01/27/2006 12:00AM

Fate of N.Y. racing up in air

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Churchill Downs is taking future wagers on 24 different betting interests for this year's Kentucky Derby. A similar number of betting interests could be offered on the fate of New York racing after public hearings Tuesday and Wednesday in lower Manhattan by the Ad Hoc Committee on the Future of Racing.

The committee took testimony from almost 50 individuals representing an array of viewpoints: companies seeking the franchise currently held by the New York Racing Association, state offtrack betting corporations, breeders, owners, economists, lawyers, and welfare groups. After 11 hours of testimony, the enormity of the task was clear.

The committee's job is to develop a request for proposals to operate Aqueduct, Belmont Park, and Saratoga Race Course while navigating a potentially explosive political landscape. To do that, the committee will also need to recommend a host of changes to New York's racing law, since nearly everyone who provided testimony agreed that the current structure is beyond repair.

None of that can happen until the committee figures out exactly what people are going to be bidding on.

It's a tough question. NYRA has operated the tracks since 1955, but its franchise expires on Dec. 31, 2007. It has lost tens of millions of dollars over the past five years; its pension plan is underfunded by $100 million and has been frozen for most current employees; and the state recently agreed to a $30 million loan package to save it from bankruptcy. Just how much is the opportunity to lose millions of dollars worth?

But those facts ignore the obvious. Slot machines are on their way to Aqueduct, a track connected to New York City's vast population by subway. It's plausible that Aqueduct will become the most lucrative casino on the East Coast, and that has piqued the interest of casino companies and developers, although few have publicly tipped their hands.

Naturally, racing officials are nervous. Although current racing law provides subsidies to racetracks from slot machines, the long-term future of the subsidies - and the notion that tracks will retain their monopoly casino status indefinitely - cannot be guaranteed, especially when well-funded casino lobbyists are roaming the halls of the state capitol.

Still, committee members seemed sympathetic to the horse racing industry's concerns. In comments, they appeared to be willing to retain NYRA's not-for-profit structure, recommend laws that would allow the racetrack operator to respond better to technological change and competition, and even to merge the state's offtrack betting corporations with the racetracks. All of those changes are heavily supported by NYRA and its allies.

The most curious proposal of the hearings came from Magna Entertainment Corp., the country's largest racetrack operator. Officials from Magna asked the committee to consider offering two requests for proposals: one for the racing business and the other for the slot-machine business. The officials framed the request in language suggesting that the company is not that interested in slot machines.

That claim belies the reality. In fact, Magna likely cannot afford to bid on the slot-machine business. The company has lost $350 million over the past four years and is heavily indebted, making any effort to go up against casino heavyweights difficult at best. So instead, Magna is asking the state to strip away the most expensive assets in the RFP so that it would at least have a chance at the racetracks. Since tracks will still get their subsidies from the slots regardless of who operates the casino - at least, under current law - why buy the whole pizza shop when you can get free slices?

Magna's recommendation went even further. It asked the committee to prohibit the franchise winner from selling or developing any of the three tracks. Politically, the recommendation is a winner - horsemen and the tracks' communities would likely embrace it. But again, this is not the whole story. If the tracks could not be sold or developed, their value to any bidder is nil. And since NYRA has negative cash flow and ongoing losses, Magna's recommendations would essentially fix the value of the racing franchise at somewhere near zero, an amount even Magna can afford.

Hanging over all these recommendations is a bigger question about the tracks. NYRA officials maintain that the association owns both the tracks and the land, citing property taxes and the physical deeds themselves. The association's case has some strong points, and it's unlikely the question will be resolved without a bruising legal and political battle - unless, of course, the state cuts a deal.

It's not out of the question for the state to take on NYRA's underfunded financial obligations and debts in exchange for the deeds to the tracks. That would certainly clear the table of a lot of issues, and it's also the type of horse-trading that Albany is famous for.