February 4, 2014

Four Casino Resort Licenses on the Table in Upstate New York – Time to Place Your Bets

As New York State prepares to issue four new gaming licenses, this alert takes a closer look at the details involved in the application requirements, bidding process, fees and approval considerations for prospective developers and operators. The Gaming Facility Location Board is expected to be established shortly, with RFP’s issued in March, bids due in June and the locations and winners of the licenses announced in early fall 2014.

You’ll need more than a good poker face and a lucky roll of the dice to win one of the four new gaming licenses that became available in New York State in January 2014. So that casino and hotel developers and operators bidding for these lucrative licenses are not just spinning the roulette wheel during the highly competitive application and approval process, we summarize key aspects of the new law and the licensing process below.

As we discussed previously, Governor Cuomo signed the New York Gaming Economic Development Act of 2013 (the “Act”) (links: here and here) into law on July 30, 2013, authorizing the licensing and development of four new casino resorts in the Catskills, near Albany and along the New York/Pennsylvania border, plus two new video gaming facilities on Long Island. A related amendment to the State constitution authorizing non-tribal casinos was approved by voters on Nov. 5, 2013, and the Act became effective on Jan. 1, 2014.

The Gaming Facility Location Board was originally scheduled to be appointed by the end of January, but the members have not been appointed at the time of this Alert. Governor Cuomo expects that the Board will be established shortly, a request for proposals will be issued in March, the bids will be due in June and the locations and winners of the licenses will be announced in early fall.

Four New Casinos in Upstate New York:

  • The New York State Gaming Commission (the “Gaming Commission”) is tasked with licensing four gaming facilities, one in each of the regions shown below, with a fourth license up for grabs in any of the three regions, in addition to the two video gaming facilities that will be located in Long Island:

Map 02_03_14

  • The Gaming Commission will establish the New York State Gaming Facility Location Board (the “Board”), a five member panel of independent financial and economic experts with a designated chairperson, to review applications and determine the license winners.
  • Each license will last for 10 years and the licensee must commence gaming activities within 24 months after receiving the license.
  • There is a 7-year lock-out period during which no new additional casinos licenses may be granted in the State. Following that time, the New York State Legislature may permit the Gaming Commission to offer three additional licenses. Additional licenses beyond seven will require a constitutional amendment.
  • No licenses will be awarded in areas near current Indian-run casinos, pursuant to tribal exclusivity agreements made with those tribes.

Bidding Procedures

  • The Board will issue a Request for Applications within 90 days of a majority (i.e. three) of the Board members being appointed by the Gaming Commission.
  • The Board will assist the Gaming Commission in determining bidding procedures, evaluating applications and selecting licensees, including contracting with an outside consultant to perform a gaming industry market analysis.
  • The Act does not specify a deadline by which the Gaming Commission must appoint the five-member Board.

Application Requirements:

  • The applications will require, among other things, the following information:
    • Identity of each person having a direct or indirect interest in the business, including limited partners or beneficiaries;
    • An independent audit report of all financial activities and interests, including any contributions, donations, or loans to or from a gaming entity or operator in the past five years;
    • Evidence of financial stability, including bank statements and tax returns;
    • Information and documentation to demonstrate that the applicant has sufficient business ability and experience to create the likelihood of establishing and maintaining a successful gaming facility;
    • Designs for the proposed gaming facility, including a detailed timeline of the stages of construction;
    • Description of ancillary entertainment services and amenities to be provided;
    • Market impact studies and reports which will, among other things, require an examination of the proposed gaming facility’s economic benefit to the region and state, as well as its likely impact on host and surrounding communities.
    • Location of the proposed gaming facility, with full land records, appraisals, disclosure of ownership interests and any other information that the Gaming Commission may require;
    • The number of hotels and rooms, restaurants and other amenities located at the proposed gaming facility and how they measure in quality compared to other area hotels and amenities;
    • A plan to address problem gambling concerns; and
    • An affirmative action program establishing specific goals for the use of minorities, women and veterans in construction jobs, which must be approved by the Board.
  • The applicant must also undergo a character and fitness review.
  • Applications for licenses will be public records; however, trade secrets, competitively sensitive or other proprietary information, the disclosure of which would place the applicant at a competitive disadvantage, may be kept confidential.

Required Minimum Capital Investment:

  • The Board will establish the minimum capital investment necessary for a gaming facility by region. The Board must require the licensee to invest in, at a minimum, a gaming area, at least one hotel and other amenities. The Board will determine if land and infrastructure costs will count towards the minimum capital requirements. The Board may consider private capital investment made prior to the effective date of the Act (i.e. January 1, 2014), but may, in its discretion, discount a percentage of the investment made.
  • Each applicant must detail its proposed capital investment in the application, including the stages of construction and the deadline by which the stages and overall construction and any infrastructure improvements are expected be completed.
  • The applicant must demonstrate that it will own or acquire the land within 60 days of being awarded a license, which may include a long-term lease with a term lasting at least 60 years beyond the expiration of the gaming license.
  • The application must also address the infrastructure and service costs to the host municipality, such as increased police presence, and commit to a community mitigation plan to help defray these costs.
  • The winning applicants must deposit 10% of the proposed capital investment with the Gaming Commission, to be applied to the final stage of the approved construction plan. Should the applicant be unable to complete the gaming facility, the deposit will be forfeited to the State. In place of a cash deposit, the Gaming Commission may allow for an applicant to secure a bond for the deposit amount.
  • A licensee who fails to begin gaming operations within two years after the date specified in its construction timeline shall be subject to suspension or revocation of the gaming license and, if found to have acted in bad faith, may be assessed a fine of up to $50 million.

Picking the Winners:

  • The Board will make its decision based on the following criteria:
  • 70% weighted towards economic activity and business development factors, including maximizing state and local revenues, job growth, value to patrons, efficiency of construction, quality of the facility, and general benefits to the local markets.
  • 20% weighted towards local impact and siting factors, including mitigating potential negative impact on local communities, gaining public support for the plan, partnering with and promoting local hotels, restaurants and retail facilities, and supporting local entertainment venues that may be impacted.
  • 10% weighted towards workforce enhancement factors, including entering into an agreement with and gaining the support of organized labor unions including hospitality services, implementing an affirmative action and equal employment opportunities hiring plan, utilizing sustainable development and conservation principles including obtaining green energy and design certifications, and purchasing domestically manufactured slot machines where possible.
  • Certain key employees, general gaming employees, vendors and junket operators must be registered with and approved by the Gaming Commission.
  • The games permitted to be played and the gaming equipment permitted to be used, including the expected payouts, will be determined by the Board. Cash management and exchange services at the casinos will also be regulated.
  • The minimum gambling age will be 21 and no smoking will be permitted in the gambling resorts.

Fees (start counting your chips…):

  • There is a $1 million application fee, and the applicant must agree to pay any additional costs that may be incurred by the Gaming Commission in reviewing the application.
  • The Board will determine a one-time licensing fee to be paid within 30 days after the award of the license.[1] The Board may also require an annual renewal fee in conjunction with the annual evaluation of the licensee.
  • Annual license fee of $500 for each slot machine and table game, which may be adjusted annually for inflation after five years.
  • Regulatory costs will be distributed among the gaming licensees in proportion to the number of gaming positions at the facility.
  • A tax on gross gaming revenues (gaming revenues after prize payouts (excluding free merchandise) but before expenditures) in the following amounts, to be paid monthly:
    • The Catskills:
      • 39% of gross gaming revenue from slot machines.
      • 10% of gross gaming revenue from all other sources
    • The Albany region:
      • 45% of gross gaming revenue from slot machines.
      • 10% of gross gaming revenue from all other sources.
    • The Southern Tier:
      • 37% of gross gaming revenue from slot machines.
      • 10% of gross gaming revenue from all other sources.
    • The licensee may agree to increase this tax rate as part of its application, in which case it will be bound to the increased rate.
  • Payments to support racing activity and horse and breeder organizations.

State’s Use of Funds:

  • The State will continue to make payments and reimbursements to certain Indian tribes.
  • The State will set up a Commercial Gaming Revenue Fund to collect the fees, taxes and other payments from the licensees.
    • 80% of the funds will be allocated to elementary and secondary education.
    • 10% will be paid to the host municipality and host county.
    • 10% will be disbursed to the other counties in the region on a per capita basis to be used for property tax relief and educational assistance.
    • The revenue from the annual $500 per slot machine or table game fee will be used for problem gambling education and treatment.

New Video Lottery Gaming Facilities on Long Island:

  • In addition to the casino gaming facilities, the Gaming Commission will establish two video lottery gaming facilities on Long Island. These off-track betting locations, one in Nassau County and one in Suffolk County, will each have up to 1,000 gaming machines.

[1] To get a sense of the potential amounts, the Act originally specified a minimum $50 million license fee, but the minimum amount was removed in the version that was signed.