UPDATE 2-NY state must pick new Aqueduct slot vendor-Gov

(Adds byline, bidders’ comments)

NEW YORK, March 11 (Reuters) - New York should choose a new slot machine vendor for Aqueduct Racetrack in a quick and “apolitical” manner now the Lottery Division has rejected the winning bidder, Governor David Paterson said Thursday.

His comments come amid a state and federal probe of whether Paterson selected Aqueduct Entertainment Group for the lucrative contract to assist a political ally, the Rev. Floyd Flake who is a former Congressman.

“The Executive Branch advocates that the selection of the Aqueduct VLT (video lottery terminal) franchisee be done pursuant to an expedited, transparent, apolitical and publicly accountable procurement process,” the Democratic governor said in a statement.

The governor has said the state could not count on the $300 million Aqueduct Entertainment Group was scheduled to pay on March 31.

The company said in a statement the state had acted in an “arbitrary and capricious” manner in canceling its bid. A spokesman declined to say if it would sue.

“In the event that Aqueduct Entertainment Group is not given an opportunity to address the issues raised by the Lottery, and the decision to reverse the prior selection of Aqueduct Entertainment Group as the successful bidder is not reconsidered, Aqueduct Entertainment Group intends to pursue all available remedies,” the company’s statement said.

Both the Senate President and the Assembly Speaker, two Democrats, approved the choice of Aqueduct Entertainment Group, though the speaker set several conditions.

One requirement was that the investors get licenses from the lottery, and no one convicted of a felony or fraud within the past 15 years was eligible. This standard, slightly tougher than the usual one, prompted a minor stakeholder to drop out.

Later, Flake, whose stake was less than 1 percent, also walked away from the deal, saying on Tuesday: “Unfortunately, my ongoing participation in Aqueduct Entertainment has become a distraction that has taken me and my attention away from the community projects I created and nurtured.”

Jay Z, the rapper who held about a 2 percent stake, also withdrew.

New York has been seeking for about a decade to boost gaming revenue by adding slot machines to the horsetrack located in the New York City Borough of Queens.

The list of previous companies that bid for the contract includes SL Green Realty Corp SLG.N with Seminole Hard Rock Casinos, MGM MGM.N, Harrah's Entertainment HAMLEH.UL, Pennsylvania National, Wynn Resorts Ltd WYNN.O, Delaware North, The Peebles Corporation, and the Mohegan Tribal Gaming Authority and the Victoria Racing Club, which were working with New York-based Capital Play.

SL Green in a statement reaffirmed its interest in winning the deal and said the state now should select one of the proposals that have already been reviewed. “All parties would be best served by the immediate appointment of either Lottery or an independent apolitical committee to review these proposals,” the company added.