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Oh, Aqueduct

March 18, 2010

Looking for a symbol and metaphor for the Paterson administration? Look no further than the selection process for the rights to redevelop the Aqueduct horse racing facility in Queens.  In theory, all state leaders had to do was choose from among several qualified bidders. And under normal procurement rules, the highest monetary offer, the most experience in racing, and a clean background check would have been the deciding factors. But none of these basic principles seemed to apply in this situation.

In fact, the state appeared to abandon the fundamental concept of licensing, which, in the gaming world, means everything. In most states, you obtain a license to operate a facility only after a comprehensive background check of all the partners and associates on your bidding team. This is a rigorous review that weeds out many bidders. But in New York, Governor Paterson himself was reportedly telling bidders not to worry about licensing – that it would be taken care of later on. And as a result, AEG was named the winning bidder without having its equity partners vetted and licensed. The selection of AEG backfired when this fact and other embarrassing information was revealed. The matter is now being investigated by state and federal authorities.

Horse racing and gaming are industries where the state needs to be especially careful about whom it is doing business with. For example, earlier this year, New York awarded an even larger contract to operate the state lottery system. Among the bidders was a company that is run by a former East German secret police operative. The company is well-known in the industry for sweeping into states and making promises that it can’t keep to win bids. Fortunately, this was a contract that followed proper procurement rules and this particular company didn’t make the cut. The state instead awarded the contract to its existing vendor, which operates in numerous states and has been vetted many times.

The lesson should be clear – the awarding of state contracts should not be a political process. It should be done accordingly to clearly defined procurement rules and procedures in which integrity is paramount. Hopefully, state officials will learn from the Aqueduct fiasco and establish a formal, best-practice bidding process.

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