The NYRA Audit - No Good Deed Goes Unpunished

Earlier this year, displaying the political sense that has so often eluded it, the New York Racing Association (NYRA) agreed to turn over its financial records to State Comptroller Thomas DiNapoli so the latter could conduct an audit of NYRA's shaky finances. NYRA had previously unleashed its stable of pit-bull lawyers in an effort to block the Comptroller's request, a position that drew widespread criticism, and the turnaround in February seemed a smart move. Perhaps it even helped NYRA convince the otherwise clueless politicians in Albany that they had to make good on their contractual promises to advance NYRA the money it was losing as a result of the state's endless dithering on awarding a contract for slot machines at Aqueduct.

But yesterday, the other shoe dropped. Comptroller DiNapoli released his audit of NYRA, complete with a scare-laden press release. DiNapoli concluded that NYRA should somehow scale back the level of its operations to what would be sustainable without slots revenue and without the $20 million or so that's owed to it by the bankrupt New York City OTB Corp.:

"given NYRA’s spending patterns and its continued reliance on VLT revenue that failed to materialize, NYRA would have run out of cash (i.e., not have had sufficient cash to pay its operating expenses) sometime in early June 2010, if it had not secured external financing. Even with this State financial assistance, however, NYRA could again experience a cash shortfall in 2011 if the Aqueduct VLT facility does not become operational and its expenses are not further curtailed."

Not mentioned is the state's own role in causing the slots-revenue screw-up, a fact tacitly acknowledged by the Legislature earlier this year when it advanced NYRA some $25 million to get through the next 12 months -- a sum significantly below the amount that NYRA would have received had the Aqueduct racino been up and running, and considerably below what the State itself contractually promised to NYRA in the bankruptcy settlement in 2008.

I suppose NYRA could cut back to a level supported only by on-track and simulcast wagering, without either the NYC OTB money or the slots revenue. If that happens, watch out for traffic jams of horse vans heading out of the Belmont stable area for Monmouth, Philadelphia, Delaware and, who knows, maybe even Ellis Park. It would be racing, but it wouldn't be the world-class racing that has made New York most prestigious place to race for more than a century.

The State authorized the Aqueduct racino in 2001. Nine years later, it's about to fail in yet another attempt to name the racino operator. This will be the fourth aborted attempt, and the smart money is on dumping the decision in the lap of the next Governor, who won't even take office until January. Back in 2008, the state promised NYRA $2 million-plus a month for each month after April, 2009 that the slots weren't operating. If the state keeps its promise and pays the money, there's no NYRA fiscal crisis. If the slots are running and the NYC OTB situation is solved, NYRA looks like a healthy, profitable enterprise. But DiNapoli, originally appointed by his buddies in Legislature back in 2007, over the opposition of ill-fated Governor Eliot Spitzer, has to run for re-election this year. And I guess he thinks he'll get some votes by projecting a tough-guy image and beating up on all those rich horse owners in NYRA.

DiNapoli's solutions to the problem are generally as wrong-headed as his analysis of the problems. And in fact, the proposed solutions would come nowhere near solving the revenue problem caused by the delay in slot-machine revenue and the continuing failure of NYC OTB to pay NYRA what it owes.

For example, DiNapoli says NYRA should end the free horse-van service that conveys horses stabled at one track to another NYRA track when they're entered in a race at the latter. He suggests either ending the service completely or charging horse owners for it. Either "solution" is absurd. NYRA is far from alone in providing free transportation between tracks. Churchill Downs Inc. does it between Churchill and Arlington, Churchill and Keeneland do it for each other, the Southern California tracks pay for buses to whichever track is running at the time, Gulfstream buses horses from the Palm Meadows training center, and the Maryland tracks provide buses between Pimlico, Laurel and the Bowie training center. In every case, the distances involved are far greater than the 10 miles between Aqueduct and Belmont.

Now, what about having the owners pay for the van. Let's see, we already pay $100 a day or more to send a groom with our horses to the ill-conceived security barn, and we pay upwards of 4% of the purse in various required charges taken out by NYRA before we get our money, not counting the jockey's fee and the trainer's 10% (now, sometimes, 12-13%) commission. So sure, let's add another $100 or so each way for the van. Just one more reason, if one were needed, to head on down the Jersey Turnpike to Monmouth. At least down there, every starter is guaranteed a minimum of $1,500. In New York, all the starters that finish worse than 5th collectively receive 2% of the purse. So, if you're in a $40,000 race with a field of 12, and you don't finish in the top five, the owner gets the princely sum of $114 -- and has to pay a jockey fee of $100, a variety of fees for Lasix, for the NY State Racing and Wagering Board, $100 or more to the trainer as a race-day fee to cover the cost of the groom, $23 for the pony to take the horse to the starting gate, etc. etc. Enough.

As it is, NYRA is averaging just about 7 horses per race at Belmont this spring, while Monmouth is averaging close to 10., Anything that further reduces field size at NYRA tracks is a really bad idea.

(The Comptroller's report does have a ray of light, though. It states that NYRA will be saving upwards of $1 million by eliminating the detention barn at Aqueduct. For those not familiar with the situation, one of the "reforms" introduced as NYRA emerged from criminal indictment and bankruptcy a while back was to required horses entered in races to be transferred to a holding barn six hours before their races, so the state could presumably monitor the giving of illegal drugs. A good public relations move, perhaps, to shore up NYRA's image and reassure bettors, but an unmitigated disaster for owners, trainers and horses. The detention barn, as noted, increases costs, and has an unpredictable effect on some horses. Many horses react badly to being taken out of their usual comfort zone, which encompasses their barn and the race track. And, in summer, the holding barn can be brutally hot, leading some horses to "wash out." Good to know it won't be coming back at Aqueduct, but how about getting rid of it at Saratoga and for the Belmont fall meet as well? New York already has the most comprehensive pre- and post-race drug testing in the country; the holding barn at this point is an expensive anachronism.))

Another of DiNapoli's recommendations was to reduct the compensation of the state-mandated "integrity monitor" for NYRA, the law firm of Getnick & Getnick. They receive $125,000 a month, or $1.5 million a year. DiNapoli says billing them at an hourly rate might save a few hundred thousand. As NYRA Trustee James Heffernan points out in his reply to the audit report, the Comptroller appears not to understand either (a) that the arrangement with G&G was previously approved by the state or (b) that it IS in fact based on billable hours, with unused hours carried forward. Now, personally, I think that the whole contract is probably a waste of time and effort, but, since the State required it, it's a bit odd for a state official to be criticizing it.

NYRA is running an operating deficit of some $30 million a year. Funny, that's just about what the slot machines would produce, if the state could ever get its act together and anoint an operator. All the rest is nickel-and-dime stuff. Tom DiNapoli's energy would be better spent investigating what his former colleagues in the Legislature were due to get for the thousands of "member items" stuffed into the state budget and, so far at least, vetoed by lame-duck Governor David Paterson. Don't hold your breath waiting for that audit, though.