Eliot Brown Feb. 23, 2010, 6:26 p.m.
In mid-2006, Karl O’Farrell, an Irish-born entrepreneur from Australia with a penchant for gambling, hatched a quixotic plan to take over and develop New York’s biggest horse-racing tracks. That plan was the root of the political maelstrom that now engulfs Governor Paterson’s selection of a team to build a casino at the Aqueduct Racetrack in Queens, a selection now under investigation by the state’s inspector general and involving one of the largest real estate procurements in New York history.
The team is an expansive one of eclectic characters, politically known names and financiers—hip-hop mogul Jay-Z, former congressman the Rev. Floyd Flake and onetime MGM Grand Hotel CEO Larry Woolf, to name a few—all operating under the umbrella of “Aqueduct Entertainment Group.” Mr. O’Farrell helped hatch the team and, ultimately, was forced to relinquish any potential stake amid financial troubles and concerns raised by regulators.
An owner of the Capital Play racing bookmaker in Australia, Mr. O’Farrell submitted a 2006 bid to take over racing and gaming at the three main New York State horse-racing tracks—Saratoga, Belmont and the Aqueduct—with the potential to install slot machines at least at the Aqueduct.
His bid was an unlikely one. He was an outsider in what was sure to be a political process; he didn’t have U.S. experience; and he was not politically well connected in Albany. He also had a small New York operation. His co-op apartment at 23 East 10th Street was listed as Capital Play’s place of business (“Suite 808”); he met colleagues in restaurants or at their offices; he sifted through various consultants at first; and consultants complained multiple times of slow or nonpayment.
The arriviste ultimately built a team of investors, along with an expansive public-affairs operation that enlisted an array of lobbyists and other firms. One public-relations executive in particular, Andrew Frank of the firm Kreab Gavin Anderson, quickly became a top aide to Mr. O’Farrell, according to other former team members, serving a key role throughout the bids. A 44-year-old onetime spokesman within the Clinton administration who has long, dark hair, Mr. Frank brought in a new set of lobbyists—Bolton St. John’s and Cordo and Company—assuming the job of corralling all the various lobbyists and consultants, coordinating and orchestrating the push on public officials.
In terms of racing and gaming, Mr. O’Farrell, who did not respond to interview requests, was described by those who worked with him as a visionary, seeing the potential for racetracks to become a social destination, an upgrade from their traditional role as a magnet for sad-sack middle-aged men to bet away money. He was well read, they said, and talked a big game.
“The way to get young people to the track is by getting women there,” he told Thoroughbred Daily News in 2007. “You need good restaurants with quality food, good wines. People want good-quality wines at a reasonable price. And you’ve got to have the glamour.”
He was “a very, very smart guy who actually had some ideas that may have worked,” said Hank Sheinkopf, a public-relations and political consultant who worked on the Capital Play team. “He was amazed by the inability of New York to move forward and protect racing.”
But midway through the second bid, Mr. O’Farrell’s history and finances drew red flags with New York State vetters, forcing him to step down as Capital Play’s president in order for the bidders to be eligible to receive the necessary license. A New York inspector general report found that his Capital Play company in Australia lost money in five of the previous six years. He was involved in disputes over about $10 million in loans back home, too. He had run into franchising disputes with the New York Racing Association, leading to termination of his simulcast contract. Finally, he was in bankruptcy in Australia, according to court records, with creditors looking to seize some of his assets in the U.S., listed by Mr. O’Farrell as including two apartments in Chicago and horses worth more than $300,000.
Ultimately, Capital Play did not win. First, the team lost the racing franchise agreement to the existing, cash-strapped operator, New York Racing Association, a move that stunned the competitors involved. Then he lost in a second bid, with a different team, to develop slot machines, or Video Lottery Terminals, at the Aqueduct.
THAT SLOT-MACHINE DEAL, though, fell apart in March 2009. And Mr. O’Farrell had not given up his gamble.
In April 2009, the state once again opened bidding. From the ashes of Mr. O’Farrell’s Capital Play bid arose the Aqueduct Entertainment Group. Precluded from taking a leading role given concerns of regulators, he worked behind the scenes to help form AEG, according to people who worked with Capital Play, and did not take an equity stake, according to AEG.
But the state continued to raise concerns over Mr. O’Farrell’s involvement. In September, to clear vetting, AEG wrote to the state that it terminated an agreement that would have entitled a company controlled by Mr. O’Farrell a $15 million bonus if AEG won the bid.
In terms of image, the new AEG bid went local. It emphasized the community; it trumpeted a commitment to minority participation; and its public image seemed to be dominated by Mr. Flake, a reverend with strong connections to Queens politicians, including the Senate’s president, Malcolm Smith, and who had a tiny 0.6 percent equity stake. It also signed on fame: Jay-Z had a 1.25 percent stake, according to a shareholder roster from the fall.
But if it was this sprawling team approach that helped propel AEG to victory, it may also be what precipitates its downfall.
Three days after Governor Paterson announced his choice of AEG, he met with Mr. Flake, tinging the entire deal with the appearance of malfeasance. Mr. Flake had just days before told The New York Times he might endorse Mr. Paterson’s likely 2010 rival, Andrew Cuomo, which made the bid-granting process look like a possible quid pro quo: that Mr. Paterson’s choice of AEG, the low bidder in an early set of numbers analyzed by the state, was connected to the governor’s race. (Mr. Paterson, who agreed to select AEG with Assembly Speaker Sheldon Silver and the State Senate Democratic leader, John Sampson, has denied wrongdoing.)
Now AEG is in the tabloids on a daily basis, unable to shake the qualifier “politically connected” from most stories on the topic. In truth, each of the bidders played politics with the process, employing armies of lobbyists, fund-raisers and other consultants with links to the Paterson administration and key members of the Legislature for what was sure to be a less-than-solidly-rational selection process.
AEG is racing to complete a memorandum of understanding with the state, even as an inspector general investigation pushed by Assembly Speaker Silver moves forward. A spokesman for the firm said AEG is working with New York to finalize the agreement, “so that we can provide New York with $300 million in sorely needed revenue.”
But the investigation may delay any imminent action. Other bidders are circling, and the public perception of the deal has been severely tainted.
Mr. O’Farrell, meanwhile, has disappeared from the public scene. AEG insists he has no involvement at all anymore and no ability to take money out of the deal (though the state declined to provide additional correspondence documents to back up this claim, citing an investigation). And Mr. O’Farrell, once the out-front man happy to hop on the phone with elected officials and reporters, did not respond to emails or calls to multiple phone numbers.