Report Reveals Details of NYRA's Rough Year

New York State Franchise Oversight Board said NYRA "faces significant challenges."

An annual report released by a state government panel overseeing the New York Racing Association's finances reached an obvious conclusion: It has been a rough year for the racing corporation that runs Aqueduct Racetrack, Belmont Park, and Saratoga Race Course.

Two weeks after Gov. Andrew Cuomo and lawmakers reached a deal to have the state take over the NYRA board of directors for at least the next three years, the New York State Franchise Oversight Board said July 5 that NYRA "faces significant challenges moving forward."

With problems stretching from the pari-mutuel takeout scandal that cost the head of NYRA his job to a rash of equine deaths at Aqueduct this past winter, the state oversight panel said it sees nothing immediate in NYRA's future to suggest a long-term strategy for financial health.

"The board also remains focused on NYRA's growing expense structure in the face of declining handle across the industry," the oversight panel's chairman, Robert Megna, who is also Cuomo's budget director, said in a letter to the governor and lawmakers. "This status quo is simply unsustainable."

"If expenses are allowed to continue to grow, not even the substantial investment made by the state into NYRA through the (video lottery terminal) support payments will be enough to cover the losses incurred by NYRA's operations," the panel said in its report. The board said NYRA must devise a strategy "to end its reliance on VLT subsidies and immediately develop plans on how it will meet this goal."

The fact the state wants NYRA to end its reliance on VLT revenue less than a year after the long-stalled Aqueduct casino opened is certain to raise eyebrows in the industry. Megna has hinted often at what he has suggested are overly generous VLT proceeds from revenue-sharing arrangements.

The oversight panel has now put in writing the state's intention to reexamine the VLT deal with NYRA, a move with implications for purse levels.

"A number of board members have expressed that it would be appropriate to conduct a review of the distribution of video lottery revenue to purses as it relates to the impact on racing and the overall marketing of the sport," the oversight panel said in its report to Cuomo and lawmakers. (The report noted the Aqueduct casino in 65 days of operation in 2011 provided nearly $6 million in additional payments for purses).

State officials on July 6 sought to distance the Cuomo administration from suggestions that NYRA purse levels or the flow of VLT revenues to NYRA could be in jeopardy anytime soon. Morris Peters, a spokesman for Megna, said the oversight board "is cautioning against NYRA becoming too reliant on VLT revenues and is restating its desire for racing operations to become self-sufficient and, ultimately, profitable." He said the oversight board members "know that VLT revenues are critical for operations in the near term, but would like to see NYRA move towards this long-term goal."

As for purse levels, Morris said that some members of the oversight panel "expressed a desire for better understanding of the impact that higher purses have on racing and whether the current distribution of VLT money provides the most effective use of the funds for NYRA."

The report said the board also believes it is vital for NYRA "to re-establish the credibility of the sport through efforts to improve horse safety, owner/trainer integrity, and enforcement of the rules governing drug administrations."

The oversight panel, created in 2008 to monitor NYRA's finances, noted NYRA lost more than $24 million in 2011, compared with $17 million in red ink the previous year. It said the 2011 losses came despite $6.3 million in new revenue from the Aqueduct casino.

New York City Off-Track Betting Corp. closed at the end of 2010; NYCOTB was a major source of income for NYRA.

The oversight board noted NYRA attributed an increase in expenses in 2011, up 14% in general and administrative spending, to new costs associated with expanding wagering opportunities to make up for the loss of NYCOTB.

"Without an infusion of cash generated from VLT operations at the Resorts World Casino at Aqueduct, NYRA finances for 2012 would continue to run deep in the red," the franchise oversight board said. It noted NYRA has projected net income for this year of $18.9 million, bolstered by an estimated $20.6 million in revenue-sharing payments from the Aqueduct casino.

The annual report by the oversight board went through a litany of NYRA's problems the past year or so: the takeout issue that cost bettors millions of dollars and saw the firing of former president Charles Hayward, battles over transparency of NYRA executive compensation levels, and outsourcing of NYRA's telephone account wagering to an out-of-state entity.

The report comes as a panel of industry veterans is finalizing a report on this winter's high number of equine breakdowns during the Aqueduct winter meet. The report is due to be released before the Saratoga summer meet begins July 20.

It is uncertain when the new state-dominated panel will take over NYRA. The new board does not take effect until a majority of the future government-appointed members are selected.

Cuomo's appointees will have control over the board, putting the governor effectively in charge of NYRA for the three-year duration of the restructuring law.