NYRA's Finances

Watching a 90-minute replay of last week's New York Racing Association (NYRA) Board meetings ranks right up there with a self-inflicted root canal as something to put at the very bottom of one's to-do list. But, in the interest of catching up with the state of NYRA's finances, I did it anyway -- so you don't have to.

And it did have its moments. Perhaps the highlight was hearing someone (couldn't recognize the voice) say he'd been celebrating ever since Trump won the election. Nice to know that the m/billionaires on the NYRA Board feel an affinity with the billionaires in Trump's entourage. But the unbearable whiteness of the NYRA boardroom is a story for another day.

At the end of this year, Chris Kay and his team of guest experience enhancers will have been in charge of NYRA for three years. He's an easy figure to poke fun at, with his deep lack of knowledge of racing, his ignorance of any language other than entertainment-industry suit-speak, and his love for the big day at the expense of the year-round racing program. But, to be fair, NYRA really does seem to be in a better financial position than it was three years ago, even if it is not quite sound enough to survive without the slot-machine life-support that was part of the deal giving the state control of NYRA.

The financial report distributed at last week's NYRA Board meeting, available here on the NYRA website, is not exactly what you'd expect from a company that handles a couple of billion dollars a year. In fact, the report isn't the typical quarterly income statement and balance sheet that you'd expect -- and that NYRA until very recently did make public. Instead, it's mostly a 2017 budget document, with 2015 and 2016 figures included for comparison. The report doesn't purport to be constructed according to generally accepted accounting principles, and it perpetuates Kay's myth that somehow non-operating expenses -- pensions, retiree health care, income taxes, interest and depreciation -- don't have to be paid unless there are slot-machine revenues to offset them. Nonetheless, assuming that the actual numbers reported in the document are accurate (and I do trust NYRA's Dave O'Rourke and Jelena Alonso at least on that front), they reflect a maturing, if only marginally profitable "new NYRA" that could continue to operate a high-class racing program in New York for as long as the slot-machine tap remains open.

Let's start with what matters most -- handle. Despite the lack of a Triple Crown possibility at Belmont this year, total handle through the end of the year is estimated at almost exactly $2.5 billion. That's roughly a quarter of the total annual handle for ALL US racing even though NYRA runs only about 5% of all the races run in the country. From that handle, NYRA makes net revenue of $271 million, about 11%, even though its blended takeout rate is closer to 20%. The difference, of course, is that most of the handle comes by way of simulcasting, where the takeout isn't retained by NYRA but split between NYRA and the simulcast outlet, whether another race track or an ADW site like Twin Spires, Expressbet or TVG. As discussed in more detail below, NYRA is also benefiting from the mid-2016 launch of its own ADW, NYRABets, which is now available to residents of 28 states. All the takeout from NYRABets wagers stays with NYRA, unlike a big share of the takeout on bets placed through TVG or other ADW sites.

Even though only a small fraction of total handle is actually bet at NYRA tracks (less than 10% at the Aqueduct meet, for example), the net retained revenue from on-track and NYRA Bets wagering for 2016 is forecast (there are only four more racing days this year, so the forecast should be pretty accurate) at $133 million, or nearly half the total wagering income. Of the rest, $115 million comes from ADWs and other simulcast outlets, and $24 million from the ever-weaker New York OTB entities.

Out of that $271 million that NYRA gets from the takeout, $106 million goes to purses, $5 million to the NYRA Bets rebate program, $16.7 million to tracks that send their signals to NYRA, and $16.9 million to what NYRA unhelpfully lists as "other statutory payments," for a total of $144.9 million in payments directly tied to wagering, leaving $126.8 million in "net wagering revenue," in essence, NYRA's take-home from the bettors. Add to that $17.6 million in "on-track racing related revenue," (gift-shop sales, vendor payments, $8 beers, ticket sales and who knows what else from the monetized guest experience) and $18 million in unspecified "other revenue" (sponsorships?), and total net revenue from racing operations is $162.5 million, pretty much where it was in 2015.

Operating expenses, not counting those pesky retiree payments, taxes and depreciation, add up to $157.9 million, of which the biggest elements are salaries and fringe benefits. That leaves $4.5 million in operating profit before accounting for slot-machine revenue on the one hand and those non-operating expenses on the other. Let's see, using total handle as a surrogate for turnover, that's an operating profit of 0.18%. Not even as good as those famously low supermarket margins. Easy to see why for-profit companies aren't exactly beating down Andrew Cuomo's door begging for a piece of the action, but a LOT better than NYRA in the bad old days that led to Bankruptcy Court.

Now let's add in the slots and the hidden expenses. This year, the 5,000 or so slot machines at Genting's Resorts World Casino at Aqueduct will have a net win (equivalent to takeout) of $845 million.  If we assume that slot-machine takeout is 10%, that means the machines are handling something like $9 billion a year. Remember, NYRA's overall handle is $2.5 billion, or less than a third of what's pushed through the slot machines.

Out of that net win, purses got $63 million (less $1 million that the legislature in its wisdom decided to give to NY-based jockeys, the highest paid in the country, to pay for their families' health insurance). In total, just under 40% of total purses come from slots, just over 60% from betting handle). In addition, NYRA gets $34 million earmarked for capital spending, and $25.5 million for operations.

Compared to the $25.5 million in "operations funding" from the slots, NYRA spends $24.4 million in retiree benefits and taxes (it's virtually debt-free, a huge accomplishment, so no interest) that are not included in its statements as operating costs, even though they are just that. And, compared to the $34 million from slots for capital spending, NYRA is actually spending $34.4 million this year and budgeting $35.2 million for next year in a variety of capital expenditures. So, in fact, slot-machine revenue very neatly fills the holes in NYRA's bookkeeping by paying almost precisely for the items left out of the income statement.

So yes, Chris Kay, your team has done a good job in getting NYRA to break-even status or even a little above that, taking ALL the costs and all the expenses into consideration. But, as Casey Stengel said of his World Championship with the Amazin' Mets in 1969, "couldna done it without the players." And one of the players here is most definitely that slot machine palace at Aqueduct. Let's hope that the notorious racing-hating Cuomo doesn't set his sights on that particular golden goose.

I'll be joining other New York refugees at Gulfstream for the two weeks after Christmas. Will resume regular blog postings in January.