Monday, December 28, 2009

There They Go Again - NYRA Takes on NY State

New York State Comptroller Tom DiNapoli, the state's chief fiscal officer, has subpoenaed the books and records of the New York Racing Association (NYRA), as first reported in the NY Daily News, and later in the Blood-Horse. Like many others, DiNapoli is presumably curious as to how NYRA spent the money that it received from the state as it came out of bankruptcy in 2008.

As NYRA points out in its press release, hurried onto its website late this afternoon, the Comptroller's apparent surprise that NYRA is now running out of money is a little disingenuous. The original bankruptcy rescue plan anticipated that slot machines -- approved by the NY Legislature back sometime in the Jurassic (well, actually, it was 2001) -- would be up and running at Aqueduct by April of 2009. As we all know, that hasn't happened, and the blame lies largely in Albany, where the hapless "leadership" of the State Senate, together with the incompetence of the Governor's office and the business-as-usual non-action by Assembly Speaker Shelley Silver has meant that we don't even have an operator named for the Aqueduct slots operation, much less shovels in the ground or slot machines actually operating.

So it's not surprising that money is tight at NYRA. Handle is down, as elsewhere in the country, and purses are being cut, beginning with the upcoming 2010 Aqueduct meet. NYRA CEO Charlie Hayward may well be correct when he says that NYRA will run out of money sometime this Spring; the Belmont spring meet always loses money, because of the expensive stakes schedule that makes the meet such an artistic success. Over the years, NYRA's big money-making meets have been Saratoga and, somewhat surprisingly, the Aqueduct winter meet, the latter probably because purses are low, and the meet has an excellent off-track following, at OTBs and across the country at other tracks and ADWs. So it's likely that NYRA will limp through the winter (I certainly hope so; my partnership has two nice NY-breds who'll be running at Aqueduct), and maybe even make a small profit. But, come April, with the Belmont opening in sight and no slots at Aqueduct, another transfusion of dollars seems inevitable.

But if that's so, then why can't Charlie Hayward and Steve Duncker (NYRA Chairman), just open up the books to the state comptroller and show the reality? The state has been a very good friend to NYRA, and it seems, to say the least, a bit ungrateful not to cooperate with a perfectly reasonable request to take a look at the books and see what happened to the state's money since NYRA emerged from bankruptcy.

In its press release -- obviously drafted by a lawyer, not anyone with the slightest political sense -- NYRA makes three points: (1) the money it received from the state through the bankruptcy process wasn't a "bailout," but was really payment for the land underneath the race tracks; (2) NYRA's already regulated by lots of different agencies, so there's no need for the Comptroller's office to poke around in the books, and besides, 11 of the 25 NYRA Trustees are, one way or another, appointed by the government; and (3) there's a NY constitutional prohibition on the Comptroller's auditing of not-for-profit corporations; that job falls to the state's attorney general (Andrew Cuomo) as part of his responsibility for supervising charities.

Let's take these one at a time. First, the land. In the bankruptcy proceedings, NYRA always claimed that it owned the land. The state, through its lawyers, originally took the position that, thanks to prior bailouts, NYRA was already, in effect, a state agency, so that the land already belonged to the state. That issue was never decided by any court. In the end, NYRA agreed to turn over the real estate deeds to the state, and the state agreed to pump lots of money into NYRA. That's all. How each side characterized the transaction doesn't mean that's the legal reality of it. At best, NYRA's claim here is unproven.

Next, what about the claim that NYRA is already regulated enough? The simple answer is, so what? In its press release, NYRA notes that it's subject to oversight and regulation by the NY State Department of Taxation and Finance, by the State Racing and Wagering Board, and by a mostly comatose organization called the State Franchise Oversight Board. You know what, I don't see any reference to, say, the Securities and Exchange Commission, the State Lottery Division, or a whole host of other possibly irritating state agencies. That's not to say that NYRA should be regulated by more entities, but, hey, you're in the gambling business; regulation comes with the territory. Presumably NYRA does have financial records, and presumably they show that it's been conducting its business in a reasonable fashion. If not, then the $125,000 a month that NYRA has reportedly been paying its "integrity monitors." the law firm of Getnick and Getnick, would represent a colossal waste of money. Saying no to the Comptroller just makes you look guilty; if NYRA has nothing to hide, why not just open the books?

Third, NYRA relies on a recent decision by the NY Court of Appeals, the state's highest court, that said the Comptroller did not have the authority to audit the operations of not-for-profit charter schools, even though those schools were receiving public money. That may well be correct, as a matter of law. As a matter of politics, it's among the stupidest positions NYRA has ever taken, perhaps rivaled only by the decision in the 1970s not to operate off-track betting. As every decent lawyer knows, just because you may be right on the law doesn't mean you should go to court. Sometimes the best policy is the one that improves your long-term position, not the one that vindicates every single legal "right" that you might claim.

Cooperating with the Comptroller will, if I'm right about NYRA's finances, show conclusively that NYRA does need more money -- a situation attributable entirely to the state's own delay in getting the slot machines started. I can't imagine why NYRA would not want to do that. Unless, of course, there's something to hide. And, if NYRA's right on its legal claim that the proper oversight authority is the Attorney General, not the Comptroller, will NYRA then comply with a subpoena from Andrew Cuomo for the same books and records that it says Tom DiNapoli can't have? Somehow I doubt it.

Charlie and Steve: you guys have got to stop listening to the lawyers. Just do the right thing.

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