Be Careful What You Wish For By Chris E. Wittstruck 1

Transcription

1 Be Careful What You Wish For By Chris E. Wittstruck 1 In recent months, some of the most interesting and curious news stories have involved the horse racing industry: Dateline: Nichols, New York: Tioga Park racetrack, a quarter-horse track near Binghamton, New York that has been abandoned since 1978, became the apple of the eye of TrackPower, Inc. The company, which trades over-the-counter (TPWR) with a 52 week high of $0.12 per share 2, announced in September, 2002 that it had entered into a lease with option to buy agreement for the site. The proposal called for an immediate license application to be made to the New York State Racing and Wagering Board to conduct a 2003 harness racing meet over a 5/8 ths oval. 3 Whether a harness oval even exists at the 3,100-seat facility was not discussed. Several months after this announcement was made, the bank that holds the mortgage on Tioga Park foreclosed. 4 Dateline: Canton, Pennsylvania: In April, 2003, the Canton council denied the request of Daniel Vorum and his wife seeking a zoning variance to create a pari-mutuel wagering facility at the site of their private Standardbred track. The couple sought to construct a 300-seat grandstand, small restaurant and additional stables on their suburban Pittsburgh property. Whether the decision will be appealed is unknown for now. 5 Dateline: Vernon, New York: Also in April, 2003, The New York State Racing and Wagering Board finally approved a 96 card live harness racing program for Vernon Downs in upstate New York. 6 The applicant, Mid-State Raceway, Inc., battled for months with the Board for licensure. 7 The application was rejected at least once. 8 Only injunctive relief by the New York Supreme Court kept simulcasting alive during the period between the application denial and its subsequent approval. 9 Compliance with a subpoena duces tecum requiring a 10,000-page document production covering four (4) years of business operations was cheerfully complied with in late February. 10 Controversy regarding a myriad of financial and corporate structuring and other compliance issues, not the least of which was relations with the local horsemen s group, was presented. 11 Only a stipulation of settlement involving the principals of the parent corporation, as well as their Las Vegas lender and his business associate, a stranger to the dealings of the racetrack, gained Vernon an eight-month license. 12

2 In a vacuum, one would question the sudden interest in a racetrack closed nearly 25 years ago, the desire to build a 300 seat pari-mutuel harness track a stone s throw from giant Magna Entertainment Corp. s The Meadows, and the spending of countless dollars in legal, accounting and other fees to obtain a short-term license for a small, marginal racing facility in the middle of nowhere (with all due apologies to the populace of Rome, New York). In the racing industry, there s no question; it s simple: Video Lottery Terminals (VLTs). In his press release broadcasting its hard-fought Board approval, Vernon Downs CEO Hoolae Paoa stated: This also enables us to aggressively pursue the installation and operation of video lottery terminals (VLTs) later in the year, which will only enhance the company s viability and its contributions to the local, county and state communities 13 Clearly, racetrack insiders in the Northeast are universally aware of the 1990s Delaware and West Virginia experiences wherein VLTs literally saved the animal racing industries in both states from extinction. For years at the Hilltop Oval in Yonkers, New York, the Rooney family has done everything to make VLTs a reality. From threats of imminent sale of a property which has known only racing since 1899 to organizing bus trips to Albany, mimicking lobbying rallies usually reserved for organized labor, the principals of The Historic Empire City Trotting Club were clearly out of ideas by the summer of Operators of New York harness ovals at Monticello, Saratoga, Batavia and Buffalo were at the end of their ropes as well. Then, something terrible happened. That the horrific and unbelievable events of September 11, 2001 forever changed planet earth cannot be overstated. Further, everyone in the racing industry knows that this dark period in the history of the world was the unlikely impetus for New York State Government (and sooner or later the governments of other states) to relent in its decades-long opposition to slots at the tracks. The question presented is: If everybody in the industry knows this, then why is almost everybody failing to understanding it?

3 A hushed silence has fallen upon the New York harness ovals. Read the newspapers in New York. No more clamoring or saber rattling for gambling machines. The thought is, We finally got them now it s just a matter of time. In Pennsylvania, where VLTs have to date not even been approved, a mad dash for the last few Flats and Trots licenses is nearing completion. A license has just been approved for Chester, on the south side of Philadelphia, not too many miles from Philadelphia Park in Bensalem, and only a short drive up I-95 from the Delaware border 14. Penn National, an established thoroughbred track outside Harrisburg, Pennsylvania has just committed 100 million dollars to create the proper racino environment, sans slots legislation. 15 A recent trip by this author to watch his newly purchased five-yearold pacer compete at Rosecroft Raceway in suburban Maryland was telling. The large banners adorning the paddock and insignias on baseballs caps repeated the communal mantra: SLOTS MEAN JOBS. It was so prolific, it appeared that everyone on the program that night was with the program. These instances of blind faith on the part of industry stalwarts in their respective state governments, anticipating a bail-out of the beleaguered racing industry once and for all with the clang of the VLT payout tray, are both ridiculous and outright dangerous: Danger Signal #1: Consider the dilemma of the distressed New York City Mayor, Michael Bloomberg. Faced with a budget disaster of a magnitude not seen in the last 30 years, the Mayor has alternatively pleaded and threatened the legislature in Albany to pass a revamped Commuter Tax. 16 Before its demise a few years ago on constitutional grounds, this levy against suburban New Yorkers for the privilege of working in New York City brought upwards of $400 million dollars into the City coffers. 17 Republican Bloomberg s problem is that the New York State Senate is controlled by suburban Republicans, and the Governor s mansion is controlled by a Republican from Garrison. The Commuter Tax issue at the Capital is about as endearing as diphtheria. How to bail out their downstate G.O.P. associate? Governor Pataki came up with the answer not so long ago: Put Video Slot Machines in the city s Off Track Betting parlors and watch the money pour in! 18 While it s

4 true that Mr. Bloomberg immediately dismissed the proposal out of hand 19, and Mr. Pataki later denied he was in favor of it anyway, the proposal is back on the table as late as April Besides O.T.B. parlors, the latest buzz indicates slots would be installed right in Times Square. The Mayor, seeing the writing on the wall, said he might have to accept a Hobson s choice, his moral reservations notwithstanding. 21 Danger Signal #2: A lengthy article in the April 13 th issue of the Baltimore Sun 22 is highly descriptive of where the VLT issue is headed in Maryland. The plan of the new Republican Governor, Robert Ehrlich, to install over 11,000 slot machines at the state s four (4) racetracks was soundly defeated by the Democratic controlled Ways and Means Committee of the legislature s lower house. In and of itself, this news is but a disappointment. In New York, the wait till next year lament has applied to slots ever since the Dodgers left Brooklyn. So, what s the danger? The danger lies in committee hearings, to be overseen by that same committee that killed slots this year, being scheduled for as early as May, 2003, to weigh the pros and cons of casino-style gambling at selected venues, including the state s racetracks and other tourist destinations. 23 The article goes on to explain that Ehrlich s critics, led by House Speaker Michael Busch, are questioning the premise that slots should be allowed only at existing racetracks and why slots shouldn t be permitted at free standing casinos at selected sites around the state. United States Congressman Albert Wynn is additionally pushing the concept of destination resort casinos. Wynn, who views racetrack VLT installation as creating a slots barn, indicated that If you are going to have these gambling licenses, they ought to be bid and given to those willing to pay the most. 24 None of this is lost on the Reverend Thomas A. Grey, who heads the Illinois-based National Coalition Against Gambling Expansion. Grey reportedly relishes the prospect of racetrack owners and casino companies carving each other up as they jockey for advantage in any proposed gambling legislation: We re only going to get stronger the bigger the deal they try to make. was his quote. 25 Danger Signal #3: In his January budget message, New York Governor Pataki came up with what he saw as an extremely viable solution to the complaints of the racing industry, and the New York Racing

5 Association (NYRA) in particular, with regard to the poor profit margins projected for VLTs. His proposal: Remember the cut you had to give to the horsemen and breeders? Fuggetaboutit! Just make them wait several years for a piece of the action. You guys running the tracks take the horsemen s percentage! O.K., now when are you going to install your machines? 26 Herein lies a double danger, for apparently not only doesn t the present administration care about the New York owners or breeders, they additionally have totally forgotten that the people that run the big three Flats tracks in New York are the owners and breeders! In his comprehensive introductory address to the April 22 Gaming Summit, Professor Bennett Liebman of the Albany Law School analogized the VLT issue in New York to Moses entering the Promised Land: He was allowed to view the Promised Land, but he wasn t allowed to enter. The bill (VLTs) would let racing glimpse that Promised Land, but racing would not be allowed to cross the Jordan River 27 I agree with Professor Liebman, and take the analogy a bit further: When and if the racing industry does make it to the Promised Land, they may well find the milk and honey there being fully consumed by Bally s, Trump, Resorts and MGM. The pervasive problem in the racing industry is that a harsh reality is not being acknowledged: Gambling liberalization by the states has nothing to do with an intent to prop-up the generally moribund racing industry. Gambling for the states is a desperate attempt to fuel cash-strapped budgets with a new and untapped funding source. If the states didn t try to help racing in this mode and manner before 9/11, what reasoning prevails that they are trying to do it now? If you think this date is by some kismet the alarm clock for the legislature to help the tracks, here s another date in history for you to ponder: April 22, That s the date Governor Nelson Rockefeller signed off-track betting into law. 28 At best, the racetracks will be third party beneficiaries of the intercourse between the government and its citizens involving the dropping of coinage through a slot. At worst, the respective state governments will sooner or later disclose that the racinos concept was nothing but an interim warm-up to the casinos they should have permitted in the first place. The

6 Oh, we need to help racing argument is a farce; a convenient cover to sell casino-style gambling to a wavering and leery constituency. The fear is that once the public accepts it at the track, or in Maryland, even before then, the legislatures will pronounce, the scoring complete and call the resort casinos to the starting gate. For its part, NYRA is several lengths ahead of the other tracks. When the VLT bill initially came out, with all its sunset provisions and unrelated simulcasting issues and the like, NYRA resisted. No Belmont! No Saratoga! No sunset on use of these expensive machines! When the legislature felt the resistance from the NYRA lobbyists, they established a carrot and a stick: We ll amend some, but not all, of the provisions, but if you put in the slots by April 1, 2003, we ll extend your expiring franchise to run the tracks until To NYRA s credit that date, and their lucrative extension, has come and gone. With delicate budget negotiations in Albany about to rise to a crescendo, NYRA is standing firm, lobbying to protect the economic rights of horsemen and the tracks, all the while putting its own long-term viability on the line. 29 Hopefully, at the end of the legislative session, something of a set in stone nature will arise with regard to the exclusivity of VLTs at racetracks. I wouldn t bet on it with your money. The laws of physics are constant: The laws of legislatures are not. Slot machines are unconstitutional in New York 30. Thus, the legislature has embraced the VLT; a slot machine having some nebulous connection, whether purely esoteric or by fiber-optic cable, to the State Lottery Commission. They rely upon such a legal and technical fiction to maneuver around the clear mandate of supreme law of the state. Yes, others have done it and succeeded, but; are you going to trust these same guys to protect your entire industry? For years, the racing industry, especially the harness tracks, have spent countless resources waiting, hoping, praying. wishing for a VLT bill. Be careful. Be very, very careful, what you wish for. 1 Chris E. Wittstruck, B.A. (summa cum laude), J.D., Saint John s University is an attorney duly licensed to practice before the courts of New York State, as well as the United States District Courts for the Southern and Eastern District of New York. He is a licensed thoroughbred owner in New York State, as well as a standardbred owner licensed by the Harness Racing Commissions in New Jersey, Pennsylvania and Maryland and a member of the United States Trotting Association.

7 2 Read On-line at AOL Personal Finance, April 29, Standardbred Canada. On-line at September 9, 2002 Tioga Downs to Race Again 4 Thoroughbred Times. On-line at January 3, 2003 Bank forecloses on Tioga Park, will auction racetrack 5 Thoroughbred Times. On-line at April 20, 2003 Council nixes Standardbred track plan for Suburban Pittsburgh ; See, also, Canton denies request for commercial track, Campbell, Christie, The Washington Observer-Reporter, April 17, Press Release, Jim Moran, Publicity Director, Vernon Downs, April 22, Read On -line at See, also Keller, Aaron Vernon Downs gets License from state. Read on-line at April 22, ib. 8 Minutes of the December 23, 2002 meeting of New York State Racing and Wagering Board, item #25 9 Press Release, Jim Moran, Publicity Director, Vernon Downs, February 20, Read On -line at 10 Press Release, Jim Moran, Publicity Director, Vernon Downs, February 23, Read On -line at 11 ib. 12 Press Release, Jim Moran, Publicity Director, Vernon Downs, April 22, Read On -line at ; See, also Keller, Aaron Vernon Downs gets License from state. Read on-line at April 22, Press Release, Jim Moran, Publicity Director, Vernon Downs, April 22, Read On -line at 14 Moore, Tina and Worden, Amy Racing Commission approves building of track in Chester, The Philadelphia Inquirer, Page B03, April 4, Thoroughbred Times. On-line at April 18, 2003 Penn National files plans for $100-million casino 16 The Journal News, O Donnell, Noreen, Bloomberg pushes commuter tax, January 29, Read online at 17 ib. 18 Newsday, Rau, Jordan, Pataki Considers Ideas to Boost City Budget, April 10, New York Observer, Golway, Terry, Mayor Won t Gamble on Video Lotteries, April 18, Read on-line at 20 New York Post, Seifman, David & Lovett, Kenneth, OTB, City in Talks to Give Slots a Shot, April 29, 2003; See, also Goldman, Henry New York May Need Slot-Machine Revenue, Mayor Says, April 25, Read on-line at See, also, New York Daily News, Saul, Michael, Cashstrapped city may give slots a whirl, April 26, 2003, read on-line at

8 21 ib. 22 The Baltimore Sun, Garland, Jeff, Odds are, gambling issue isn t going to go away, April 13, Read on-line at Also, note at this site that the newspaper has created a compilation of articles which track in great detail the racetrack-vlt issue in the state legislature. 23 ib. 24 ib. 25 ib. 26 Governor Pataki s Revenue Bill (S. 1410/ A. 2110) Part J; See, also Memorandum in Support, Article VII, Part J. 27 Liebman, Bennett, Intro Speech for April 22, Gaming Summit. Read on-line at 28 New York City Off Track Betting Corp. history. Read on-line at 29 New York Post, Fountaine, Ed, NYRA Chief hopes for slots by Nov., February 28, Read on-line at See, also, Liebman, Bennett, Racing and Wagering and the 2002 Legislative Session in New York, November, 2002, Read on-line at 30 New York State Constitution, Article I, Section 9.1