11/30/2007 12:00AM

N.Y. deal could hinge on last-minute politics

EmailWith one month remaining in 2007 and the future of New York racing hanging in the balance, state government and racing officials have begun to dig in on some issues and compromise on others that are part of a pending deal to extend the New York Racing Association's franchise for the next 30 years.

NYRA's franchise to operate Aqueduct, Belmont, and Saratoga expires on Dec. 31, and still no clear path is in sight, according to officials involved in the process. Gov. Eliot Spitzer and the assembly support the franchise extension, but the senate is still vowing publicly to block the deal even while quietly negotiating behind-the-scenes in a process that is typical of how the New York legislature conducts its end-of-year business.

The uncertainty surrounding the process obscures the two most likely results. The first is that the Republican-led senate ultimately accepts the extension with some negotiated modifications. The second is that the senate holds firm, which would likely lead NYRA into court in an attempt to block the state from taking over the operation of the tracks.

NYRA is operating under protection of a bankruptcy court, and NYRA officials remain adamant that they will not accept any deal other than the franchise extension. NYRA officials have long maintained that the association owns the racetrack properties and are prepared to go to bankruptcy court if all else fails, even if that means a shutdown of racing. The state contends it owns the racetracks, and the extension would settle the matter with NYRA conceding title to the state.

"We're going to protect the estate, its assets, and its creditors, and that could take a variety of forms," said Brian Rosen, NYRA's bankruptcy attorney, earlier this week. "We have 33 days to figure that out. Hopefully the legislature will act prior to that so that we can get on with the terms" of the franchise extension.

Opposition to the franchise extension is being led by Republican Joseph Bruno, the senate majority leader whose relationship with Gov. Spitzer, a Democrat, is hardly amicable. In early October, as an alternative to the extension NYRA negotiated with Spitzer, Bruno announced a plan that would create a government commission that would award contracts to operate the tracks and a stalled casino at Aqueduct. In some versions of Bruno's plan being discussed recently, the commission would also have the power to negotiate simulcasting fees, concessions, and bet-processing contracts, providing an ongoing means for business interests to lobby government for favorable deals.

The ability of the commission to control NYRA's simulcast signal - which generates approximately $130 million a year in revenue - could have significant ramifications for the racing industry. The rights to NYRA's in-home signal is currently held by Television Games Network, but that contract expires at the end of this year. TVG's largest rival, TrackNet - a partnership between Churchill Downs Inc. and Magna Entertainment Corp. that buys and sells simulcasting signals - is aggressively seeking the NYRA rights, which are the most valuable in the country. If the commission had control of the signal, companies looking to obtain the rights would bypass the corporate negotiating table for the world of politics.

A senate aide who spoke on the condition of anonymity said that putting the simulcasting rights in the hands of the government made sense, although the commission would attempt to find a company to market the rights.

"One of the reasons that NYRA is in bankruptcy is because they undersold that signal," the aide said. "You want to find someone who does this professionally, who knows how to do this. So you'd contract that out."

A Bruno spokesman, Mark Hansen, said this week that Bruno is still solidly behind his plan, but he also said that the senate leadership is in negotiations with the assembly and Spitzer's office over a compromise deal. Hansen declined to provide any specifics about what a compromise might entail.

"We still feel that it is a solid plan," Hansen said, about Bruno's proposal. "His position all along is that he wants a solution that gets the best result for the racing industry."

The extension is also opposed by a changing lineup of companies that are seeking the right to operate the three tracks and, possibly, two casinos in one of the country's largest markets. The companies include partnerships of real-estate developers, casino operators, and racetrack operators, although some of the partnerships have dissolved as companies position themselves individually to take advantage of the Spitzer plan, which provides for a separate casino operator, or the plan that Bruno has proposed.

The New York legislature's past performance in recent years augers well for a deal to extend the franchise. Typically near the end of the year, the governor and the leaders of the assembly and senate meet to discuss the legislation each wants and to work out deals for an exchange of support. That horse-trading process is keeping NYRA officials optimistic about the prospects for a compromise.

Some of the contentious issues that will likely be in play are the length of the extension, the possible legalization of slots at Belmont Park, and the revenue share that an operator of the casino or casinos is allowed to retain. NYRA officials say that they cannot accept anything less than a 30-year extension; Gov. Spitzer, NYRA, and the senate support legalization of slots at Belmont, although Sheldon Silver, a Democrat who is the speaker of the assembly, does not; and the senate is far more likely to grant casino companies a larger share of the revenue from slot machines than any other party in the process.

"The assembly is holding off on slots at Belmont Park because they don't know what they want," said an aide to a senate Republican, who spoke on the condition of anonymity. "They're going to want something in return, something for trial lawyers or money for teachers, and that's what they'll trade."

If a deal is not reached, Bruno has said that the New York Racing Association Oversight Board, a five-member state commission created by Spitzer's Republican predecessor, George Pataki, would take over operation of the tracks. A spokesman for the board, Matt Anderson, said that the board's chairwoman, Carole Stone, would not be available for comment, but he said that board members had recently held discussions with NYRA about the possibility of a takeover on Jan. 1. Anderson declined to elaborate.

Charles Hayward, the chief executive officer of NYRA, said that the discussions were informal and that board members were seeking to open the lines of communication in case a legislative deal was not approved.

"Basically, if there came a time when [a legislative deal] was a dead issue, then we would be in touch with the oversight board for further discussions," Hayward said. "But frankly, we don't want to go there. We want to continue to work through the political process. That's our best chance."

Creditors approve bankruptcy plan

The creditors committee of the bankrupt New York Racing Association has endorsed the association's reorganization plan, according to Rosen, NYRA's attorney.

The creditors committee voted to endorse the plan on Thursday, one day after U.S. Bankruptcy Judge James Peck of the Southern District of New York approved the plan at a hearing. The committee's endorsement took the form of a letter that is being appended to the reorganization plan for distribution to all of NYRA's creditors, according to Rosen.

"We think this is a phenomenal step forward, because we now have the support of our major creditors," Rosen said.

NYRA creditors have until Dec. 21 to vote on the plan.

The reorganization plan is based on the agreement with Spitzer that would grant NYRA a 30-year extension on its franchise. In exchange, NYRA would give the state title to Aqueduct, Belmont, and Saratoga, and the state would provide $75 million to the association to help it emerge from bankruptcy, in addition to forgiving approximately $100 million in state debt.