01/25/2006 12:00AM

New York hearings focus on profits


NEW YORK - The second session of public hearings on the future of Thoroughbred racing in New York focused Wednesday on whether racetrack and slot-machine casino operations should be run by for-profit or not-for-profit companies.

The hearing was held in lower Manhattan by the Ad Hoc Committee on the Future of Racing, a government panel whose job is to help determine who should operate Aqueduct, Belmont Park, Saratoga Race Course, and a slot-machine operation planned for Aqueduct. The committee held its first hearing on Tuesday in Albany.

Wednesday's hearing included testimony from representatives of Del Mar Thoroughbred Club, a racetrack that does not distribute profits, and Woodbine Racecourse in Canada, which has a unique corporate structure that requires all profits to be reinvested in its facilities, along with 18 other individuals. During the hearing, Bernadette Castro, a member of the committee, repeatedly asked the people who provided testimony whether they believed New York racing would be better run under a privatized structure or by retaining elements of a nonprofit company.

The three racetracks are currently run by a highly regulated, not-for-profit company, the New York Racing Association. NYRA's franchise to operate the tracks expires on Dec. 31, 2007.

The focus of the hearing provided likely bidders for the franchise with opportunities to outline the benefits of their own structure and the drawbacks of other competitors. In some instances, those opportunities resulted in highly critical comments about for-profit racing companies like Magna Entertainment Corp., which is seeking the franchise, and Churchill Downs, another large racetrack conglomerate that has not tipped its hand on whether it will make a bid.

Charles Hayward, the chief executive of NYRA, told members of the committee during his testimony that Magna and Churchill Downs had made decisions in the past three years that had failed to benefit the racing industries in the states where they owned racetracks, pointing to Churchill's decision last year to sell Hollywood Park in California and Magna's $350 million loss over the past four years. Hayward also was critical of Magna's redevelopment of Gulfsteam Park in Florida, which has drawn critical comments from many horseplayers.

Hayward, who also testified at the first hearing, said Wednesday that NYRA will definitely seek to retain the franchise, possibly with a financial partner. It was the first time that an official of NYRA has firmly indicated that it intends to vigorously defend the franchise. NYRA has been beset with financial problems, and only last year emerged from a deferred-prosecution agreement that allowed it to escape criminal charges of tax fraud by employees.

"Once you start looking at the margins of racing, you look at the financial performance of the two conglomerates, making no judgments about whether they've done a good or bad job, you can see that racing is a low-margin, capital-intensive business," Hayward said after the hearing. "It doesn't lend itself to a for-profit model."

Craig Fravel, the executive vice president of Del Mar, said during his testimony that the not-for-profit racing model works at his company because all net revenues are reinvested in racing.

"If you want some advice, forget about taking profits out of the company," Fravel told the committee. "Profit needs to be reinvested."

The committee, which currently has six members, plans to issue recommendations to the legislature and the governor on a state-issued request for proposals to operate the tracks and the casino within the next six months. Castro said after the hearing that the committee will begin the process of drafting the request at its next meeting, which has not yet been scheduled.

Many other speakers at the hearing used their testimony to recommend changes to New York's racing law, including the legalization of Internet wagering, cash rebate programs, and slot machines at Belmont Park. Some speakers also supported merging the state's six offtrack betting corporations with the future operator of the tracks, arguing that a consolidation would reduce costs to the overall industry and allow the OTB companies to work with the racetrack operator to improve the racing industry.

The idea of merging the OTBs, which distribute their profits to the counties that own them, into the racetrack operator is being steadfastly resisted by many OTB officials. At the hearing, Dino Amoroso, the president of Nassau OTB Corp., told the committee that if the state forced a merger, it would be "monopolistic, and possibly antitrust," and then criticized Magna without mentioning the company by name. Magna officials gave testimony on both Tuesday and Wednesday.

"Have these private entities told you that they have, hypothetically, hemorrhaged money to the amount of $350 million over the past three years?" Amoroso said. "Has private told you that they have zero dividends to their shareholders? . . . We have profits, we have dividends, and we have been held accountable by state legislatures and the state controller and by my respective counties."

Despite Amoroso's comments, Castro told him that the committee wanted Nassau OTB to prepare a document that would visualize how a merger could be completed "voluntarily." Amoroso said he would work on such a draft.

After the hearing, Castro said she was not leaning one way or another on any of the ideas presented on Tuesday and Wednesday.

"These two days of hearings have been invaluable," Castro said. "I think every member of the committee learned something they did not know before. We have not come with any agendas, we have not come with any preconceived notions, and this is going to be a great launching point to gather all the information we've heard and begin crafting a draft of the proposal. We're excited about it, and we're anxious to be moving forward."