MGM MIRAGE suspends plan for N.Y. slots

Monday, Aug. 11, 2003 | 11:06 a.m.

MGM MIRAGE has suspended construction of a slot machine casino at a New York racetrack pending an investigation by the U.S. Attorney's Office into alleged tax fraud schemes by racetrack clerks.

The Las Vegas casino resort operator also said it would pull its contract to develop and manage the slots if the track's operator, the nonprofit New York Racing Association, is indicted.

The decision "is a cautionary measure that MGM MIRAGE felt was right in light of the uncertainty surrounding the ... ongoing investigation," according to a statement from the racing association, which has an exclusive state franchise to run three pari-mutuel horse tracks in New York.

MGM MIRAGE confirmed the information in the Racing Association statement but declined further comment.

In April, the racing association announced it had awarded MGM MIRAGE a contract to operate 4,500 slot machines at the Aqueduct racetrack in Queens -- a deal that would create New York's first "racino" and one of the country's largest.

The racing association planned to spend $100 million on an upgrade that would install the machines on the second floor of the Aqueduct grandstand.

Demolition on the building had just begun, though actual construction hadn't yet started as of MGM MIRAGE's decision, racing association spokesman Bill Nader said today.

The operating agreement could be worth about $10 million to $15 million in cash flow per year for MGM MIRAGE, one analyst has said.

The racino could also become one of the largest and most visible in the country, given its location near New York City and its rank as a premier horse track, experts said.

The racing association expected the Aqueduct slots to attract from 15,000 to 20,000 people per day to the track.

In June, New York Attorney General Eliot Spitzer issued a report that was highly critical of the New York Racing Association's management structure and line employees and accused association workers of money laundering, loan sharking, shorting their cash drawers, betting out of their drawers and voiding taxes on the shortages.

Besides the Aqueduct track, the association also operates Belmont Park in Long Island and Saratoga Race Course in Saratoga Springs.

The report was an outgrowth of two criminal cases involving association employees. The first involved an indictment of four tellers who later pleaded guilty to claims that they attempted to launder proceeds of drug sales by using cash generated at the racetrack.

That investigation led to a second case involving two employees who have been indicted on charges of using forgery and identity theft to provide false Social Security numbers to patrons in exchange for 10 percent of the patrons' winning wagers. The scheme was designed to allow customers to avoid necessary tax reporting of large winning bets. That case hasn't yet gone to trial.

The government's report -- the result of more than a year of investigation -- recommended replacement of top management and even a consideration that Gov. George Pataki revoke the association's franchise. It has also touched off a series of other investigations by various agencies, attorney general spokesman Paul Larrabee said.

The U.S. Attorney's Office for the Eastern District of New York would not confirm its investigation, which was instead confirmed by MGM MIRAGE, the New York Racing Association and the New York attorney general's office.

The state controller also is preparing an organizational audit of the racing association, Larrabee said.

"There is almost an investigatory 'perfect storm' at work," he said. "There is no timeline associated with any of these investigations, though they appear to be reaching some kind of critical mass."

Nader said he couldn't estimate when the U.S. Attorney's investigation would be complete.