Spitzer Recommends NYRA Maintain Franchise

Spitzer Recommends NYRA Maintain Franchise
Photo: Skip Dickstein
NYRA President Charles Hayward reacting to franchise decision at Sept. 4th press conference.

New York Gov. Eliot Spitzer has formally recommended the New York Racing Association continue to operate Aqueduct, Belmont Park, and Saratoga racetracks while a separate operator for future casino developments at Aqueduct and possibly Belmont would be tapped down the road.

The racetrack franchise, which expires Dec. 31, could stretch as many as 30 years under the Spitzer plan.

The long-awaited proposal by the Democratic governor still needs final approval by the state legislature,  a sizeable question mark given the sour state of relations between Spitzer and Republican lawmakers.

“After careful consideration, I concluded that a reconstituted NYRA is the best entity to operate thoroughbred racing in New York state,” Spitzer said in a statement released Sept. 4. “The state, in consultation with NYRA, will choose an experienced gaming operator to operate the VLT franchise at Aqueduct. This will ensure that we have the best possible operator for both the racing and the gaming franchise.”

The NYRA board the morning of Sept. 4 approved a memorandum of understanding with the state to make several changes to its operations and, for the rights to another 30-year franchise, to give up its land ownership claims of the racetracks.

The NYRA board will decrease from 28 to 19 members and include the appointment of two members by the governor, one each by the leaders of the Assembly and Senate, and one each by the groups representing horsemen and breeders. The deal calls for racing to continue at Aqueduct; the Spitzer administration had floated a plan to shut down and sell part of Aqueduct while turning part of the facility into a casino.

The deal also calls for revenue from video lottery terminals at Aqueduct--and possibly Belmont--to go to improving the tracks, increasing purses, and creating a new fund for New York state breeders.

In a statement released at 1 p.m. EDT Sept. 4, NYRA chairman Steven Duncker said: “The New York Racing Association, its trustees, management, and dedicated employees are grateful for the governor’s selection of NYRA to operate the racing franchise at Aqueduct, Belmont Park, and Saratoga. Today’s announcement is the culmination of NYRA’s efforts over the past several years to reinvent itself. 

"The governor’s support is a testament to the efforts undertaken by NYRA to become the racing industry leader in integrity and corporate governance. NYRA remains committed to continuing this effort while at the same time retaining its position as the producer of the best racing product in North America, as exhibited by the recently concluded Saratoga race meet.

“NYRA looks forward to working with the governor and the legislature to achieve the timely implementation of the necessary legislation, and to ensuring the uninterrupted conduct of world-class Thoroughbred racing into 2008 and beyond.”

NYRA held a press conference in Saratoga Springs, N.Y., at 2 p.m. EDT to discuss the franchise.

“This is a great day for racing in our state," Duncker told reporters.

Duncker said he already had talked to Bruno about the franchise; he said Bruno was non-committal but the two enjoyed a “very good conversation."

“I’m very hopeful," Duncker said. "I just think this makes too much sense for it to be stalled, to be honest."

NYRA vice chairman Jim Heffernan said the end of the land-claims dispute with the state means NYRA is relinquishing its ownership in about $1-billion worth of property at the three tracks. In return, the state is forgiving about $130 million NYRA owes it, including about $30 million provided over the past year.

“We had a point of view, they had a point of view,’’ Duncker said of NYRA’s and the state’s positions on the land claims. “The best way to solve it was to come together and come up with a solution that works for everyone.’’

Duncker said it is his understanding that any private company can now make a pitch to the state to run the casino operation tied to the franchise. He said that could include existing bidders as well as other companies. He raised the possibility of NYRA contacting MGM Mirage, which bowed out earlier this year of a casino contract for Aqueduct, to see if it might again be interested.

NYRA president Charles Hayward became emotional during the press conference and had to end his remarks as he discussed the difficulty for NYRA employees withstanding criticism from its opponents over the year. “This should not be reported as NYRA wins the franchise…The real winner here is the racing industry and all of its constituents,’’ he said.

The MOU, which is non-binding until a later date, includes provisions that the state – from casino revenue at Aqueduct – will provide up to $75 million to help fund a plan to get NYRA out of its Chapter 11 bankruptcy protection. Until the casino revenue flows, the state or the future casino operator will provide “reasonable and necessary fund to meet NYRA’s operating obligations." The deal also includes the state forgiving tens of millions of dollars in loans NYRA currently has with the state.

The MOU also said the new NYRA board will select the officers of the corporation, which may or may not include current officers. The MOU states that “initially’’ all non-executive employees of NYRA will be retained under the new franchise.

The agreement also calls for a handsome VLT revenue-sharing package for NYRA to help meet its capital and operating expenses. The deal calls for 4% of Aqueduct’s VLT revenue to pay for upgrades and maintenance at the three tracks, 3% for racing operations, and up to 6.5% for purses.

Besides backing down on a plan considered by the administration to end racing at Aqueduct, the Spitzer administration also made clear in its MOU with NYRA that no VLT casino will be constructed at Saratoga. It left the door wide open for a casino at Belmont provided that it not have a “material adverse impact" on racing.

Given the governor’s current non-existent relationship with the Republican-led state Senate--after revelations his top aides used State Police resources to track the travels of Senate Majority Leader Joseph Bruno--it is uncertain how much traction Spitzer’s franchise recommendation will have in the legislature.

Bruno wasted no time criticizing Spitzer's handling of the franchise process; last year, recommendations by a state committee were ignored. Bruno said the process, under Spitzer, "has had several false starts and now has a questionable finish."

The Senate leader noted a Senate committee on racing will take up the franchise issue during a Sept. 12 meeting. He said the Senate would "take a very close look at the governor's recommendation."

Insiders have been discussing the possibility of having to extend for some temporary period NYRA’s operation of the three tracks if a serious impasse develops over the franchise and no operator is chosen before Dec. 31.

NYRA has held the franchise since 1955. Beyond its many financial problems, NYRA also saw itself embroiled in scandals that included an indictment and deferred prosecution agreement by the U.S. Attorney’s office. NYRA last year filed for bankruptcy protection.

Spitzer’s recommendation of NYRA is not a surprise. Aides months ago said the governor was leaning toward NYRA, in part because he believes the racing group has corrected many of its past abuses. Also, the administration has been concerned that NYRA’s insistence that it owns Aqueduct, Belmont, and Saratoga may have some legal legs in court.

But the governor was also said to be leaning toward Excelsior Racing Associates to operate any future casinos and possible land deals. Critics have lined up to question Spitzer’s political ties to some of Excelsior’s investors, including casino developer Richard Fields, a Spitzer donor who also provided rides on his private jet to the governor last year.

By not specifically tapping Excelsior, the stage is set for a continued bidding race between Excelsior and two other groups, Empire Racing Associates, a consortium of Magna Entertainment, Churchill Downs, Woodbine and others; and Australian-based Capital Play.

In a statement, Empire Racing said: "Empire Racing commends the governor for trying to tackle a complex problem, but his recommendation to retain the failed status quo is bad for horse racing and bad for New York taxpayers. It fails to provide for economic development upstate and the kind of creative vision that racing needs and deserves.  It must be rejected.

"It is widely accepted that splitting horse racing and gaming is a losing bet, which is why few successful tracks around the globe separate them. This notion was rejected when it was floated by the administration several months ago, and its survival in the governor’s recommendation is a mystery.

"The governor has spent the last eight months devising his plan to keep the status quo in racing while he seemingly punted on gaming. Now it’s time for the legislature to forge a true solution that will benefit New Yorkers and use the Thoroughbred racing franchise as an engine for economic development throughout the state.

The governor said a VLT operator for Aqueduct would be chosen by the state, in consultation with NYRA, in the next 60 days.

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