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Off-track wager policy is called off base in suit Operators say state played favorites with newcomers

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New Jersey’s four racetrack operators are just days from a deadline for showing progress toward building a network of off-track wagering parlors. And as regulators prepare to consider the operators’ plans, they must also contend with a legal challenge from two of the firms, who claim the state has put them at a disadvantage from their counterparts.

The parent companies of Freehold Raceway and Atlantic City Race Course have sued to stop the state Racing Commission from enforcing the June 28 deadline and other laws tied to the betting parlors. The lawsuit claims the statutes violate an eight-year-old contract governing the development of the OTW sites, while favoring the two state-owned racetracks that were recently turned over to private operators.

The deadline will be front and center June 20 when the Racing Commission is scheduled to consider the progress of the 11 unused OTW licenses divided among the four track operators. Frank Zanzuccki, the commission’s executive director, said to meet the deadline requirements, operators must demonstrate criteria such as identification of a suitable location or a commitment to lease or own property.

All four operators have filed petitions to demonstrate their progress, Zanzuccki said. Dennis Drazin, whose management group took over Monmouth Park on May 3, said the group is moving on plans to build two new OTW facilities in North Jersey, with hopes to complete them by the second quarter of 2013.

“It’s really a product of the fact that it needs to get done for the industry to survive,” said Drazin, a former Racing Commission chairman. “It should have been done a long time ago, and we think our number-one agenda has to be to get the OTWs built.”

But the Freehold and Atlantic City operators also are moving forward with their lawsuit. Legislation enacted in January requires the operators to show they have made progress toward building new OTW parlors by the deadline, or pay the state $1 million to retain their development rights. The law also says the operators can extend the window by demonstrating plans to sell or lease their tracks and OTW rights — a clause that is among the key points of contention in a complaint filed by the firms May 18.

“The OTW amendments require plaintiffs to pay $4 million, or get out of the racing business, merely to maintain the OTW rights they already own,” the operators’ attorneys wrote in a 40-page legal brief. “The state simply cannot eviscerate a private contract, particularly one it required and approved in the first place.”

Together, the two operators — both based in Pennsylvania — have the rights to four unused licenses in the southern half of the state. Greenwood Racing, which owns Atlantic City Race Course, has opened one OTW in Vineland, while Freehold’s parent company, Pennwood Racing, has built a parlor in Toms River. Pennwood is a joint venture between Greenwood and Penn National Gaming, which both own racetracks and casinos in the Keystone State.

Both firms declined to comment for this story. But the lawsuit, filed in a federal district court, also takes aim at a new pilot program that allows one of the OTW licenses to be used to set up wagering terminals in bars and restaurants. The program only applies to operators that have either bought or leased a state-owned racetrack, a sore point for the plaintiffs.

The suit argues the laws tied to the OTW deadline and the pilot program impair the operators’ ability to carry out their contracts, making them unconstitutional. But the state, in its response, calls for a judge to dismiss the action, in part because the laws “represent reasonable steps to preserve” a vital industry.

In a brief filed in response, the state says the legal challenge is premature, since the companies’ progress toward developing the parlors will be considered at the June 20 Racing Commission meeting. The state also defends the recent amendments to the OTW law, arguing the June 28 deadline and pilot program were needed to incentivize the sagging industry.

“The Legislature, clearly troubled by the glacial pace of developing OTWs, took carefully measured steps to stimulate the process,” wrote Julie D. Barnes, a deputy attorney general. “This confirms the continued public importance of this industry, not the converse.”

A 2001 state law outlines a plan to open up to 15 OTW parlors in New Jersey. Under a participation agreement signed in 2003, the New Jersey Sports & Exposition Authority received the rights to build nine facilities, while Pennwood and Greenwood were given permits to build four and two parlors, respectively.

But the development of the facilities has stalled since then: Besides the Toms River and Vineland sites, the sports authority only managed to open a parlor in Woodbridge. That facility has since been turned over to the New Jersey Thoroughbred Horsemen’s Association, the new operator of the state-owned Monmouth Park.

Jeff Gural, the new private operator of the Meadowlands Racetrack, is close to completing a new OTW in Bayonne. But Gural still has the rights to three unused licenses, while the horsemen group has the rights to four, according to the Racing Commission.

Aside from the two new North Jersey sites, Drazin said the group plans to use one of the licenses for the bar and restaurant pilot program. The fourth unused license could go toward a joint venture with the Meadowlands, he said, as could Gural’s three remaining permits.


E-mail to:  jburd@njbiz.com
On Twitter:  @JoshBurdNJ

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