Thursday, March 12, 2009

Delaware North Comes Up Lame; Aqueduct Deal Dead

Following months of swirling rumors, the plans for a video-lottery terminal “racino” to be constructed by Delaware North Companies are on hold. In October, Delaware was hand-picked by Governor David Paterson after a lengthy bidding process, beating out two other bidders for the project.

On Tuesday, the Buffalo based Delaware North notified the state that it did not have the promised $370 million that was to be paid to the state by March 31st. According to published reports, Delaware’s president, William Bissett, said, “Since our bid was submitted in October 2007, there has been a deterioration of the credit and equity financial markets in this recession economy which has caused Aqueduct Gaming LLC to restructure the timing for its financial offer.”

Both Assemblywoman Audrey I. Pheffer (D-Queens) and Senator Joseph P. Addabbo, Jr. (D-Queens) were extremely disappointed to learn that Delaware North, the would-be developers of the redevelopment and revitalization of Aqueduct Race Track, have defaulted on their deal with New York State.

Delaware North was awarded the contract based on their offer of $370 million upfront to the State of New York. Their offer far exceeded other developers and the financially strapped State chose them in hopes of helping to address the current fiscal crisis, according to Pheffer and Addabbo. However, Delaware North admitted on Tuesday this week that they were unable to meet the $370 million offer and asked the State to “restructure” their agreement. New York State said no.

“Delaware North was never our first choice,” said Pheffer. “There were others that not only had a better working relationship with our community, but also had a more fiscally viable project. Delaware North was chosen for their promise to pay $370 million upfront, and they have lost the deal because of their inability to live up to that commitment.”

“I look forward to immediately beginning the process to find a new developer and will work to ensure that community concerns and inputs are included in the process,” said Senator Addabbo. “The preservation of Aqueduct and quality horse racing are our paramount concerns and choosing the best development for the site is our ultimate goal.”

“Rumors have been swirling for many weeks,” said Betty Braton, Chairperson of Community Board 10, “that Delaware was attempting to renegotiate the deal promised in October. We expressed our skepticism then, although we were prepared to work with Delaware to move this project forward. We believed at the time that either of the other bidders offered more financial benefit to the state over the long haul, but it was the state’s pick and the state opted for the big up-front payment that now appears was far from realistic.”

In early January, Ron Sultemeier, Vice President for Strategic Development, Gaming & Entertainment for Delaware North, presented the racino plans at the Community Board 10 meeting. He did not indicate to the community then that there were any problems that would prevent the company from meeting its financial commitment of $300+ million to the state by the March deadline. At last week’s Community Board meeting, the Board’s Aqueduct Committee Chairperson, Donna Gilmartin, raised that question about Delaware’s ability to come up with the promised funds during discussion.

On April 23, 2008, information from the state relating to the VLT franchise at Aqueduct Racetrack was given to each of the entities planning to submit bids for the project, who were asked to submit a best and final offer to the Governor and Legislative leaders. Three bidders: Capital Play, Delaware North and SL Green submitted proposals and made an extensive presentation to State leaders on April 30, 2008. Between late April and the October announcement of Delaware’s selection, supposedly an extensive due diligence review and a financial analysis of each of the three bids was conducted.

According to press statements in late October at the time of Delaware’s selection to construct the 328,000 square foot gaming and entertainment facility at Aqueduct Racetrack, the governor’s choice of them was the result of “an extensive review and thorough process that weighed all factors of this critically important project to the State.”

The deal called for Delaware and its partners to pay a $370 million up-front licensing fee to the State. Aqueduct Gaming was to be responsible for all aspects of the construction and to spend a minimum of $250 million to complete the components of the project. Delaware also planned to invest $170 million in capital during the term of the agreement to maintain the gaming and entertainment facility.

The country’s financial crisis was already swirling in October. The large up-front payment to come to the state was said at the time to be the main reason for the company’s selection. At the time, press statements from the Governor’s office said that the“deal will provide a critical revenue stream - especially given the fiscal crisis that is battering our State and nation.”

On October 23th the Governor’s office issued a statement that said, in part, that “the three bids – all final submissions that were never changed – were carefully examined … and underwent significant due diligence, including another recent review to ensure financial viability in light of the turmoil in the markets.”

Between then and now, Delaware’s ability to finance the project seems to have changed. The state will now engage in another process to select a developer for the project. At press time it was unknown as to what that process would be.

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