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State and Suffolk should audit Jake's 50 to clear up money questions

Jake's 58 Hotel and Casino in Islandia is

Jake's 58 Hotel and Casino in Islandia is seen on Oct. 4, 2018. Credit: James Carbone

Jake's 58, the Islandia casino,  boasts the most profitable video lottery terminals in New York. That should be great news for Suffolk taxpayers, because much of the money that's left after expenses is supposed to go to the county's coffers.

But according to a lawsuit filed by the Suffolk County Off-Track Betting Corp., which actually owns the casino, operator Delaware North is skimming off too much of the cream. If true, that should have never been allowed to happen and must stop.

The stream of money flowing from the Islandia facility is huge, with the casino raking in about $220 million a year after payouts to gamblers. The state gets 45% for education, the state gaming commission gets 10% to provide and oversee the machines, and New York's horse-racing industry gets 5% for no good reason.

OTB is suing Delaware North over two other slices of the pie. OTB and Delaware North get 30% of the take for expenses and the company's fees. What's left goes to the OTB's debt and to the county general fund.  Ten percent is for "marketing," with the leftovers going to the county.

The litigation is in federal bankruptcy court because Suffolk OTB has been in bankruptcy since 2012, though the VLT profits are now paying off creditors. It alleges:

  • That Delaware North, which owns the hotel and restaurant at the site and controls all revenue, has purposely and illegally overcharged OTB for expenses. These include maintenance and construction costs and utilities for the hotel and restaurant, which are Delaware North's responsibility.
  • That Delaware North is improperly using the marketing cash as a slush fund to increase its profits, primarily by inducing local gamblers to register for free hotel rooms they often don't use in exchange for vouchers for free casino play. According to the complaint, more than 80% of Jake's customers live within 20 miles, and so few people actually stay in the hotel's 230 rooms that it has stopped serving breakfast. But every room a player registers for results in a payment of approximately $150 to Delaware North, whether they use it or not, and those payments added up to more than $7 million in 2018.

The convoluted arrangement confirms that the sorry remnant of a 1970s horse-betting system was never the right operator for a casino. However, political expediency meant the state had to bail out OTB to save jobs and pension contributions. Nassau OTB was saved by a related deal for 1,000 machines that are operated for it at the Resorts World Casino in Queens.

Ideally, profits from both would go directly to the counties, with the OTBs and the horse industry left to sink or swim on their own.

But as it stands, the only hope that Suffolk taxpayers will get more money to help their cash-strapped county is for the bankruptcy court to crack down if it finds any shenanigans by Delaware North. Meanwhile, the state and county comptrollers need to make auditing the finances of Jake's 58 a high priority. The taxpayers deserve more than the crumbs left over from the gambling sharks' feast. — The editorial board