By Karl J. Sleight @KSleight_HB
Welcome to our fourth edition of our annual installment “The Year in Preview.” As we look back on past editions, we are heartened to see that our track record for predicting key issues in the world of gaming, equine racing and breeding is pretty darn good. For 2013 we predicted passage of a comprehensive gaming act. For 2014 we predicted that the casino siting board would select its winners by December 2014. And for 2015 we predicted that the 37-year draught would end and we would see a Triple Crown. Thank you American Pharoah for making that fearless forecast come true. We had a couple bumps in the road, including the prediction that roulette and black jack tables might be operational by the end of 2014, but hey, nobody is perfect. As we turn to 2016, here’s what we see as the major events and happenings, with a few predictions for gaming and racing in New York and beyond.
With newly minted gaming facility licenses from the state Gaming Commission in hand, the three gaming facilities recommended by the Gaming Facility Location Board, Montreign Resort Casino (Sullivan County), Rivers Casino & Resort at Mohawk Harbor (Schenectady) and Lago Resort & Casino (Seneca County) will be in full construction mode throughout 2016 leading to the employment of thousands of construction workers and trades people in Upstate New York.
In addition, and flying under the radar screen, is the prospect of a fourth gaming facility license that may be awarded to Tioga Downs Casino & Racetrack in Nichols (Tioga County, New York). If that facility does receive a license, four of the seven gaming facility licenses allowed in New York under the 2013 amendment to the State Constitution will have been used, leaving no more than three remaining licenses in play for development downstate and in the metro New York City area. The New York City region is off limits for full-fledged casinos until five years after the recently licensed upstate casinos start gaming operations.
With a requirement that all of the casinos are to be up and running within 24 months from March 1, 2016, look for these facilities to be rolling dice in March 2018 and for some possibly sooner than that end date.
Off Track Betting / Video Lottery
The year 2015 was a rough one for the Nassau County OTB, which along with Suffolk County was granted permission to establish 1,000 Video Lottery Terminals (VLTs) in a late addition by the State Legislature as part of the 2013 gaming law. The problem was (and still is) finding a location that was supported by the surrounding community. After rejections of various sites, there are current reports that Nassau OTB is seeking to house 1,000 VLTs at Belmont Park—first in a temporary facility on its grounds with plans for a more permanent $75 million renovation in the grandstand. Belmont is now owned by New York state thanks to a previous deal between the state and the New York Racing Association (NYRA) that allowed NYRA to extend its franchise over the Belmont-Saratoga-Aqueduct racing circuit. With the property now owned by the state, the issue of local approvals evaporates but the issue of local opposition likely remains. Already, reports are surfacing that petitions with thousands of signatures in opposition of such a move have been generated. Moreover, with NYRA currently under the control of the NYRA Reorganization Board with a majority of its seats filled by appointees of Governor Andrew Cuomo, this plan would need approval from many public bodies outside the control of Nassau OTB. A truism in government is that the more approvals that are required, the less likely something is to actually happen.
Like other brick and mortar OTB facilities that were created in the 1970’s, these public benefit corporations – initially designed to supplant the illegal bookmaker and generate revenue for local municipalities – are struggling to find a way to compete for new customers who bet via smart phones and tablets, and against bigger and more sophisticated Advance Deposit Wagering (ADW) platforms. There is no clear path to success and future viability for the OTBs, which explains why the OTBs are trying to get into the VLT game. When New York City OTB went bankrupt several years ago, some in “Chicken Little” fashion exclaimed that the betting sky in horse racing world fall apart in the Big Apple. In truth, the bloated pension system and an outdated business model were its demise. As all uncompromising and declining business models ultimately do, New York City OTB closed up shop and went the way of the buggy whip factory. Figuring out how to avoid a similar fate will again remain job one for the remaining regional OTB’s in 2016.
Daily Fantasy Sports (DFS)
2016 will define the future of Daily Fantasy Sports (DFS) as we know it in New York and around the country.
As of this writing, attorneys for the New York Attorney General and DraftKings and FanDuel, far and away the market leaders in the industry, are in a pitched battle over the underlying petition filed by the attorney general and a stay of a trial court judge in Manhattan that, if not maintained, could have severe consequences for DraftKings and FanDuel. Just a few days ago, the attorney general amended his petition seeking to disgorge profits and “lost wagers” made by customers of these DFS companies. This amendment is as much a public relations strategy as a legal strategy. Many observers saw the filing of the attorney general’s lawsuit as riling up tens of thousands of DFS players in the state against the attorney general. Recall the picketing by DFS players outside of the Manhattan offices of the attorney general. This recent amendment of the petition seems designed to curry favor with many of the DFS players, especially those who may have lost money and see this litigation as a way to get paid back on a losing “bet.” Time will tell who ultimately wins the battle for the hearts and souls of the DFS players in New York.
At this juncture, both DraftKings and FanDuel received a reprieve from the guillotine when New York’s mid-level appellate court granted a preliminary stay, allowing the companies to operate pending a decision by the trial court on the merits of the case. However, a full panel of the appellate court will review the decision to stay the trial court ruling, and that will likely be made in January (oral argument is scheduled for January 4 on the issue). If DraftKings and FanDuel are not successful, their options are significantly narrowed and the pending decision at the trial court level on the core issue of whether DFS is illegal gambling under New York law will be decided. Because of their business model — which requires continuity and participating in daily sporting events – the DFS companies cannot afford a hiccup in the legal process (i.e., loss of the stay of the trial court order), which would be a major disrupter to their businesses. While that decision will likely be appealed regardless of the outcome, significant legal maneuvering will continue to take place. If DraftKings and FanDuel do not consistently run the table of legal successes, they could find themselves in the unenviable situation of legal fits and starts that creates volatility and may make it difficult for the companies to run their business.
While all of the lawyers will be hard at work to keep DraftKings and FanDuel in business in the various state courts, the companies’ legislative agenda to change the law to allow DFS will be in overdrive. The hitch here is that Attorney General Schneiderman has argued that the DFS violates the State Constitution, and if in fact DFS is unconstitutional in New York there is no law that can remedy that finding.
Our forecast is that whoever ultimately wins the early round issue of injunctions and stays will be the winner for 2016. If DraftKings and FanDuel can maintain the status quo and turn this into a long term legal battle that could make its way to the highest court in the state, the New York Court of Appeals, they will have a happy 2016. If not … Stay tuned.
Horse Racing and Breeding
2015 was all about American Pharoah and New York was right in the middle of it. NYRA hosted the Belmont Stakes where Pharoah clinched the sport’s first Triple Crown winner in 37 years. NYRA scored again and hosted Pharoah at the Travers Stakes at Saratoga. In the Travers, the venerable Saratoga Race Course reinforced its reputation as “The Graveyard of Favorites” as Pharoah lost a hard fought battle to Keen Ice. Pharoah was not tarnished in the slightest by the upset, as he was game as ever coming off of a short rest at the Haskell and travelling across the country to take on the field. Perhaps the most remarkable day was the once in a lifetime event, in which NYRA hosted a public workout (gallop) for Pharoah a few days before the Travers that was attended by approximately 15,000 fans. The Associated Press voted Pharoah’s Triple Crown the sports story of the year. Pharoah also finished in the top three for male sports figure of the year behind only Stephen Curry of the NBA world champion Los Angeles Clippers and golf professional Jordan Spieth who won both The Masters and the U.S. Open. That’s pretty good company.
The New York breeders continue to be a part of the best structured thoroughbred breeding program in the country. The model is the envy of other states and has had tremendous success with more high-caliber New York-breds racing at the elite levels of national racing than ever before. One noticeable characteristic of the natural evolution in the program is that some modest level breeders may become a victim of the program’s success. With more high-end operations and mares coming to New York, the modest operations and low to mid-range breeders will have an increasingly difficult time breeding to the sales auction market. Over the last several years, the overall sales auction market below the $50,000 yearling purchase price has dragged well behind as market demand is changing. New York-breds were not immune from that characteristic. With fees for commercially viable stallions increasing and as the New York restricted races become more competitive, there will be pressure to breed more commercially viable thoroughbreds and a premium on the better New York-breds. Simply put, the program is doing exactly what it was intended to do from the start – produce higher quality New York thoroughbreds.
So what does New York racing do for an encore in 2016 and what do we predict? First, unlike last year, we are predicting that there will not be a Triple Crown winner in 2016. So much for repeating our 2015 bold prediction!
In horse racing, the real attention getter this year will be with the status of the NYRA franchise. Recall, the NYRA Reorganization Board was supposed to issue a report in April 2015 with recommendations and was scheduled to end its reign in October 2015. Those deadlines expired and now NYRA is expected to release these reports and recommendations in 2016. There has been a slow but steady drumbeat by some state legislators that it is now time to end the government control that comes with the Reorganization Board and return it to its original non-profit non-governmental status. We remain skeptical that the state will soon return NYRA to a non-governmental non-profit model, as there are few examples of the state ceding control of anything once they have it. Expect to hear about how well NYRA has been managed by the Reorganization Board and its reported “profitability” when those looking for a reversion to non-profit status speak up in 2016.
Lurking down the road is the prospect of the state trying to sell the thoroughbred racing franchise. While the value of the franchise is highly speculative, keep in mind that there are at least three remaining casino licenses available. Since historic Saratoga is a non-starter, and Genting already operates Resorts Word at Aqueduct, the notion of siting a world class gaming facility at expansive Belmont Park could be a very enticing idea for both government and the major players in the gaming industry. Although this would not all be accomplished in 2016, we expect to see some subtle movements that would lay the foundation for this to happen in the future.
If pressed, we would predict 2016 in New York racing and gaming will be most notable for the storyline of daily fantasy sports, and that may be decided early in the year for practical purposes. The impact of the future of DFS will be followed closely by the rising steel and construction from the new casinos in the state. New York racing will enjoy the 2015 residual excitement courtesy of American Pharoah, and we expect to see jockeying for the future of the NYRA franchise heat up this year, particularly after release of the long awaited NYRA Reorganization Board report.
Of course, this is New York, and despite our fairly sound record of forecasting from past years, we caution that we could be dead wrong and this could turn out to be a wild and whacky year. In racing parlance, you can call that our “saver bet.”
Best wishes for a safe and healthy 2016!