One of Suffolk Downs’s largest stakeholders, Vornado Realty Trust, is divesting its 19.9 percent share in the track because its executives are unwilling to submit to the invasive background checks required of all casino license applicants.
The state gambling commission will allow Suffolk Downs to continue its pursuit of casino development rights while Vornado attempts to sell its share of the venture. Suffolk Downs insisted that Vornado’s exit from the project will have no impact on the track’s pursuit of the sole Greater Boston casino license.
On the day the track lost a prominent investor, Suffolk Down’s most powerful political backer, Mayor Thomas M. Menino, announced he would not run for reelection, a possible second blow to the longtime frontrunner for casino development rights in Greater Boston.
The point of intrusive background checks is to ensure that casino licenses go to financially stable applicants of good character, and lingering questions about who will own the business can undermine a bid, said Roger Gros, a gambling industry specialist and the publisher of Global Gaming Business.
“There’s going to be a lot of questions about the ownership status, and if they’re not cleared up by the time the bidding is finalized, this could be a serious problem for them,” Gros said.
The gambling commission approved a transfer of Vornado’s shares Thursday to a blind trust over which the company will have no control. That is an interim step that will allow the track’s casino application to move forward while Vornado works to sells its interest “as soon as possible,” said Catherine Blue, the gambling commission’s general counsel.
Suffolk Downs and partner Caesars Entertainment propose a $1 billion casino development at the East Boston racetrack. They are competing for a license with Las Vegas developer Steve Wynn, who wants to build on the Mystic River waterfront in Everett, and Foxwoods Resort Casino, which has joined a gambling resort proposal in Milford.
The commission is expected to award the license by early 2014.
Executives and key personnel associated with all casino applicants in Massachusetts must disclose personal, financial, and tax information to commission investigators as part of the background check.
The checks are intentionally intrusive, to weed out applicants with shaky balance sheets or with people of questionable character in key positions.
The gambling commission identified 14 key people at Vornado who needed to submit to the background check. One was allowed to withdraw and two filed the necessary disclosure forms.
But 11 Vornado representatives refused to file required disclosure forms, according to a memo from Blue, the commission’s general counsel.
Refusing to comply would have jeopardized the Suffolk Downs casino application. The stalemate led to intensive behind-the-scenes negotiations with the commission to develop a compromise that allows Suffolk Downs to stay in the hunt for a license. The commission agreed to allow Vornado to transfer its shares to a trustee, who will submit to the background check. The trustee will be Stephen Kidder, managing partner of law firm Hemenway & Barnes.
The commission’s ongoing background checks should remain on schedule, Blue said.
Suffolk Downs declined to comment on whether any of the other partners in the venture would buy Vornado’s shares.
The partnership includes horse and racing enthusiast Richard Fields, a casino developer and former Donald Trump associate; Joseph O’Donnell, founder of Boston Culinary Group; Caesars Entertainment, the gambling company that will operate the resort if the track wins a casino license; and several other partners with small shares, according to a list supplied by the gambling commission, which also oversees racing.
Vornado acquired a stake in Suffolk Downs in 2005, according to the track officials. The City of Boston has in the past threatened to leverage the track’s pursuit of a casino license to force Vornado to complete a stalled development project in Downtown Crossing.
A new developer, Millennium Partners, took over the Downtown Crossing project in 2012. Spokesmen for Vornado and Millennium could not be reached Thursday.
Suffolk Downs downplayed the exit of Vornado, noting that the gambling commission expects to keep its background checks on schedule.
“We are confident in our ability to design, finance, develop, and operate a world-class Caesars Resort at Suffolk Downs that will be an economic engine for the creation of jobs and tourism in our Commonwealth,” Suffolk Downs chief operating officer Chip Tuttle said in a statement.
Clyde Barrow, a casino specialist at the University of Massachusetts Dartmouth, said Vornado is much more comfortable with real estate development than a casino.
“I think [Vornado] originally got into this with the idea that the racetrack would eventually close, and they would be able to develop that property,” said Barrow. “I’m sure they’ve never been involved in the kind of background checks being required by the Gaming Commission. Have you seen those forms? They want to know everything about you, your family, your friends, kids, your associates, business partners. I suspect there are a lot of people associated with the company who are just saying, ‘Let’s get our money and get out of here.’ ”
John Ribeiro, a vocal opponent of a Suffolk Downs casino, questioned how the track could still be in the running for a license if its license application is incomplete more than two months after the January application deadline.
Elaine Driscoll, spokeswoman for the commission, said discussions continue with various applicants over who must file disclosure forms, as developers add local partners and fine-tune their proposals.