The future structure of New York racing

By Bill Heller

The New York Racing Association’s 51-year reign on Thoroughbred racing at Aqueduct Racetrack in Queens, Belmont Park in Elmont, Long Island, and Saratoga Race Course is nearing an end.
Maybe.

Though billions of dollars, tens of thousands of jobs and the future of a vibrant racing and breeding industry are at stake, the process of choosing a successor when NYRA’s current franchise expires on Dec. 31, 2007, has been playing out like an unending circus, one which did not end on Nov. 21 when the Ad-Hoc Committee on the Future of Racing in New York recommended Excelsior Racing Associates, not the non-profit NYRA, be granted the franchise to operate NYRA’s three tracks, Aqueduct in Queens, Belmont Park in Elmont, Long Island, and Saratoga Race Course, beginning Jan. 1, 2008.

That recommendation was made by members of a lame-duck Legislature for a lame-duck Governor, and everything changes on Jan. 1, 2007. That’s when current Attorney General Eliot Spitzer, a Democrat who was elected Governor by an overwhelming margin on Nov. 7, assumes office, accompanied by a newly-elected Legislature. Spitzer replaces Republican George Pataki, who had been in office for 12 years.
Ultimately, the future of racing in New York will be decided by Spitzer and the Legislature and it is unclear whether or not they will follow the Ad-Hoc Committee’s recommendation.


That is not their only difficult decision, for we do not know whether NYRA or the state of New York owns the three tracks and the incredibly valuable real estate they occupy, or whether or not the archaic state racing law will be rewritten to allow a for-profit entity to operate the three tracks.


Excelsior, headed by New York Yankees General Partner Steve Swindal, owner George Steinbrenner’s son-in-law, and casino-hotel developer Richard Fields, plans to run racing at the three tracks as a non-profit entity and video lottery terminals at Aqueduct and Belmont, if approved by the new Legislature, on a for-profit basis.
VLTs at Aqueduct were approved in October, 2001, a month following the tragedy of 9-11, but construction has still yet to start more than five years later despite the fact that Aqueduct signed a contract to partner with MGM Grand more than two years ago. The State’s Division of the Lottery, which oversees VLT casino’s at the state’s other racetracks, has yet to give final approval to the contract, propelling NYRA into bankruptcy.


Welcome to New York.


THE HISTORY


The four privately-owned racetracks in New York in the early 1950s, Aqueduct, Belmont Park, Jamaica and Saratoga Race Course, lacked sufficient capital to fund much needed renovations at their facilities. So Ashley T. Cole, the Chairman of the New York State Racing Commission, suggested that the Jockey Club come up with a solution. The Jockey Club appointed a committee to study the issue: Christopher T. Chenery (who would own Secretariat two decades later), Harry F. Guggenheim and John W. Hanes. The trio presented a plan of action in September, 1954: create a not-for-profit racing association to acquire the existing tracks and operate them under a long-term franchise granted by the state of New York.


The New York State Legislature complied, and on June 22nd, 1955, the New York Racing Association, originally called the Greater New York Association, was created under a 25-year franchise grant which guaranteed the association a minimum four percent of pari-mutuel handle at downstate tracks and five percent at Saratoga to be used for capital improvements. This allowed the association to borrow $47 million on a 10-year loan from a consortium of 13 banks headed by the Morgan Guaranty Trust Company in the fall of 1955.


Approximately $24.5 million was used to purchase New York’s four tracks, and the remainder went into rebuilding Belmont Park and making major improvements at Aqueduct and Saratoga.


On April 8th, 1958, the Greater New York Association was renamed NYRA, and on August 1st, 1959, Jamaica closed. The property was sold for $6.5 million on July 15th, 1960.


NYRA’s first problem had surfaced years earlier. After just one year of operation, NYRA needed more money to pay its debt service, so the legislature increased NYRA’s take of pari-mutuel handle by one percent at all its tracks. The takeout rate would be raised and lowered many times over the years. But as the franchise neared its sunset date of 1980, NYRA encountered what would become a familiar, troubling scenario. Banks were reluctant to lend money to NYRA for any period beyond the end of the franchise. So NYRA’s franchise was extended through 1985.


In October, 1983. The franchise was extended through December 31st, 2000, with an important provision: if the franchise had not been extended by September 1st, 1997, the governor was mandated to create a nine-person committee to solicit proposals from any interested parties for a new 10-year franchise beginning January 1st, 2001.


Nine days before that deadline would have kicked in, allowing open bidding on New York racing for the first time, Governor Pataki ignored damning investigations of NYRA by the State Attorney General and Comptroller and extended NYRA’s franchise through its present expiration date, Dec. 31, 2007. To minimize media coverage of such a controversial decision, Pataki’s office issued a press release half an hour before post time for the 1997 Travers Stakes.


This time, nine years later, NYRA, which weathered a new scandal involving money laundering by its tellers that resulted in a deferred prosecution agreement, has not been saved at the bell. At least not yet.


THE POLITICS OF NEW YORK


For the past 12 years, the course of New York State has been dictated by three powerful politicians, two Republicans, Governor Pataki and Senate Majority Leader Joseph Bruno, and one Democrat, Assembly Speaker Sheldon Silver. Year after year, Pataki and the State Legislature fail to get a state budget completed by the mandated deadline of April 1, leaving key issues to be resolved in a swap meet in the late morning hours preceding a summer recess. Of the trio, only Bruno has a real concern for racing. He once was NYRA’s staunchest backer, but that support dissipated in the past year.


Faced with the opportunity of forging a new future for racing in New York through open bidding - the same opportunity they ignored in 1997 - Pataki, Bruno and Silver instead demonstrated how little they truly are concerned with horse racing. The extension of the NYRA franchise in 1997 mandated that open bidding begin in 2005 if NYRA’s franchise had not been extended past 2007, and Pataki, Bruno and Silver were each given three appointments to a nine-member ad-hoc committee charged with publishing a request for proposals for a new franchise beginning in 2008, sorting those bidders out and recommending a winner to the state legislature by September 29th, 2006.


On Nov. 18th, 2005, six of the nine members of the Committee on the Future of Racing met for the first time - Silver hadn’t even bothered to make his three appointments - in Saratoga Springs at a public meeting. Three of the six had no experience in racing. The collective lack of racing knowledge of the six was stunning, and much of the initial meeting was spent deciding whether or not a meeting of six of the nine members constituted the establishment of the committee. If Rob Williams, a lawyer from the State Racing and Wagering Board who was ultimately chosen as the committee’s executive director, hadn’t been in attendance to hand-walk the members through their first meeting, their first session would have been even more embarrassing. The six decided to subscribe to trade publications to increase their knowledge of racing, then went into executive session.
 
Fast-forward to the committee’s first public hearing in Albany last January 24th. Silver still had not appointed his three members, so three of the nine chairs on the podium were empty. Regardless, an entire entourage from Magna Entertainment Corporation, including founder and chairman Frank Stronach, attended to weigh in on the future of New York racing. A similar hearing was held the next day in New York City. Charlie Hayward, NYRA’s President and CEO, testified at both hearings.


All the testimony in the world, however, would not resolve the thorny question of track ownership.


THE ISSUE


Deciding the future of New York racing would be easier if one could determine the past or present. Doesn’t anyone know whether the New York Racing Association or the state of New York owns Aqueduct, Belmont Park and Saratoga Race Course? It’s only been 51 years since NYRA took over the racetracks, yet that principal issue has yet to be resolved, and could ultimately drag racing in New York into an interminable series of lawsuits taking years to resolve.
NYRA, which has trademarked some of its stakes races such as the Travers, contends quite accurately that it actually purchased the three tracks; has been paying property taxes on them for decades and actually holds deeds to at least two of the properties.


The state maintains that it created NYRA and that if NYRA’s franchise expires, the tracks and the land they occupy revert to the state, and that NYRA, in exchange for one of its franchise extensions, agreed to that. Yet if such claims can be documented, why hasn’t the matter been resolved?


Confusing the issue even more is that, even if the state is right, it may be unconstitutional to take a tangible asset, the tracks and the land, from NYRA without compensating NYRA adequately. And if that wasn’t confounding enough, consider that NYRA’s contention that it owns the track and lands has a far greater chance of being supported in a federal court than in a state court. That may explain why the state of New York bailed NYRA out of impending bankruptcy in December, 2005, with a $30 million loan. But the state only released $11 million of the $30 million to NYRA through late-October, 2006, explaining that the delay was because the state’s Division of the Lottery had not given final approval to NYRA’s VLT casino contract with MGM Grand, even though it was signed more than two years earlier.


That prompted NYRA to threaten to declare bankruptcy again. The state then offered the remaining $19 million to NYRA if NYRA guaranteed that it would not file for bankruptcy through the first six months of 2007. Instead, NYRA, on November 3, filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. “We always viewed filing for Chapter 11 bankruptcy protection as a last option, and regrettably, NYRA’s Board of Trustees felt that we were required to take this action to protect New York’s Thoroughbred racing industry,” NYRA’s Hayward said. “The goal of the filing is to maintain the current schedule of racing and dates, purse structure, stakes program and all other racing operations.”


Of course, video lottery terminals at Aqueduct could reverse NYRA’s finances drastically and immediately, but VLTs there have been on hold for more than five years. Since it will take 12 to 14 months to install them once there is final approval by the state Division of the Lottery, there is virtually no chance that they could be up and running before NYRA’s franchise literally expires. That could all change when Spitzer and the new State Legislature take office in January. Or it could stay the same for months.


Now that we’ve got that settled, let’s move on.


THE BIDDERS


Early in the bidding process, NYRA’s management made it clear that it, too, would bid on the new franchise. In doing so, it would be the only not-for-profit entity doing so. One can only conjecture how strong that bid would have been if NYRA had enlisted the support of the 5,000-member New York Thoroughbred Horsemen’s Association.
Instead, the NYTHA threw its unconditional support to the Empire Racing Association, a group baring a more-than-passing resemblance to a not-for-profit think-tank called Friends of New York Racing (nobody was thinking ahead here, the acronym is FONY or FONYR) headed by Tim Smith, the former head of the National Thoroughbred Racing Association who had been chosen to become the new president of NYRA only to withdraw at the last minute to create Friends, whose members included many entities who would bid on the NYRA franchise including bitter enemies Magna and Churchill Downs, Inc.


At a private meeting with NYTHA’s leadership in December, 2005, Smith, who said he had no ties to the Empire Racing Association, spoke on behalf of the group, which soon afterwards announced it had the NYTHA’s support for its bid on the new franchise. NYRA understandably felt undercut, and in August, 2006, Smith finally admitted that he, indeed, had a stake in Empire. But not everyone in the NYTHA is comfortable with the decision to back Empire. In a mid-October, 2006, story in the Daily Racing Form, many prominent New York trainers went on record saying that the NYTHA membership was not polled before the decision was made to support Empire and that the NYTHA should not be backing any bidder at this time.


Regardless, citing the backing of New York’s horsemen, Empire argued that New York racing should be operated by New York people, a position which quickly lost credibility when Empire added not only Magna and Churchill Downs, but also Delaware North, which operates Finger Lakes, the only non-NYRA Thoroughbred track in New York, and two harness tracks in the state, and Woodbine Entertainment from Canada in an all-out assault to land the bid.


Two other groups emerged as final four bidders for the franchise: Excelsior Racing Associates, whose backers include retired Hall of Fame jockey Jerry Bailey, and Capital Play, an Australian bookmaking operation given little chance to succeed and indeed was ruled out before the final decision was made. The Committee on the Future of Racing was mandated to announce the winner of the bidding process by September 29th, but postponed that announcement to Nov. 21, when it announced that Excelsior was a narrow winner over Empire and NYRA a distant third. The Committee cited Excelsior’s offer to pay off NYRA’s $50 million pension fund debts as a major factor in its selection.

Does the Committee’s decision matter? It is hard to imagine a new governor from a new party and a new legislature not wanting to make its own determination. And the new governor and new legislature do not take office until January.


There is another important issue, one which cannot be overstated. The archaic state racing law in place allows only for a non-profit entity to operate the tracks. Unless that law is amended, nobody but NYRA can have the franchise. Excelsior’s desire to separate the tracks as a non-profit business and the VLTs as for-profit might not be constitutional the way the existing racing law reads. Throw in yet another variable.


Since we still do not know whether the state of New York or the New York Racing Association owns the track and the land they occupy, perhaps NYRA can use the ownership issue for leverage to cut a franchise extension with a new governor and new legislature. If not, the issue will be resolved in court. 
That may take years.
If a new franchise holder is not in place when NYRA’s current franchise expires December 31st, 2007, then the separate NYRA Oversight Committee will be asked to conduct racing the following day. That committee’s members - all of them without any experience in racing - is headed by a chairwoman who, when asked last summer what will happen when NYRA’s franchise expires, thought the franchise ended December 31st, 2006. She was only one year off.


Racing has continued at Aqueduct despite NYRA’s bankruptcy, though one of the track’s main parking lots has been shuttered by the Port Authority, which had purchased the land from NYRA earlier, suggesting that NYRA does indeed own the track and its property. On Wednesday, November 8th, a crowd of 1,239 braved a raw, wet afternoon to watch nine races at Aqueduct.

Say a prayer for racing in New York.