A consortium of major horse industry companies vying for the Thoroughbred franchise in New York began falling apart Oct. 10, as Magna Entertainment and Churchill Downs announced their withdrawal from Empire Racing Associates. A third partner, Delaware North, was said to have followed suit, leaving Woodbine Entertainment as Empire's only remaining partner.
The pullout came hours after it was revealed Empire was in negotiations with Australian-based Capital Play to merge their bids for the franchise to run Aqueduct, Belmont and Saratoga racetracks.
In what could be a major boost for the New York Racing Association to retain its franchise, the Magna and Churchill withdrawal empties Empire of its leading horse racing corporations. Delaware North did not announce its reported withdrawal nor immediately return calls requesting confirmation.
Magna, in a statement, said Empire’s bid was rebuffed in two key stages of the bidding process over the past year, “and the process has progressed in a manner which MEC does not see leading to a successful outcome for Empire Racing.’’
Empire chief Jeff Perlee said the Spitzer administration said it did not recommend Empire for the bid in part because of possible antitrust and other concerns involving Magna and Churchill Downs. Perlee said Empire has a “duty’’ to listen to those concerns by Gov. Eliot Spitzer and said the changes to Empire's composition reflects those concerns. “This can only make us stronger going forward in the competition,’’ Perlee said.
Empire Racing Associates and Capital Play are in what one executive with knowledge of the groups described as “heavy talks” to merge their bids to compete against NYRA and Excelsior Racing Associates for the right to run racing in New York. “It’s a recognition there are synergies that together they can be stronger,” said an executive who spoke on condition of anonymity.
Spitzer recently recommended NYRA be awarded a 30-year franchise extension, a plan that has gotten a cold reception in the Republican-led Senate. Spitzer also wants the state to choose a company to run a video lottery terminal casino at Aqueduct and down the road possibly at Belmont.
The governor has clearly been less keen on Empire Racing and Capital Play, and the new talks among the two bidders appear to recognize that their best shot would be by combining forces. Senate Majority Leader Joseph Bruno has criticized Spitzer’s plan and said he believes other operators should have a role in the franchise.
Australian-based Capital Play also includes Mohegan Sun and Extell Development Co.
Word of a possible merger came as a Senate racing panel Oct. 10 held a hearing in Albany to take testimony from the bidders on the best business model for the franchise.
In the Senate hearing, NYRA officials were forced to defend the entity’s financial performance, stating what it has done with bailout money from state and its decision to award a no-bid, $125,000-per-month contract to Getnick & Getnick, a Manhattan law firm, to oversee an integrity program at the tracks.
“Don’t count (your) chickens before they are hatched,’’ Senate Racing Committee Chairman William Larkin told NYRA officials after they spoke of the support for the governor’s recommendation for another franchise extension for the group. Larkin also said he did not appreciate what he called “scare tactics’’ by NYRA that racing could end Dec. 31 if a franchise decision is not made by then.
But Charles Hayward, NYRA’s president, said it is beyond NYRA’s control whether racing continues after that date if Spitzer and lawmakers do not resolve the franchise issue by then. He said the judge overseeing NYRA’s bankruptcy proceeding might not agree that the state can step in through the oversight panel to continue racing, especially when the issue of who owns the tracks’ lands are in dispute.
He warned against a “slippery slope with a bad outcome that NYRA and the Legislature might not control.’’
For NYRA’s part, testimony was about building up the organization's bid and raising questions about the financial ability of some of their competitors, chiefly Magna Entertainment.
NYRA Chairman Steve Duncker said the NYRA model – calling for a not-for-profit to run racing – is the best approach because revenues will go to the state, racing operations and purses, and will not have to include shareholders if a for-profit venture wins the franchise.
Lawmakers also raised concerns about how the state’s off-track betting corporations will fit into the future of racing in New York. “They do 75% of the business and we treat them like stepchildren,’’ Larkin said.
Duncker said New York is unique among states in that NYRA faces competition from six in-state OTB corporations, something that wasn’t envisioned when the original NYRA franchise was awarded in 1955.
“If the OTB structure is fixed, NYRA will make money,’’ he said. But no plan has yet to address how OTBs fit into the picture.
One lawmaker, criticizing NYRA’s desire to speed up the bidding process, suggested a need for change in franchise operators. “Maybe like Steinbrenner says, maybe Joe Torre has to go,’’ said Sen. Thomas Libous, a Binghamton Republican.
“Why should we continue with you folks?’’ the lawmaker added.
But some Democrats have said the issue has been studied for more than a year and, like Spitzer, are pushing for resolution of the franchise question soon.
“I hope we move with some haste. I hope we’re not here to just play slow ball,’’ said racing committee member Sen. John Sabini, a Queens Democrat.
Excelsior Racing, whose partners include Las Vegas casino developer Steve Wynn, also appeared at the hearing, despite claims several weeks ago that Excelsior said it was dropping out of the bidding because plans to develop a casino at Belmont are stalled.
“We believe we can run racing in New York and we’ve got the people to do that,’’ said Richard Bronson, a California developer. He added, “Having said that, we also believe we can work with NYRA.’’
Critics of NYRA have long suspected that a deal has been in the works for months to give the racing portion of the franchise to NYRA and award casino and real estate components to Excelsior.
The groups brought out some equestrian stars to pitch their cases. Hall of Fame jockey Jerry Bailey said the prospect of joining up with Excelsior was “like being offered Secretariat to ride; why would I go anywhere else?’’
A bit later, Capital Play showcased jockey-turned-breeder Steve Cauthen. “We need to take a new direction in New York,’’ he told lawmakers.
Later in the day, Marylou Whitney said she has resigned as honorary chairwoman of Empire Racing Associates. She said 14 months ago she was drawn to what had been a "unique colloboration'' of top horseracing groups and horsemen. "Today, Empire Racing has evolved into an entity with a vastly different feel and look, one that I no longer recognize.''
Whitney did not endorse another specific group, but said it is time "for the brighest minds in the industry and in government to overcome the politically charged atmosphere that exists to do what is best for racing in New York.''
The day before the hearing, Capital Play wrote to a state government panel overseeing NYRA finances to say it could step in to run the NYRA franchise if no decision is made by Dec. 31. By law, the New York State Non-profit Racing Association Oversight Board can take over the franchise Jan. 1, 2008, if Spitzer and legislators do not agree on a new operator. It could then tap NYRA officials to keep running the tracks, or choose a replacement group on a temporary basis.
“Capital Play is ready to assist in that capacity,” Karl O’Farrell, president of Capital Play, wrote in a letter to Carole Stone, chairwoman of the oversight panel.