Wednesday, May 28, 2014

NYRA's first quarter financials: a dream deferred?

Yesterday, less than 24 hours before its Board meeting, NYRA released its financial results for the first quarter of 2014. All the details can be found here, along with with such much-needed information as the names of the 40(!) NYRA security personnel licensed to carry guns on the race track. (But, sign of progress, eight of those 40 are women.)

Despite the expected sugar-coating, blaming some of the financial under-performance on what was, in fact, a brutally cold and snowy winter, the financials don't offer much reason to be optimistic about NYRA CEO Chris Kay's stated goal of bringing the racing association into profitability without depending on income from the Aqueduct slot-machine palace. In fact, even with the slots revenue included, NYRA recorded a $1.2 million loss for this year's first quarter, as compared to a $595,000 profit for the same period last year, and a budgeted profit of $343,000 for this year. Without the casino revenue, which actually exceeded the budget expectations, the loss would have been a staggering $14.8 million.

Although there were seven race-day cancellations because of the bitter weather this year, the actual number of racing days in January-March 2014 was 54, an increase from the 51 that were run in the first quarter of 2013, when six days were cancelled for "horse health and safety initiatives." And, despite the sense that there were nothing but five-horse fields for most of the Aqueduct winter meet, actual field size was 7.2, a gain from the 7.1 in the same period last year.

So, with those gains, why did NYRA record a loss rather than the expected small profit? Total handle, including both on- and off-track, actually increased slightly compared to 2013, from $407 million to $412 million. But, taking the extra race days into account, average daily handle actually declined from $8.0 million to $7.6 million, And "estimated" daily attendance at the track (not clear how NYRA did these estimates, since there's no charge for admission at Aqueduct) dropped by 11%, from 3,700 to 3,290. But the Aqueduct signal remained a strong performer in the winter market, as it has traditionally been. Historically, the Aqueduct meet has been a profit center for NYRA, because of the strength of off-track betting coupled with the low purse level, compared to Belmont and Saratoga.

NYRA's total revenue from racing, net of payments to the purse account, taxes and other statutory payments, was just about flat, at $22.5 million, a decline of barely $200,000 from the 2013 total. In today's generally gloomy racing climate, that's practically a victory. And casino revenue for racing, net of required payments into the purse account, actually increased by $500,000 from the same period last year. So where did the bottom-line loss come from?

Well, to start with, salaries and fringe benefits increased by $1.7 million, despite the sense around NYRA that there's a lot of belt-tightening going on. Benefits and payroll taxes were a quite generous 39.5% of salaries and wages. That's a pretty high benefit level for a corporate employer that's not a Wall Street bank or a hedge fund. The financial report doesn't detail where the salary increases are, so we don't know whether the extra costs are in security, maintenance, "guest services," or the executive suite.

Other big increases in the expense category were an additional $300,000 for maintenance, an additional $200,000 for utilities (blame the tough winter!), and more than $600,000 additional for retiree benefits and pensions.On the plus side, NYRA cut its phone bill by almost $175,000 compared to last year and spent $200,000 less than last year on marketing. Guess they planned on California Chrome's doing the marketing for them. Bottom line: total expenses increased from $35.2 million in the first quarter of 2013 to $37.3 million this year. That's nearly a 6% jump. Hard to move forward with stagnant or declining handle when expenses are rising faster than the rate of inflation.

Without slot-machine revenue, NYRA would have had a loss of $14.8 million for the quarter. With the average win per machine in the Resorts World casino at Aqueduct rising well above $400 per day, the highest in the country, the casino contributed $$13.6 million to NYRA's bottom line, lowering the quarterly loss to $1.2 million.

Both NYRA Chairman David Skorton and CEO Chris Kay have said they'd like to make NYRA self-sufficient, without depending on the casino revenues. Hardly any race track in North America does that, and there's no reason to expect the situation to change anytime soon. If NYRA is to be privatized, as intended when the state took control in 2012, it's hard to imagine there will be any bidders who don't insist on a guarantee of the continued flow of casino revenue to support racing operations. And even with that revenue, this year's first-quarter results create, as track announcer Tom Durkin said in another context, cause for concern.