05/17/2005 11:00PM

NYRA eyes new structure to keep franchise


The New York Racing Association is exploring ways to restructure the company to make it competitive with potential bidders for its franchise, NYRA's chief executive, Charlie Hayward, said Wednesday, one day after a public hearing in Albany about the state of racing in New York.

One of the options includes converting NYRA into a publicly traded corporation whose shares would be offered to the state, Hayward said, although he emphasized that the idea was in an exploratory stage. NYRA is considering its options under the presumption that it may need to raise $250 million to retain the franchise, in line with estimates from New York Gov. George Pataki.

The New York State legislature is expected to issue a request for proposals to operate NYRA's three racetracks next year, but it is not clear what the state would require of bidders. NYRA's current franchise to operate Aqueduct, Belmont, and Saratoga expires on Dec. 31, 2007.

The issue of the franchise renewal has become complicated by a number of recent events in New York, including an agreement NYRA reached to avoid prosecution on a number of tax-related fraud charges regarding its mutuel department and the legalization of slot machines at Aqueduct. The slot machines are expected to generate $700 million in revenue each year, using estimates provided by MGM Grand, NYRA's partner in a slots project.

The pending request for proposals has led to the formation of Friends of New York Racing, a group headed by Tim Smith, the former chief executive officer of the National Thoroughbred Racing Association. The group, which includes representatives from two racing companies that have expressed interest in the franchise - Churchill Downs Inc. and Magna Entertainment - intends to issue recommendations on restructuring the state's regulatory environment for racing before proposals are formally solicited.

Hayward said that it was difficult to forecast how the association will proceed in order to retain the franchise, in part because of the inability to determine whether the request for proposals will be influenced by the recommendations from Friends of New York and by other lobbyists, and in part because the state and NYRA have not settled the issue of whether NYRA owns the tracks it operates, Aqueduct, Belmont, and Saratoga.

At the Tuesday hearing, which was called by Sen. William Larkin, the chairman of the Senate Racing, Wagering, and Gaming Committee, Hayward contended that NYRA owns the tracks because it retains the deeds to the properties and has paid property taxes since NYRA was awarded the franchise in 1955. Legislative officials contend that the state owns the tracks.

"From a practical standpoint, we could get lawyers to support our position, and the state could get lawyers to support its position," Hayward said on Wednesday. "The only way it could probably get resolved is to go to litigation, but we do not believe that is an attractive alternative right now for either us or the state."

Hayward said that NYRA has reached a tentative agreement with its horsemen on revenue from slots, but that the agreement has not been finalized. The agreement would guarantee horsemen at least 7.5 percent of the revenue from slots in the first years of operation. Robert Flynn, the executive director of the New York Thoroughbred Horsemen's Association, did not return a phone call on Wednesday seeking comment on the agreement.

Construction on Aqueduct's $170 million slots facility is expected to begin at the end of June and take 12 to 14 months to complete. The area will have 4,500 slot machines and will be the only slot-machine operation in the New York metropolitan area.

Also on Wednesday, Larkin introduced a bill that would allow Internet wagering in the state. Currently, account wagering is legal in New York, but the wagers must be placed using a phone.

The bill would restrict Internet-wagering licenses to New York-based companies, in line with current prohibitions on out-of-state companies from taking phone bets on horse races. National account-wagering companies have been critical of these restrictions.