02/05/2010 12:00AM

Empire State of mind is a head-hurting one


NEW YORK - Next Saturday is the two-year anniversary of the passage of legislation extending the New York Racing Association's franchise to operate Aqueduct, Belmont Park, and Saratoga for another 25 years. After a bitter five-year battle for the franchise and nearly a decade of state and federal investigations regarding NYRA, the franchise renewal seemed to indicate that racing in New York had finally turned a corner.

NYRA officials could get out of hearing rooms and witness stands and turn to matters that would grow and improve the game; there were bright prospects for reforming the state's offtrack betting system; and perhaps most important, a racino at Aqueduct, approved by voters in 2001 but stalled for seven years, could finally move forward.

Two years later, New York racing is in worse shape than it was during the darkest days of the 2000's. NYRA is running out of money and could be broke by this summer; its racing has never been thinner or cheaper; owners are getting out of the game and there are 500 empty stalls at Belmont; New York City OTB is in bankruptcy and threatening to shut down March 31; and the racino has yet to be built.

Happy anniversary!

What happened? Things began to go wrong on Feb. 13, 2008, just a few hours after the legislation passed. That was the night the FBI recorded Gov. Eliot Spitzer summoning a prostitute to a Washington, D.C., hotel, and 30 days later Spitzer resigned. His successor, David Paterson, has been a spectacularly ineffective replacement, and state government has been in a virtually perpetual state of chaos ever since. When NYRA executives told a state budget official late last year that they could be out of cash by June, they were told that was a nice problem to have - the state would be out of cash by March.

When NYRA went public with its cash-flow problems, it may have made a tactical error by mentioning that in a worst-case scenario, it could be broke before putting on the Belmont Stakes. The tabloids and politicians pounced, with the Daily News calling NYRA "the racing group threatening to cancel the Triple Crown," legislators demanding hearings and audits.

"It's the same old NYRA in new sheep's clothing, trying to shortchange the taxpayers again," said Thomas DiNapoli, the new state comptroller, who clearly has studied the time-honored New York playbook for advancing your political career by accusing NYRA of criminal misdeeds without a shred of evidence.

DiNapoli and some agitated state senators demanded to know what had happened to the $105 million NYRA had been given under the franchise agreement to emerge from bankruptcy. As NYRA explained in a time-wasting senate hearing this past week, $80 million went right back out the door to settle its accounts (including $25 million in Nassau County property taxes alone), and the rest covered its expected operating deficits of $10 million in 2008 and $15 million in 2009 in the absence of the racino.

The franchise agreement specifically and unambiguously required the state to provide more funding if the racino was not operating by last March, an obligation that the state is now stalling and challenging.

Finally building the racino would solve the money woes, but that's a mess too. Last week Gov. Paterson awarded the Aqueduct racino contract to something called the Aqueduct Entertainment Group, an inexperienced partnership of local real-estate and construction interests with strong ties to politicians Paterson is courting for his longshot reelection bid this fall.

The contract is already being challenged by most of the losing bidders and politicians on both sides of the aisle, and insiders say a do-over is a strong possibility. "Sleazy Does It" was the front-page headline about the choice of Aqueduct Entertainment in Friday's Daily News, which also ran an editorial condemning it headlined "State's Racing Deal Stinks Worse Than The Stables."

So there's not going to be any slots money any time soon, nor will OTB be providing any help. New York City OTB, the nation's largest bet-taker, has said it will close down March 31 unless the state approves a "reorganization" plan that includes reducing its legislated payments to tracks and purses by over 60 percent, from $78 million to $28 million annually. NYRA purses would drop by at least 15 percent from their current stagnant level.

The state needs to honor its contract to keep NYRA afloat in the short term, and needs to get the racino issue resolved as soon as possible, or the consequences could be dire.

"We've put every contingency in place to ensure that we'll get to Saratoga," said Charles Hayward, NYRA's president. "But something needs to happen."

"This window of opportunity could shut very quickly," said Rick Violette, president of the New York Thoroughbred Horsemen's Association. "Then we'll be out of business."