Gold Rush

With billions at stake among tough competitors, the only sure winners are lobbyists

To a certain kind of operator, New York is filled with rich deposits of gold.

From upstate mountains to western farmlands to city streets, the state is dappled with places ideal for extracting that gold from other people’s pockets and putting it in their own.

These operators want to mine that gold. They want to build casinos aimed at tourists dazzled by the bright lights, at locals who have to leave the state to place a bet, at politicians giddy with the prospect of thousands of jobs and a flood of revenue. And the state wants to pave their way.

But not everyone wins in a gold rush.

If New Yorkers approve full-scale casino gambling in a public referendum, some of the companies that now run smaller, limited casinos will surely rake in millions of dollars—and others will see their profits tumble.

The nine racetrack casinos currently doing business in New York will face off for the chance to upgrade their facilities with more slot machines and upscale table games like poker and blackjack— but at least two, and possibly more, will be left in the dust.

Gambling behemoths like Wynn Resorts and Las Vegas Sands, which specialize in the “destination” casinos Gov. Andrew Cuomo is dreaming of, are also eyeing New York opportunities— as well as their Malaysian competitor, Genting, which beat them all by getting the first toehold in New York City.

And for the state’s five Native American casinos, as well as some nearby casinos in places like Atlantic City and Connecticut, legalized gambling in New York could decimate their finances. They want to stop the spread of gambling if possible, or at least keep it far from their own casinos.

Amid these shifting and competing agendas, the landscape is still being shaped. The governor and legislative leaders have not agreed how new casino licenses would be awarded, where they could go, who would be eligible and whether existing operators would get special treatment.

The answers to those questions will determine who gets rich and who gets hurt in this gold rush. But one group is certain to win no matter what: lobbyists.

“Lobbyists are going to do what’s good for them,” said Jeff Gural, who owns the racetrack casinos at Tioga Downs and Vernon Downs. “They’re going to convince casino companies, ‘Why don’t you hire me, and let me try to get you a license?’ If you’re asking me if this bill is good for lobbyists, I’d have to say yes.”

It’s been the same equation in other states, from Ohio to Florida to Maryland and Massachusetts: Whether or not casinos are ultimately legalized, lobbyists always get their cut. It’s no different in Albany, where lobbyists form a permanent shadow government that understands how to work a famously opaque system to either get things done or block them, especially when plenty of cash is at stake. The New York Gaming Association, a coalition of the state’s racetrack casinos, estimates more than $3 billion leaves the state each year as gamblers shuttle off to Atlantic City, catch a bus to Connecticut’s Foxwoods or Mohegan Sun or hop on a flight to Las Vegas—and one thing that stays in Vegas is the cash spent by visiting New Yorkers.

The big Las Vegas-based casino companies interested in capturing some of that revenue in New York—or blocking others from taking it—need only look at the example of Genting. The company secured long-term rights for a casino at Aqueduct Racetrack in Queens after hiring a contingent of well connected lobbyists, strategists and public relations professionals.

The company spent over $1 million over the past two years, bringing on top lobbyist Patricia Lynch, a former aide to Assembly Speaker Sheldon Silver, as well as lobbyists John Cordo and Brian Meara, both veterans of past casino battles.

Genting built a team that collectively had learned how New York works while employed in both the Assembly’s Democratic majority and the Senate’s Republican one—and has deep links into Gov. Andrew Cuomo’s office as well. His friend Jennifer Cunningham’s firm, SKDKnickerbocker, handles Genting’s public relations. The investment has paid off handsomely for Genting. In the five months since its Resorts World Casino New York City opened its doors next door to the Aqueduct racino in Queens, it exceeded its own expectations by raking in over $41 million in revenues in four months. “What Aqueduct’s done with its numbers, I think that spiked a lot of people’s interest,” said Chris Riegle, the president and general manager of the Finger Lakes Casino and Raceway. “Their numbers have been stronger than a lot of people predicted. I think that’s where the interest is being driven from.”

That has spurred international casino operators like Wynn Resorts and Las Vegas Sands to look into how they could replicate Genting’s success. For firms used to spending colossal sums of money building gilded palaces where they can reap even more, there’s little to lose and plenty to gain by trying to lock up lobbyists in a state like New York—no matter what their goal.

Take Boyd Gaming, a Las Vegas-based company that is part owner and operator of the popular Borgata casino in Atlantic City. Boyd recently hired the New York firm Malkin & Ross for $10,000 a month, leading to questions about whether its true goal is to build a casino in New York or to stop competitors from building theirs. David Strow, a spokesman for Boyd, said the company was monitoring developments in the state but added that it is too early to say whether it wants a casino in New York or if it would try to prevent any expansion. “We would need to see what New York is planning before we could comment on whether or not it would impact our property,” Strow said. Having brought in $2.34 billion in revenue last year, Boyd Gaming will hardly notice its lobbying bill. The dynamics are the same for everyone else in the game: With so much potential for riches, snapping up lobbyists is a minor cost, even if just to prevent competitors from hiring them.

In fact, if companies like MGM and Wynn, which have yet to register any in-state lobbyists, make a bid for a casino in New York, they will find many top lobbyists are already working for their opponents.

Wilson Elser Moskowitz Edelman & Dicker, the state’s top lobbying firm by earnings in 2011, has several off-track betting corporations as clients as well as SL Green Realty Corp., one of the failed bidders on the Aqueduct casino.

Patricia Lynch Associates, the No. 2 firm, works with Genting. Other top 10 firms representing clients on gambling issues include Bolton–St. Johns, representing the St. Regis Mohawks; Hinman Straub Advisors, representing the Senecas; and Malkin & Ross, for Boyd.

The racetrack casinos have their lobbyists too, with some hiring on two or three for good measure.

“On this issue it’s tough, because a lot of them have Indian gaming clients, so I’m not sure who the outside groups may hire,” said a political operative who has closely followed the casino issue. “A lot of the big firms already do have clients either at the racinos or the gaming association or the tribes.”

The big money hasn’t even started fl owing yet. Genting, the highest spending gambling-oriented entity, didn’t crack the top 10 for lobbying expenditures in 2011. Spending on other issues like the state budget and same sex marriage dwarfed the dollars going to gambling-related causes last year.

How frenzied the lobbying gold rush becomes this year depends largely on how the governor and the Legislature move forward.

One critical element is where the state sets its tax rate on commercial casino revenues. The racetrack casinos, which only operate electronic slot machines, pay 60 percent or more to the state for education funding and other purposes. Those rates are among the highest of any state.

“At that point, the state is practically the owner,” said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas. “They’re the majority in the enterprise, or at least they’re getting the majority of the profits.”

By comparison, Nevada has an effective tax rate of around 7 percent, New Jersey is close to 8 percent and the two Connecticut Indian casinos pay about 25 percent of the slot revenue to the state, Schwartz said.

So if Cuomo wants to attract developers who will build lavish casino resorts, complete with restaurants, hotels, spas and other amenities comparable to those at Las Vegas’ top properties, operators may demand a bigger cut for themselves.

“I don’t think anybody is going to build a Bellagio on a 40 percent, 50 percent tax rate,” Schwartz said.  “You would have fewer amenities. You would have something that looked a lot more like a racino than it would look like the Bellagio.”

Cuomo’s dream of bringing the high rolling glitz and glamour of Vegas to New York isn’t so far-fetched, observers say, but it will require a careful tweaking of the tax rates and perhaps a tailored approach to attract the big names to the New York City region and the Catskills, while also making room for a more modest expansion in less populated areas.

Riegle, the president at the Finger Lakes Casino, said high tax rates resulted in little competition at most of the state’s racetracks when slot machines were added, starting in 2001.

“I think the critical factor is people who are interested in coming into the state are probably all looking to the New York City market,” he said. “Outside the New York City market you’ve got to be a savvy operator to exist with a 21 percent margin. It’s a good market, yes. But it’s more of a niche market outside of New York City.”

That key question of where to locate the casinos has yet to be decided in Albany. The most alluring market is New York City, with more than 8 million residents and hordes of tourists. Lawmakers pledge to keep Manhattan off the table, and though that commitment is not set in stone, others are plotting to see how close to the city they could build their own operations.

The Shinnecock Nation, which is represented by Mercury and two other lobbying fi rms, has talked about opening a casino in Long Island. Out-of-state companies could also make the case that the New York City region is flush enough to accommodate another casino or two without siphoning gamblers from Genting and the Empire City Casino at Yonkers Raceway, easily the state’s two biggest racinos.

Genting wants to build a supersize convention center next to its Queens casino—something that has captured Cuomo’s imagination—and is likely to demand protection from nearby competition in exchange.

But with the governor and lawmakers not saying how they would pick winners of the seven commercial casino licenses— or even what the rules are—lobbyists are eager to offer a guiding hand through the uncertainty.

Another potential gold mine for lobbyists is the Catskills, the once-popular resort region that has fallen on hard times. Sen. John Bonacic, chairman of the Racing, Gaming and Wagering Committee, has pledged to locate a commercial casino there to jump-start the stalled economy, and several local players have already spent years squabbling over the rights to build.

In western New York, the Senecas have launched a public relations and advertising campaign to defend their three casinos, which are mired in a legal battle over the three racetrack casinos operating in their exclusivity zone. The Oneidas, which operate the Turning Stone resort Casino, have hired high caliber operative Chris Lehane to bolster the work of their lobbying firm, the Roffe Group.

Some observers expect the Senecas and the Oneidas to launch an all-out assault to block a constitutional amendment. If they do, they could be joined by players like Caesars Entertainment, which has four casinos in Atlantic City, or the Native American owners of the struggling Foxwoods and Mohegan Sun casinos in Connecticut, to avoid losing more of their clientele.

“This is a big issue,” said a source close to Genting. “I don’t know if it’s going to be the biggest issue of all time, and I think there’s no way to tell that. But it can get heavy quickly.”

For now, the uncertainty is driving everyone with a stake in the issue into the arms of a lobbyist. And when the governor and the Legislature agree on how to proceed, the gold rush will only get richer.

“There’s always going to be people who are for and against it,” said Schwartz, the director of the Center for Gaming Research. “And obviously, like any other business, there’s money to be made here.”

jlentz@cityandstateny.com