Deal Reached on VLT Splits in New York; Industry's Future Discussed

The New York Racing Association has struck a tentative deal with horsemen on a revenue-sharing arrangement for future proceeds from video lottery terminals at Aqueduct Racetrack.

The deal, which still has to be approved by the NYRA board and the board of the New York Thoroughbred Horsemen's Association, would set the VLT splits at the same level that had been mandated under a now-defunct state law, according to Robert Flynn, the horsemen's organization's executive director.

Flynn discussed the arrangement just before the horsemen's group was due to testify Tuesday at a joint state legislative hearing examining the future of racing in New York state. The session featured top racing, breeding, off-track betting and other industry officials as well as regulators. Each side floated its own set of ideas for the shape the industry must take in New York, a business one OTB official said is "in crisis.''

The tentative VLT deal between NYRA and the horsemen comes two weeks after the state's highest court upheld a state law that had a share of VLT proceeds going to purses and breeding funds. But that law had been changed by lawmakers before the court's decision. Reacting to a mid-level appeals court decision last year, lawmakers stripped out the revenue-sharing mandate for breeders and horses and left it up to tracks to decide how much to give from their VLT funds.

"It's reasonable,'' Flynn said of the VLT deal. Like the previous state law, it calls for purses to get 7.5% of NYRA's VLT proceeds in the first three years, growing to 7.75% in years four and five and then to 10% beginning in year six. Flynn said the arrangement is affordable for NYRA because of an additional 4% NYRA will keep from VLT proceeds for marketing under a recent change in state law.

Flynn said the deal also allows the VLT splits issue to be re-examined before the share for purses jumps to 10%. NYRA President Charles Hayward recently raised concerns about the VLT split rising in the out years because the construction costs of the VLT project at Aqueduct has risen from $140 million to $170 million -- thereby requiring a longer pay back time for its VLT partner, MGM Mirage. (Hayward last week said he expected the VLT construction to begin by July 1 and completed by late summer 2006.)

Flynn said the horsemen recognize the need for flexibility in the future if the VLT numbers don't come in as projected. "If we bring NYRA down, the horsemen would get punished,'' he said.

But NYRA would have to prove fiscal problems to the horsemen for the deal to be re-negotiated in the future, he said. Flynn added the deal would last for 12 years and apply to, he believes, any future entity that might run Aqueduct if NYRA loses its franchise at the end of 2007.

In his testimony, Hayward told state lawmakers on a Senate and Assembly racing panel that NYRA is proving it deserves to get the franchise awarded again. Churchill Downs and Magna Entertainment, two entities eyeing the franchise, did not speak at the hearing, but representatives were in the audience.

Citing changes that have taken place at NYRA since its legal and financial problems arose the past several years, Hayward said the current NYRA team "makes no excuses for the company's prior bad behavior and arrogance.'' Though he said most of the same NYRA trustees have remained in power over the past three years of turmoil, Hayward said the team "is focused and committed to fixing'' NYRA's problems and intend to prove to the state "that NYRA is the proper vehicle to best sustain and grow the sport of Thoroughbred racing in New York in the 21st century.''

While NYRA appears poised to be working out its problems with horsemen, the New York Thoroughbred Breeders Association told lawmakers it is asking for special legislation to force the prior VLT revenue sharing provisions in the defunct law to apply to NYRA. Dennis Brida, the group's executive director, said talks with NYRA over VLT splits "have not proceeded in an acceptable manner.'' He said the group's board last week voted to lobby the state legislature to change the law to force NYRA to accept the prior law's VLT revenue sharing mandates.

Brida said the legally binding requirement is needed to ensure stability for future breeding fund payments. "The fact is that New York-breds have kept New York racing alive over the past several years,'' Brida said.

OTB officials, meanwhile, told lawmakers that the current distribution formula for racetrack wagering in New York is financially killing the OTBs, which, by law, distribute their proceeds to local governments. Raymond Casey, the New York City OTB president, called on a number of reforms to change the distribution formula that, in recent years, has sent more betting money to tracks and away from OTBs. He cited, in particular, a law that lets tracks on their own lower takeouts. "Price decisions cannot be left just to the tracks,'' he said.

Casey warned that unless lawmakers change the formulas problems at OTBs will worsen and an industry crisis will appear that "will pale in comparison'' to the problems NYRA has faced in recent years. "Remember, horses running just for VLT money is nobody's idea of a healthy sport,'' Casey said.

But Hayward told lawmakers the takeout needs to stay low to attract bettors. He said if a bet costs more to place, "you're going to hurt the product.'' Hayward said NYRA is working with the OTBs to attract more bettors, including a plan now before racing regulators to permit a "players club'' type of program for racetracks.

The state's top racing regulator, Michael Hoblock, chairman of the New York Racing and Wagering Board, used the hearing to press lawmakers to adopt a proposal by Gov. George Pataki to centralize regulations of the entire gambling industry in New York. The plan would also add new police powers to a new agency to oversee, for instance, the daily operations of NYRA. The legislature has rejected the plan two years in a row.

Bennett Liebman, a former racing board member and now head of a racing and wagering think tank at Albany Law School, urged lawmakers to overhaul the state's racing law to make it workable and practical in an era of declining health for the state's racing industry. He noted that despite changes to lure more people to horse racing, handle in New York in 2004 is only 30% of where it was 30 years ago -- before such developments as simulcasting and winter Thoroughbred racing.

"We need a system with a level playing field where the participants freely and flexibly compete and cooperate with each other,'' he told lawmakers.

Tim Smith, head of Friends of New York Racing, a group of tracks, owners, trainers and companies with an interest in racing in the state, told lawmakers a new business plan is needed for NYRA and the OTBs. "In our view, the antiquated structure of New York racing and legal wagering is at the heart of the problem,'' he said. Smith said the NYRA franchise model created in the 1950s has worked in the past. But it must be changed "for New York racing to survive.'' His group is due to present some preliminary racing plans in June, he said.

Smith called for a new atmosphere of industry cooperation. "To our industry, we say: We are all in this together. The time for the usual internal fights is over. We need more collaboration and teamwork, particularly here in Albany, since we know the alternative doesn't work.''

With Magna and Churchill not testifying, lawmakers missed a key opportunity to ask two potential NYRA franchise competitors about their plans. But lawmakers said the gathering was, first and foremost, a forum to hear ideas to improve racing in the state. "We're here to listen to you,'' said Sen. William Larkin, chairman of the Senate racing committee.