NYRA outlook shaken by past indiscretions
NEW YORK STATE Long odds are on the board for handicappers predicting the future of the New York Racing Association.
NYRA’s fate is as murky as it was four years ago, when the company was deep in debt, entangled in legal battles and facing steep competition for its control of thoroughbred racing in New York state. Back then, NYRA surprisingly emerged with a 25-year deal to run racing at state-owned tracks at Aqueduct, Belmont and Saratoga. That franchise agreement will now undergo a very premature review, following a string of complaints by the state about NYRA’s recent stewardship.
“The conflict between NYRA and [Gov. Andrew Cuomo’s] administration has escalated,” said Saratoga County Chamber of Commerce President Todd Shimkus about the strained relationship’s latest chapter.
Three weeks ago, the state Racing and Wagering Board released an interim report alleging misconduct by company officials, stemming from an incorrect takeout percentage on winning exotic bets. The report said that beginning Sept. 15, 2010, NYRA failed to lower the amount withheld from winning bets from 26 percent to 25 percent, as required by state law. That error, which was in place for 15 months, illegally denied bettors $8.5 million in winnings. So far, less than 10 percent of that has been returned to bettors.
The report implicated NYRA President and CEO Charles Hayward, saying he appeared to know of the problem and did nothing to fix it. The NYRA board of directors subsequently suspended and then fired Hayward and another top official. Hayward has maintained he will eventually be exonerated.
Since the interim report, Cuomo and state racing agencies have been highly critical of NYRA’s actions, which are now being investigated by the Racing and Wagering Board and the state Inspector General’s Office. The state delivered its most severe blow on Tuesday, when it promised to reassess whether NYRA deserved its franchise and began withholding money generated by video lottery terminals at Aqueduct. That money is essential for NYRA’s operations.
Bob Bellafiore, a former Republican spokesman, said the long-term goals of the state are hard to predict based on recent actions.
“It’s clear that [Cuomo is] dissatisfied with NYRA’s performance and has targeted NYRA for reform,” he said. “Others have pointed out the need for changes at NYRA, but Cuomo clearly is being more aggressive about forcing change.”
This latest approach differs starkly from the administration’s previous actions, when Cuomo stressed the need for collecting all the facts and only advocated for legislation to restructure NYRA’s operations. The state Division of Budget previously refused to speculate about revoking NYRA’s franchise because it was “far too hypothetical.”
Now, after the state initiated the process to revoke the franchise by promising a review of the agreement, the Division of Budget acknowledges there has been a “tonal” shift in its attitude toward NYRA.
A spokesman from NYRA declined to comment for this story.
Gary Greenberg, a minority owner of Vernon Downs — a racino located between Utica and Syracuse — who is familiar with statewide gambling issues, called the state’s response to the NYRA problems “fair and appropriate.” He said it shows that Cuomo appreciates the importance of racing in the state and is only acting to preserve the industry.
“The state’s attempt to rectify what has taken place may cause short-term pain, but in the long run the state response will provide positive benefits to the public,” Greenberg said.
He anticipated that the Cuomo administration will push to create a more open and responsive NYRA management structure that would include a majority of government-selected members on the company’s board of directors. He said the changes could include a specific role for the new Gaming Commission, which begins operating in October.
“Look for real reform to happen,” Greenberg predicted, adding that the state has a vested interest in resolving the conflicts quickly so public support for live–table casino gambling won’t begin to wane before a voter referendum on the issue, likely in 2013.
Impact on sport
The withholding of almost $4 million a month in VLT revenue could present immediate problems for NYRA.
Jeff Perlee, a gaming consultant who led an effort from 2006 to 2008 to take over the three tracks, said NYRA is “desperately dependent” on this source of money. He characterized the troubled company as a “ward of the state” based on its repeated reliance on loans, advances and the forgiving of debts by the state.
“The Cuomo administration is both willing and able to finally hold NYRA accountable for their misdeeds and their breach of the public trust,” Perlee said.
NYRA was anticipating $93 million this year in VLT revenue, with $20.6 million going toward its operating budget and $27.5 million for capital expenditures. The money was expected to give NYRA its first profit in recent years.
“The revenue stream is vitally important,” Perlee said.
Despite assurances by state officials that these actions won’t impact thoroughbred racing in the state in the short term, local legislators are worried about the July 20 start of the Saratoga meet.
“The quicker the governor and the state Legislature can restore confidence in the integrity of the franchise the better, as the all-important Saratoga meet is just two months away,” said Assemblyman James Tedisco, R-Glenville.
“If need be, we will remove NYRA, but let’s not jeopardize horse racing to make a point,” he said. “Let’s remove the tumor, if necessary, but let’s not kill the patient in the process.”
This sentiment was echoed in public statements by state Sen. Roy McDonald, R-Saratoga, who urged state and NYRA officials “to cool off” for the sake of the Saratoga meet and its economic ramifications for all of upstate New York. The industry and the meet, he said, “[are] more important, in the long run, than who runs what and who pays for what particular problem that has been caused.”
Next for racing
Despite the report and the upcoming review of NYRA by the Racing and Wagering Board, most observers don’t think NYRA will lose its franchise. The revocation process, which starts with a hearing by the Racing and Wagering Board and can be appealed in state Supreme Court, is a complicated process that could get tangled up in legal limbo for years.
This headache is one of the reasons Jack Knowlton, co-owner of Sackatoga Stable, thinks Cuomo isn’t “keen on trying to find someone to run the franchise.” Sackatoga Stable trains and manages thoroughbreds, including 2003 Kentucky Derby and Preakness winner Funny Cide.
Knowlton said NYRA hasn’t been helping itself lately, “pouring gasoline on the fire” with recent actions and moving things from “bad to worse.”
“Clearly [Cuomo] is dissatisfied and there is a long history of the state being dissatisfied with NYRA. In a sense, it’s kind of the same-old same-old,” Knowlton said.
The likely path, according to people familiar with NYRA’s decades of operation, is a restructuring of the company’s operation through legislation. Such a plan probably wouldn’t be finished until the end of the legislative session on June 21, as state Sen. John Bonacic, chairman of the Senate’s Racing Committee, said nothing had come together yet.
Bonacic predicted legislation would include a fundamental overhaul of the NYRA’s board of directors.
“You aren’t talking about firing everyone at NYRA,” he said, “just ensuring that the management strikes the right ethical and legal tone.”
Bonacic floated Capital Off-Track Betting Corp.’s management team as possible replacements to fill in at the top of NYRA.
Thoroughbred trainer Gary Contessa, who was part of an effort to replace NYRA from 2006 to 2008, spoke up for the company’s management personnel, arguing that its ranks are filled with good people. “From [NYRA board Chairman] Steve Duncker ... all the way down the line, NYRA is made up of people who love racing,” he said.
Any shuffle at NYRA could also include replacing newly minted President Ellen McClain, who was promoted internally in a move that drew the ire of state officials. In part, they were concerned that she hadn’t yet been cleared from the taint of the ongoing takeout furor.
Echoing sentiments in the racing industry, Bonacic noted that McClain is relatively unknown and there isn’t a lot of evidence indicating she is the right person for the job. “I would prefer someone from the outside,” he said.
Former Assemblyman Richard Brodsky, who has been involved in the state’s relationship with NYRA, noted that changing the personalities in the company won’t necessarily be a long-term solution. Because NYRA is a corporation, he said a permanent reform would be to regulate it under the Public Authorities Reform Act of 2009.
Operating NYRA under this structure, he said, would ensure its board members have a fiduciary responsibility, have an outside oversight agency and be subject to new levels of accountability and transparency that would “open the doors to NYRA’s operations.”
“If you look at those three major things it strikes me that this is exactly what is needed,” Brodsky said. “The notion of an independent entity, doing what it should be doing, but doing it correctly, makes a lot of sense in racing ... There’s no reason [the Public Authorities Reform Act] can’t apply equally well to this corporation”
If NYRA loses its franchise and the racing operations at Aqueduct, Belmont and Saratoga are up for grabs, there will likely be no shortage of organizations interested in taking over. In 2006 there were 15 firms interested in replacing NYRA.
Contessa predicted there would be a lot of interested parties “licking their chops” to take over.
It remains unclear how difficult it would be for someone to take the reins from NYRA, with some people predicting it would be a seamless transition and others anticipating a messy hand-off. There are a “million moving parts,” said Bellafiore, arguing that it will be complicated. Perlee countered, saying there are enough capable people to take over: “This isn’t rocket science.”
Critics say that if NYRA is allowed to retain its franchise, reforms by the state can’t allow the company to continue business as usual.
“This is no new cloud,” Perlee said. “It’s a continuing weather pattern that has plagued New York for years.”
Among such reported indiscretions, NYRA has given raises to top officials even when the company was in the red; required millions of dollars in cash advances from the state; and failed to repay its debts to the state.
Whatever the state does, Perlee said, it needs to instill in NYRA the appropriate attitude about its role. “It’s a stewardship, basically. It’s a trusteeship on behalf of the state. It’s not a right, it’s a privilege to operate these state assets.”