Regulators Blast NYRA, Question Franchise

New York regulators are blasting the New York Racing Association’s board of trustees for appointing a new president to take over for the ousted Charles Hayward, the latest development in the ongoing scandal over pari-mutuel takeout levels. They also raised the possibility that NYRA could lose its operating franchise over the matter.

The officials said the state has ordered, effective immediately, an end to daily support payments made by Genting New York, the operator of the Aqueduct Racetrack video lottery terminal casino, to NYRA—with the funds, instead, being diverted to the state lottery agency that oversees racetrack-based casinos.

Government sources confirmed the diversion of VLT proceeds to the lottery will not affect the breeding fund and purse accounts.

Based on the most recently monthly financial report by the lottery division, NYRA received about $4 million in April for operating and capital expenses from the Aqueduct casino.

The nuclear letter from the regulators is the most dramatic sign that past and possibly current NYRA officials are facing growing legal problems—but also that the very future of the NYRA franchise is now in doubt. The officials said NYRA will either “immediately" act in the best interest of racing or risk being replaced by a new entity to run its racetracks.

The May 14 appointment of Ellen McCalin as president, and Kenneth Handal as secretary, is “entirely inappropriate," violates NYRA bylaws, and will not be recognized as valid by state officials, wrote the heads of New York’s two main racing regulatory bodies. The regulators warned of a number of other problems at NYRA that, combined, could force them to issue an order to show cause whether “these actions by NYRA merit the revocation of its franchise."

John Sabini, chairman of the New York State Racing and Wagering Board, and Robert Megna, chairman of a panel that oversees NYRA’s finances, said in an angry May 15 letter that management and the NYRA board of trustees will be examined to determine if they have the “character and fitness" to hold racing licenses in New York.

“NYRA has established a pattern of activity which demonstrates the association is not acting in the best interest of racing, but only in its own proprietary interest," Sabini and Megna wrote in the letter to NYRA chairman C. Steven Duncker.

NYRA has been accused by Sabini’s agency of knowingly failing to drop takeout rates on exotic bets for a 15-month period after a state law’s enactment, costing bettors more than $8.5 million. The state Inspector General’s office has launched what could end up as a criminal probe of the affair, and the state has not ruled out trying to go after NYRA’s exclusive franchise to operate Aqueduct, Belmont Park, and Saratoga Race Course.

The two regulators said there are still unanswered questions “as to which executives—and potentially NYRA board members—were aware of or participated in this misconduct." They noted McClain has been serving as NYRA’s chief operating officer, and that her role in the takeout issue “remains unclear." As such, they said, the board’s action to make her the new president “is entirely inappropriate."

“The election of officers under these circumstances is only the latest action to demonstrate NYRA’s failure to comply with New York State regulatory and legal requirements," Sabini and Megna wrote.

Megna is also the top fiscal adviser to Gov. Andrew Cuomo, who has been sharply critical of NYRA for months. Importantly, Megna’s financial oversight board has the legal authority to take over the NYRA franchise.

The regulators said NYRA has continued to stonewall investigators’ demands for documents, forcing the Inspector General’s office to rely on subpoenas to unearth paperwork in the case. They said the failure to turn over documents “demonstrates a basic lack of moral character and fitness to fulfill its obligations" under the state’s Thoroughbred laws—legal language that could be setting the groundwork for the state to go after NYRA racing licenses.

The regulators raised the issue of equine deaths this year at Aqueduct and failure by NYRA “to provide basic living conditions to the backstretch workers" at Saratoga.

“We take none of these choices lightly, but unless NYRA immediately starts to act in the best interest of racing and the taxpayers of this state, we will pursue a course of action to reestablish the racing franchise with a qualified, ethical, and responsible steward of horse racing," the two regulators wrote.

NYRA officials declined to comment on the warnings from theregulators, and did not provide immediate estimates of the amount of money it will see diverted to the state lottery agency.

In a one-sentence response, NYRA said the letter from Sabini and Megna had been sent to its outside counsel—Brendan Sullivan Jr.—for review. "NYRA will be responding to the letter after review," the statement said.