08/01/2005 11:00PM

Some good news for NYRA


SARATOGA SPRINGS, N.Y. - The embattled New York Racing Association got a public vote of confidence Tuesday from an official of the firm that was appointed to monitor the association's reform efforts after it was hit with federal tax fraud charges last year and was accused of mismanagement by both the state attorney general and the state comptroller.

The comments, made by Neil Getnick, managing partner of Getnick and Getnick, strongly suggest that the monitoring firm will recommend to federal prosecutors that charges against NYRA related to tax fraud in its mutuel department be dropped. Getnick and Getnick, a New York law office that specializes in business integrity practices, is expected to issue a report to the U.S. attorney for the Eastern District of New York by Aug. 23 outlining the changes that NYRA has made since it reached a deferred-prosecution agreement with the U.S. attorney in early 2004 to avoid an indictment.

Getnick, asked whether his firm would recommend that the charges be dropped, declined to answer specifically but said, "NYRA's record speaks for itself."

If the charges are dropped, NYRA would be free to continue operating its franchise to conduct racing at Aqueduct, Saratoga, and Belmont unimpeded by the monitor's scrutiny. It would also resurrect NYRA's political fortunes at a time when it hopes to launch an aggressive lobbying effort to retain the franchise, which expires in 2007 and is coveted by a number of politically connected racing and gambling companies. NYRA expects to open a casino with 4,500 video lottery terminals, or slot machines, at Aqueduct next year.

Getnick made his comments at a conference in Saratoga Springs conducted by the Albany Law School's Racing and Gaming Law Program. He appeared at the same law conference last year to speak about the monitor's mission, but since then, the company and its officials have maintained a strict no-comment policy about NYRA.

During an 18-minute presentation, Getnick said that NYRA has an "unmatched record" on taking steps toward reform. He praised the association and its current management in terms that were surprising even to NYRA officials.

Singling out several NYRA officials, including Charles Hayward, NYRA's chief executive, Getnick said, "I've come to know each of these people quite well during the course of this monitorship. Each has acted with integrity. Each has a distinguished record of fitness and accomplishments. And each has showed the day-to-day dedication of bringing those values and skills to the betterment of NYRA specifically and to New York racing more generally."

The federal monitor's oversight has taken place amid an intensely political and rapidly changing business environment at NYRA over the past two years. In June of 2003, New York Attorney General Eliot Spitzer issued a report criticizing NYRA's management and recommending that its franchise be revoked. Several subsequent audits by the state's comptroller, Alan Hevesi, were harshly critical of NYRA's business practices.

In December 2003, NYRA reached a deferred prosecution agreement, including a $3 million fine and the appointment of Getnick and Getnick to monitor its business practices.

Hayward took over in November 2004 and recently has pushed through several controversial measures intended to strengthen integrity, including establishing a race-day security barn and cutting off rebate shops.

"Simply put, NYRA has unequivocally said yes to racing's integrity, and just as resoundingly said no to horse drugging, computer batch betting, tax evasion, and money laundering," Getnick said. "NYRA has an unmatched record of achievement in taking on these issues, and that goes beyond the theoretical."

Hayward spoke after Getnick and acknowledged that NYRA had an "institutional arrogance" in the past, but he said that the association's corporate culture had changed. He called the appointment of the federal monitor "the best thing that has happened to NYRA in its recent history."

But Hayward acknowledged that NYRA will not be able to address a number of major business problems without significant changes in racing law and regulation in New York. NYRA owes nearly all of its profits to the state and cannot easily raise funds through private equity markets for capital improvements or major renovations. In recent interviews, Hayward has estimated that NYRA will post a paper loss of $10 million this year.

"Make no mistake, the NYRA business model as configured is broken and needs to be repaired," Hayward said. "If someone came to us and said, 'Here's the franchise as its exists,' we'd say, 'No thanks.' "

New York Gov. George Pataki is expected to appoint a committee by December of this year to decide how the racing franchise will be put up for bid. The committee is expected to consider significant changes to the current racing law to attract businesses to the bidding process.

Hayward ended his remarks with a veiled critique of the various companies angling for the franchise, including Magna Entertainment, based in Toronto; Churchill Downs Inc., based in Kentucky; and the myriad casino companies that are expected to seek the $650 million in annual revenues estimated for slot machines at Aqueduct.

"I think almost everybody in this room would probably agree that New York racing is probably run better from New York than from Toronto, Ontario; Louisville, Kentucky; or Las Vegas, Nevada," Hayward said.