11/02/2006 12:00AM

NYRA declares bankruptcy


The New York Racing Association, the nonprofit operator of Aqueduct, Belmont, and Saratoga, filed for bankruptcy protection on Thursday in United States Bankruptcy Court for the Southern District of New York, the association announced Thursday evening.

NYRA officials said that the filing, under Chapter 11 of the bankruptcy code, would not affect the association's racing schedule or its operation, nor would it require the association to fire any employees. Chapter 11 is designed to allow businesses to continue to operate while the court works out payment schedules to creditors of the association.

"Chapter 11 bankruptcy does not mean going out of business," said Charles Hayward, the president of NYRA, in a statement. "In fact, it is a constructive process that allows NYRA the opportunity to achieve financial reorganization while continuing to conduct world-class Thoroughbred racing without interruption."

NYRA officials were scheduled to appear in bankruptcy court on Friday, according to Bill Nader, a NYRA senior vice president. At the hearing, NYRA will seek a ruling for a "debtor in possession," which would allow the association to seek a loan from financial markets to cover its current obligations. Nader said he did not know the size of the loan that NYRA would be seeking, but said it was in the seven-figure range.

NYRA officials have contended for two months that the association would file for bankruptcy if the state did not approve either its plans for a casino at Aqueduct or the release of $19 million remaining from a $30 million state loan package. Earlier this week, a state oversight committee offered to release the loan but attached conditions that NYRA officials said were unsatisfactory.

According to Nader, NYRA currently has $20 million in unpaid real estate taxes, and $12 million in obligations to its pension fund. The association has struggled to meet its payroll and has ongoing cash-flow problems.

The filing further complicates an already complex political situation revolving around bids for the state franchise that NYRA holds to operate the three tracks. The franchise expires on Dec. 31, 2007, and a state committee is currently evaluating bids from three groups, including NYRA, to operate the tracks and the Aqueduct casino for 20 years beginning in 2008.

The filing also has the potential to resolve a dispute between NYRA and the state regarding the ownership of the three tracks. NYRA has contended that it owns the tracks while the state has said that they are assets of the state. The resolution could have enormous implications on the bidding process. If NYRA owns the tracks, then bidders for the franchise would have to come up with hundreds of millions of dollars to buy the facilities and property or work out a deal to rent them.

"Hopefully, [the bankruptcy court] will resolve it," Nader said. "That might be a great outcome, because it might finally provide an answer to a question that has been knocked around over the past year without even a hint of a resolution."

NYRA first raised the possibility of a bankruptcy filing in 2005, but late last year, the state legislature approved a $30 million loan package to address NYRA's financial problems. NYRA received $11 million of the loan, but the remaining $19 million has been held up as the state lottery corporation reviews an agreement between NYRA and MGM Grand to operate the Aqueduct casino, which has been allotted 4,500 video lottery terminals, or slot machines.

The two other groups seeking the franchise, Empire Racing Associates and Excelsior Racing Associates, include partners that operate casinos. It was unclear Thursday how the bankruptcy filing would affect NYRA's deal with MGM, which was protected by legislation passed in 2004 so that the deal would be binding on whoever held the franchise past the expiration date.

Nader said that MGM was still prepared to move forward if and when the association got approval for the casino.

NYRA officials have been in talks with the state lottery for several weeks to get approval for the deal, which includes a $180 million loan from MGM to construct a casino on the Aqueduct grounds. The casino is expected to be the highest-grossing gambling facility on the East Coast because of its proximity to the New York metropolitan area and the number of its machines.

Eight other racetrack casinos in the state have begun operating. The legislation authorizing the casinos was passed in 2001 and amended in 2003.

In a statement, Steven Duncker, NYRA's chairman, called the delays in approving the management agreement with MGM "inexplicable."

"It is all the more mystifying given the fact that VLT's have been put in operation at eight non-NYRA tracks around the state," Duncker said.

NYRA has been confronted with a barrage of financial and legal problems since the slot-machine legislation was passed in 2001. Shortly after the bill was passed, state prosecutors began seeking convictions of NYRA mutuel clerks on tax-fraud and money laundering charges. A total of 20 clerks were convicted on the charges.

Late in 2003, NYRA reached a deferred prosecution agreement with federal prosecutors in order to avoid charges of money laundering and fraud because of the convictions. The agreement included the appointment of a federal monitor to oversee structural changes at the association and a $3 million fine.