Hartford Business Journal

18 Hartford Business Journal•March30,2015 www.HartfordBusiness.com parlors and through its website and phone ser- vice fell last year to $178.8 million — the lowest it's been since the company entered the market in 2010 through its $83 million acquisition of Scientific Games Racing. "The pari-mutuel gaming industry is up against all sorts of competition," Taylor said. OTB revenues have fallen 6.2 percent over the last five years, and 30 percent since 2005, according to data from the state Department of Consumer Protection, which regulates gaming. Meantime, earlier this month, moving operators removed betting kiosks, televi- sions and other equipment from Sportech's Winners Willimantic facility, representing the first OTB location the company has shut- tered in Connecticut. Sportech has an exclusive license to offer OTB in Connecticut, but out-of-state web- sites still take bets from Connecticut cus- tomers in violation of state law, he said. Some have an advantage because they don't have to pay state taxes like Sportech does. State Attorney General George Jepsen and DCP sent cease-and-desist notices last year to 28 such operators. The increasing availability of other types of gambling has also challenged the OTB industry over the long term. To remain competitive, Sportech has invested millions of dollars to spruce up its facilities. It has also paired restaurants and other entertainment with its parlors to attract more customers, Taylor said. competitive pressures Sportech's Connecticut business has withstood increased competition better than the state's two casinos, Mohegan Sun and Foxwoods, whose combined slots handle has fallen 23 percent over the past five years. But Sportech's relative resiliency could be at risk, Taylor says, if lawmakers exclude his company from the casino expansion plan being pitched by some state lawmakers. On March 17, Taylor warned legislators that additional Connecticut casinos would take revenue and jobs from his business — which employs 390 people and pays 3.5 percent of its handle to the state and host towns — unless Sportech was given a piece of the action. "Any large new betting establishment will devastate our business and have dramatic effect on other leisure and entertainment businesses in the vicinity," Taylor told mem- bers of the Public Safety and Security Com- mittee. "The main hope is we're not excluded from the discussions." If lawmakers approve as many as three new casinos, Taylor wants one or more of them to be co-located at his parlors, particu- larly Windsor Locks, where Sportech early last year completed a $5 million renovation aimed at combatting potential customer loss- es to MGM's Springfield, Mass., casino, which is scheduled to open in 2017. Even with that investment, the Wind- sor Lock handle dipped slightly last year, by $62,000, to $25.6 million. Taylor said he isn't unhap- py with that performance. "In the industry that we are in, being flat like that is regarded as very positive," he said. Willimantic dispute heads to court While Sportech tries to secure its Connecti- cut gaming future, it faces a legal suit from an outspoken landlord who alleges that the com- pany stopped paying rent late last year at its Willimantic location and then reneged on its seven-year lease. The suit was initiated in State Superior Court last week by 600 Main LLC principals Damian Fox and his father Jeffrey Fox, who own the 600 Main St. property that housed Winners Willimantic. They allege that Sport- ech intentionally forced them into a difficult financial position by withholding rent, leav- ing the landlords struggling to pay the prop- erty's mortgage and taxes on time. Sportech maintains that it was within its rights to terminate the lease, which it did in January. "This is a simple landlord tenant lease dis- pute and we tried hard to resolve it through sensible negotiation," the company said in an emailed statement. "We ultimately had no choice but to exercise an option within the lease to leave the property." Sportech said it has excellent relation- ships with its other landlords. The Foxes have asked a judge to award them more than $321,000, including back rent and the remainder of the rent Sportech would have paid under the final three years of its lease. Jeffrey Fox also filed a March 20 com- plaint with DCP, alleging that Sportech vio- lated the terms of its gaming license by failing to meet its financial obligations. DCP's Director of Gaming William Ryan said the agency will review the complaint. "We don't resolve l a n d l o r d - t e n a n t issues that exist, but we will look at this complaint," Ryan said. The Foxes have shuttered their adjacent restaurant and bar, the Lucky Frog, as a result of the parlor's closure, Damian Fox said. Sportech: Handle too low Sportech's official reason for terminating the lease, according to its notice, is that the Willimantic handle was less than $2 million. The lease did contain a provision that allowed Sportech to terminate the contract if, after the first two years, the handle fell below $2 million on a year-over-year basis. But Fox plans to dispute the legal meaning of the provision. Fox said Winners Willimantic's handle never fell, but actually increased each year during the four years it was open. But Sportech had other concerns as well. In an Aug. 18, 2014 letter to the Foxes, it accused the landlords of breaching the lease by agree- ing to sell the property and restaurant to a third party without the company's approval. Last June, the Foxes agreed to sell 600 Main St. to Kenneth Denning, president of Tolland strip club Electric Blue. The agree- ment, court records show, called for Denning to pay a total of $700,000, a portion of which was secured by a $237,000 promissory note to be paid in $5,000 monthly payments. Sportech, however, didn't support the sale, and Denning, who has had personal legal issues, was unable to get approval from DCP for the required Class 2 gaming license to operate the restaurant co-located in the OTB parlor. Denning was given a 27-month suspended prison sentence and two years of probation following a 1994 incident in which he admit- ted firing a gun in Electric Blue's parking lot at a former employee's car after an argument, according to Dec. 1996 and Oct. 1998 reports in the Hartford Courant. DCP's Ryan said Sportech's lack of sup- port for Denning's application was reason enough for the gaming regulator to deny it. "The gist of this whole thing is the impor- tance of maintaining the integrity of our license," Taylor wrote in an email. "We actually want to be in Willimantic but it needs to be in a partnership where we have absolute trust in the integrity of the Landlord/Concessionaire/ Liquor Licensee on an ongoing basis." Denning could not be reached for comment. After Denning's license application was denied, Damian Fox said he tried working with Sportech to find a separate operator to run the restaurant, but they never reached an agreement. Around the same time, Fox said Sportech indicated that it wanted to reduce its space and rent in the building. Sportech stopped paying rent in Decem- ber, and issued its lease termination notice in January following unsuccessful rent negotiations. The company was evicted March 11. n from page 1 Sportech, Willimantic landlord spar Connecticut Off-Track-Betting Industry Revenues 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total handle $255,047 $244,444 $233,492 $224,797 $205,399 $190,600 $183,455 $187,937 $181,667 $178,763 Difference -$10,603 -$10,952 -$8,695 -$19,398 -$14,799 -$7,145 $4,482 -$6,270 -$2,904 Change -4.2% -4.5% -3.7% -8.6% -7.2% -3.7% 2.4% -3.3% -1.6% 2010-2014 -6.2% s O u r C e : s T a T e d e P a r T m e n T O F C O n s u m e r P r O T e C T i O n Crews (left) take down Winners Willimantic's awning after the off-track-betting site closed in March. In the right photo, the empty former OTB parlor in Willimantic. P H O T O s | C O n T r i B u T e d

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