The then-leadership of the New York Racing Association missed numerous opportunities to realize too much money was being withheld from some wagers in 2010-2011, according to a the state inspector general.
Inspector General Catherine Leahy Scott found that over a 15-month period, NYRA improperly retained more than $7 million that should have been paid out to bettors.
Scott on Monday released the results of an investigation into the 2012 takeout scandal which faulted former CEO Charles Hayward and General Counsel Patrick Kehoe, among others. Both were fired by the NYRA board over the scandal in May 2012.
After the scandal, NYRA was able to identify bettors and repay only $611,604, the report found.
The results of the investigation were released just two days after NYRA had one of biggest days of the year, with the running of the Travers Stakes at Saratoga Race Course ending in a photo finish win by a long-shot V.E. Day.
Nearly $40 million was bet on Saratoga races on Saturday. NYRA oversees thoroughbred horse racing at the Saratoga, Belmont and Aqueduct race tracks.
“Patrons of New York’s gaming industry must feel secure and trust that those operating horse racing in our state are doing so competently and within the parameters of the law,” Scott said. “Unfortunately, what occurred undermined that trust because NYRA took earnings away from bettors that were rightfully theirs.”
The specific problem stemmed from the expiration of a temporary state law that allowed NYRA — which at the time was in deep financial trouble — to withhold extra money on exotic wagers.
From September 2008 until September 2010, NYRA was allowed a 26 percent takeout on those wagers, instead of the previous 25 percent. But NYRA kept charging the 26 percent takeout until December 2011, despite expiration of the legislation.
The investigation found that NYRA officials didn’t track the pending expiration of the higher takeout, and then did nothing when the issue was pointed out.
“The inspector general found that members of NYRA’s legal team — notably [Kehoe] and legislative counsel and lobbyist William Crowell — did not notate or calendar that the takeout legislation would expire,” the inspector general’s report said.
The state Racing and Wagering Board and NYRA’s financial officers and auditors should also have realized the error and didn’t, the report found.
In August 2011, Scott said an avid bettor noticed the discrepancy and contacted a member of the media, who emailed Hayward. Hayward said the bettor was correct but defended the higher takeout; he later told investigators he hadn’t read the email completely.
Hayward and Kehoe were stripped of their duties over the matter in May 2012, and NYRA — which has frequently been accused of mismanagement — is now operating under a state-supervised board, with almost all the board membership and senior management replaced.
Current NYRA board Chairman David J. Skorton, who was not involved with NYRA at the time, said NYRA “is a far different organization than it was two years ago.”
Christopher Kay was brought in as CEO in 2013. “The new CEO has recruited a new executive team, including a new general counsel, a new chief compliance officer and other key executives with no connection to these events cited by the inspector general,” Skorton said in a written response to the report.
He said reporting and accountability improvements recommended by the Inspector General’s Office have already been implemented.
Skorton said it is important to protect the reputation of horse racing in New York, which he said has a $2.1 billion annual economic impact and creates more than 17,400 jobs.