Wilmorite was the most controversial of the three winning applications, and resulted in demands for a fourth license in the Southern Tier. Owning a small part of the operation and managing the gaming will be JNB Gaming, headed by Brett Stevens, the founder of Peninsula Gaming of Iowa, which he sold to Boyd Gaming two years ago for more than $1 billion.

“The commission’s biggest error was granting a license to build in Tyre,” said Griffo, noting its proximity to Finger Lakes Gaming and Racing, a racino in Farmington, and Turning Stone, the tribal gaming hall in Verona. “This will result in a near zero-sum game, where local casinos and racinos will largely compete for the same scarce dollars to the detriment of them all.”

Pretlow, who insists on calling the project “Lego,” agrees the board made a mistake with the Finger Lakes casino. “I would have preferred to see something in the Binghamton area or even Howe Caverns. Putting it 30 miles from (the Oneida Nation’s Turning Stone), I don’t see the economic benefit for the state—and I think this could break the compact,” the deal that guarantees the Oneida Nation gaming exclusivity over a 10-county area that abuts the Lago site. “When (Oneida Nation CEO) Ray Halbritter takes a look at the geography, I think there’s going to be a fight over that. The area is not going to be making any money for the state unless they’re trying to stick it to the Indians.”

While the board considered “potential cannibalization of existing facilities,” it noted in its decision that Lago’s total capital investment of $425 million “far exceeds the proposed capital investment of the other two applications for this region.” Moreover, “Lago’s proposal is projected to generate significantly greater tax revenues to the state than the other applications for this region… (and) will provide many opportunities for enhanced economic impact and increased tourism in the Finger Lakes region.”

What’s Next

Vogel takes a particularly grim view of expanded gaming in New York, and says it will not meet expectations once the initial ballyhoo is done. “Politicians, developers, real estate firms, law firms, architects and everybody who is involved, even tangentially, kind of licks a bone from the proposals, and everybody in this select group is paid when a casino is approved and starts getting built. It’s OK for the first year, it creates a few hundred or thousand jobs and it all looks fine and dandy.

“Then the novelty effect wears off, you start to see the losses, and you’ve got the problem of oversaturation. You can’t slow it down—there’s no adult supervision in the state legislature to stop the bandwagon.”

Though Pretlow supports the granting of a fourth license in the Southern Tier, he adds that four are really too many for the state. “We should have done three and done without Lego.” So what will happen in seven years, when three more licenses come up for grabs?

“That may or may not happen, but everyone is looking for a New York City casino. A casino in midtown Manhattan would be the most lucrative casino in the entire world. The money is in Manhattan, Queens, Brooklyn and the Bronx—not so much Staten Island; they have money, but they don’t cross the bridge to gamble.”

With the possibility of even more competition in the wings, the winning bidders “are rip-roaring and ready to get shovels in the ground,” says Pretlow. “They’re looking at this seven-year window. They know they’d better get moving.”

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