09/11/2008 11:00PM

NYRA's 25-year franchise deal finalized

Email

The 25-year franchise extension granted to the New York Racing Association last February was formally put in place on Friday as a raft of documents related to the deal were approved by several state agencies.

As a result, the state became the title holder to NYRA's three racetracks - Aqueduct, Belmont, and Saratoga - and the 900 acres of land associated with the tracks. In exchange, NYRA received $105 million from the state, which will allow the association to emerge from bankruptcy. Of that, $75 million will be used to pay off its creditors, shore up its pension obligations, and pay back taxes. In addition, the state waived its right to distributions from NYRA under its former nonprofit structure, including $135 million that NYRA owed, on paper, to the state.

NYRA officials said that the approval of the complex series of deals will free the association to manage the racing side of the business, but they acknowledged that NYRA's financial viability will remain precarious until the state approves an operator for a slot-machine casino at Aqueduct. In fact, $30 million of the $105 million state payment will be used as operating funds until the association begins to collect revenues from the casino.

"We believe we eventually will be profitable, but looking prospectively in this economic environment is not something a wise person would do," said NYRA's chairman, Steven Duncker, when asked if NYRA could be considered a profitable enterprise without the slot-machine revenues. Duncker added that the $30 million would almost assuredly keep the association in the black for two years.

Jim Heffernan, NYRA's vice chairman who headed the financial development of the reorganization plan, said that the association's expenses would dramatically decline as a result of the approvals. He cited a $14 million annual expense for pension obligations - a total that included penalties and interest - that will be reduced to $7 million, as well as the elimination of all property taxes on the tracks.

"Those are big numbers in terms of our revenues," Heffernan said.

Slot machines were legalized in 2001 at nine New York racetracks, but Aqueduct is the sole legal operator that has not yet opened a casino. Under the deal with the state, Gov. David Paterson, senate majority leader Dean Skelos, and assembly speaker Sheldon Silver must agree on the operator.

Earlier this year, three companies submitted bids to operate the facility, which will likely generate $500 million in gross gaming revenues per year. NYRA and its horsemen will receive about 15 percent of that revenue for purse subsidies, operating funds, and capital expenditures. The casino operator will be required to set aside its first $105 million in revenues to the state as a make-good on its advance to NYRA, according to the legislation.

Morgan Hook, a spokesman for Paterson, said on Friday that state leaders expect to name an operator for the casino within several weeks.

"Today's deal didn't need to take place for a vendor to be selected," Hook said. "That being said, it certainly makes the picture clearer, as far as the racing landscape, and should make it easier to reach a consensus among the legislative leaders."

NYRA has been operating under a series of short-term franchise extensions as negotiations continued on the documents necessary to put aspects of the franchise legislation in place. The extensions were granted by the New York Racing Association Oversight Board, which will now oversee various aspects of NYRA's operations.

NYRA filed for bankruptcy late in 2006, listing debts of more than $300 million. The decision to file for bankruptcy gave NYRA a strong negotiating position with the state as it sought to get a long-term franchise extension, because it introduced complex legal questions surrounding the ability of the state to take possession of the tracks without compensating NYRA.

NYRA's reorganization plan was approved in April by the U.S. Bankruptcy Court for the Southern District of New York, and on Thursday, the bankruptcy judge reiterated the court's approval of the plan in light of the finalization of the documents putting the franchise extension in place.

Brian Rosen, NYRA's bankruptcy attorney, said on Friday that the association will formally emerge from the protection of the court within a month after the finalization of several outstanding issues that are "pretty administrative in nature."

Also as part of the agreement, NYRA will disband its current board of directors. The new board will be made up of 25 members, with 14 appointed by NYRA and 11 appointed by state officials. NYRA officials said on Friday that the association's slate will be announced next week.

Paterson received seven appointments to the board, and he has already selected five members: Michael D. Hess, the vice president of New York City Off-Track Betting Corp., which was taken over by the state earlier this year; Chester F. Broman, a director of the New York Thoroughbred Breeders; Richard Violette, the president of the New York Thoroughbred Horsemen's Association; Denis M. Hughes, the president of the New York State AFL-CIO; and Michael Dubb, the founder of Beechwood Organization and a Thoroughbred horse owner.

As part of the process on Friday, the New York State Racing and Wagering Board approved a certificate of incorporation for NYRA prepared by New York's secretary of state at a meeting. The oversight board also approved the documents at a meeting early on Friday afternoon.

John Sabini, the former state senator who is now the chairman of the New York State Racing and Wagering Board, said after the meeting that the board is going "to look at NYRA with a more critical eye" than in the past and suggested that the state will be looking for the association to contribute money to the state budget.

"The governor has expressed an interest in making sure that we don't forget why we license racing in this state, and that's to return money to the taxpayers," Sabini said.