09/15/2014 3:09PM

NYRA gets passing grade from regulators

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A New York regulatory agency on Monday approved a report that gave the New York Racing Association a passing grade in meeting the performance standards outlined in a franchise agreement that allows the association to conduct racing at Aqueduct, Belmont, and Saratoga.

The NYRA Franchise Oversight Board approved the report at a Monday meeting despite noting that NYRA failed to meet two of the 11 performance criteria in the report and only “partially satisfied” another three of the standards. Richard Williams, the chairman of the oversight board, said the failures to fully meet the criteria did not, in the board’s opinion, “constitute a material breach of the franchise agreement,” before asking the board for approval.

The report covered NYRA’s performance from 2008-12. NYRA’s board was taken over by the state in mid-2012 at the behest of Gov. Andrew Cuomo. Just months before the legislature passed a bill approving the takeover, the Franchise Oversight Board threatened to recommend that the state legislature revoke NYRA’s franchise because it had failed to meet the franchise agreement’s performance standards over the past several years.

While the Franchise Oversight Board unanimously approved the report Monday, one board member, Steven Newman, took issue with NYRA’s recent decision to award chief executive Chris Kay with a $250,000 bonus, considering the association’s failure to fully meet at least five of the oversight board’s 11 performance standards. Williams replied that the report did not cover Kay’s tenure, which did not begin until mid-2013.

Newman continued to press the issue and asked Williams if the board could request a written response from NYRA on the performance criteria used to award Kay’s bonus. NYRA has responded to previous requests to describe the performance criteria by saying that they are based in part on restoring NYRA to profitability and creating a strong management team. Williams said the board could formally request the criteria from NYRA, but he did not make it clear that the board would do so.

In response, Kay, who attended the meeting at the same satellite location where Newman attended, said that his bonus was “predicated on meeting performance standards set by the board.” He noted that the board, including its chairman, was appointed by Cuomo and other elected officials.

“The chairman has made the determination that I have performed in the fashion of being consistent to be eligible and entitled to that bonus,” Kay said. The NYRA board approved Kay’s employment contract, which included the bonus criteria, when he was hired.

Newman also was critical of NYRA’s refusal to make its auditors available to the board for interviews in a public setting. Kay said NYRA would accept written questions from Newman or the oversight board and relay them to the association’s auditors.

Newman and another board member said in a discussion of NYRA’s financial results that they were concerned with how the results from the Belmont Stakes this year may have skewed NYRA’s financial performance. At this year’s Belmont, the Triple Crown was on the line, and the popularity surrounding the Triple Crown candidate, California Chrome, pushed wagering to record levels and attendance to a near-record figure.

Susanne Stover, NYRA’s chief financial officer, said the financial performance of the Belmont Stakes resulted in a net cash-flow gain of $2.2 million compared with the same day last year, when no Triple Crown was on the line. But Kay, hitting on a theme that has marked his tenure at NYRA, told the board that the financial impact of the Belmont was dwarfed by the impact of Aqueduct racetrack, which he said lost $11 million in 2013.

Since taking the helm at NYRA, Kay has consistently cast doubt on the long-term viability of Aqueduct, augmenting concerns that NYRA’s management will recommend in a report due next year that Aqueduct be sold to developers. Cuomo has discussed the possibility of developing Aqueduct on numerous occasions.

Stover also told the board during the meeting that the IRS is conducting an audit of NYRA’s 2013 tax return. NYRA has a peculiar corporate structure and receives approximately $110 million a year in state-mandated subsidies from a casino located adjacent to Aqueduct. It also has tens of millions of dollars in long-term liabilities on its books related to unfunded pension and health-care obligations. The accounting for those obligations is a frequent target of IRS audits.