The latest financial results for the New York Racing
Association (NYRA) show that, after years of financial travail and uncertainty,
the nation’s leading racing circuit has achieved some much-needed financial
stability. While nothing in horse racing is certain, that’s very good news for
New York horsemen and the thousands of people they employ, for race fans, for the
thoroughbred industry as a whole and, not least, for the State of New York.
NYRA’s
audited financial report for the year ended December 31, 2012 (full report available
here and summarized in the Daily Racing Form here) is the first annual NYRA financial
report that includes a full year of “video lottery terminal” (a.k.a. slot
machine) revenue, and the first produced under the auspices of the “new NYRA” legislation
passed at New York Governor’s Andrew Cuomo’s urging last fall. Under that
legislation, NYRA has become, as the notes to the financial statement point
out, “a governmental entity engaged only in business-type activities.” As a
result, the financials look somewhat different from what one would see for a
for-profit corporation like Churchill Downs Inc. (whose most recent annual
report is here). Still, the basics are fairly easy to discern.
The big news in the financial report is that, for the first
time in many years, NYRA showed a “profit.” In fact, a healthy profit of $25.6
million. In government-accounting-speak, the report describes that as a “change
in net position,” but for all practical purposes, it’s a cash profit. Lots of
qualifications to that number, discussed below, but still, it’s a huge, and
positive, change from prior years.
Two major reasons for the turnaround: first, a full year of
VLT revenues. NYRA gets 3% of the Aqueduct casino’s net revenue to use for operating
expenses, plus another 4% that goes into a separate fund for capital
expenditures and maintenance of its facilities. For 2012, the 3% operating
income from VLTs was approximately $20.2 million, while the VLT contribution to
capital expense was another $26.9 million. Without the contributions from the
VLTs, NYRA would have recorded an overall operating loss of $20.5 million
instead of the reported $25.6 million profit. Still, compared to other “racino”
tracks, NYRA is significantly less dependent on slot-machine income than the
norm.
Second, in contrast to the nationwide trend in betting on
thoroughbred racing, which was flat or slightly negative in 2012, NYRA’s handle
increased significantly in 2012. All-sources handle on NYRA races was $2.2
billion, up from $1.96 billion in 2011. In addition, bettors at NYRA tracks and
on its NYRA Rewards betting network wagered $294 million on races from other
tracks, up 7% over the previous year. Overall, total handle reported by NYRA
was $2.5 billion, up 12% from the previous year. Some of the increase is
undoubtedly due to NYRA’s getting in five extra racing days in 2012, thanks to
good weather, but that accounts for only a small part of the increase.
Evidently NYRA’s racing product is still attractive to the bettors.
NYRA has also made some progress in increasing the amount of
each dollar bet that it keeps for operating purposes and for funding purses.
When simulcasting was introduced a couple of decades ago, tracks basically gave
away the simulcast signal, often getting back as little as 3% of the amount bet
at off-track locations., even though takeout was a total of 20%. For 2012, NYRA
reports that it retained an average of 9.86% of total handle. To do that,
considering that over 80% of the handle is generated from simulcast sources,
shows that NYRA has been appropriately aggressive in dealing with simulcast
operators.
Wagering on all US thoroughbred racing was essentially flat
in 2012 as compared to 2011, increasing just 1%. In fact, without NYRA, total
national handle would have declined. Of the $10.9 billion bet nationally, NYRA,
with just 4.6% of the country’s race days, accounted for 20.1% of all betting.
Despite the continuing decrease in the US foal crop, now down by nearly a third
since its peak in the early years of this decade, there are still too many race
days at too many tracks nationwide. The total number of US race days actually
increased by 16, to 5,315, in 2012 as compared to the previous year. NYRA may
be doing well with its racing product, but many smaller tracks cannot maintain
their existing programs. Something has to give, though it may not be NYRA,
where field size actually increased slightly in 2012, averaging just over eight
horses per race.
The long-delayed advent of VLTs at Aqueduct, coupled with
the increased handle, has been a boon for horsemen. Total purses at NYRA in
2012, with a full year of the VLT supplement, were $147.7 million, up 44% over
2011, which had included a couple of months of partial VLT operation. Those
numbers make it almost worthwhile for an owner to run in New York. The old rule
of thumb had been that the average horse earned about 50% of what it cost to
keep the horse in training; with the new VLT-enhanced purses, it’s likely that
the average horse can now earn somewhere around 80% of its training cost. That
means a lot more horses can break even or turn a profit, and the losses from
the rest won’t be as big as they used to be. A huge collective sigh of relief from
horse owners.
Returning to the NYRA financials, while NYRA’s operating
expenses increased by 18.4%, to $339.2 million, most of that increase reflects
the VLT-enhanced increase in purses, which was offset dollar for dollar by VLT
revenues. NYRA appeared to do fairly well at controlling its actual non-purse
operating expense, holding employee compensation, benefits and retiree expenses
essentially flat. The only major expense increase was in “facility operating
costs,” which included nearly $3 million in legal costs related to the infamous
Pick Six takeout scandal, $1.1 million to the state for incorrect sales tax
payments on program sales, and $1.2 million for badly needed new marketing
initiatives.
On the capital-expense side, NYRA spent $1.8 million toward
a master development plan for Saratoga (a process that’s still ongoing),
$734,000 for “patron area improvements” at Aqueduct and another $428,000 for
similar front-side work at Belmont, plus $1 million to install wi-fi networks
at all three tracks. There was significant spending on the Belmont backstretch,
including $1.3 million to install concrete wash pads at the barns, as required
by environmental laws, and another $1.2 million for fixing and upgrading the
Belmont barns. Still lots more to do, including new dorms for backstretch
workers at both Belmont and Saratoga, but it’s a start.
In the wake of its emergence from bankruptcy in 2009, NYRA
had borrowed $25 million from casino operator Genting, to help pay operating
costs until the VLTs began generating revenue. With a full year of VLT
operation in 2012, NYRA was able to pay back $7.9 million of that loan, with
the balance expected to be paid in full by mid-2014.
A danger signal in the financial report concerns the state
of NYRA’s labor relations. Half of NYRA’s employees are covered by 25 different
union collective bargaining agreements, of which 10 had expired as of the end
of 2012 and more are expiring in 2013. A strike by, say, the 16 active members
of the assistant starters’ union could quickly cripple operations. NYRA has set
aside funds for retroactive wage and benefit increases that might need to be
paid retroactively under new contracts, but uncertainty still remains.
Similarly, the precarious financial position of various OTB
operations in New York State raises concerns. Suffolk OTB owed NYRA some $3
million when the OTB filed its most recent bankruptcy petition, money that NYRA
is unlikely ever to see. The sensible solution to New York’s OTB wars would be
to bring all the remaining OTB operations under NYRA, but, given the patronage
and political forces behind the various regional OTBs, that’s likely to occur
around the same time that we have flying-pig races at Belmont.
Still, despite the uncertainties, the 2012 financial report
offers a glance at what could be a relatively serene future at NYRA, or at
least a future in which the financial building blocks are in place, and the
soon-to-come new management may be able to move away from crisis-reaction mode,
the general state of things over the past decade, and focus on improving the
racing experience for fans and horsemen alike.
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