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Howard Stutz

New York ties helped Navegante win Aqueduct deal

2 February 2010

QUEENS, New York -- Longtime gaming executive Larry Woolf said there's a simple explanation why a partnership that includes his Navegante Group won the right to operate a potentially lucrative casino at New York City's Aqueduct Race Track.

Except for Woolf's Las Vegas-based casino management company, all of the members of the eight-partner Aqueduct Entertainment Group were headquartered in New York.

"In the end, we spent time in the community and the partners understood New York," Woolf said Monday.

On Friday, New York Gov. David Paterson ended the prolonged bidding process and awarded the 30-year Aqueduct contract to AEG over competing bids from four other groups.

Tax revenue generated by the casino's 4,500 video lottery terminals is expected to help offset New York's $7.4 billion budget gap. Some analysts predict the gambling machines could produce up to $1 million a day in gaming revenue.

Woolf, whose Navegante Group manages the casinos at the Sahara, Reno's Grand Sierra and three Elko properties, said the next phase of the process is negotiating a memorandum of understanding with New York's state lottery authorities.

He expects talks will take up to two months with the casino opening coming about six months later.

Part of the negotiations, Woolf said, will be the payment structure of an upfront franchise fee of $300 million, a condition set by the speaker of New York's state Assembly.

"We've covered all our bases and we put together a group of people with an unbelievable background and reputation in New York," Woolf said.

AEG beat out competing bids from groups that included casino giants MGM Mirage, Harrah's Entertainment, Penn National Gaming and Hard Rock Entertainment, which is operated by a Florida Indian tribe. Wynn Resorts Ltd. dropped out of the bidding in November.

The bidding process began more than a year ago and turned cutthroat last summer as the competition sought varying angles to win the support of Paterson and state legislative leaders.

Penn National Gaming, for example, brought in hip-hop music mogul Russell Simmons as a partner while AEG included support from a former New York congressman turned minister whose congregation includes Queens, the borough where Aqueduct is located.

One Democratic political insider told Crain's New York Business that having a political interest in Queens may have helped in the bid's dynamics.

Several Wall Street analysts were surprised that the Aqueduct contract wasn't awarded to a large casino operator.

"The entire selection process has never been made clear, and there has never been a definitive timetable for declaring a winner," Susquehanna Financial Group gaming analyst Robert LaFleur told investors Monday. "While Penn seemed like a strong contender on the surface given its success in running racinos and a strong balance sheet, in our view, they were not seen as the favorite to win the license given that political considerations seemed to play a big part in the selection process."

Union Gaming Group Principal Bill Lerner thought AEG could have the project open quickly because of its consortium of New York-based architects and builders.

AEG's plans for the casino include restaurants and a parking garage. Woolf said plans call for opening initially with 3,000 machines using existing facilities. The additional 1,500 games would be added in a new phase, along with additional entertainment amenities and a 300-room hotel.

Roth Capital Partners gaming analyst Todd Eilers said slot machine manufacturers, particularly Bally Technologies, which has a contract with the state for up to 50 percent of a casino's floor, are big winners with AEG winning the process.

Bally now has 6,400 video lottery terminals installed at eight New York racetracks. Video lottery terminals are similar to slot machines but operate through a central server.

The biggest holdup, analysts said, could be legal challenges filed concerning the selection process.

"As is the case with many of these decisions, we would not be surprised to see lawsuits following this announcement which would lead to further delays," Deutsche Bank gaming analyst Andrew Zarnett said. "In fact, not long after the announcement ... some of those that were not selected put out releases expressing their disappointment."