Updated on 05/22/2012 2:16PM

New York Racing Association agrees to overhaul board and give control to state

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The board of directors of the New York Racing Association will be dissolved and reconstituted as a smaller, state-controlled entity under a plan announced Tuesday by the board and New York Gov. Andrew Cuomo.

Under the plan, NYRA’s board will be pared from 25 voting members to 17, with all 17 members newly appointed. Cuomo will be entitled to appoint seven members and the board’s chairman, and the state’s Senate and Assembly majority conferences will be entitled to appoint two members each, giving the state 12 of the 17 appointees. NYRA’s current board will be entitled to the other five appointments. In addition, the new board will include two non-voting representatives, one from the state’s horsemen and one from its breeders.

The plan will grant control of NYRA to the state for the next three years, the remainder of Cuomo’s first term. The state legislature will need to approve the deal, and the process to draft and approve the bill is expected to take four to six weeks, according to a source who helped negotiate the deal and who spoke on the condition of anonymity.

Under the plan, the board would “revert back to majority private control” after the 3-year term, meaning that NYRA would control the majority of appointments to the board after the legislation sunsets, according to officials.

In a statement, Cuomo called the plan a “reorganization board that will act in the best interests of the members of the public who enjoy horse racing, the taxpayers who support it, and the horses themselves, to make racing in our state the strongest, safest, and most enjoyable in the country.”

NYRA’s board, which has been meeting with Cuomo’s office for the past several weeks, voted to accept the plan on Tuesday just prior to the announcement, officials said. NYRA is a private, non-profit company that has a state-approved franchise to operate Aqueduct, Belmont, and Saratoga, New York’s three largest Thoroughbred tracks, until 2033.

The plan fulfills a vow by Cuomo to reconstitute NYRA’s board in the wake of renewed scrutiny on the association because of a series of breakdowns at the Aqueduct inner-track meeting and a report issued last month by state regulators suggesting that NYRA officials intentionally overcharged customers by applying an improper takeout to many superexotic bets for a 15-month period in 2010 and 2011. The NYRA officials involved have denied any wrongdoing.

For NYRA, the decision to accept the plan could alleviate some of the pressure that has been building on the association for the past six months, ever since a casino at Aqueduct opened. Since then, Cuomo has pushed for the expansion of casino gambling in the state, and he has supported a plan negotiated behind closed doors for the operator of the Aqueduct casino, Genting New York, to build a convention center at the track. Under the plan, it remains unclear if live racing is envisioned to continue at Aqueduct. If the plan would go through, the state would be free to redevelop the Javits Center, which sits on valuable midtown Manhattan real estate.

Under a deal with the state, NYRA receives 3 percent of the net revenue from the casino for operations, and 4 percent for capital improvements. Those payments were suspended last week by the state lottery, but according to the source who helped negotiate the deal, the payments will resume after the legislation passes. In addition, NYRA will be paid retroactively for the amounts that were with-held, the source said.

The deal giving NYRA a share of the casino revenue applies only to “video lottery terminals,” the technical term for slot machines that are administered by state lotteries, as they currently are in New York. However, if the state approves casino gambling – which would require passage by two consecutive legislatures and a public referendum – that agreement will become moot, because the “video lottery terminals” would be replaced by slot machines, requiring NYRA, and all other tracks in New York that have casinos, to negotiate new deals in order to retain a share of the proceeds.

According to a source close to the negotiations, the decision to accept the deal to allow the state to take control of the board for the next three years “at least gives NYRA a seat the table” if the casino agreement is dissolved because of approval of full-fledged casinos. The alternatives were to allow the state to take full control of the board or to face having its franchise revoked.

NYRA has received approximately $22 million so far from the casino at Aqueduct. Horsemen and breeders have received approximately the same amount in the form of purses and breeder awards.

Under the plan announced on Tuesday, the new board will conduct a national search for a chief executive at NYRA and a general counsel. After the release two weeks ago of an interim report on the takeout error, which was prepared by the New York State Racing and Wagering Board, NYRA’s board voted to fire Charles Hayward, the association’s chief executive, and Patrick Kehoe, the association’s general counsel.

Last week, NYRA announced that it had hired Kenneth Handal, a former assistant U.S. attorney and president of a management consulting company, as its general counsel and chief ethics and compliance officer, replacing Kehoe. It was unclear as of Tuesday afternoon if Handal would be allowed to stay on until the search for a general counsel was complete.