Trouble at the Ol' Racino

Was the Downs' Lucrative, 25-year Racino deal rigged?!

At the New Mexico State Fair, just a few hundred feet west of the Downs at Albuquerque racetrack and casino, sits a row of crumbling stables. On a June afternoon, the walkways are littered with dead pigeons—casualties of BB guns wielded by the horses' caretakers' young children, many of whom live onsite. In the bathrooms the caretakers share, layers upon layers of mildew rot the walls of the shower stalls to a color resembling human excrement.

Until this year, the Downs­—a gaming development company that manages the racino—was responsible for maintaining these barnyards, which it leased from the state. Despite the disrepair, in 2011, a state-appointed evaluator gave the Downs a perfect score for "management expertise" when reviewing the company's bid for a lucrative, 25-year lease extension. The Downs' bid won, and the new lease shifts management of the dilapidated barnyards to the state, leaving taxpayers with the burden of renovating and maintaining them.

Near the decaying barnyards, a brand-new VIP room—resembling an upscale Buffalo Wild Wings—stands in stark contrast. It's evidence of the $20 million the Downs must spend building a new casino under the new lease—as well as of the windfall the company reaped during the lease negotiations last fall.

Under the new lease, the Downs must pay the state nearly half a million dollars less than it did last year. But the deal gets sweeter. Over the next 25 years, Downs shareholders are projected to pull in at least $1 billion from gambling sales.

To critics, it's an outrage: A company notorious for mismanaging state property not only managed to land a 25-year lease extension, but also succeeded in sweetening the deal by paying less while shifting some of its responsibilities to taxpayers.

But it's not just the lease itself that has critics up in arms. Some say the process by which the new lease was approved was shoddy at best; at worst, some consider it blatant favoritism toward a company with longstanding political ties. Defenders of the lease maintain that it went through all the proper procurement channels, but the state auditor's office and attorney general are looking into it.

“It was a sweetheart deal to gambling interests,” state Sen. Cisco McSorley, D-Bernalillo, tells SFR. “[It illustrates] how the politicians corrupt the process to do the bidding of their donors.”

With a 25-year time frame—not to mention the potential to generate more than $1 billion—the racino lease was so attractive that, by the time the state approved the new lease last December, the Downs had spent more than a decade lobbying to extend it.

Long casino contracts yield large profits. In one instance, a group of investors—including Paul Blanchard, who is also a Downs shareholder—took in more than $150 million after using a state contract to build and resell a Hobbs racino.

Such contracts also provide opportunities for political favors. The Hobbs contract came thanks to former Gov. Bill Richardson, who appointed Blanchard to the state Board of Finance after Blanchard headed his 2002 transition team. Blanchard and his wife Kandace donated $25,000 to Richardson shortly before the Hobbs contract; the Downs gave him a whopping $100,500.

Blanchard had also been involved with the Downs since its early days of managing the Albuquerque racino. With a lease expiration date looming in 2004, the Downs made several attempts to extend it; ultimately, though, Richardson came to the company's aid.

In 2002, the State Fair Commission, a governor-appointed volunteer board tasked with helping manage the fair, issued a 90-day request for proposals, or RFP, for a 25-year lease of the state fair and racino grounds the Downs managed. But the RFP would have made the lease available to potential Downs competitors, and Richardson scrapped it shortly after becoming governor, despite interest from eight developers across the country, according to former State Fair Chairman Tom Tinnin.

Instead, Richardson rechristened the state fair Expo New Mexico and appointed a whole new commission, which quickly acted to extend the Downs lease through 2010.

Even then, Richardson wasn't finished. At the end of his second term, he proposed extending the Downs' lease for up to 40 years—but state lawmakers voted down that proposal. Many wanted the more competitive process of an RFP, says state Sen. Tim Keller, D-Bernalillo, whose district encompasses part of the state fairgrounds.

Instead, the state Legislature gave the Downs two one-year lease extensions, increasing the Downs' rent by 10 percent each time and effectively postponing the question of a longer-term lease until 2012, when the extensions expired. Keller says the extra payments were intended to help the struggling state fair, which had operational losses of $17 million between fiscal years 2006 and 2010.

But there were also indicators that the Downs might not deserve another lease.

In an extensive report released last year, the Legislative Finance Committee concluded that the state fair was in "crisis management mode" and operationally insolvent, able to account for just 39 cents for every dollar of its total liabilities.

While declining attendance prompted by the recession played a role in the fair's financial difficulties, so did the Downs' inability to pay the state what it owed. According to the LFC report, the Downs owed the fair $240,000 from horse-racing revenues and was failing to meet its yearly obligation of providing $420,000 for promotional events, among other problems.

Documents also show that the Downs couldn't pay for simpler purchases. Emails from Luis Wu of Phoenix-based fertilizer producer Tessenderlo Kerley, Inc. show that the Downs was at least five months late on a $4,800 payment. In February 2011, Wu threatened to call a collections agency.

One month later, he wrote another email after hearing nothing back.

"What is happening?" Wu wrote. "Am I supposed to turn this in to a collection agency?"

Downs Controller Ann Pelletier, noting that she was new to the company, wrote back apologetically: "I do not know who you represent—would you refresh my memory?"

The fair is also notorious for its lack of accountability. While it draws in an estimated $3.5 million each year, the LFC report found that it has "no segregation of duties between the custody of the cash and record-keeping of the cash received."

"That's very dangerous," Keller says. "They can affect the entire state's bond rating."

Although the governor's office appoints commissioners to help manage the fair, the commission has little to no autonomy.

"Think of a board of directors of a company that isn't in charge of the CEO," Keller says. "That's worthless."

In August 2011, Gov. Susana Martinez appointed Charlotte Rode, a reform-minded Republican and mother of seven, to the State Fair Commission. For years, critics had lamented the lack of local representation on the commission; Rode came from the area and was familiar with the lack of management and oversight that plagued the fair and the Downs' adjacent racino.

“I Pray to God that You Reconsider Doing This”

On Oct. 20, the LFC presented its scathing report of the State Fair’s financing and management in a heated hearing at the Roundhouse. Key recommendations included adding oversight to the Fair from other state agencies, hiring a qualified chief financial officer and clarifying what exactly the commission’s role is, which Mourning himself didn’t know.

“What is the role of the State Fair Commission in contracts and approval?” state Sen. Tim Keller, D-Bernalillo, asked him at the hearing. “Do they have a voice or a say?”

Mourning responded: “There hasn’t been a full commission appointed until actually right before the fair. So the roles of the commission versus the staff—I believe we are in a team effort on that. I don’t have a clear answer for that at this time.”

The report warned that “a lack of strategic planning has led to a rushed request for proposals for a renewed racing lease.” Several lawmakers, including Keller, state Sen. Cisco McSorley, D-Bernalillo, and state Rep. Dennis Kintigh, R-Chaves, raised concerns about awarding the Downs another lease.

“They’re not even in compliance with the current contract,” Kintigh said of the Downs. “Why is the fair even considering them at all?” McSorley, a vocal gaming opponent, had a more dramatic tone.

“I pray to God that you reconsider doing this,” he told Mourning.

Before becoming a commissioner, Rode—a polished brunette in her mid-40s—worked as a legislative assistant for state Sen. Mark Boitano, R-Bernalillo, who recommended her for the commissioner job. Boitano describes her as a "straight shooter and political novice."

"She doesn't look at things through the lens of, 'Who do you know?'" he tells SFR. "She's very independent and has a mind of her own. She's not afraid to step on people's toes."

Coming in, Rode knew the racino lease would dominate the commission's business. "We got right into the whole RFP issue in my first meeting," she tells SFR.

In fact, the past year had been a full-court press to get to that moment.

Donations from the Downs' major shareholders
during and after the 2010 election cycle illustrate that point. Between June 2010 and January 2011, players tied to the Downs donated $75,000 to Martinez' gubernatorial campaign; they gave $10,000 to her political action committee the following summer. They also gave at least $50,000 to Martinez' unsuccessful Democratic gubernatorial opponent, Democrat (and former Richardson Lt. Gov.) Diane Denish.

In February 2011, the Downs made another savvy political move: hiring Modrall Sperling Law Firm to help conduct its bid for a new lease. One of the lawyers in charge of the process would be Pat Rogers, a high-profile Republican attorney who had developed deep, behind-the-scenes relationships with high-ranking staffers in the governor's office [news, July 17: "A Higher Power"].

But the Downs still faced significant challenges. To nearby residents and others, the Downs' history of neglectful management was common knowledge.

"It is no secret that horsemen have had a contentious relationship with current management," Jack McGrail, executive director of the New Mexico Horsemen's Association, wrote to Expo General Manager Dan Mourning, who handles the day-to-day operations of the state fair and racino grounds. "Our livelihood depends upon revenue generated from the casino and on track handle. There has been little effort to maximize either revenue stream."

In June 2011, it appeared Expo New Mexico had again kicked the can down the road when Mourning approved another short extension of the Downs lease, through January 2013. That same month, Martinez stated that she would

during the fall 2011 special session.

Keller says he agreed with that idea because it would have given Expo ample time to prepare for a "proper RFP"—ie one that could include the city of Albuquerque and Bernalillo County in the negotiations and advertise in nationwide trade journals in order to elicit as many bids as possible.

But one month later, on July 24, Mourning quietly released an RFP for a 25-year lease extension on the racino. Expo did little to promote the bid, limiting advertising to its website and in the Sunday Albuquerque Journal.

"They didn't advertise it in any trade journals. They didn't send out any notices. They didn't hold a press conference," Rode says.

Expo spokesman Michael Henningsen writes in emails to SFR that the RFP was "duly picked up in several racing publications," but that he couldn't recall any specific ones because "frankly I wasn't paying attention."

To Rode and others, it felt like a rush job.

Interested companies only had 30 days to respond—a much shorter time frame than the 90 days initially allowed in the scrapped 2002 bid. The state General Services Department recommends a minimum of 30 days for RFPs, noting that most are longer. But Expo maintains that the time frame was adequate.

"Obviously, 30 days was enough, because we did get two bidders," Henningsen tells SFR.

One was the Downs. The other was Albuquerque-based Laguna Development Corporation.

Still, the short time period may have put smaller developers, who would have needed at least a month to secure the needed cash, at a disadvantage. Greg Leyendecker, president of New Mexico Bank and Trust, says it would take at least 60-90 days for his company to underwrite a $30 million loan—the amount Laguna said it would need to make the improvements required under the new lease.

"By the time we get all the information together and do the analytical work on it, it's just a long process," Leyendecker tells SFR.

While the Downs crafted its proposal, Tinnin was putting together a short list for an independent RFP evaluation team, at Mourning's request.

A staunch Republican, Tinnin is the longest-serving chairman in State Fair Commission history, serving from 1997-2002. But he's also outspoken and familiar with the Downs' history of missed payments and poor management. He wouldn't forget it when evaluating the company's bid.

"I think it was clear [that] when my name came up on this committee, it sent shivers down people's spines," Tinnin tells SFR.

On Aug. 12, he emailed Mourning a list of five names, including his own. Less than two weeks later, Tinnin read in the newspaper about a completely different evaluation committee. Furious, he called Mourning for an explanation. According to Tinnin, Mourning said he had been too busy to tell him the news.

Martinez spokesman Scott Darnell says Tinnin would have had a conflict of interest as an evaluator because of his Board of Finance membership and his previous involvement in litigation with the Downs. (That litigation was, in fact, a lawsuit the state brought against the Downs for being $1 million behind in its payments.)

To Tinnin, it wasn't about being on the committee or not—it's the way it happened.

"I don't give a shit about your goddamn committee," Tinnin says he told Mourning. "At least have the common courtesy to call me."

Instead, Mourning picked Charles "Chuck" Gara to head the RFP evaluation team, despite Gara's lack of experience in gaming. (State Department of Finance and Administration spokesman Tim Korte says Gara's long career in real estate and property control got him the nod.)

On Sept. 28, one month after the RFP formally closed, Gara submitted his personal review of the Downs, giving it 825 of a possible 1,000 points. One of the categories Gara evaluated was "management expertise," for which he gave the Downs 300 out of a possible 300 points, despite the crumbling barnyards, leakage problems and a malfunctioning heat, air and ventilation system.

"If you did any due diligence, you would find out that they're awful managers," Rode says.

Gara wouldn't comment on his evaluation score. Korte says that by law, the state doesn't make individual RFP evaluation sheets public, adding that Gara's were "erroneously released." The union-funded Independent Source PAC released them last winter. Its executive director, Michael Corwin—a private investigator who once did opposition work for Richardson—has been a leading critic of both Martinez and the Downs deal.

Under its new lease, the Downs pays $2 million in rent for the first two years and $2.75 million per year thereafter plus an extra $1 million if gaming revenue exceeds $50 million; Laguna would have paid $2 million the first year, $2.5 million the second year and $3 million per year thereafter.

On the overall evaluations, the Downs scored 15 points higher than Laguna, securing the committee's recommendation for the new lease. But Rode says that, despite her membership on the State Fair Commission—which was charged with actually awarding the lease—she didn't get to see a breakdown of the committee's evaluation.

"I wanted to see how each one of the members scored each one of the subjects," Rode says. "They wouldn't let me. They just showed me the compilation of the scorings."

Henningsen says that the commission isn't charged with evaluating proposals—merely with deciding whether the lease is a good deal.

"With all due respect, Commissioner Rode is confused about what her role as a Commissioner is, and that is a big part of the problem," Henningsen writes in an email to SFR.

But an email dated Sept. 22 from Assistant Attorney General Lesley Lowe to Martinez Deputy Chief of Staff Ryan Cangiolosi suggests otherwise.

"[Mourning] will be sending the RFP and both complete proposals to all seven Commissioners to study and review to prepare themselves to vote on a final lease proposal," she wrote.

Darnell adds that all commissioners had a chance to see both RFP responses, but that Rode chose not to. Rode, for her part, says she wasn't given that opportunity until after Nov. 9, the date the commission was scheduled to vote on the lease.

To Henningsen, any talk of a fixed deal is nothing more than a manufactured controversy "created by the Charlotte Rodes and the Michael Corwins."

This summer, Corwin also released private emails that appeared to show Rogers discussing commissioner vote strategies with Cangiolosi [news, July 4: "Leaked"].

Strange Bedfellows

“Some of these people are very strange bedfellows,” Tom Tinnin says of the players involved in the Downs deal. They include:

• Paul Blanchard is a prominent Democrat and big-time donor to former Gov. Bill Richardson. When the Board of Finance approved the deal, Blanchard was required to put his shares into escrow because he was called as a possible witness to a federal grand jury involving Richardson.

Downs majority owners William Windham and John Turner are prominent casino developers and Republicans based in Louisiana who contributed both to Gov. Susana Martinez and to Diane Denish, her Democratic opponent in the 2010 gubernatorial race.

Martinez appointed Charles “Chuck” Gara to head the RFP evaluation. Earler in 2011, she hired him as a division manager at the state General Services Department. In 2008, Gara donated $1,500 to then-congressional candidate Darren White.

• Darren White, current general manager of the Downs, was first hired as a security consultant to prepare the Downs’ response to the RFP. White was a familiar face in Albuquerque: Just one month before the Downs hired him, he stepped down as Albuquerque’s chief public safety officer while facing scrutiny for personally driving his wife to the hospital after she crashed her car into a curb. 

• Pat Rogers, the Downs’ attorney, exchanged several private messages about the deal with governor’s office staffers and Expo New Mexico General Manager Dan Mourning.

• Jay McCleskey managed both Martinez’ and White’s campaigns and heads Susana PAC, the governor’s political action committee. He has closely communicated with Rogers, including about the Downs deal.

Henningsen concedes that private emails between Downs players and the governor's staffers "probably doesn't help their cause."

"But the process is set up so things can't sully it," he adds. "State procurement code was followed to the letter."

 While he says he respects Rode's opinion, Henningsen says her protests stem from an anti-gaming ideology (though Rode says she supports gaming) and a misunderstanding of the process.

But Boitano, while admitting he's not intimately familiar with the Downs deal, argues that part of a public official's job is to ask hard questions.

"I'm a fan of what she's doing, and a lot of people I talk to say the same thing," he says.

On Oct. 25—two weeks before the State Fair Commission was scheduled to vote on the Downs lease—Downs attorney Pat Rogers was already emailing Mourning about the next step: getting the lease approved by the State Board of Finance.

"Peter Franklin is ready to assemble and hand-deliver," Rogers wrote (Franklin is another Modrall attorney).
The letter read that the lease was "executed by the State Fair Commission."

But the commission's approval wasn't guaranteed—and even if it did approve the lease, it wouldn't do so until its next meeting, on Nov. 9.

Traci Wolf, another lawyer who assisted the Downs, made a point of the discrepancy in an email to Rogers and Franklin that day.

"I am worried that language stating that it has already been awarded may cause some problems," she wrote.
Rode agrees.

"They're asking for approval, and we haven't even voted on it," Rode says. "They thought it was a done deal."(Later that day, Rogers wrote to Mourning and fellow attorney Mark Shoesmith that "we do not want anyone to see it as presumtious [sic].")

Mourning, who wrote the letter, did it “with the sincere hope that [the commission] would vote to adopt the new lease,” Henningsen says.

"It doesn't seem unreasonable to look ahead to the next step in a multi-step process," Darnell adds.

When the Nov. 9 meeting finally came, the Downs apparently didn't have the needed votes to get the lease approved. Commissioners Kenneth "Buster" Goff and Kenneth "Twister" Smith both voiced concerns. Rode says Mourning huddled with two other commissioners and "maneuvered so that they could postpone the vote."

They scheduled a "workshop meeting" for Nov. 21 and a second meeting for Dec. 1, presumably for the final vote. Rode says the workshop meeting would enable them to review the two lease proposals. But a problem remained: The Downs lease approval was still on the agenda for the Board of Finance's Nov. 15 meeting.

"I need Dan Mourning to send me a simple email withdrawing the request," BOF Director Stephanie Clarke wrote to Franklin.

Mourning did so later that day.

The commission finally approved the Downs lease on Nov. 21, in a surprise vote that incensed critics.
"We were not aware that we were going to vote," Rode says.

More than a week before, Downs attorneys had met privately with Goff who, at the Nov. 9 meeting, had publicly stated that he couldn't support the Downs lease in its current form.

The next day, Shoesmith emailed Goff, saying he looked forward to learning which aspects of the lease Goff wanted addressed.

At the Nov. 21 meeting
, Rogers noted that a change in the lease's definition of certain racing licenses "was made in response to Commissioner Goff's concern." Kennedy then made an unexpected move and put the lease to a final vote. It passed 4-3, with Goff as the swing vote.

The next step to make the lease a reality was approval from the Board of Finance, of which Tinnin had been a member. But after raising concerns about the way the State Fair was handling the deal, he met with Martinez on Nov. 19.

"She made it clear to me [that if I spoke during] an open meeting in a way that would disparage her people, she would take it personally," Tinnin says. "I told her, 'Let's agree to disagree.'"

He resigned later that day, thus removing himself as one of the Downs' final obstacles.

On Dec. 21, the Board of Finance awarded the new lease to the Downs, with blessings from Martinez as well as two prominent Democrats: state House Speaker Ben Luján, D-Santa Fe, and state Rep. Antonio "Moe" Maestas, D-Bernalillo.

But since then, details of a fast-tracked deal have emerged. In June, Rode submitted a formal complaint to State Auditor Hector Balderas, who says he's planning to deliver a response soon. Earlier this month, state Attorney General's Office Special Agent Stan Gloria informed the State Fair Commission that the AG's office was "conducting an inquiry" into the RFP process and requested interviews with six commissioners. Rode also says she's met with the FBI, which wouldn't confirm or deny an investigation.

Questions remain about the commission's role in the lease process, and Rode and Expo New Mexico embody two competing visions.

"[Commissioners] are supposed to move the Governor's agenda forward," Henningsen writes in an email, "and if they disagree with the Governor's agenda, then, quite frankly, they should do the right, respectable thing and resign their post(s)."

Rode has a different view.

"What I'm after is good government," she says, "and being able to have the balance of powers and people having a voice. We have to have certain things so we can have oversight, and there's just none of that with the state fair."

But reform efforts are underway. Keller plans to carry a bill next session that would add oversight to Expo and make the commission more independent. (He introduced a similar bill this year, but it failed to reach the floor.)
Action by either the AG or the state auditor could turn the process around and start an RFP anew. Martinez could also act to issue a new RFP.

But Darnell notes that the lease never had to be competitively bid and that it was heavily negotiated with the state before its approval. Henningsen maintains the deal is good for taxpayers, who get more rent money from the Downs for less land, and emphasizes that the barnyards area the state got back is "prime real estate" that can now be leased out separately.

He adds that Expo isn't worried about the probes. He ends that thought by saying something that, given the history of state politics in New Mexico, is up to interpretation: "Once this all plays out, it's going to occur to everybody that it is what it is."

Read Mourning's letter to the Board of Finance here:

Letters to the Editor

Mail letters to PO Box 4910 Santa Fe, NM 87502 or email them to editor[at] Letters (no more than 200 words) should refer to specific articles in the Reporter. Letters will be edited for space and clarity.

We also welcome you to follow SFR on social media (on Facebook, Instagram and Twitter) and comment there. You can also email specific staff members from our contact page.