MGM Mirage finalizes deal to develop, manage N.Y. casino

By Liz Benston (contact)

Thursday, June 16, 2005 | 11 a.m.

MGM Mirage said it has signed a definitive agreement to develop and manage a $170 million casino at the Aqueduct horse racing track in Queens, N.Y., and expects to open the casino by mid-2006.

MGM Mirage announced the deal more than two years ago, but several developments have hampered the project.

An appeals court in 2004 struck down a 2001 law allowing slot revenue to go to horse breeders and purses. In April, New York Gov. George Pataki approved a bill paving the way for slots to be installed at New York racetracks and a method by which slot revenue would be divvied up between tracks, horsemen, breeders and the state.

In 2003, federal prosecutors charged New York Racing Association officials with conspiring to evade taxes on $19 million in bets. NYRA is the nonprofit operator of the Aqueduct and other New York tracks. MGM Mirage, which had signed a contract with NYRA earlier that year, abruptly halted work on the casino amid rumors of the indictments.

Prosecutors allege NYRA track tellers skimmed money from bettors, leaving them short. NYRA then deducted the differences from employees' pay and treated it as a business expense, they said. NYRA avoided prosecution by paying $3 million in fines and agreeing to reforms as well as oversight from an independent monitor.

Since then, track owners, breeders and horse owners have been squabbling over how much of the slot revenue they will receive once the state gets its cut. MGM Mirage also raised the cost of the project by about $70 million.

The state tax rate at Aqueduct is expected to be about 75 percent, leaving relatively little for operators, Deutsche Bank stock analyst Mark Falcone said in a research note to investors.

The casino will have 4,500 video lottery terminals, which are essentially slot machines with centralized computer systems. State regulators still need to approve the casino deal, MGM Mirage said today.

Falcone said he expects the casino to generate from $10 million to $15 million per year in cash flow for MGM Mirage, translating into annual earnings per share of 2 cents to 3 cents.

MGM Mirage would still be able to operate the casino even if NYRA is stripped of its state franchise to operate Aqueduct, a contract that expires in December 2007, Falcone said.

"We look forward to being a positive factor in the state of New York and New York City for years to come," MGM Mirage Chief Executive Terry Lanni said in a statement.

In a separate research note, Susquehanna Financial Group stock analyst Eric Hausler said the casino is expected to be a slot machine facility with limited amenities and will "drain some day trip business" from nearby Atlantic City for slot players looking for something more convenient.