09/09/2004 11:00PM

Smith deal bungled from start


NEW YORK - The organizations involved in the plan to put Tim Smith in charge of the New York Racing Association got one thing right at the very end of the doomed process: They made the formal announcement that the plan had failed on the Saturday of Labor Day weekend, a day renowned in the news and public-relations businesses as the ultimate burial ground for stories you hope will attract as little attention as possible.

It was the first savvy move in a fiasco that needlessly embarrassed Smith and New York racing while again illustrating the poisonous and dysfunctional relationship between government and racing.

Making Smith the president and chief executive of NYRA was an intriguing and splashy idea. His national stature after five years as commissioner of the National Thoroughbred Racing Association, and his track record of forging compromises among the national industry's unherdable cats, made him a promising fit for a company under political attack and in need of both a peacemaker and a leader with public credibility.

Unfortunately, the way the plan unfolded was disastrous at almost every turn.

First was the premature and unnecessary public announcement in July that the move was being contemplated but was several steps away from being finalized. Why did the NTRA and NYRA need to issue a joint statement saying that the idea was under consideration before its details had been arranged? Sources within the two organizations say they were trying to get out in front of a rumor they thought was about to hit the press. They would have done better to let the rumor appear in print and confirm nothing until a deal was done. If, as others suggest, it was a way to float a trial balloon, that flotation could and should have been done privately and quietly.

The announcement, of course, triggered an opportunistic reaction from the office of New York's attorney general, Eliot Spitzer, questioning whether it would be appropriate for NYRA to pay its chief executive something presumed to be in the same ballpark as Smith's $750,000 base salary at the NTRA. This was typical inflammatory grandstanding on Spitzer's part, as Smith's compensation would have been in line with or below the industry standards established by what Magna Entertainment and Churchill Downs pay their chief executives.

NYRA should not have to ask its persecutors' permission on hires and salaries, but in the current climate it seems politically unsophisticated not to have anticipated that Spitzer would react as he did - another reason to have signed up Smith and gotten the deal blessed in political circles before going public with it.

The ultimate problem with bringing Smith to New York came from Getnick and Getnick, the court-appointed monitors babysitting the company as part of NYRA's settlement with federal prosecutors over tax evasion by mutuel clerks. The monitors objected to Smith's proposed dual role of operating NYRA as it currently exists while simultaneously heading up a franchise-renewal bid by either NYRA itself or a new private entity with strong ties to NYRA trustees.

The monitors thought those two functions could pose a conflict of interest, and maybe they're right in a narrow, theoretical sense, but is it really so unusual for the head of a company to devote a good deal of his time to ensuring his company's survival or creating an optimal successor?

It's a debatable point, but the practical question remains: How could the process have gotten so far and become so public, to the point that Smith formally resigned his NTRA post last month, without this obvious and deal-breaking issue being explored and resolved?

It now appears that Smith will undertake that longer-term project in lieu of the NYRA job. In his Sept. 4 statement, he said he had "reached the conclusion that I can make a bigger contribution to racing in New York by working on a new business model for the industry than in racetrack operations." The lines seem drawn for a long political battle for the future ownership of New York racing, between Magna, which wants to take over the franchise in 2007 if not sooner, and the new Smith-led entity. Other suitors may emerge for the last great prize in American racing not yet under private ownership.

NYRA happens to be putting on a pretty good show amid all the turmoil these days, as capable executives such as Mike Lakow and Bill Nader continue to produce a strong racing program and simulcasting product. That's actually quite an achievement for a company soon to enter its second year without a full-time leader because it is not allowed to hire who it wants, or define his compensation and duties, without the approval of prosecutors and court-appointed attorneys. That bizarre situation alone may be the most compelling argument for privatizing New York racing in the years ahead.