MGM MIRAGE in pact for NY slots

By Liz Benston (contact)

Friday, April 18, 2003 | 11:20 a.m.

The New York Racing Association said Thursday it has awarded a contract to MGM MIRAGE to operate 4,500 video lottery terminals at New York's Aqueduct racetrack in Queens.

The slot contract -- made possible by legislation approved after the Sept. 11 terrorist attacks to help raise tax revenue -- marks the first with a New York racetrack and would create the largest "racino" in the country.

New York is the only state in the nation that has recently approved racinos -- racetracks equipped with slot machines. Many other states are looking to plug budget deficits by taxing expanded gambling venues. But only a handful of states are seriously contemplating legalizing slots at existing tracks, meaning few opportunities for casino companies to move into new jurisdictions.

Terms of the deal weren't disclosed.

The mini-casino is still far from a done deal and hinges on a settlement between Gov. George Pataki's office, racetrack owners and the state lottery association.

Racetrack operators have been at odds with the state over the proposed revenue-sharing arrangement, New York Racing Association spokesman Bill Nader said today.

Under the plan, the state would receive 60 percent of gross slot machine revenue, the New York Lottery would receive 15 percent and the remaining 25 percent would be split between racetrack operators, horse owners and breeders, Nader said.

"If you compare this to other states (with racinos), this is the worst deal on the table for racetracks."

The association can't estimate when a settlement will be reached but is optimistic because so much potential tax revenue -- an estimated $700 million per year for the state -- is at stake.

The machines would be installed about seven months after the agreement, he said.

"This is a mutually beneficial working arrangement that helps NYRA to maximize the benefits to education, horsemen, breeders and the State of New York, and to do so as quickly as possible," Nader said. "We have an obligation to all parties to make the most of this unique opportunity."

"We share NYRA's vision and look forward to bringing an unparalleled VLT facility to Aqueduct," MGM MIRAGE Chief Executive Officer Terry Lanni said.

"There's some interesting opportunities in the world of horseracing," Lanni told Bloomberg News on Thursday.

The casino giant owns the largest number of resorts on the Las Vegas Strip. The company's Bellagio, MGM Grand, Mirage, Treasure Island and New York-New York properties generate about 75 percent of the company's total cash flow, a key performance indicator.

MGM MIRAGE could generate about $10 million to $15 million in cash flow a year from the operating agreement, Deutsche Bank Securities analyst Marc Falcone said in a research note Thursday.

It could take until the second half of next year before the company sees a cash flow contribution from the project, Falcone said.

Merrill Lynch analyst David Anders said it's "premature" to predict what kind of profits the racino could generate given that the tax discussions are still up in the air.

"We view this announcement positively as the racino will be one of the largest and most visible in the country, given its New York City location," however, Anders wrote in a research note Thursday.

Representatives of the New York Lottery could not be reached for comment by press time.

Video lottery terminals are essentially slot machines that are configured somewhat differently and managed by state lottery agencies.

The machines would be installed on the second floor of the Aqueduct grandstand, which would be upgraded for about $100 million by the nonprofit racing association.

Under the racino legislation, the New York Lottery would be responsible for leasing the machines and the central system used to process bets.

The New York Racing Association, which also operates Belmont Park in Long Island and Saratoga Racecourse in Saratoga Springs, is considered the largest and one of the most prestigious racing associations in the country.

The Aqueduct track is across from New York's John F. Kennedy International Airport. All three tracks attract about 2.5 million visitors each year, or an average of about 10,000 visitors per racing day. The racino is expected to attract from 15,000 to 20,000 people per day, Nader said.

Slot machines are now offered in the state's Indian casinos.