Updated on 05/05/2012 11:14AM

NYRA fires Hayward and Kehoe after report on takeout mishap

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The New York Racing Association fired Charles Hayward, its president and chief executive officer, and Patrick Kehoe, the association’s general counsel, on Friday five days after a state report challenged NYRA claims last December that it was unaware it had applied an incorrect takeout rate to its trifecta and superfecta bets over a 15-month period.

Steven Duncker, NYRA’s chairman, said in a statement Friday that NYRA decided “that these executives failed to perform their duties at a level required by the board.”

On Monday, the day the report was released, the board suspended Hayward and Kehoe indefinitely without pay.

Late on Friday night, Hayward released a statement taking issue with the board’s firing. In the statement, Hayward said he was “extremely disappointed” with the decision, and he said that the report on which it was based was “flawed and admittedly incomplete.”

“I have been fully cooperating, and will continue to fully cooperate with the NYRA board,” the statement read. “I look forward to the Racing and Wagering Board and the New York Inspector General completing their investigations as expeditiously as possible. I expect to be fully exonerated when all of the facts come out.”

Hayward also attached a Thursday letter from his lawyer, Eric Corngold, to the board. In the letter, Corngold says that Hayward had met with board members earlier in the week, in which evidence was provided that “demonstrably establishes that NYRA did not deliberately apply an incorrect takeout rate.” The letter urged the board to delay any further action against Hayward.

Since the report was released, NYRA has come under renewed criticism of its management of New York’s three largest Thoroughbred tracks, which are owned by the state but operated by NYRA under a long-term lease approved by the legislature. One of the association’s most high-profile critics has been Gov. Andrew Cuomo, who earlier this week on a radio show said that changes to NYRA would be a priority of his administration over the next several months.

Several of NYRA’s board members have close ties to Cuomo, including the association’s vice chairman, Michael Del Guidice, who is a former chief of staff for Cuomo’s father, former New York Gov. Mario Cuomo. In addition, the board member Leonard Riggio, the chairman of Barnes and Noble, is a major fundraiser for Cuomo.

Riggio said on Friday afternoon that he had not heard about the firings until contacted by a reporter.

“I feel badly for Charlie and Patrick but I’m not down at all on NYRA’s prospects, not one bit,” Riggio said. “This should be an opportunity for everybody here to set it straight and to make sure they have confidence in who is running NYRA.”

Asked if he felt NYRA or the state would select the next president, Riggio said, “I think the board is in charge of that. … We’ll be looking for one of the top people in racing to take charge and hopefully we’ll get a really great recruit.”

Other board members contacted on Friday afternoon said that they could not comment on meetings held earlier that day, citing “legal issues.” Duncker did not return a phone call.

According to officials, NRYA sent a letter to the Franchise Oversight Board on Friday to respond formally to the allegations in the report, which was prepared by the New York State Racing and Wagering Board.

Following the release of the report, the oversight board chairman, Robert Megna – Gov. Cuomo’s budget director – called the allegations “deeply troubling” and called for an investigation by the state’s Inspector General. The oversight board has the power to recommend that the state legislature revoke NYRA’s franchise to operate Aqueduct, Belmont, and Saratoga.

Duncker’s statement Friday said that NYRA was cooperating with inquiries related to the report. “NYRA expects that those inquiries will thoroughly and fairly investigate the matter,” the statement said.

Officials for Cuomo’s office did not return phone calls by late Friday afternoon.

Hayward, the former chief executive of Daily Racing Form, was hired by NYRA in 2004. He guided NYRA through a politically fraught bankruptcy in the late 2000s, and he is well-liked by NYRA’s horsemen and many other racetrack executives. Kehoe, a former advisor to former New York George Pataki, was hired by NYRA in 2002.

The report issued Monday included several e-mails that indicated Hayward had been notified that a law providing for higher takeout rates at New York tracks expired in September 2010.

After the expiration, NYRA’s takeout rate for superfectas and trifectas was one point higher than the law allowed. NYRA did not lower the takeout until December 2011, when regulators notified the association that the takeout was too high. The racing board and the Franchise Oversight Board each failed to notice the error over the 15-month period in which the takeout exceeded the legal rate. The higher rate cost bettors $8.6 million in reduced payouts.

The report contained copies of e-mails directed to Hayward that included information noting the takeout was in excess of the law. However, the e-mails did not clearly indicate whether Hayward believed the association was operating in violation of the law. No e-mails from Kehoe were in the report although one e-mail response from Hayward said he would forward the e-mail citing the takeout discrepancy to the association’s counsel.

The report noted that NYRA had asserted that e-mails between management and counsel were privileged, and that NYRA would not release them.

- additional reporting by David Grening