08/25/2014 10:41AM

Inspector general report cites 'missed opportunities' in NYRA takeout error


New York Racing Association officials, including its former chief executive and general counsel, “missed several opportunities” to discover that the association was charging a takeout rate in some superexotic pools that was in excess of the law for a 16-month period in 2010 and 2011, according to a long-delayed report issued by the inspector general of New York on Monday.

The report, which was ordered by state regulatory bodies in April 2012, after the release of an earlier report by the New York Racing and Wagering Board, states that the error was due to a “misreading of and inattention to the law” by NYRA officials, including chief executive officer Charles Hayward, general counsel Patrick Kehoe, and NYRA’s regulatory compliance officer, Pasquale Viscusi. Hayward and Kehoe were both fired by NYRA’s board in May 2012, shortly after the release of the racing and wagering board report, while Viscusi was “stripped of the responsibilities of ethics officer and regulatory compliance officer.”

The report by New York Inspector General Catherine Leahy Scott does not plow much new ground in the understanding of the takeout matter, which added to a groundswell of criticism of NYRA by state officials, especially Gov. Andrew Cuomo, and led to a state takeover of the NYRA board. Leahy Scott was appointed as inspector general by Cuomo in May, 2013.

Hayward, a former chief executive of Daily Racing Form, has insisted that NYRA officials “did not deliberately apply an incorrect takeout rate,” according to a statement issued by his lawyer at the time, and the report seems to corroborate that contention by stating that Hayward and Kehoe “were under the mistaken belief” that NYRA could keep the rate in the superexotic pools at 26 percent despite the sunset of a law in 2010 that had mandated the rate rise to that level.

However, the report also notes that a bettor alerted Hayward to the error in a forwarded email in August 2011, and that Hayward failed to notify the association’s legal department about the error. In his response to the bettor, Hayward explained that “NYRA could not request a reduction in the takeout rate at that time,” a release accompanying the report said.

Hayward “questionably testified” to the inspector general that he failed to read the letter in its entirety, the release said, missing the significance of the takeout rate being in excess of existing law.

“Regardless of the veracity of this representation, Hayward was, at best, careless in his reading of this e-mail,” the release states.

In a statement released by his lawyers on Monday, Hayward said that the report “confirms what I said two years ago – that the incorrect takeout rate was the result of simple human error, an unintentional oversight by many people.” Hayward, who was chief executive at NYRA for 7 1/2 years, filed a grievance against NYRA after he was fired contending that the association owed him the compensation under the remaining years of his employment contract, an action that was later settled between the two parties.

The sunset of the law in September 2010 restored the rate in the superexotic pools to 25 percent. In all, bettors received reduced payouts from the higher takeout level to an amount equal to $7.3 million, the report stated. NYRA officials lowered the takeout rate to 24 percent after the error was discovered, despite resistance from New York’s off-track betting companies, which retain the difference between the takeout and the amount they pay to various racing and state constituencies mandated by New York law.

The report also found fault with “other executive staff and operational divisions within NYRA and entities associated with NYRA [that] failed to appreciate the importance of the sunset,” including the New York State Racing and Wagering Board; the association’s former chief financial officer, Ellen McClain; NYRA’s internal and external auditors; the association simulcasting department; and the association’s board at the time.

“The Inspector General found that every level of internal control and audit at NYRA failed to identify the incorrectly charged takeout rate,” the report stated.

In 2012, Gov. Cuomo pushed for legislation that allowed the state to take over NYRA’s board, in the process giving the board the responsibility of hiring a new chief executive for the association. The report states that it has issued various recommendations to the board that would avert a similar problem in the future, including tightening internal controls to note the impacts of legislation and regular reviews of the association’s takeout rates. The new NYRA board “has agreed to and implemented these recommendations,” the report states.

GQ More than 1 year ago
Why would be believe Mr. Hayward if he said anything remotely having to do with this sport. He has demonstrated time and time again that he is incompetent at best. And got his hands in the cookie jar at worst. I hope for the best but trust and believe in the worst. I used to go to the races five times a week. Now I go five times a year. They are all to much for me. I would rather go to the beach. It is a shame that we watch this erosion. I understand handles are still doing well. If I have a whole day off, I do not want to sit in front of my laptop and bet these weekday cards. Drip, drip, drip, 10 bucks for a racing form? UGH. George in Naples
Jim Dolan More than 1 year ago
The individual who forwarded the letter to Charles Hayward was Steven Crist. While Hayward may or may not have read the email, and may or may not have understood its explosive accusation, Steve Crist certainly did. And he knows Hayward very well. As an otherwise outspoken critic of taxes and takeout rates and NYRA policies that adversely affect horseplayers, Crist has not, curiously in my view, ever explained adequately why he failed, and the DRF failed, to follow up personally or professionally with Hayward. Matt Hegarty has shielded Crist from the beginning on this, and he continues to do so. While Hegarty has bosses at the DRF, Crist's responsibility is to the betting public. On this specific issue he has been much less than forthcoming. While I am SC's most avid reader and admirer, I think he owes us more.
Dennis Fisher More than 1 year ago
Unknown JIm Dolan Charles Hayward was secretly operating under the hand of Churchill Downs - United Tote and MID Group as Am Tote, who were responsible for wrong take outs, yet unknown in all fairness Churchill Downs and Mid Group Executives and shareholders were causing this major NYRA problems, hoping to take over the NYRA and its three major racetracks, think who got the money of over charge into their accounts but Churchill Downs - United Tote and MID Group as Am Tote, the bads news for the above NYRA overcharging was deliberate, simply take a good look at Charles Hayward and the late Kenny Noe Churchill Downs shareholders etc, in other words, these characters above, were merely Churchill Downs and MID Group's front puppets conniving to put the not for profit NYRA into a tail spin which would allow them to take over think carefully guys and dolls of horse racing known as the greatest sport in the world.
NYY_Gossip More than 1 year ago
> However, the report also notes that a bettor alerted Hayward to the error in a forwarded email in August 2011 Funny the individual who forwarded the email to Hayward is not named here.
Sal Carcia More than 1 year ago
The belated Inspector General's report has finally cleared Charles Hayward of any wrongdoing. Also, the NYRA has settled up with Charles Hayward out of court with respect his grievance against them. Do we need any more proof of Charles' innocence? In the end, this was nothing more than a political coup orchestrated by the Governor to take over the NYRA and get rid of a thorn in his side to his overall casino plans. Charles stood up to the Governor on the behalf of racing over the years and ultimately it cost him his job. Now, the NYRA is totally under the Governor's control. Cuomo longer has any opposition to his casino plans from the NYRA. The question is how is horseracing in NY going to end up under Cuomo's leadership?
Vince Piscitelli More than 1 year ago
>>> The belated Inspector General's report has finally cleared Charles Hayward of any wrongdoing. Also, the NYRA has settled up with Charles Hayward out of court with respect his grievance against them. Do we need any more proof of Charles' innocence? LMAQ! That's pretty funny. Curious, do you play poker? if so we'd like to invite you to our weekly game. Vince P
Sal Carcia More than 1 year ago
Vince, this was nothing more than a political ploy by the Governor. Charles Hayward and the NYRA didn't stand a chance.
Walter More than 1 year ago
So surprised that the "human error" didn't result in a lower than mandated takeout rate? This sounds like corruption at its finest. There is a sure thing in horse racing, whenever there is cheating and corruption, it's the horseplayer who always pays.
Jake Footballe More than 1 year ago
How is this not a criminal matter ? Just like corporate officers of companies are held accountable for fraud, why are the former officers of NYRA not held liable for this obvious scam on the general wagering public or am i missing something ? I will admit I don't know much about this or how it is playing out but who benefited from this egregious scam ?
mikey More than 1 year ago
How about taking money out of Haywood's pension.He walked away with some big buck's.Once the horse player gets it in the pocket.
Bruce Epstein More than 1 year ago
NYRA, run by fools. I hope they give Panza a free hand as he seems to understand what the betting public want's. His hands were tied in CA. Lets see what the Big A season is all about. If NYRA gets Big A season to have larger fields and better betting races, then 'the toy man" deserves his bonus. By the way, does the "toy man" know how to use a self bet terminal?
Anonymous More than 1 year ago
Let's not forget Ellen McClain CFO at the time of the 'oversight' was not held accountable and was instead rewarded by being promoted to CEO/President after they gave Charlie the boot!
Ron Rios More than 1 year ago
The only thing missing is if DRF would have put this on their plus, make us pay to read about a racetrack ripping us off????