Motion Seeks Dismissal of NYRA Bankruptcy Claim

The New York Racing Association is a public entity and has no legal right to seek bankruptcy protection, lawyers for New York state argue in court papers seeking to toss out NYRA’s federal bankruptcy court case.

“There are no meaningful private interests involved in NYRA, and the state has the powers and interest of an owner of NYRA,” according to a motion New York state recently filed with the U.S. Bankruptcy Court in the Southern District in Manhattan. The state will seek to have NYRA’s bankruptcy petition dismissed at a Jan. 19 hearing before bankruptcy court Judge James M. Peck.

In its 103-page motion, lawyers for the state said Chapter 11 bankruptcy protection may only be sought by “persons,” which can include individuals and corporations but not governmental units.

In page after page of its motion, the state lays out a case in which it insists NYRA since 1955 has served as an arm of the state government. It notes NYRA was originally created by the state to preserve Thoroughbred racing in New York and to provide revenue to the state. Since 1955, by NYRA’s own admission, NYRA has paid more than $470 million in local taxes and more than $2.6 billion in direct taxes to the state.

NYRA’s structure, the state argues, is as a government entity, not a private business. Eight of its 28 trustees are appointed by the governor, and the rest are subject to approval by the New York State Racing and Wagering Board. Those 20 trustees can also be removed by the state for any wrongdoing.

NYRA is a “unique statutory creature,” the state claims, in that its existence expires Dec. 31, 2007, when its franchise to run Aqueduct, Belmont Park, and Saratoga ends. The state claims--and NYRA disputes--that all its assets would then be turned over to the state, including the tracks.

Besides money it provides the state, New York has also regularly bailed out NYRA with tax breaks, bailouts, loans, and other financial support, according to papers submitted with the motion by Robert Williams, assistant counsel for the racing and wagering board. Williams has also been executive director of the state panel that recently recommended Excelsior Racing Associates over Empire Racing Associates and NYRA as the next franchise holder.

Without the state aid over the years, Williams said “NYRA would neither have been able to readily acquire interest in the racetracks nor meet its debt obligations and operating expenses.”

The state’s challenge, if successful, would not only end NYRA’s bankruptcy protection but also toss out NYRA’s claims that it owns the three racetracks even if it loses the franchise.

The state, in the court documents, runs through a litany of ways in which the government has a direct and often daily say in the operations of NYRA. “Every meaningful aspect of NYRA’s existence and operation is under the control of the state. In other words, the state strictly governs NYRA and its operations by statute and through state entities and officials charged with its oversight,” the motion states.

The papers were submitted to the court Dec. 29 by the state attorney general’s office and a private law firm that is serving as counsel to the Non-Profit Racing Association Oversight Board, which has been overseeing NYRA’s operations since 2005.

The state, in laying out NYRA’s history over the years, says there is no “meaningful” private interest in NYRA. It was formed in 1955 by 20 trustees who contributed $50 each for a total capitalization that to this date remains at $1,000. The papers provide a history lesson for the court in both bailouts for NYRA and the myriad ways in which the state is in control of NYRA’s operations.

“NYRA’s continued existence depends on continued statutory grants of authority by the state,” the motion states.

“NYRA is a governmental unit and not a person, and thus is not eligible to be a debtor under Chapter 11,” the state argues in the papers.

"It's not a surprise," Bill Nader, a NYRA spokesman, said of the state's motion to dismiss the case. He declined further comment. "We'll bring our case to court," he said.