Empire Resorts, Inc. - Company Profile, Information, Business Description, History, Background Information on Empire Resorts, Inc.

Monticello Raceway, Route 17B
Monticello, New York 12701

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We hope to welcome you soon to both the new Mighty M Gaming at Monticello Raceway and the Cayuga Catskill Resort, and to become the premier choice for New Yorkers seeking gaming and entertainment closer to home.

History of Empire Resorts, Inc.

Maintaining its headquarters at the Monticello Raceway in New York State's Catskills region, Empire Resorts, Inc., operates a harness track, which the company has converted into a "racino." In addition to pari-mutuel wagering, Mighty M Gaming at Monticello Raceway offers more than 1,700 video gambling games, live entertainment, and a 350-seat buffet. But the Raceway operation is just part of a much bigger plan for Empire Resorts, which has agreements with two sets of Native American tribes--The Cayuga Nation of New York and the Seneca-Cayuga Tribe of Oklahoma--to develop separate casino resorts in the Catskills, advantageously located just 90 miles northwest of New York City--closer than Atlantic City and Connecticut's Tribal casinos. The potential riches to be realized from tribal gaming in the Catskills is at the heart of the history of Empire Resorts.

Tribal Gaming Emerging in the Late 1980s

In 1988 the U.S. Congress passed The Indian Gaming Regulatory Act granting Native American tribes the exclusive right to regulate gaming on tribal lands if the gaming activity was not specifically prohibited by federal law and the individual state approved. According to a 2002 Time magazine article, tribal gaming emerged in the late 1980s: "In a frenzy of cost cutting and privatization, Washington perceived gaming on reservations as a cheap way to wean tribes from government handouts, encourage economic development and promote tribal self-sufficiency."

The Pequot tribe was able to strike a deal in Connecticut and build the highly successful Foxwoods Resort Casino, followed by the Mohegans who would build the Mohegan Sun Casino. Both were located relatively close to New York City, but even nearer was the Catskills of New York, where interested parties were clamoring for legalized gambling in New York's Sullivan County. Once a thriving tourist area known for resorts such as Grossinger's, Kutsher's, and Brown's, the so-called "Borscht Belt" had fallen on hard times. Many of the popular hotels of a bygone era closed down and the racetrack that in 1980 set a single-day attendance record of 17,000 was now lucky to attract 1,000 patrons. Resort owners and others lobbied Albany to bring casino gambling to the Catskills in an effort to revitalize the economy as Atlantic City had done in the 1970s. After the state legislature in 1994 once again voted against casino gambling in the state, one Sullivan County resident thought he saw a way to bring casinos to the Catskills through the use of the tribal gaming laws. His name was Robert A. Berman, Empire Resorts' chief executive officer.

Berman, the son of an area contractor, became involved in the Catskills' tourist industry in the late 1970s when at the age of 19 he opened a nightclub in a former hotel. Then in the early 1980s he hosted a successful rock concert series using another shuttered hotel, and later in the decade helped to reopen an old ski resort. He and his partners also took advantage of second-home construction in the area, supplementing the ski resort with condominiums, townhouses, and single-family homes, as well as a lodge and clubhouse. But when the economy faltered the building boom came to an end. In 1991 Berman cofounded and became managing partner of Watermark Investments Ltd., a Manhattan real estate investment group legally based in the Bahamas. In addition to real estate ventures and hotel renovations, Berman worked with the Coeur d'Arlene tribe in Idaho to create an Internet lottery. He became familiar with The Indian Gaming Regulatory Act and a little known provision that permitted the building of a casino on land donated in trust for a tribe, in effect carving out sovereign tribal territory on nontribal lands.

Berman shared his idea with Cliff Ehrlich, whose family owned a Catskill hotel and had been a major advocate for bringing casinos to Sullivan County. Through Watermark they acquired the struggling Monticello Raceway, then contacted the Oneidas tribe, which had a 32-acre reservation east of Syracuse, and along with the St. Regis Mohawk Tribe of Hogansburg, New York, close to the Canadian border, had signed compacts with New York in 1993 to operate casinos on reservation land. In July of that year the Oneidas opened a casino near Utica, the first legal casino in the state. Berman's group reached a deal with the Oneidas and in March 1995 they announced a plan to establish a casino on the Monticello Raceway property, after the land had been given to the tribe in trust of the federal government. The Oneidas gained the support of community leaders by promising to make $5 million in annual payments to the local governments. But the Oneidas and Berman failed to agree on a purchase price for the raceway, the tribe reportedly offering $50 million to $60 million over ten years, and Watermark insisting on $100 million. By September 1995 the deal was off. The Oneidas did not lack for alternate sites, however, given that much of Sullivan County was up for sale. But approval from New York's governor, George Pataki, also was needed, and at this juncture he opposed the idea of tribal gaming in the state. Instead, he supported legalized gambling in New York.

Berman now turned to the Cayuga Indian Nation of New York, a tribe that had held no land for more than 200 years. But the Cayugas were divided about gambling and rejected the overture. Next, he approached the Mohawks but they already had a development partner, Alpha Hospitality, the corporate entity that later became Empire Resorts. Berman and Alpha Hospitality would now join forces.

Empire Resorts' Corporate Roots in the Early 1990s

Alpha Hospitality was founded in 1993 by Stanley S. Tollman and Monty D. Hundley. Previously the two men formed the Tollman-Hundley Hotel Group in 1979 and during the 1980s assembled a hotel empire, funded by bank loans. Tollman-Hundley became the largest franchisee of the Days Inn chain, then in 1989 it acquired the Days Inn of America company for $87 million, paying $8 million in cash and the rest in junk bonds. It also assumed $620 million in debt. But Tollman-Hundley then withheld at least $36 million in franchise royalties and mortgage payments and Days Inn filed for bankruptcy in September 1991. The two partners then engineered a restructuring plan that called for them to be personally liable for $100 million in deficiency notes. At the same time, they arranged to sell Days Inn to Hospitality Franchise Systems (HFS) for $250 million, as well as landing a $375,000 annual consulting fee for the two men for the next five years and a $10 million loan. Former Days Inn president Michael Leven expressed his outrage to Atlanta Business Chronicle in November 1991, saying, "How can Tollman-Hundley take the company into bankruptcy and walk away with $375,000 a year each. And the $10 million loan--something's rotten in Denmark." Leven also maintained that "if Tollman-Hundley has paid what it owed, then Days Inns could have paid the junk bond holders." The business dealings of Tollman and Hundley eventually caught the attention of government, but over the next few years, the partners devoted a lot of their attention to the gambling industry through Alpha Hospitality.

During the 1990s Alpha Hospitality failed in its attempt to run riverboat casinos on the Mississippi River as well as "cruises to nowhere" in Florida that operated floating casinos on ships outside of U.S. territorial waters. The company also eyed tribal gaming, in March 1994 creating a joint venture with the Mohawks to develop and operate a gaming facility on tribal lands. After Berman hatched his plan to deed land to a willing tribe to locate a casino in the more desirable Catskills, Alpha Hospitality and the Mohawks dropped their original plans and turned their attention to Sullivan County. In January 1996 they entered into a memorandum of understanding with Berman's Catskill Development, L.L.C., a Watermark subsidiary, regarding the development and management of a casino adjacent to the Monticello Raceway. Catskill then bought the track in June 1996. The plan was for the tribe to own the casino and have a half-interest in running it, while Alpha Hospitality and Catskill Development took the other half and continued to operate the raceway, which would likely become a more valuable enterprise with a casino next door. The Mohawk tribe then submitted the plan to the National Indian Gaming Commission for approval.

The land trust application for Monticello Raceway was approved by the Bureau of Indian Affairs in 1998, and in April 2000 the Interior Department approved the casino plan at the raceway. Only days later, however, the Mohawks dropped Berman and his partners, instead joining forces with Park Place Entertainment, now Caesars Entertainment, a giant gaming concern operating casinos in Las Vegas, Atlantic City, and other locations. Park Place then secured an option to buy Kutsher's Country Club for $65 million, and soon another developer, David Flaum, announced that he intended to open a pair of casinos at the Shawanga Lodge. Berman sued Park Place for $6.3 billion for luring away the Mohawks, a claim eventually dismissed in court, while telling the press that he believed Park Place had no actual intention of building a Catskills casino and was simply protecting its Atlantic City interests. But according to Times Herald-Record columnist Barry Lewis, a major reason for the rupture with the Mohawks was "their disdain for Berman, 'Completely disrespectful,' said Mohawk spokeswoman Rowena General, of the man who the Mohawks' lawyer says, screamed at meetings and 'treated us like idiots.'" Berman did not help his reputation in 2000 by failing to pay $1.4 million in back taxes to the county after his second-home development business failed. Berman again turned to the Cayugas, who once more declined to become involved in the gambling business.

In February 2002 Berman became a director of Alpha Hospitality and replaced Tollman as CEO. Just two months later Tollman, Hundley, and three others, including a company lawyer and accountant, were indicted by federal prosecutors for bank fraud and tax fraud. At the time, Tollman was in London, where he owned luxury hotels, and when he failed to return to the United States he was designated a fugitive. He fought extradition and although arrested by British authorities in 2004 he was released on bail and remained in the country. Hundley was in Australia but ultimately was extradited and stood trial. Tollman's wife, Beatrice, also became caught up in the investigation and she fled the country in 2003, joining her husband. Their son, Brett G. Tollman, was implicated, and in September 2003 he reached a plea bargain, pleading guilty to tax evasion, a break that prosecutors used to secure the 2004 convictions of Hundley; James Cutler, Alpha Hospitality's chief financial officer; Sanford Freedman, the company's general counsel; and Howard Zukerman, vice-president of finance. Brett Tollman was sentenced to 33 months in prison, while Hundley received eight years and was ordered to pay more than $110 million in restitutions to creditors and the IRA. During the course of the trial the prosecutors demonstrated that Hundley and Tollman lied to their creditors about their assets, which included luxury homes in Manhattan; Bedford, New York; Palm Beach, Florida; and London. "At the same time that Mr. Tollman and Mr. Hundley were pleading poverty with their creditors," according to the New York Times, "they duped the banks into selling the distressed debt on the hotels to supposedly unrelated individuals at steep discounts. In reality, the evidence showed, the companies that bought the debt at about 10 cents on the dollar were sham entities controlled by Mr. Tollman and Mr. Hundley." Hundley, who had not filed income tax returns for more than 20 years, also was convicted on tax evasion.

Change in Prospects for Casinos After Events of 2001

Berman distanced himself from the Tollman-Hundley crowd as much as possible. He restructured Alpha Hospitality, selling off its assets and merged into it the various corporate partners in the raceway project, and in April 2003 took on a new name: Empire Resorts, Inc. Berman also continued to woo the Cayugas, who finally agreed to the Monticello Raceway project. There were still many obstacles to overcome before Empire Resorts or any of the other developers would be able to open a tribal casino in the Catskills. But other events had intervened that gave hope to gaming advocates. Following the terrorist attacks of September 11, 2001, the New York economy slumped and in an effort to boost tourism the state legislature authorized Governor Pataki to negotiate with Indian tribes to build three casino resorts in western New York and three in the Catskills. Then, in 2002, the State of New York Lottery Commission granted permission to eight state racetracks, including Monticello Raceway, to install video lottery and gaming machines.

While continuing to work through the regulatory process on the casino plan, Empire Resorts invested some $23 million to add video gaming to the raceway. In the summer of 2004 the old raceway was reopened as Mighty M Gaming at Monticello Raceway. Whether it would be the beginning of a new era of gambling in the Catskills or a last-gasp attempt to keep a faded racetrack open was yet to be determined. The prospect for tribal gaming in Sullivan County, in the meantime, become more crowded as well as more cloudy. One long-term stumbling block had been outstanding land claims between New York and the tribes. It appeared the Cayugas had reached an agreement in June 2004, giving the tribe the inside track on a Catskill casino, but when the deal fell through Empire Resorts hedged its bet by signing an agreement with Oklahoma's Seneca-Cayugas to develop a Catskill casino. The Cayugas claimed to have an exclusive arrangement but their protests were in vain. It appeared that the Cayugas and other tribes would resolve all their land claims in the fall of 2004. The Seneca-Cayuga tribe of Oklahoma agreed to give up its claims in exchange for the right to operate a Catskill casino. The Cayugas reached a similar deal a few days later, as did the Wisconsin-based Oneida Tribe and the Mohicans, the ancestry of both traced to New York. A land claim with the Mohawks also was undertaken. The Cayugas settlement, however, proved problematic as the tribe experienced a split over the agreement within the nine-person Cayuga council.

Regardless of how the Cayugas resolved their internal conflicts, Empire Resort retained the possibility of developing a casino with the Seneca-Cayugas. Whether any tribe would ever open a casino in the Catskills was far from certain, however. The Sullivan County economy was picking up even without casinos, due to the increase of New York City second-home buyers and the strong growth of neighboring Orange County. Local residents once eager for tribal gaming were now having second thoughts, concerned that new casino workers brought into the county would overtax already crowded schools and the influx of tourists would overwhelm Route 17 stretching from New York to the Catskills. With opposition to the casinos emerging from both Native American groups and area residents, the state legislature was in no hurry to act. Whether Empire Resorts would ever move beyond its racino operation and launch a major casino resort was a question that remained very much undecided.

Principal Subsidiaries: Alpha Monticello, Inc.; Alpha Casino Management Inc.; Monticello Casino Management, LLC; Monticello Raceway Development, LLC; Monticello Raceway Management, Inc.

Principal Competitors: Yonkers Racing Corporation.


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