02/03/2010 12:00AM

NYRA holds to claim that state owes it funds


Officials for the New York Racing Association reiterated on Wednesday during a New York state senate committee hearing that a settlement negotiated with the state in 2008 requires the legislature to provide NYRA with funds to cover its operating costs until slot machines are up and running at the association's Aqueduct racetrack.

Quoting from an agreement that gave NYRA the right to operate Aqueduct, Belmont, and Saratoga for 25 years in exchange for giving up the title to the three tracks, NYRA's chief executive, Charles Hayward, said that the state is obligated to negotiate in "good faith to provide new NYRA with payments necessary to support racing operations and satisfaction of new NYRA operating expenses" if slots had not been installed at Aqueduct by April 2009.

The obligation of the state to NYRA has become a source of contention since late last year, when Hayward said that NYRA would run out of money by early summer without any subsidy from slot machines. Although slot machines were legalized at Aqueduct and eight other New York tracks in 2001, the state has not yet reached a formal agreement with an operator for the casino.

Last Friday, Gov. David Paterson said that state legislative leaders had agreed to begin negotiations with a sprawling, politically connected partnership, Aqueduct Entertainment Group, over a 30-year agreement to operate the casino. Even if those negotiations are successful, a casino will not be up and running at Aqueduct until late in 2010, at the earliest.

The hearing on Wednesday was held by two senate committees: Investigations and Government Operations, as well as Racing, Gaming, and Wagering. According to a statement released by the committees, the hearing was held to "determine the accuracy of NYRA's declaration" that it would become insolvent by early summer and "investigate the basis for NYRA's plight."

Government officials have expressed skepticism of NYRA's claim of insolvency, citing a $105 million payment made by the state to allow NYRA to emerge from bankruptcy in 2008. In addition, state lawmakers are currently grappling with how to address a $8 billion budget deficit.

Late last year, the New York state comptroller, Thomas DiNapoli, issued a subpoena to NYRA for its financial records in reaction to Hayward's remarks. After initially balking at the subpoena, NYRA acquiesced to the request in January, but the audit is not expected to be complete until the fall or winter, well after NYRA says that it will run out of money.

According to Hayward's presentation, NYRA used $80.1 million of the $105 million payment to pay off creditors, and the rest, $24.9 million, went into the association's operating accounts. In the past, Hayward has said that the association's financial problems are grounded solely in the association's use of projected revenue from slot machines for its 2010 budget.

Under New York law, NYRA will receive 4 percent of the gross revenue from slot machines to fund capital expenditures, and will receive an additional 3 percent for operating funds. Horsemen will receive 6.5 percent in purse and breeders' awards subsidies. Gambling analysts expect the casino to gross at least $500 million a year, meaning NYRA and its horsemen will likely receive $35 million in subsidies from the casino's operations.

According to financial statements provided by NYRA, the association had negative cash flow of $15.5 million in 2009, and it projects a negative cash flow of $24.3 million in 2010. By the end of 2010, the association will have a negative cash balance of $7.8 million, according to the documents.

Other speakers at the hearing included Rick Violette, the president of the New York Thoroughbred Horsemen's Association, and Jeffrey Cannizzo, the executive director of the New York Thoroughbred Breeders Inc. Both used their prepared comments to underline the importance of the New York racing industry to the local and national health of the sport.

Sen. Eric Adams, the chairman of the Racing, Gaming, and Wagering Committee, seemed amenable to the industry's concerns at the close of two early panels featuring racing officials, and he said that he planned to hold other "roundtable" meetings to determine how government could help racing turnaround its fortunes.

"If we're doing something that is preventing the industry form moving forward, we have to get out of the way," Adams said.