Spitzer Considers New Franchise Model for Tracks

New York Gov. Eliot Spitzer is considering a new Thoroughbred racing franchise model in which separate entities would run the racing and gambling side of business at racetracks.

The new structure will be among the topics the Spitzer administration will discuss in separate meetings with the four bidding groups June 8 in Manhattan. The groups will be asked if they want to redesign their proposals in light of MGM Mirage dropping out as the casino developer at Aqueduct.

The administration will tell the bidders the “landscape has significantly changed" with the MGM Mirage withdrawal, and that new ideas will now be considered for the operation of Aqueduct, Belmont Park, and Saratoga racetracks, according to someone familiar with Spitzer’s thinking. The governor is considering a new model that could include a “significant restructuring" of the industry in which one entity would run the racing side of the business, and the other would be in control of the gaming end, said the source who spoke on condition of anonymity.

Still on the table is an idea in which racing at Aqueduct would be halted and possibly a VLT casino developed at the site, with one or more operators involved in running the other two tracks. The source cautioned that many ideas are being considered and that no decision has been made by the governor.

The New York Racing Association, Empire Racing Associates, Excelsior Racing Associates, and Capital Play all submitted bids on the condition that MGM Mirage would run the casino at Aqueduct. But soon after the groups appeared at a hearing in Albany this spring, MGM Mirage backed out of the long-stalled Aqueduct casino deal. That created new opportunities for the state –- and now the bidders –- to consider with the franchise.

The meeting in Manhattan will seek to determine which bidders are still interested in proceeding and whether they may want “to amend their approach to participating" in the bidding process, the source said.

The individual sought to shoot down industry speculation that Spitzer will propose a one-year extension for NYRA to run the tracks. The NYRA franchise expires Dec. 31, and industry insiders have long believed that if a deal doesn't come together before the legislature ends its 2007 session later this month, NYRA will get an extension so the state can have more time to consider its options.

“The legislature for many years has returned to Albany to contemplate important matters. I don’t know why 2007 would be any different from any other year," the source said of the legislature’s typical fall or early winter sessions. But the source indicated the governor may seek to get legislative approval before it leaves town June 21 on a new two-tiered franchise idea.

The source said the Spitzer administration hasn't ruled out NYRA remaining as the track operator. NYRA, the source noted, has changed its internal management and policies since being sharply criticized by Spitzer three years ago while he was attorney general.

“They are not the same entity that existed in June of 2003, although one that has been financially troubled," said the source, who cautioned there has been no conclusion that NYRA in its current or altered form would remain involved with the franchise.

Other government sources said the administration was considering letting NYRA run the racing side of the business at Saratoga and possibly Belmont if Aqueduct closed; one plan that has been reviewed calls for shutting down Aqueduct, building a VLT casino on part of its grounds, and renovating Belmont for winter racing.

The source said Spitzer’s approach as attorney general in his dealings with Wall Street and the insurance industry was to bring reforms to troubled companies, whether through management and bylaw changes, reconstituted boards, and changes in operating procedures.

“Anytime he has sought to bring radical reform and change to an industry, he has tried to do it by placing the burden on an existing entity to improve itself," the source said. “Once he did the report on NYRA’s mismanagement in 2003, one of the things he said in his conclusion was that a wholly new model might be an option for improving the governance structure."

With NYRA maintaining in bankruptcy court proceedings that it owns the land on which the racetracks sit even if it loses the franchise, there has been speculation the administration could end that dispute by letting NYRA continue the racing side of the business while giving another entity the gaming business.

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