NYRA Under Fire; Two on Leave Without Pay

NYRA officials are accused of allowing illegally high takeout rates.

When it was revealed last year that pari-mutuel takeout rates on exotic wagers were not lowered as required by law, executives with the New York Racing Association said they were caught unaware of the problem and quickly moved to make some bettors whole.

Now, according to state racing regulators, some top NYRA officials were not only aware the rates should have been lowered, but acted to cover up their actions and moved to comply with the law only after government auditors uncovered the multi-million dollar error.

In a potentially crippling blow, regulators now want a state investigative office with broad subpoena and other powers to launch a probe of NYRA executives. Further, they are raising questions about the ability of some NYRA management to continue to hold their racing licenses.

By late afternoon April 30, the takeout matter evolved into a full-scale scandal, one of many to hit NYRA over the years. NYRA's board of directors announced that chief executive officer Charles Hayward, along with Patrick Kehoe, NYRA's longtime counsel, were placed on administrative leave without pay.

Saying the controversy is being taken "extremely seriously," NYRA chairman C. Steven Duncker said: "NYRA will take all appropriate steps and actions to cooperate with the state's inquiry and insure the integrity of our operations."

Officials said Hayward, who led the public charge in denying any knowledge of the problem on behalf of the racing group, was aware early on that the takeout was illegally inflated.

The latest controversy comes as the administration of Gov. Andrew Cuomo has already been losing patience with NYRA’s leadership over everything from attempts to keep NYRA pay raises secret to the recent spate of equine deaths during NYRA’s winter meet.

“The report is deeply troubling,” Robert Megna, chairman of a state panel that oversees NYRA’s finances, said in an April 29 letter to Duncker.

An interim report by the New York State Racing and Wagering Board submitted to Megna, who is also Cuomo’s budget director, portrays a culture of deception at NYRA over the takeout issue.

A 26% takeout rate was supposed to, by law, be reduced in September 2010 to 25% on certain exotic wagers; state regulators did not catch the error until December 2011. Bettors were overcharged $8.5 million, of which NYRA received $1.1 million; most of the money was not able to be returned.

Officials sharply criticized NYRA for withholding what they say are thousands of documents sought by investigators looking into the takeout matter. The investigation’s findings were first revealed April 30 by the New York Times.

In his letter to Duncker, Megna said NYRA has made “inaccurate claims” about the takeout situation to both his oversight board and regulators at the racing board, as well as to the public. Megna said Hayward “took action to keep from the public any knowledge of the takeout error.”

Megna said he wants a NYRA board response by May 4, and he held out the possibility that people at NYRA could lose their state racing licenses over the matter.

Megna said the racing board interim report “calls into question whether the ‘character and general fitness’ of NYRA executives meets the standards necessary to be licensed in the racing industry in New York.”

The top Cuomo administration official said he has asked the state Inspector General’s office, which can get involved in criminal investigations, to launch a probe of NYRA.

Megna said NYRA executives “knowingly” overcharged bettors for 15 months and purposely did not correct the problem “out of concern for financial and political consequences to NYRA.”

The interim report said Hayward and other top NYRA officials knew the higher takeout law, enacted in 2008, had expired. One bettor, the investigation found, notified Hayward in September 2010--the same month the takeout was due to be lowered.

Nearly a year later, the report said, Daily Racing Form publisher and columnist Steve Crist relayed an email to Hayward from a reader that the takeout rates were illegally high.

“Mr. Hayward emailed Mr. Crist on August 1, 2011, confirming that the reader was correct and requested that Mr. Crist keep the information confidential. Mr. Crist agreed,” the report said.

NYRA recently told regulators that nearly 10,000 members of its rewards account were credited with $438,000 for the takeout overcharges. The vast majority of wagers were placed at other tracks or through advance deposit wagering operations, and so will never get refunds.

Duncker, the NYRA chairman, said he has spoken with Megna about the matter. “The NYRA board of directors takes the concerns expressed in this report very seriously,” Duncker said in a statement April 30.

In his own letter to Megna, NYSRWB chairman John Sabini said the findings of his agency so far into the takeout problem are “significant.”

Cuomo April 30 called the findings of the racing board “shocking.”

“If the facts are correct, they're very troubling, to say the least,” Cuomo told reporters at the Capitol.

Asked about Hayward's future at NYRA, Cuomo said, "Let's get the facts first. But if the facts are correct, it's a problem.”

There has been much speculation in recent months that the Cuomo administration is tiring of the head-butting between NYRA and a number of gubernatorial administrations over the years. Though the governor has not unveiled any specific plans for the racing industry since he has been governor, one theory is that the state could change the number of NYRA board members as a way of changing the state's input on the board from a minority to a majority status.

The franchise oversight board that Megna controls is also legally capable of taking over NYRA's operations, though there are some major hoops the state would have to take before contemplating any such move.