07/11/2010 11:00PM

NYRA audit reveals need for cost cuts


According to an audit conducted by the New York state comptroller, the New York Racing Association could become insolvent next year if the long-awaited video lottery casino at Aqueduct doesn't become a reality.

NYRA, which has pledged to further cut its costs, avoided a fiscal crisis in June when the state legislature approved a $25 million loan. The loan fulfilled a 2008 settlement in NYRA's bankruptcy that required the state to provide funding if it delayed selecting a casino operator. Earlier this month, nine years after legislation approved a slots casino at Aqueduct, the state disqualified two of the three bidders to run the casino for failure to conform with bidding requirements. The remaining bidder, Malaysia-based Genting New York, still faces months of selection procedures, including approval by the legislature.

Comptroller Thomas DiNapoli called NYRA's financial state "shaky" in the audit report and blamed the state for the casino delays and NYRA for having "continued business as usual for too long."

"Had NYRA officials acted sooner, and more forcefully, to align operating expenses with actual net revenues, it might have deferred its cash crisis and reduced the amount of the financial assistance necessary from the State," the audit, released Monday, said.

According to the report, NYRA incurred an $8.9 million operating deficit last year and projects a $19 million shortfall in 2010. In addition to the loss of about $30 million in projected casino revenue, it has not received $17 million from the bankrupt New York City Off-Track Betting Corp. Meanwhile, handle fell more than 13 percent from 2006 to 2009.

But the audit found NYRA's payroll costs rose $1.9 million since September 2008, and the association spent $6 million on contracts for "personal and miscellaneous services."

The audit noted that, since February, NYRA has lowered purses and laid off 12 staff members for projected annual savings of $5 million. NYRA officials also have informed auditors that they plan to close Aqueduct's training facility at a savings of up to $3.5 million annually, and to close the Aqueduct security barn to save about $1.2 million annually.

The audit said NYRA's cuts, so far, have been insufficient. It called on NYRA to bring its operating expenses in line with actual net revenues with strict oversight. It also called for department-by-department staffing assessments and adjustments to reduce costs, modifying or discontinuing contract services that can't be justified with documented analysis, and charging a fee or discontinuing NYRA's free transport service for horses shipping between NYRA tracks, which costs an estimated $900,000 annually.

In a written response, NYRA president Charles Hayward said NYRA plans to pursue building a 20,000-square-foot, year-round sports bar/entertainment complex at Aqueduct and close the training facility there. NYRA has received regulatory approval to uncouple entries that share only the same trainer. That policy, which went into effect Wednesday, will lead to more betting interests in races and is expected to increase handle.

Hayward noted that New York City OTB owed NYRA nearly $20 million at the end of May and said that in response to this and the lack of casino revenue, NYRA had adjusted its budget. "Notably, as of May 2010, year-to-date operating expenses are $1.5 million, or 3.1 percent, below budget," Hayward wrote.

Hayward also warned against ending the inter-track shipping program, saying it helped maximize field size, but said NYRA will evaluate reducing costs for the program. But he added: "Now is not the time to increase costs on horsemen who themselves have been negatively impacted by the delay in launching video lottery terminals."