State of New York Office of the Inspector General Investigation Regarding the Selection of Aqueduct Entertainment Group to Operate a Video Lottery Terminal Facility at Aqueduct Racetrack October 2010 Joseph Fisch State Inspector General State of New York Office of the Inspector General JOSEPH FISCH State Inspector General KELLY DONOVAN DENNIS MARTIN First Deputy Chief of Staff Inspector General NELSON R. SHEINGOLD PHILIP FOGLIA Chief Counsel Special Deputy Inspector General CONTENTS I. INTRODUCTION........................................................................................................ 1 A. ALLEGATION .............................................................................................................. 1 B. METHODOLOGY.......................................................................................................... 3 1. Investigative Steps.................................................................................................. 3 2. The Senate and AEG Lobbyist Carl Andrews File Lawsuits to Prevent Disclosure ..................................................................................................................................... 4 II. BACKGROUND ......................................................................................................... 8 A. HISTORY OF AQUEDUCT RACETRACK AND VIDEO LOTTERY TERMINAL FACILITY ..... 8 B. ENACTMENT OF CHAPTER 18 OF THE LAWS OF 2008 (TAX LAW § 1612(E))............. 11 C. PROCUREMENT IN NEW YORK STATE ....................................................................... 15 D. NEW YORK’S RESTRICTIONS ON PROCUREMENT LOBBYING .................................... 18 III. THE 2008 VLT OPERATOR SELECTION PROCESS..................................... 21 A. EXECUTIVE CHAMBER SOLICITS BIDS ...................................................................... 21 B. CAPITAL PLAY AND ITS LEADER KARL O’FARRELL ................................................. 22 C. LOTTERY’S JULY 2008 REPORT ................................................................................ 24 D. OCTOBER 2008 SELECTION OF DELAWARE NORTH .................................................. 25 E. THE MARCH 2009 DESELECTION OF DELAWARE NORTH.......................................... 27 IV. THE 2009-2010 VLT OPERATOR SELECTION PROCESS............................ 31 A. GOVERNOR PATERSON DIRECTS HIS COUNSEL TO COMMENCE A NEW PROCESS..... 31 B. THE SOLICITATION ................................................................................................... 32 C. THE PROPOSED MEMORANDUM OF UNDERSTANDING .............................................. 35 D. THE MAY 8, 2009 RESPONSES .................................................................................. 36 1. Aqueduct Entertainment Group, LLC (AEG)....................................................... 37 2. Delaware North (Aqueduct Gaming, LLC).......................................................... 39 3. The Peebles Corporation ..................................................................................... 41 4. Penn National ...................................................................................................... 42 5. SL Green Realty Corp.......................................................................................... 43 6. Wynn Resorts, Limited ......................................................................................... 44 E. ANALYSES BY EXECUTIVE AGENCIES AND LEGISLATIVE STAFF ............................... 45 1. Division of the Budget.......................................................................................... 45 2. Governor’s Counsel’s Office ............................................................................... 59 3. Office of General Services ................................................................................... 65 4. Racing and Wagering Board and Chairman John Sabini ................................... 67 5. Division of The Lottery ........................................................................................ 76 F. THE FIRST RESTRUCTURING OF AEG........................................................................ 89 V. LOBBYING AND THE SELECTION OF A VLT OPERATOR ........................ 94 A. “A POLITICAL FREE-FOR-ALL” ................................................................................ 97 B. EFFECT OF EXTENSIVE, UNDOCUMENTED, UNHINDERED LOBBYING...................... 100 C. LOBBYING THE GOVERNOR .................................................................................... 103 VI. SENATE LEAKS INFORMATION TO AEG LOBBYISTS............................ 109 A. O’FARRELL OBTAINS BID INFORMATION DAYS AFTER SUBMISSIONS .................... 109 B. MAY 22, 2009 LEAK: “HERE IS WHAT I HAVE AS PER ANGELO”........................... 110 C. AEG ATTEMPTS TO CONCEAL THE SOURCE OF THE INFORMATION OBTAINED FROM ANGELO APONTE’S OFFICE.......................................................................................... 112 D. APONTE DENIES KNOWLEDGE OF THE LEAK OF INTERNAL SENATE INFORMATION 114 TO HANK SHEINKOPF AND AEG .................................................................................. 114 E. SENATE MAJORITY COUNSEL’S OFFICE DISCLOSES INFORMATION TO AEG .......... 117 VII. BRIEFING THE DECISION MAKERS........................................................... 120 A. THE EXECUTIVE CHAMBER .................................................................................... 120 B. SEPTEMBER 21, 2009 MEETING TO BRIEF LEGISLATIVE STAFF .............................. 136 C. SPEAKER SHELDON SILVER AND THE ASSEMBLY ................................................... 141 1. Speaker Silver .................................................................................................... 141 2. Assemblyman J. Gary Pretlow........................................................................... 142 3. Assemblywoman Audrey Pheffer........................................................................ 143 D. COMMUNITY BOARD 10 AND ITS CHAIR ELIZABETH BRATON ................................ 145 E. U.S. CONGRESSMAN GREGORY MEEKS .................................................................. 149 F. BRIEFING THE SENATE AND “THE COUP”............................................................... 150 1. Senator Malcolm Smith’s Illusory Recusal Due To Relationship With AEG .... 152 2. Senate Staff Memoranda And Briefing the Senators.......................................... 162 VII. SEPTEMBER 23, 2009 LEADERS’ MEETING .............................................. 173 A. THE POLITICAL SITUATIONS OF THE THREE MEN IN A ROOM ................................. 174 B. THE MEETING......................................................................................................... 176 IX. FALL 2009: REVISIONS AND DELAYS ......................................................... 183 A. AEG INFLATES IT’S WIN-PER-DAY PROJECTIONS ................................................. 183 B. ANALYSIS BY DASNY EXECUTIVE DIRECTOR PAUL WILLIAMS ............................ 186 C. AEG’S CONTINUED LICENSING PROBLEMS AND LOTTERY’S E-MAIL REGARDING AEG’S LICENSABILITY ................................................................................................ 194 D. VENDORS ARE REQUIRED TO PROVIDE EXPANDED INVESTOR LISTS AND INFORMATION ON MINORITY PARTICIPATION, ............................................................. 202 1. Comparison of MWBE Proposals...................................................................... 203 E. DEMAND FOR AN UPFRONT LICENSING FEE OF $200 MILLION ............................... 206 F. WYNN’S WITHDRAWAL FROM THE SELECTION PROCESS ........................................ 207 X. SENATOR SAMPSON DISCLOSES INTERNAL SENATE MATERIALS TO AEG LOBBYIST CARL ANDREWS......................................................................... 211 XI. THE “BROOKLYN BUY-IN” AND DONALD COGSVILLE ........................ 223 A. “SOUNDS LIKE WE DON’T HAVE A CHOICE BUT TO DO IT”................................... 223 B. SENATOR SAMPSON “INSISTS” AEG INCLUDE DEVELOPER DONALD COGSVILLE .. 228 C. CARL ANDREWS IS FINANCIALLY REWARDED FOR HIS “DIRECT LINE TO SAMPSON” ..................................................................................................................................... 232 XII. CAMPAIGN CONTRIBUTIONS BY COMPETING BIDDERS................... 235 A. ANALYSIS OF CAMPAIGN CONTRIBUTIONS............................................................. 235 B. AEG TARGETS CONTRIBUTIONS AT DIRECTION OF SENATE DEMOCRATIC CAMPAIGN COMMITTEE ................................................................................................................. 237 C. CONTRIBUTIONS TO THE NATIONAL ACTION NETWORK......................................... 241 D. CAMPAIGN CONTRIBUTIONS - DELAWARE NORTH AND SL GREEN ........................ 243 E. CAMPAIGN CONTRIBUTIONS - LOBBYISTS............................................................... 245 ii XIII. AEG SELECTED FOR THE AWARD OF MULTI-BILLION DOLLAR STATE CONTRACT AS “CONSOLATION PRIZE” ............................................. 246 A. GOVERNOR PATERSON: SENATORS SAMPSON AND ADAMS DEMANDED SELECTION OF AEG ............................................................................................................................ 246 B. SENATOR SAMPSON: AEG CHOSEN AS THE “CONSOLATION PRIZE” JOINTLY BY HIMSELF AND SPEAKER SILVER ................................................................................... 251 C. SPEAKER SILVER: ACCEPTANCE