Making the News

Times Herald-Record

Originally Published:Sunday, January 11, 2009

Monticello racino gambles on a brighter future at new site
In the red for $65 million

By Steve Israel
Times Herald-Record

The racino at Monticello Raceway is fighting against time to survive. If Monticello Gaming & Raceway can't come up with the $65 million it owes creditors in July - and if those creditors demand the money the racino doesn't have - it won't have enough cash to operate, says its latest government filing.

The raceway, once known as the Mighty M, is betting the racino's very existence on a move within two years to a new billion-dollar home at the site of the old Concord Hotel.

And if it doesn't win that bet? Monticello Gaming & Raceway could go belly up.

The racino - which combines harness racing with slot-like video lottery terminals - is the only such facility in the state whose net revenue was down from 2006-07 to 2007-08, by some $12 million.

Of some urgency to the racino is the potential demand by creditors who lent it $65 million and have the right to demand repayment by July 31, according to the latest filing with the Securities and Exchange Commission by the racino's parent company, Empire Resorts.

"We do not presently have a source for repayment of these notes," the filing says, "and our operations will not provide sufficient cash flow to make this repayment should it be demanded "¦."

Even though that bleak SEC filing sounds like the racino might have to shut its slot-like machines, its officials say Monticello's 313 employees - down from 450 in 2004 - shouldn't worry.

For now, the former hub of Sullivan County "generates enough cash flow to cover its expenses," says Empire Resorts CEO Dave Hanlon, who stresses that Empire is talking to its creditors about extending the deadline for payment.

"We always paint the most dire picture in these (SEC) filings."

If it cuts a deal with those creditors, the racino should survive until it moves into its new home a few miles away at Entertainment City, the site of the former belle of the Borscht Belt, the Concord.

"We have an ongoing dialogue with our bondholders to address the issue," says Empire spokesman Charlie Degliomini, who notes that some of the largest players in gambling, such as Harrah's and MGM, "are all dealing with these issues. It is our belief that the bondholders will work with us to align our interests. We have every intent of making our interest payments."

But if its creditors demand the entire $65 million, all bets are off, says Hanlon.

"We don't have the ability to pay off the principal," he says.

Monticello Gaming's net income is down over the past two years, largely, it says, because of competition from new slot operations in New York and Pennsylvania. The average slot in Monticello not only has the lowest daily net of any of New York's eight racinos, its take is the lowest of any reporting casino or racino in the Northeast, according to a study by Spectrum Gaming Consultants, a consulting company that works for Monticello Gaming.

Its attendance is down more than 20 percent over the last year. On most days, rows and rows of the slot-like machines stand silent and vacant - quite a contrast to its opening day four and a half years ago. On that sunny July day, throngs of gamblers rushed through the doors with as much gusto as the rainbow-colored fountains that once flowed in the Raceway's heyday.

Monticello Gaming hopes to recreate much of that glory with its next incarnation.

The target date for the opening of Entertainment City, being built by Westchester developer Louis Cappelli and Empire, is the summer of 2010.

If that's not built - and the economic climate for building it has never been worse, say gambling experts like SUNY Albany law professor Bennett Liebman - the racino and Empire could crap out.

That's because the racino that once promised to usher in a new era of gambling and resorts in the Catskills has never been profitable enough to be a winner for Empire, its investors or shareholders.

The company had long wanted to build Indian casinos at Monticello Raceway, but the federal government dashed those dreams last year. Now, it's betting on Entertainment City.

"The whole focus of the company is the project with the Concord," says Hanlon. "No matter what we do, without that major project, we wouldn't generate enough cash to pay off the bond. Empire wouldn't have enough capital to stay in business."

This is why Empire must cut a deal to ease that $65 million debt.

"If there's an extension of the bondholders, the pressure is off," says Degliomini, "and it gives us the ability to see the finish line."



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