Report: NYRA Could be Insolvent by 2011

Report: NYRA Could be Insolvent by 2011
Photo: Anne M. Eberhardt
Charles Hayward, president of the New York Racing Association

A report issued July 12 by New York state comptroller Thomas P. DiNapoli took the New York Racing Association to task for failing to rein in spending after going into bankruptcy and says the organization faces insolvency by 2011 if revenues from a proposed racino fail to materialize and expenses are not curtailed.

Also, DiNapoli said in a release accompanying the report that in an effort "to provide intensive monitoring of its fiscal condition and efforts to restructure operations," he is assigning auditors to work on-site at NYRA.

"NYRA is still on very shaky financial ground," DiNapoli said in a release accompanying his audit report. "After declaring bankruptcy and getting bailed out by taxpayers, NYRA continued business as usual for too long. There’s too much at stake to let NYRA continue its fiscal mismanagement. My auditors will begin real-time auditing of NYRA’s books."

While the comptroller criticized NYRA for its inability to bring spending under control, he acknowledged that some of the racetrack operator’s financial problems and future outlook are related to the inability of the state to select a franchise to operate video lottery terminals at the Aqueduct racino. The auditors concluded NYRA would not have been able to continue operations past early June of this year were it not for a $25 million loan approved by the legislature.

"The state also has to live up to its end of the deal," DiNapoli said. "But it looks like the selection of a VLT operator for Aqueduct is still an open question. When you start with six potential bidders and end up with only one, it begs the question of how the process was handled and whether the state can actually close the deal. The fact is NYRA can’t make it long without significant restructuring and revenues from VLTs."

The audit examined NYRA’s financial condition as of May 20, 2010 and operations from Sept. 12, 2008 to March 31, 2010.

NYRA initially declined to cooperate with DiNapoli’s request for records related to the audit, contending DiNapoli had no jurisdiction over its finances. After the state comptroller issued subpoenas for the records, NYRA relented and cooperated.

According to DiNapoli’s release, among the reasons for NYRA’s financial problems were:

--After emerging from bankruptcy in 2008, NYRA continued spending more than it was taking in rather than restructuring its operations. NYRA incurred an operating deficit of $8.9 million in 2009 and is projecting a $19 million deficit in 2010;

--NYRA has not received more than $47 million in expected revenue: $30 million from the VLTs at Aqueduct and more than $17 million from the bankrupt New York City Off-Track Betting Corporation; and

--Most of NYRA’s revenue is generated from wagers on horse races, which declined by 13.2% from $2.56 billion to $2.22 billion from 2006 to 2009.

In a July 2 letter to DiNapoli’s office, NYRA president and CEO Charles Hayward challenged some conclusions in the audit and agreed with the report’s conclusion that NYRA’s financial stability had been threatened by its inability to receive anticipated VLT revenues and NYCOTB’s default on its payments.

Hayward said that from 2008 to 2010, NYRA’s operating expenses declined 2.2% and that 2010 budgeted operating expenses of approximately $146 are $9 million below the amount budgeted in NYRA’s bankruptcy reorganization plan. Also, as of May of this year, year-to-date operating expenses are $1.5 million, more than 3.1%, below budget, Hayward said.

"By actively managing expenses, NYRA successfully operated for almost two years without the required VLT financing or financial support from the state of New York," Hayward wrote. "NYRA management has demonstrated a willingness to reduce operating expenses where feasible and will continue to explore further opportunities to reduce costs and improve the efficiency of its operations."

NYRA also sent the comptroller’s office a letter from James P. Heffernan, NYRA’s board vice chairman and chairman of the Special Oversight Committee.

Auditors found that although NYRA did not act quickly to curtail costs, it "finally began to identify significant spending reductions in February 2010, more than a year after it declared bankruptcy and only after the Aqueduct VLT contract was rejected," the report said. "NYRA reduced purses for some races and laid off 12 professional staff, for a total annual savings of $5 million. NYRA also plans to close the Aqueduct training facility for a savings of about $3.5 million, as well as a backstretch security barn saving another $1.2 million annually."

The audit detailed three steps NYRA could take to achieve $1.2 million in immediate saving. They are:

--"Since emerging from bankruptcy, NYRA’s overall payroll costs increased by $1.9 million to $69.2 million. Seven executive staff make from $255,000 up to $460,000. NYRA has not performed a formal staffing analysis to determine the optimal number of employees and salaries for its operations;

--NYRA spent more than $6 million on contracts for personal and miscellaneous services. NYRA did not justify the need for  price of these contracts so it is unclear whether some of these contracts were necessary; and

--NYRA spent $900,000 to transport horses between tracks at no cost to the trainers or owners. NYRA should evaluate whether, and to what extent, the practice of transporting horses between NYRA tracks at no cost is necessary for NYRA to remain competitive and, depending on the results of the evaluation, consider either charging a fee for the service or discontinuing it."

Hayward said paying for transportation of horses between tracks was part of NYRA’s efforts to encourage entries and maintain field sizes in its race program. He said the practice is consistent with that employed by other racing entities. He also said NYRA achieved cost savings from using a media consultant, a practice that was questioned in the report.

New York Comptroller Report on NYRA

NYRA’s Response to Audit Report

 

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