Scott financially able to run racino State expert testifies at license hearing

AUGUSTA – The expert the state engaged as part of its harness racing license suitability probe acknowledged Wednesday that Bangor racino developer Shawn Scott has the financial ability to operate Bangor Raceway.

During the second day of testimony in the Maine Harness Racing Commission’s licensing hearings at the Augusta Civic Center, Christian Smith of the accounting firm MacDonald, Page, Schatz, Fletcher and Associates set Scott’s net worth at between $48 million and $64 million, the lower dollar value reflecting a potential tax liability.

As Martin Gersten, Scott’s Connecticut-based attorney, saw it, Scott’s net worth was more than adequate to cover the Bangor track’s annual operating losses, which Smith estimated averaged $50,000 to $60,000 in most recent years. Smith was the second of the two witnesses called to testify on the state’s behalf. The first was racing commission Executive Director Henry Jackson, who testified Tuesday and early Wednesday.

Scott plans to develop a racetrack casino, also known as a racino, at the city’s historic half-mile dirt oval. His contract with the city calls for an entertainment complex that will combine harness racing with year-round entertainment featuring up to 1,500 slot machines, among other things.

Scott already has mounted a successful statewide campaign in which voters granted approval on Nov. 4 for slots at Bangor Raceway and Scarborough Downs, Maine’s two commercial harness racing tracks. He also won local approval for slots at Bass Park in June. Renovations are under way at the Bangor track’s grandstand, which is being converted into a slots parlor that would accommodate the first 250 slot machines Capital Seven plans to install.

With a development agreement with the city in hand, Scott’s only apparent remaining hurdle is a state license.

Smith’s observation about Scott’s financial health followed earlier testimony in which he outlined the findings of his review of financial documents related to Scott, nearly 40 of his companies and Bangor Historic Track Inc. BHT is the company that operates the city-owned racetrack. Scott began acquiring stock in BHT a year ago and now controls it.

Based on the review, Smith said he concluded BHT was “insolvent” because of several years worth of annual losses in the $50,000 to $60,000 range. Shareholders in BHT historically covered the losses through loans to BHT, he said. He estimated that as things stand, BHT would need subsidies of $100,000 a year to stay afloat. He said, however, that to his knowledge, Scott had no unpaid bills.

Given Scott’s worth, Gersten asked, “Would it be your opinion today that Mr. Scott has the financial wherewithal to operate Bangor Historic Track Incorporated?”

Smith said that it would.

During testimony Wednesday, Smith said he determined that Scott financed his acquisition of BHT stock through intercompany loans. The needed capital apparently came from his sale two years ago of Delta Downs, the Louisiana racetrack Scott reportedly acquired for $10 million and sold for $130 million to industry heavyweight Boyd Gaming after waging a successful campaign to obtain voter approval for slot machines. Delta Downs now is a racino, similar to the one Scott is working to develop in Bangor.

During a period in which BHT had no apparent cash flow, nearly $60,000 in bonuses and management and finder’s fees was distributed to various individuals – including $15,000 in fees to David Nealley, the Bangor city councilor Scott tapped to serve as executive vice president of Capital Seven LLC, the development firm Scott established to carry out his Bangor project.

“This is a company that’s in pretty serious financial condition,” Smith observed. Though the payouts were purportedly authorized by BHT’s board, there were no meeting minutes to support that claim, Smith said.

Gersten, however, later argued that transactions among companies wholly owned by Scott were a “washout” after all was said and done.

While Scott owns more than 130 companies, the vast majority of which are limited liability corporations, the investigation conducted by staff from the state Attorney General’s Office pared the list to the 38 companies Scott said were directly or indirectly related to his Bangor project.

Smith used a “spider” diagram to show the tangled web of Scott-owned companies, some of which he observed had no bank accounts and were financed through loans and payments from other Scott-owned entities. Among the areas of concern Smith identified in regard to the 38 companies were unrecorded loans, transactions that contained inaccurate information or weren’t recorded in a timely fashion and an $8 million cash transfer authorized by one of Scott’s associates that Scott was unable to provide details about.

Smith also noted that Scott and his associates failed twice to provide requested documents and data by the deadline set by the state.

Smith added he was troubled by documents and transcripts showing Scott was unable to answer questions about how one of his companies was funded or the basis for its financing of management fees.

Of particular concern were more than $9 million in interest-free and unsecured loans. “These are items of significant note that need to be explained,” Smith said. He said these issues spoke to Scott’s financial responsibility, which along with good moral character are the two key criteria for obtaining a harness racing license from the state of Maine.

Scott’s legal team and the state disagree on exactly what “financial responsibility” means.

Smith and Jackson agreed it had less to do with the amount of money one had but rather whether there were adequate resources, and how funds and liabilities were managed.

Gersten, however, argued that financial responsibility simply meant “the ability to pay your bills when they are due.”

Also Wednesday, Scott’s supporters pointed out that Jackson admitted he did not seek information for his report that would have been favorable to Scott, such as contributions to local causes. Such information, they said, was relevant to his good moral character.

Scott’s company contributed at least $1,000 toward a holiday performance by the Bangor Band. It also helped sponsor this spring’s Bangor Garden Show.

“That underscores our assertion that his suitability report is biased and filled with half truths,” said Scott’s spokeswoman, Christen Graham.

The commission will reconvene at 9 this morning at the Augusta Civic Center.