12/03/2004 12:00AM

'Let's get rid of arrogance'

Hayward: NYRA strong despite problems.

When Charlie Hayward resigned as president and CEO of Daily Racing Form in July, he thought he was headed to retirement, or possibly another business venture. Four months later, Hayward was named president and CEO of the New York Racing Association.

Hayward, 54, takes over NYRA at a critical time in the association's history. NYRA is operating under a deferred prosecution agreement with the federal government after it was indicted for its role in a tax-fraud scheme that resulted in the prosecution of 18 mutuel clerks. As part of the agreement, NYRA is operating under the scrutiny of a federal monitor, Getnick and Getnick, until July 1, 2005.

The NYRA chairman, Barry Schwartz, is set to step down at year's end, and it is unclear who will fill that role.

In addition, NYRA is about to engage in a fight to keep its franchise to operate Aqueduct, Belmont, and Saratoga, set to expire on Dec. 31, 2007. The state could put the franchise out for bid. Frank Stronach has made no secret of his desire to obtain the franchise, and his Magna Entertainment already has invested heavily in getting lobbyists to work on its behalf.

Recently, Hayward sat down with Daily Racing Form's David Grening to discuss the challenges that lay ahead in his new position.

Daily Racing Form: The stewardship of NYRA is probably one of the toughest jobs in racing right now, considering the recent history of the association, the presence of the federal monitor, and the uncertainty surrounding NYRA's franchise. You had said before you took the job you were looking forward to retiring, so why take the job?

Charlie Hayward: Good question. I asked myself that many times before I accepted. When I announced I was leaving the Form, Tim Smith had announced that he was leaving the NTRA [to pursue the top spot at NYRA]. So if that hadn't occurred it might have occurred to me to think about the NYRA job, but it clearly didn't. I really thought what I was going to do was take some time off and work with a venture group and do another media deal.

After introducing the new [DRF] president, Brent Diamond, around, the last few weeks of Saratoga I just went up and enjoyed myself as a fan. Then I learned that Tim wasn't going to take the position and it was he who actually encouraged me to speak with [Steve] Duncker and Peter Karches [NYRA's co-COO's at the time], which I did. I was encouraged with the amount of progress that had been made in terms of improving NYRA as a business. They brought in a new CFO last December, Steve and Peter had taken an active role in running the business, so I was very optimistic that steps were being made on the business side. I think we'd all agree that despite NYRA's difficulties it's been remarkable that the racing side has maintained the strength that it has. I think that's a testament to the racing office, the purse structure, and so forth. As I thought about it, I had been on the NYRA board and had my own views about the way in which business was conducted that I thought could be improved upon.

Over the four-plus years I was at the Form I really spent a lot of time traveling, visiting tracks' GM's, looking at good business practices . . . I really felt, given my business background, my exposure to NYRA through being a trustee, and also owning horses during that time, and also seeing the best and worst business practices while I was traveling around the country looking at different tracks, and caring a lot about the sport - I thought this could really be an interesting opportunity and perhaps I have some experience that I could apply.

What have you focused on during your first month on the job?

I said my two main priorities were to return the business to profitability, which is critical, and the other thing, which I've really tried to act upon, is to reach out and be more collaborative with other stakeholders. Anybody on the business side of the Form that knows me knows I constantly complain that in this industry people don't root for each other. There are constant arguments that fans, because they bet, drive the sport; no, it's the owners who pay for the horses that drive the sport; no, it's the breeders. Reality is, it's an integrated group of stakeholders that make the game go, so one of the things that I try to emphasize is I'd like to rid NYRA of what I call its institutional arrogance. I'm not sure quite what that means, but when I say it everybody seems to have their own view of it and they kind of get it, and I've really tried to start with some concrete steps.

I've had private meetings with four of the OTB's. Over the years it's clear there has been sort of a cobbling together of legislation depending on what the issue of the day was that didn't necessarily serve the industry well. So, I'm hoping in the next few weeks we're going to sit down with the OTB's and address a number of things that we have in common. For example, each of the different OTB's has their own account-wagering platform, and it would seem to me to make sense to see if we can't put it all together.

Two, during NYRA's live racing days . . . there's no real original programming that is done to either educate fans or even induce people to wager on that day's card. The only OTB that really does this with any consistency is Capital OTB. I don't see why we can't have a statewide racing channel, if you will, that would complement the account wagering, and then it would seem to me part of that would be to put together a statewide rewards program that would dovetail into the account wagering. Without regard to where the wager was made, you could build points. We'd be recognizing the value of that customer. Hopefully, there's some redundant expense in that so it gets back to the original goal of trying to be more profitable. Just in the preliminary conversations we're going to have different points of view. They have a different point of view than we do on takeout and maybe there's a business solution to that.

Reportedly NYC OTB is headed toward red ink. Is NYRA still interested in acquiring OTB, and given NYRA's financial status, how does it go about doing that? Or are you more interested in working with them as opposed to taking them over?

If we had the finances and there was a desire on the part of the administration, we certainly would love to acquire New York City OTB. I don't think that that's a financial or political reality or possibility. Having said that, my goal during the time that we have to address the possibility of a franchise renewal or a recharacterization of the franchise would be that we would emerge with NYRA and all the OTB's certainly in a deep business relationship, if not all of us part of the same entity.

In your discussions with horsemen, what have they expressed as their primary concerns?

First and foremost is, "Who are you and what do you know about horse racing?" That takes a while, but I think I can provide some comfort in answering that question. The second one is VLT's [video lottery terminals]. Under the current splits, certainly NYRA's going to benefit from it, but the biggest beneficiary in the racing industry is going to be purses.

They've seen the enabling legislation in Pennsylvania; they've seen what Delaware and West Virginia have done to Maryland. The new governor in New Jersey has stopped the possible lease or sale of the tracks and has overtly suggested it might be nice to have slots at The Meadowlands. So I would say that's the thing that's first and foremost on the horsemen's minds and I think that's probably the right thing.

Obviously, in addition to the franchise, the VLT project is another hot-button issue. What progress has been made in determining the constitutionality of VLT's at racetracks, and where do negotiations stand over how the revenue will be divided?

Our legal view is we agree that the law, as written, is unconstitutional; that the law didn't provide for direct payment to horsemen. We're supporting a change in the legislation that would basically provide for the same payment to the horsemen but be paid as part of a regulation after the law is amended. The payment would come to us, and travel unencumbered on to the horsemen. It's unclear when that will be acted on.

The one other thing that needs to get done, probably by the legislature too, is even if the funding issue gets resolved MGM needs some assurances that if the NYRA franchise is not renewed, that the state, as part of awarding the franchise or privatizing the business, would obligate the person to continue to allow MGM to operate to recover their investment.

How would NYRA feel about letting someone else manage the project if it meant getting it operational sooner?

MGM is managing the VLT operation. There's been some suggestion that MGM is backing away or they are not supporting NYRA. That is simply not true. They have been patient and they're ready to go as soon as we get over these two issues.

There still seems to be some chinks in the new tote system. When do you think they will all be worked out?

The new machines came aboard just before I got here. All I can say is that I'm disappointed that we're still having some of the problems that we are. Having said that, Bill Nader is sitting down with programmers from the tote company who promise us an ability to redesign some of the screens where there's some redundancy. Multiple-race wagers or exotic bets requiring part-wheels are not served well by the current machine setup. I think in the next 10 days we're going to get a lot of stuff done. We've had literally daily meetings, gone over the customers' concerns, the technological concerns. There are still problems and we're still hoping to solve them. Having said that, we all know that horseplayers are creatures of habit, and if you take a step back some of the functionality of the machines is really terrific. That does not for a minute excuse what could be perceived to be some training issues and also just some functional issues that need to be solved.

There were some problems this fall with Aqueduct's turf course, and on Thanksgiving you lost seven races despite less than severely adverse weather conditions. With winter coming, what steps can NYRA take to better maintain the inner track to avoid an excess loss of races?

I still don't have a complete understanding of what happened to the turf course, why it happened, and why it won't happen again next spring. When I understand the answer to those three questions we will be very happy to communicate with the fans.

I understand why we didn't run on Thanksgiving Day, but the explanation isn't entirely acceptable. We trained over the track Thursday morning and first post was 11 o'clock. I know it got warmer, but I think we need to be a little more diligent and a little more accountable.

As a horseplayer who enjoyed spending time at the track, what things did you feel NYRA could do better to accommodate the fans?

I think there are some simple things and then there are big-picture things. One is - and this is a little quirk of mine, but it falls into the category of providing better information - getting changes on simulcast races. Other than watching a scroll across the TV's on the track, [getting changes] is very difficult to do. That's unfortunate from a fan-friendly standpoint, but also from a business standpoint. A dollar wagered on a simulcast race is as valuable to us as a dollar wagered on our live track. If you're in the simulcast business, be in the simulcast business.

No. 2, we make very little effort to engage the fans. Saratoga seems to be more fan-friendly just because it's a better environment. You walk into Aqueduct on a Saturday and there are five or six thousand people there, and you're not greeted by anybody, you're not engaged by anybody, and if you are it may not be a good engagement. The only voice you hear from NYRA all day long is Tom Durkin's.

As a NYRA One member and as an owner, I basically get communicated with twice a year. I get a letter asking me if I want to purchase Belmont Stakes tickets or I get a letter for my Saratoga tickets. We don't treat our fans and our owners as if they're important customers; we don't seem to engage them and ask their opinion on how we're doing and how to improve services. That's a big issue, and it's something that's going to be hard to change, particularly with limited resources, but it's something we have to work on.

Considering the problems uncovered during the attorney general's investigation, why should NYRA's franchise be renewed?

The indictment, as I understand it from reading the attorney general's report and just reading the press, was there were business practices related to the management of money; that the mutuel clerks had their cash boxes unaudited over a long period of time, and that the mutuel clerks were also engaging in activity that took advantage of NYRA policies, which resulted in their ability to avoid paying taxes. That's where NYRA was most culpable.

By the time of the investigation, my understanding was that practice had stopped and NYRA facilitated the prosecution of the individuals involved. As I said earlier, I think the institutional arrogance resulted in a little piling on, where people used the occasion of the mutuel clerks to bring certain criticism on NYRA.

Over the last year they hired a new CFO, they changed a tremendous number of practices, they changed a number of managers and employees, and I think the monitor has facilitated NYRA's developing the best practices in a number of areas whether it's bidding out projects or just general business controls. So I think there's been a tremendous amount of improvement in how NYRA's run as an organization and we intend to continue that trend. Despite all the business difficulties, I don't think anyone could present a reasonable argument that NYRA does not have the best racing in the country. And despite the difficulties that NYRA has encountered, our ability to attract top-quality horses and horsemen and put on consistently the best racing there is in the country would indicate that NYRA is a significant racing organization.

How does NYRA go about repairing its image with Albany considering the investigation that led to the indictment, and the fact that NYRA reportedly lost $20 million a year ago?

There are two answers. One is we earn our stripes by improving our business. In 2005 we will be cash flow positive, which means we will get more cash in than we will pay out. Due to other accounting issues we may not be profitable, but I'm hoping we will be profitable in 2005, which will be a significant turnaround from the prior year. So that's the financial answer.

The other answer is I think we have to demonstrate not only financial responsibility, but we also have to demonstrate that we will work collaboratively with the regulators, with the legislature, and the goal here is to ensure that New York state has the best breeding and racing that it can.

To get positive cash flow, what were the major changes that turned things around?

This [happened] before me, so I can't comment on exactly where this came from, but I know they reduced some head count, changed some of their vendors; just looked hard really at all different aspects of where they were spending money. Also, in the past year, some of the cash they had to use to reimburse the NYRA One accounts and reimburse the horsemen's accounts. That had started I think in early 2004. The TVG deal that was done in September completed that.

How will NYRA counter efforts, specifically by Magna Entertainment, to retain the racing franchise?

The biggest thing that we can do is improve both the financial results of the business and have a company that's more responsive to all the individual interests that make up racing, which includes the fans, owners, breeders, jocks, regulators, legislators. That NYRA would represent an ownership structure that would be more beneficial to the state of New York and the racing industry than a publicly owned company whose first and foremost responsibility is maximizing shareholder value and not necessarily being concerned with the quality of racing in New York or the importance of the Thoroughbred racing industry in the state of New York.

Magna has made a very strong effort lobbyist-wise in Albany. Has NYRA fallen behind in that regard?

There are people outside the organization that would happily suggest that that's true. But we still have strong relationships in Albany, and one of my goals is to improve that. Someone said to me, "Gee, Hayward, how are you going to be helpful if you don't have any friends in Albany?" I said, "That's true, I don't have any friends in Albany, but I also don't have any enemies."

What have your experiences been with Frank Stronach?

I've had the opportunity to speak directly and privately with Frank on three or four occasions. I think that one of the problems about the Thoroughbred industry in general is its inability to attract capital investment, and Frank has been one of the few people able to do that.

My view about Magna is this: They're big customers of NYRA, they wager a lot on us, and we wager on their tracks. If this franchise is really put out to bid, it seems to me there could potentially be a lot more bidders than Magna. There could be other racing interests, there could be casino interests, so it's not my intention to focus much on Stronach and really focus on improving what we can do here.

New York horseplayers are currently prohibited from opening a wagering account with any company other than NYRA or a New York offtrack betting company. Will NYRA continue to support this policy, or would it support a legislative change to open up the state?

It's not NYRA's responsibility to monitor or enforce any laws or regulations regarding New York state revenue from opening accounts with outside account-wagering companies. It would be my hope in working with the OTB's that we could provide a premium product that would induce all New York State residents to wager on our platform.

Belmont Park celebrates its 100th anniversary next year. Given its enormity and the fact that racetrack attendance has declined sharply, are there any changes you would like to see to make it a more modern-day facility?

We've just begun work on a series of promotions that we will do throughout 2005 to celebrate the 100th anniversary, which we hope will increase the profile and awareness of Belmont. As I said earlier, we have to do a better job of promoting and marketing the facility and the racing. It's never going to be Saratoga, where we get 28,000 a day on average, but at Belmont we're getting 5,000 or 6,000 people a day. There's also been the thought of looking at developing or working with a development company to develop some of the space we have in the facility and create a better retail environment.

Again, that's only in the discussion stage, but I think it merits more discussion and some research. So using the 100th anniversary as sort of a platform to showcase Belmont, make some physical improvements if we have the capital resources to do that, and make a more aggressive marketing effort should yield better attendance and more excitement. And, of course, it wouldn't hurt to have a horse going for the Triple Crown again.