By MATT HEGARY
The long tug-of-war over the New York Racing Association’s franchise to operate Aqueduct, Belmont, and Saratoga came to an end on Wednesday with the passage of legislation that will extend the franchise until 2033 and avert a shutdown of the most prominent racing circuit on the East Coast.
The legislation, which resulted from three months of negotiations among NYRA representatives and legislative leaders, amended the state’s complex racing law in a number of significant ways that legislators said would give them more oversight. It also removed lingering questions about the long-term future of the franchise, which NYRA has held since 1955, and will allow NYRA to emerge from bankruptcy. NYRA filed for bankruptcy late in 2006 and then sued the state for blocking the construction of a casino at Aqueduct, which the association contended helped drive it into bankruptcy.
In exchange for the 25-year extension, the association will concede undisputed title of the three racetracks to the state. In addition, the state will advance NYRA a maximum of $105 million to fulfill its financial obligations and to pay for its operations until 4,500 slot machines come on line at Aqueduct. The casino operator – which will be selected by the state – will be obligated to pay back the $105 million.
"The legislation contains the key components for us to emerge from bankruptcy and to improve what is already the best racing in the world," NYRA chairman Steven Duncker said in a statement.
NYRA’s franchise expired on Dec. 31, and the association has been operating under two short-term extensions. The second was scheduled to expire on Wednesday, but a state oversight board approved a third extension to March 6. NYRA had threatened to shut down beginning Thursday without a long-term agreement.
In the next three weeks, NYRA is expected to work out a settlement with the state to transfer the titles of the tracks. NYRA will then seek final approval for a reorganization plan it filed late last year with the U.S. Bankruptcy Court for the Southern District of New York, and if the plan is approved, the terms of the legislation will go into effect.
The legislation is a patchwork of compromises designed to address a number of concerns of legislators and their constituents, and its impact on the fundamental weaknesses in the state’s troubled racing model is unclear. The amendments include a raft of protections for unionized workers; a requirement that NYRA conform to unspecified performance standards; and shares from slot-machine revenues as subsidies for horse owners and breeders and as a source of cash for capital improvements and operations at the three tracks.
A major sticking point in the negotiations was the composition of NYRA’s board. Under the bill, the board will be pared from 28 members to 25. NYRA will control 14 appointments compared with 20 under the previous structure, and the state will control 11 appointments compared with eight previously.
Seven of the board spots will be appointed by the governor, including one each at the recommendation of the state’s horsemen, breeders, unions, and OTB companies. Two spots will be reserved for appointments by the assembly speaker, and two others by the senate majority leader.
The bill does not address the state’s antiquated system in which bets are taken at the facilities run by six regional offtrack betting corporations owned by counties, nor does it provide a long-term solution to NYRA’s financial woes other than granting the association and its horsemen shares of the slot-machine revenues. In addition, the bill leaves unresolved the question of slot machines at Belmont Park, despite aggressive lobbying by development and casino companies and the desires of some Long Island legislators.
A legislative official involved in the negotiations said that the bill was not a cure-all, in part because of the pressure to strike a deal.
"Does the bill solve every problem? Clearly it does not," said the official, who spoke on the condition of anonymity because he was not authorized to comment publicly. "But the operator was in bankruptcy, the ownership was unclear, and the franchise was expiring."
NYRA had threatened to press its track ownership claim in court, a prospect that unsettled officials in the administration of Gov. Eliot Spitzer. In addition, the agreement will give legislators influence over the selection of a real-estate developer and a casino operator for Aqueduct – and for Belmont, if slots are legalized there.
The legislation allows the Non Profit Racing Association Oversight Board to select a casino operator, and legislative officials expressed hope that the board would make the selection within 30 days. Created in 2005, the oversight board has five members – three appointed by former Gov. George Pataki, a Republican. Another was appointed by senate majority leader Joseph Bruno, also a Republican, and the fifth, Steven Newman, was appointed by assembly speaker Sheldon Silver, a Democrat, late last year. Spitzer elevated Newman to chairman just after the appointment, replacing Carole Stone, a Pataki appointee. Stone remains on the board.
Under the bill, the state’s Thoroughbred horsemen will receive 6.5 percent of the revenues from the Aqueduct casino in its first year of operation to add to purses; 7 percent in the second year; and 7.5 percent a year after that. Breeders will receive 1 percent the first year; 1.25 percent the second year; and 1.5 percent after that.
NYRA will receive 4 percent of the revenues from the slot machines to use for capital improvements and an additional 3 percent for operating cash.
Estimates for the revenue from the slot machines vary, but if each machine generates $300 in revenue a day – a conservative estimate for a casino in one of the country’s largest metropolitan areas – total annual revenue would be $500 million. Many casino analysts predict that each machine will generate $500 a day.
Under the low estimate, horsemen and breeders will receive $45 million a year in subsidies when their percentages max out in the third year – approximately $175,000 in additional purse money and breeder awards for each racing day. NYRA will receive about $35 million a year for capital improvements and operations.
NYRA filed for bankruptcy late in 2006, claiming that it could not turn a profit under the state’s racing law and because of the state’s efforts to block the Aqueduct casino. Slot machines were legalized at nine New York tracks in 2001, and Aqueduct is the only track at which a casino has not opened.
Almost all of the racetrack casinos have failed to hit their opening estimates for revenue, and the legislation included a hodgepodge of new shares for the existing casinos to improve their cash flow at the expense of the state’s education fund.
The potential to operate the Aqueduct casino brought an influx of companies to Albany to bid on the franchise. However, those companies dropped out of the running when Spitzer announced an agreement with NYRA last September that would extend the franchise for 30 years. Spitzer had the backing of Silver and the rest of the Democratic Party.
The Spitzer agreement was an acknowledgment of the strength of NYRA’s ownership claim, or at least the hardship the claim would create if it were to be settled through the courts. Many New York legislators refused to accept the validity of the claim, including the state’s Republicans, who are holding onto a slim majority in the senate and facing elections later this year. As a result, Bruno put his party in opposition to the deal, and negotiations on a deal more palatable to the Republicans began in earnest in December.
During a conference call on Wednesday, Spitzer acknowledged that he would sign the legislation and that one of the main benefits was resolving the land issues.
"We got a resolution that I think puts racing on the right path," Spitzer said.
LONG ROAD TO A DEAL
1955: New York Racing Association is established as a public-private partnership to conduct racing under a 25-year franchise granted by the legislature.
1970: Legislature extends franchise by five years, through Dec. 31, 1985.
1983: NYRA granted 15-year franchise extension, through Dec. 31, 2000.
1997: NYRA granted seven-year franchise extension, though Dec. 31, 2007.
Oct. 29, 2001: Gov. George Pataki signs sweeping new gambling law that allows slot machines at nine New York tracks, including Aqueduct.
April 24, 2002: Three NYRA mutuel tellers plead guilty to money laundering.
June 25, 2002: Sixteen NYRA mutuel tellers plead guilty to income tax fraud.
April 17, 2003: MGM agrees to build and operate casino at Aqueduct.
Sept. 30, 2003: With NYRA under threat of indictment in connection with mutuel teller convictions, chief operating officer Terry Meyocks resigns. Board members Steven Duncker and Peter Karches are named co-chief operating officers.
Nov. 18, 2003: Two tellers plead guilty to falsifying records in a scheme to help winning bettors avoid taxes.
Dec. 11, 2003: NYRA is indicted for conspiracy to commit tax fraud over the mutuel teller convictions but accepts a deferred-prosecution agreement with federal officials that includes a $3 million fine and a management overhaul.
March 2, 2004: Federal judge appoints law firm of Getnick and Getnick to monitor NYRA’s business affairs during 18-month deferred prosecution.
May 6, 2004: Two former NYRA mutuel supervisors plead guilty to fraud charges.
Oct. 8, 2004: NYRA chairman Barry Schwartz resigns after four tumultuous years.
Nov. 4, 2004: Charles Hayward, former president of Daily Racing Form, named president and chief executive officer of NYRA.
Dec. 9, 2004: Duncker and Karches named co-chairmen of NYRA.
Jan. 13, 2005: Federal authorities indict 17 people, including New York trainer Greg Martin, for making illegal bets through offshore rebate shops. Martin is charged with administering a milkshake to a horse at Aqueduct before a race on Dec. 18, 2003.
Sept. 13, 2005: Federal authorities confirm they have agreed to dismiss the indictment against NYRA based on a report by Getnick and Getnick that praises NYRA for making sweeping management and business practice reforms, including cutting off a number of offshore and domestic wagering outlets that operate in unregulated environments; creating race-day security barns to deter the administration of banned medications; and making a commitment to operate in a fully transparent manner.
Dec. 9, 2005: Karches resigns as co-chairman.
Dec. 30, 2005: NYRA reaches agreement with the state on a $30 million loan to finance racing operations through 2006 and support two key projects – construction of a casino at Aqueduct and adoption of a rewards program for bettors based on level of play.
March 7, 2006: The board of the New York Thoroughbred Horsemen’s Association votes to take an equity stake in Empire Racing, a group seeking to take over the franchise from NYRA.
March 23, 2006: Martin pleads guilty to giving a horse a banned substance.
April 13, 2006: Karches dies of leukemia.
June 13, 2006: State committee opens bidding for the NYRA franchise set to expire on Dec. 31, 2007, issuing a request for proposals to operate Aqueduct, Belmont, and Saratoga. Sixteen groups signal an intent to bid.
Aug. 29, 2006: Four groups – Capital Play, Empire Racing, Excelsior Racing, and NYRA – submit formal bids for the franchise.
Nov. 2, 2006: NYRA files for bankruptcy protection, contending that it owns Aqueduct, Belmont, and Saratoga.
Nov. 7, 2006: New York Attorney General Eliot Spitzer, a Democrat, wins landslide election as governor, replacing Pataki, a Republican.
Dec. 15, 2006: NYRA sues Pataki and several state agencies, accusing the state of blocking its attempts to build and open the Aqueduct casino and alleging a pattern of state conduct that drove NYRA into bankruptcy.
Feb. 21, 2007: Excelsior’s bid earns the highest marks from a state committee while NYRA is ranked last among the four groups.
Feb. 28, 2007: Spitzer announces that he will re-evaluate bids for the franchise
April 10-11, 2007: Capital Play, Empire, Excelsior, and NYRA give testimony before a panel convened by Spitzer to evaluate bids.
May 1, 2007: NYRA officials confirm that MGM has backed out of Aqueduct casino agreement.
June 21, 2007: New York legislature adjourns summer session without addressing franchise issue.
July 3, 2007: Officials of the New York horsemen’s association confirm that the group has withdrawn from Empire Racing.
Sept. 4, 2007: Spitzer announces a deal that would extend NYRA’s franchise by 30 years in return for the association giving the state undisputed title to Aqueduct, Belmont, and Saratoga.
Sept. 13, 2007: Republican members of the New York Senate’s Committee on Racing, Gaming, and Wagering criticize Spitzer’s deal with NYRA.
Sept. 27, 2007: Spitzer officials defend extension deal with NYRA in front of senate racing committee and express fears that a legal showdown over who owns the tracks could drag on for years.
Oct. 10, 2007: Hayward tells senate racing committee that NYRA may shut down on Jan. 1 if no long-term extension is reached.
Oct. 16, 2007: Senate majority leader Joseph Bruno announces opposition to franchise extension and support for alternative plan in which state would award separate licenses to the three tracks.
Nov. 28, 2007: U.S. Bankruptcy Court approves NYRA reorganization plan based on 30-year extension negotiated with Spitzer.
Dec 3, 2007: Negotiations begin over NYRA extension; Bruno begins pushing for 15-year extension and greater oversight through a new state agency.
Dec. 15, 2007: Senate adjourns for the year without addressing franchise issue.
Dec. 17, 2007: Non Profit Racing Association Oversight Board passes resolution giving chairman unilateral power to negotiate a short-term franchise extension with NYRA.
Dec. 19, 2007: Spitzer selects Steven Newman as chairman of oversight board, replacing Carole Stone, a Bruno appointee.
Dec. 22, 2007: Ninety-seven percent of NYRA’s creditors approve reorganization plan.
Dec. 31, 2007: NYRA reaches agreement with oversight board on a short-term extension to Jan. 23, 2008.
Jan. 21, 2008: NYRA accepts another short-term extension through Feb. 13.
Jan. 22, 2008: Oversight board rescinds resolution giving chairman unilateral power to sign short-term extensions with NYRA.
Jan. 30, 2008: NYRA board member Charles Wait, an upstate businessman with ties to the Republican Party, resigns from board to publicly criticize Bruno.
Feb. 6, 2008: NYRA informs its employees to prepare for a shutdown on Feb. 14, warning that the backstretches at Aqueduct and Belmont will need to be vacated by Feb. 27.
Feb. 11, 2008: Duncker issues statement characterizing the negotiations over a long-term franchise as "going backwards."
Feb. 12, 2008: NYRA officials and state legislative leaders reach agreement on a 25-year extension to the franchise.