Monday, Sept. 8, 2003 | 10:48 a.m.
A Las Vegas mortgage company has agreed to arrange a $23 million loan for a harness track in central New York that aims to install slot machines to boost its financial performance as a "racino."
In Business Las Vegas, a sister newspaper to the Las Vegas Sun, reported Friday that Vestin Mortgage entered into a two-year loan agreement with Mid-State Raceway Inc., which owns the Vernon Downs horse track in Syracuse.
About $2.7 million of the loan will initially be reserved for the construction of a slot machine casino at the track that would offer at least 500 machines. The loan carries an interest rate of 11 percent.
The racetrack deal marks at least the third loan that the mortgage deed investment company has made to a gaming enterprise. Vestin has also loaned funds to the Cannery hotel-casino in North Las Vegas and the now-bankrupt Castaways property near Boulder Highway in Las Vegas.
Vestin Mortgage representatives declined to comment on why they made the loan, referring questions on the deal to a financial statement that Vernon Downs' parent Mid-State Raceway Inc. filed last month with the Securities and Exchange Commission.
Vernon Downs owner Shawn Scott, a Las Vegas investor, could not be reached for comment on the loan. Calls to Vernon Downs were referred to Mid-State Raceway President and Chief Executive Hoolae Paoa, who could not be reached for comment.
The New York Racing and Wagering Board in December denied a license to the racetrack, then issued a temporary license while a licensing investigation of Scott proceeded.
New York tracks must re-apply for licensing each year.
Scott, owner of the shuttered Vacation Village hotel-casino at the south end of the Las Vegas Strip, has taken a controlling interest in Mid-State's stock. Scott's Las Vegas financing company, All Capital, loaned the company at least $8.5 million to meet pressing financial obligations, according to a recent financial statement.
The New York board issued a permanent license to the track in April that allows Scott to take part in day to day management of the property. Regulators had expressed concerns about regulatory issues involving Scott in other states. In 1997 Scott relinquished his Nevada gaming license after state regulators criticized accounting practices at the former Cheyenne casino in North Las Vegas.
In its financial statement, Mid-State Raceway said the slot machines are expected to bring "a material increase in profitability" for Vernon Downs. The track has been unprofitable for years but now has access to working capital to fund daily operations and build the slot floor, the company said.
Scott used a similar strategy to boost the fortunes of the Delta Downs racetrack in Louisiana. He acquired the track in 1999, then sold the property in 2001 to Boyd Gaming Corp. for $125 million after receiving approval to install slot machines at the track.
The initial disbursement of the Vernon Downs loan will be $20.3 million. A portion of the proceeds were used to satisfy the obligation of the raceway to Scott's All Capital LLC and also will be used to create a reserve to satisfy interest obligations under the Vestin loan through Feb. 28, 2004, Mid-State Raceway said.
Of the $23 million loan, Vestin funded $12 million, Owens Mortgage Investment Fund provided $8 million and All Capital -- a limited liability company of which Shawn Scott is the owner -- funded $3 million.
Vestin received a fee of $1.84 million to arrange the loan, documents show.
None of the eight New York racetracks eligible to offer slot machines -- including Vernon Downs -- have yet submitted applications with the New York Lottery to operate the machines.
That's because of recent changes made to the legislation to change the revenue-sharing arrangement between track owners, horse owners, slot operators and the state. Gaming companies and others had criticized the initial plan as unprofitable.
"A lot of the tracks really wanted to wait and see where that shook out before proceeding," lottery spokeswoman Carolyn Hapeman said. "Now that all of that is resolved, the tracks are moving forward -- some of them quicker than others."
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