Rise of the Racino

The Seneca Nation’s three casinos in Western New York were established by a 2002 gaming compact, signed with then governor George Pataki (R), that was intended to make up lost tax revenue from the financial and social upheaval caused by the 9/11 terrorist attacks.

Tribal casinos are required to have gaming compacts with states according to the 1988 Indian Gaming Regulatory Act, which also created the federal National Indian gaming commission. Under the compact, the Seneca Nation is supposed to send 25 percent of the revenue from its casino slot machines to the state, after payouts but before deducting operating expenses.

In exchange, the Senecas were granted an exclusive right in Western New York, the area of the state west of State Route 14, to host “Class III” gaming, which encompasses Vegas-style slot machines and table games like blackjack and craps.

But since then, the state has continually expanded in-person and digital gaming, diminishing the value of the Seneca Nation’s exclusivity rights — while still demanding a hefty cut of the tribe’s gaming revenue.

In January 2004, for example, the first of what were called “racinos” were allowed to open across the state. These racetracks host video lottery terminals — technically, “Class II” machines — that offer a similar playing experience to traditional slots, alongside harness racing betting and casino-like hospitality offerings.

Three racinos were located inside the Senecas’ exclusivity zone, including Finger Lakes Gaming & Racetrack, owned and operated by Delaware North, and Hamburg Gaming, which is managed by Delaware North.

Then, in 2013, New York voters approved a constitutional amendment that allowed for seven new casinos, which the legislature directed to open upstate and away from New York City. A dispute with the Seneca Nation over the encroachment of commercial casinos — one of which, del Lago Resort & Casino, opened just nine miles outside the tribe’s exclusivity zone — was settled that year with $209 million in gaming earnings retained by the Seneca Nation.

The Seneca Nation’s gaming income was further squeezed as New York has thrown open its doors to app-based gaming. Last year, then governor Andrew Cuomo (D) signed a bill legalizing online sports betting, as neighboring states had already approved. Since the apps went live in January, sports betting has resulted in $6 billion worth of wagers, bringing in nearly $217 million in tax revenue. The gaming commission has also approved digital lottery tickets on mobile devices, which launched this past January using a third-party app.

In January 2022, the Seneca Nation agreed to drop a five-year battle over the legality of the revenue sharing and resume making payments to the state government, having put the funds in escrow while seeking federal review of the compact terms. The tribe had been sending an average of $117.5 million annually to the state, which was distributed to municipalities.

The breakthrough agreement, however, was not favored by some tribal members and was paused by a Seneca Nation Council resolution in February. On March 18, the Seneca Nation received a letter from the National Indian Gaming Commission closing its months-long investigation into the dispute without taking a position on the legality of the revenue sharing.

On March 24, the Hochul administration filed court motions and issued a subpoena asking KeyBank to freeze the Seneca Nation’s bank accounts in order to force the tribe’s hand.

Days later, on March 28, the Seneca Nation agreed to release the $565 million to the state — much of which Hochul immediately declared would be used to pay for part of the stadium deal, telling the Buffalo News she had “started playing hardball.” The Seneca Nation’s Pagels said, “Governor Hochul couldn’t contain her excitement to boast about using her Seneca ransom money for a new stadium.”

That so-called “ransom money” had far-reaching consequences — especially since the state claimed that the escrow account used by the Seneca Nation commingled funding in such a way that the freeze impacted community members’ bank accounts more widely. The Seneca Nation sent out a call to the public to not deposit any checks they had received from the tribe — but tribal leaders say that some checks still bounced due to the bank freeze, disrupting payments for basic services.

“When you shut down that account, you shut down the entire nation, you shut down services to the people here, everything from clinics to the education and senior living spaces,” said John Kane, host of the radio show Let’s Talk Native and a Seneca activist who lives in the Cattaraugus territory, in a phone interview.

“The governor took this money that is supposed to go to things like education — it’s not her own private cash to give to the billionaire Pegulas,” Kane said.

In response to a question about the use of state law to freeze the tribe’s bank accounts, a spokesperson for the governor said:

Governor Hochul has worked to resolve this issue amicably since the beginning of her administration and receive the funds the state and local governments are owed. The courts have consistently ruled in the state’s favor, and the state has negotiated in good faith and met every hurdle. Time and again, the Nation failed to fulfill their court-ordered obligations. After the Nation once again failed to make payments under the terms of an amicable agreement, the state had to take action to enforce the judgment, and we are pleased to have finally secured these long-overdue funds for Western New York communities.

“A Billionaire Giveaway”

Hochul trumpeted the Bills stadium public-private partnership as the biggest-ever construction project in Western New York, with a promise of ten thousand jobs, though economists argue that many of the construction jobs will be short-term and that research has found that sports stadiums “have no consistent, positive impact on jobs, income, and tax revenues.”

As part of the arrangement, $350 million of the National Football League’s share of the stadium cost comes from the Bills’ owners, Terry and Kim Pegula, who are domiciled in Boca Raton, Florida, and whose net worth is estimated at $5.8 billion. The Pegulas’ fortune was amassed primarily through a fracking venture acquired by Royal Dutch Shell.

Forbes last year calculated the Bills franchise as being worth $2.3 billion, up from the $1.4 billion for which the Pegulas bought it in 2014. As the spectacle of NFL football remains irresistibly popular with TV viewers, the Pegulas will earn $3.5 billion from the team over the next eleven years just through a new NFL media deal.

The owners had reportedly threatened to move the team unless the state underwrote a new stadium, though Hochul’s negotiations over the deal were held entirely behind closed doors.

In an April letter signed by twenty state Democrats representing New York City, lawmakers slammed the handout of public funds as “a billionaire giveaway” and a “negotiated in secret” process. The letter cited the consensus among researchers that such stadium subsidies are ineffective as economic development.

Calling the stadium plan “one giant scam,” Assemblyman Ron Kim (D) said in a press briefing, “The lack of transparency is astounding, especially because the new administration took power on promises of being transparent, open, and collaborative.”

Hochul’s press release claimed that the $27 million annually generated in state, county, and city tax revenue by the Bills would roughly double to a cumulative $1.6 billion over the thirty-year stadium lease period. The figures came from a January 2021 study commissioned by the Bills’ owners.

The analysis has been challenged by the fiscally conservative watchdog Citizens Budget Commission, on the grounds that the cumulative revenue projection assumes that all stadium-generated revenue would drop to zero if the team moved to another city, instead of being used for other revenue-generating recreational purchases.

“The Mask Is Off”

Delaware North, which hired Hochul’s husband in 2016, spent more than $840,000 on lobbying the state government from 2019 to 2021, according to a review of state lobbying records.

Last year, Delaware North lobbied the Cuomo and Hochul administrations on the “Seneca Nation Compact.” It also engaged in talks last year with Hochul’s office while she was lieutenant governor “regarding ongoing issues with sports betting,” among other gambling topics in state government.

State records show that over the past few years the company has retained prominent Albany lobbying firms Bolton–St Johns and Dickinson & Avella. Delaware North also holds tens of millions of dollars in long-term contracts for concessions at state parks and on the New York State Thruway. After coming into office to succeed scandal-plagued Cuomo and under pressure from state good government groups, Hochul created and signed a recusal policy stating that she and other covered public officials would “recuse [themselves] from any and all matters relating to Delaware North.”

Despite the policy, Hochul arranged the stadium deal that could end up benefiting Delaware North — even though the company paid her husband, a former United States attorney for the Western District of New York, more than a half million dollars last year in a household income of more than $900,000.

A spokesperson for the governor said in a statement, “Governor Hochul is committed to the strictest ethical standards and restoring trust in government. Delaware North is not a party to the negotiations and any future decisions about vendors at the new stadium would be made by the Bills alone.”

Delaware North did not respond to a request for comment.

Even if Hochul had stepped aside, her second-in-command, the powerful secretary to the governor, Karen Persichilli Keogh, would have run into the same issue. Keogh’s husband Michael is a partner at Bolton–St Johns, which previously lobbied for Delaware North in a contract that the firm said ended early last year. Micheal Keogh previously lobbied for other gaming industry clients like Caesars Entertainment.

The Bills stadium subsidy deal — soon to be eclipsed by the Tennessee Titans as the largest in the nation — may not be the political asset Hochul had expected. A recent Siena College poll found that 63 percent of New York State voters disapprove of the public subsidy.

In the Democratic primary, Hochul faces the conservative Suozzi, who called for state hearings into what he panned as a taxpayer rip-off, and the progressive Williams, who torched the deal in an April 1 op-ed. “A billion dollars of state investment in Buffalo could help fundamentally transform education, health care, or housing,” Williams wrote.

Charles Khan, organizing director at the Strong Economy for All coalition of labor and community groups, said in an interview, “Historically, we know that these deals usually end up being more expensive and almost never bring the transformational economic impact that they’re touted to bring.”

“If anything in the budget proves Hochul is not a shift from the politics of Cuomo and politics of the past, it’s this Bills stadium deal,” Khan said. “Gov. Hochul said she was going to be transparent, follow data, and follow the will of the public. . . . [Instead] the mask is off.”

Very much in the tradition of her predecessor, Hochul has been fundraising heavily among Albany lobbying firms, reportedly asking the firms to raise $250,000 for each private fundraising event that she attends in person. Bolton–St Johns and Dickinson & Avella have reportedly thrown fundraisers for Hochul’s campaign. Hochul’s record-setting $31.6 million raised as of May has come pouring in from well-connected donors, ranging from real estate giants to construction companies.

The state’s current gaming compact with the Seneca Nation expires in December 2023. In the meantime, the Seneca Nation’s gaming exclusivity zone will likely be further squeezed by competition. In April, state officials approved three new casinos in New York City next year. State lawmakers are also likely to eventually approve online casino gaming like slot machines and poker, and regulators could approve an official app for the state lottery.

Hochul could oversee negotiations with the Seneca Nation over the new gaming compact, if she is reelected. The state gaming commission’s seven members are appointed by the governor, with one recommended by each of the state Assembly and Senate.