Wednesday, December 12, 2012

NYRA's Quarterly Results: Transparency Plus Good News

For the first time in living memory, the New York Racing Association (NYRA) has voluntarily released its financial data. The NYRA balance sheet as of September 30, 2012, plus the quarterly results for July through September of this year can be found here.

Historically, NYRA has strenuously resisted disclosing its finances. Both former CEO Charlie Hayward and the current incumbent, Ellen McClain, initially responded to to earlier state government requests for finances by saying no way, only to reverse themselves soon after, under public and political pressure. But now, on the eve of the first meeting of the "New NYRA" Board of Directors, with a majority appointed by New York Governor Andrew Cuomo and other state politicos, NYRA has released to the public something that looks very much like an ordinary corporate quarterly report. High time, and let's hope the practice continues.

The report itself is full of positive news, and in particular shows the positive effect of video lottery terminals, which opened last November, on NYRA's financial health.

Despite a doubling of legal costs, largely attributable to the Pick Six takeout scandal that cost Charlie Hayward and General Counsel Pat Kehoe their jobs, NYRA's operating income for this year's 3rd quarter was $24.8 million, more than double the figure for last year's 3rd quarter, whiuch was the last before the arrival of VLT money. But even without the VLT funds, NYRA turned in an improved performance. Here are some of the specifics:

  • NYRA purses, fueled by the slots, increased from $37 million in last year's 3rd quarter to $55 million. That 48% increase means it's no longer impossible for a horse owner to break even -- just difficult. But it's a huge plus. And, although NYRA accounted for only 4% of US race days in the quarter, it offered 16% of all the purse money on offer nationally. In other words, racing your horse in New York is four times more lucrative than the US average. Wondering why every stall at Belmont and Aqueduct isn't filled.
  • Total handle, including on-track, OTB, account wagering, simulcastiung, etc. jumped to $839 million from last year's $737 million. That's a healthy 13.9% increase in handle, at a time when handle in the rest of the US is flat or declining.  The increase was fueled in part by a gain in average field size, from 8.08 horses per race last year to 8.47 this year. The 3rd quarter, of course, includes Saratoga and the Belmont Fall meet, the highlights of the season, son these numbers won't necessarily repeat in the Aqueduct quarters, but still, the gain in year-to-year comparable numbers is impressive. NYRA's handle represented almost 30% of all betting on US Thoroughbreds during the quarter, even though NYRA had only 4% of US race days. NYRA's is clearly the industry's premier racing product.
  • in the "bang for a buck" category, each dollar of purses offered at NYRA generated $15 of handle. That's nearly double the national average of $8 in handle for each dollar of purse money.
  • The Aqueduct VLTs, running at a "net win" of $388 per machine per day, generated $23.8 million for racing during the quarter -- $11.4 million for purses, $5.3 million for NYRA's operating budget, and $7.0 million for NYRA's capital budget.
  • On the capital-investment front, NYRA spent $3.5 million during the 3rd quarter. A good chunk of that went to concrete wash pads in the barn areas, to comply with environmental rules. Also, there was spending for some "patron area improvements" at all tracks (though on a recent visit to Aqueduct, I'm not sure that the closing of the Man 'O War Room and related areas, albeit for asbestos removal, and some new paint and chairs really merits the name "improvement"). Installing wi-fi at all three tracks is certainly useful, and the front-side improvements at Saratoga should yield results next year.
  • NYRA Rewards account wagering continued to gain slowly, rising 13% compared to last year. This is important because all the takeout from NYRA Rewards wagering goes back to NYRA and to the purse account, while takeout from other wagering platforms (e.g., Churchill's Twin Spires) has to be shared with them. I'd love to see even more aggressive promotion of NYRA Rewards in the future.
  • For those who still think the New York OTB system ihas anything to do with racing, the report is instructive. Total revenue to NYRA from all five surviving OTB systems in the state was a mere $8.4 million for the quarter, a mere 9% of NYRA's total revenue from wagering. In contrast, On-track (including NYRA Rewards) wagering accounted for almost 50%, and other simulcast-based revenue for 40%. The OTBs are of no value to racing; rather than let Catskill OTB into New York City, as a pending bill would do, it would be better to shut down the whole patronage-laden system and use NYRA as the platform for all horse-race betting in the state. As of September 30, the OTB system was $8.0 million in arrears to NYRA, the biggest chunk of that attributable to the twice-bankrupt Suffolk County OTB operation.
  • Of particular concern to horsemen is NYRA's "purse cushion." That's the amount of money that NYRA has earned from betting and is designated by state law for purses, but has not yet been paid. When NYRA went into bankruptcy some years ago, the "cushion" exceeded $20 million; in other words, NYRA had been taking money earmarked for purses and using it to pay salaries and turn on the lights. One result of the bankruptcy proceeding was an agreement with the horsemen, subsequently enacted into law, calling for a gradual reduction in the cushion. The 3rd quarter financial report shows that NYRA, to its credit, is way ahead of schedule. As of September 30th, the "cushion was down to $4.5 million. Kudos to NYRA for that.
  • The report also shows that NYRA has achieved a measure of stability, at least compared to the bad old bankruptcy days, in its cash position. This important measure of liquidity is leveling off around $20 million, probably still too low for a corporation of NYRA's size, but a great improvement on prior years.
So, while there's still much to be done on the operating side, NYRA, and especially its financial team, including Ellen McClain, Susanne Stover and Dave O'Rourke, deserve credit for turning things around financially. Yes, the VLTs were a necessary part of that turnaround, but the new financial report shows that someone is, in fact, minding the store.

And it's nice to see the information out there in public, where it belongs.

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