Updated on 05/15/2012 10:54PM

State withholds NYRA casino payments and threatens racing franchise

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Citing a "continued failure to act in the best interest of racing" by the New York Racing Association, state racing regulators said Tuesday that they had instructed the state lottery to immediately suspend payments NYRA receives from a casino at Aqueduct racetrack and that they were exploring the revocation of NYRA's racing franchise.

"We take none of these choices lightly, but unless NYRA immediately starts to act in the best interests of racing and the taxpayers of this state, we will pursue a course of action to re-establish the racing franchise with a qualified, ethical, and responsible steward of horse racing," concluded a letter sent  Tuesday to NYRA's chairman, Steven Duncker, that was signed by John Sabini, the chairman of the New York State Racing and Wagering Board, and Robert Megna, the chairman of a NYRA oversight panel.

:: Read the letter here.

Sabini is a former New York legislator, and Megna is the budget director for Gov. Andrew Cuomo, who has been the association's most high-profile critic over the past several months.

The letter is both a blow to NYRA's short-term finances and a serious threat to the association's long-term prospects of operating New York's three largest racetracks - Aqueduct, Belmont, and Saratoga. NYRA has received approximately $22 million in payments from the casino since it opened late last October, but since then, the association has come under fire for injuries suffered by horses at Aqueduct and because of an investigation into an incorrect takeout rate that NYRA applied to trifecta and superfecta bets over a 15-month period in 2010 and 2011. NYRA officials said they inadvertently applied a 26 percent takeout rate to those bets instead of a 25 percent rate, but a recent state report suggested that NYRA officials were aware they had been charging the wrong rate.

Also, in a strongly worded opening, the letter criticized decisions announced on Monday by the NYRA board to appoint Ellen McClain, the association's chief operating officier, as president and Kenneth V. Handal as secretary. The letter called the appointments inappropriate due to the ongoing investigation of the takeout matter. McClain was NYRA's chief financial officer at the time the takeout was incorrect.

“We believe these actions are entirely inappropriate, violate regulatory standards and NYRA’s own by-laws, and neither the Racing and Wagering Board nor the Franchise Oversight Board recognize the validity of these appointments,” the letter says.

In a statement, NYRA said it would respond to the letter after a review.

It was not believed the casino payments received by horsemen and breeders - approximately equal to the amount that NYRA receives - would be affected by the order. A spokesman for the racing and wagering board, Lee Park, declined to comment further about the letter and said: "The letter speaks for itself."

The letter said that NYRA's casino subsidies would be directed to a "dedicated account designated by Lottery," the state agency that administers slot machines at the state's nine racetrack-casinos. The letter did not provide for how or when the order could be lifted, but a previous section of the letter indicated that the board had recommended the actions until a full investigation of the takeout matter could be completed by the state's Inspector General.

Regarding that investigation, the letter said that NYRA has "continued its failure to produce documents" in the takeout matter that are relevant to the Inspector General's probe, "resulting in the issuance of subpoenas" to NYRA.

"This continuing failure to cooperate not only casts doubt upon NYRA's good faith, but it also demonstrates a basic lack of moral character and fitness to fulfill its obligations" under a franchise agreement NYRA reached with the state in 2008.

Under that agreement, NYRA was required to comply with a litany of standards in order to maintain the 30-year franchise, including exercising fiscal prudence and providing a safe working environment for horses and racetrack personnel. The letter cites "an unprecedented series of breakdowns," a reference to 21 catastrophic injuries at Aqueduct's inner-track meeting last winter, and contends that "NYRA has been unable to meet its prescribed performance standards for jockey and equine safety." The letter also contends that the association has failed "to provide basic living conditions to the backstretch workers who reside in its dormitories at Saratoga."

The franchise agreement was reached after NYRA emerged from bankruptcy in 2008 in a reorganization that transferred the deeds to its three tracks to the state. The agreement provided for the creation of the Franchise Oversight Board, which has the power to recommend that the state legislature revoke the association's franchise. Revocation of the franchise, however, would be difficult if the state did not have specific grounds for the action, and the letter appears to be outlining legal arguments that the state would use in the event of a recommendation.

The letter was sent 11 days after NYRA's board fired Charles Hayward, the association's chief executive, and Patrick Kehoe, its general counsel, following the release of an interim report by into the takeout matter by the racing and wagering board. Hayward, in a letter sent to NYRA's board and in a subsequent public statement, has said that he was not aware that the association was in violation of the law. He has said a full investigation would exonerate him.

The casino at Aqueduct opened on Oct. 30, 2011, 10 years after a law legalizing a casino at Aqueduct was approved by the legislature. It is operated by Genting New York, part of a Malaysian conglomerate that is seeking table games at the casino and lobbying for additional casino licenses. The Aqueduct casino is the largest casino in the state, and Belmont is considered a leading site for an additional casino by companies that are seeking additional licenses.

Earlier this year, Cuomo said he supported the passage of a constitutional amendment allowing for Vegas-style casinos. He also acknowledged that he had been meeting with representatives from Genting on a plan to build a convention center on Aqueduct's grounds, to replace the Javits Center in Manhattan, which sits on valuable real estate. Under the plan, which would need legislative approval, Genting would pay $4 billion to build the convention center, but it was unclear if racing was envisioned to continue at Aqueduct.

Under the existing statute, the state's education fund receives 44 percent of the net revenue from the Aqueduct casino during the first year of operation. Genting receives 23.5 percent plus an 8 percent "marketing allowance," and the lottery receives 10 percent. Purses receive 6.5 percent, and the state's breeding fund receives 1 percent. NYRA receives 3 percent for operating funds, and another 4 percent to be used solely for capital expenditures.

Bob G More than 1 year ago
Horse racing is crooked from the ground up to the ignorant polititians. The bettor pays for all the fixed races, training "boat" races, sick horses, milkshakes, dope and the multiple ways to steer the odds. The public prefers to get screwed by a more overt slot machine and the horse racing industry is slowly fading away, milked to death by everyone involved
st More than 1 year ago
I guess there are a few lessons to be learned here --Dont overfeed the cheap claiming purses, it just encourages lame horsemen to run lame horses --Politicians will always be politicians when it comes to horse racing --Extra Revenue doesn't always equate to a better product when used unwisely....Why not with the Extra Revenue source, Run races with bigger Stakes purses with a champions-mini breederscup day monthly. Have more million dollar plus purses, Attract and keep the championship horses in New York,,, --the cheap claimers had their shot and blew it,, refocus New Yorks big 3 tracks on Championship Level racing, even it it means less races/race days. Quality Fields will equal quality handles --New York World Cup,,10 million purse,,trump Dubai,,race it at Saratoga,,huge handle, better horses,,, take the money for the purse from these ungrateful cheap claiming horse owners who will destroy this sport purse structure Quality all day long , please use this crisis to make horse racing better,,,New York lead the way!!!
chad mc rory More than 1 year ago
To all who suffered thru this story, as I did, I refer you to the story out of Sunland Park about a horse named Ducky Drake.
Rufus More than 1 year ago
One more point to illustrate the very corrupt nature of New York politicians. Notice the time frame. Cuomo, who was the Attorney General when the Aqueduct Entertainment Group bid-rigging scam went down and now he's ONLY the governor, did absolutely nothing to indict, impeach, or prosecute the "alleged" politicians of his on party. Cuomo allowed time for the voters to forget, and for the news of the scam by the politicians to fade from voters memories. Cuomo and his lackey, Sabini, could then put forth their original plan to dis-enfranchise NYRA, that Paterson et al had tried to do with their scam. Cuomo thinks the voters are stupid. He also believes politicians are above the law. Spitzer, Paterson, Silver, Sampson, and Smith, all speak volumes to that. Cuomo is no better than they are. These corrupt politicians cost the state of New York millions of dollars. What did Cuomo do? What did Sabini do? Where's the expose' by Joe Drape and the Times on this? Cuomo is probably correct. The voters are too stupid to remember anything beyond what they tell you.
Karusha More than 1 year ago
Ruf: You hit it squarely. They do basically anything they want, when they want and to whom they want. The Gov. has incepted a plan to eliminate racing in NY. Period! He believes the lost revenue will come from the Genting casinos. He ignores the industry that employs 40,000 people in NY and enhances the state coffers by more than 1 billion dollars. And his premise is borne on the backs of the people that frequent those casinos. His esoteric philosophy was formed by his fathers disdain for the racing cognoscenti that he (Sr.) demonstrated for years. The NY racing industry was/is on the precipice of becoming the leading horse racing venue in the world. Yet HE and his minions are on a steadfast road to prevent that.
chad mc rory More than 1 year ago
WHO LOVES NEW YAWK... WILL THE BELMONT TROPHY BE THERE RACE DAY???
Mark Scheider More than 1 year ago
AND WHY IS THERE NO GOVERNING AUTHORITY THAT CHECKS EQUINE WELFARE AND TRACKS BOOKS? Create a head office and have a team kind of like "internal affairs" at every track. The University of Arizona has a "horse racing industry program". Why dont they put it to good use and make something out of it other than customer service specialists?
Mark Scheider More than 1 year ago
You know how you make trainers and jockeys so horrified that they avoid breakdowns at all costs? Charge them a set amount per horse that they run into the ground. I guarantee you that the trainers will 1. Not rush a horse back on short rest. 2. Not run a questionable health risk. 3. Not dope the poor thing up to cover an ailment (as much). And the jockey will ease up and prevent the breakdown if ANYTHING makes him feel the horse is not right.
mrm More than 1 year ago
Get serious. This is not fantasy land.
Richard Signor More than 1 year ago
UNLESS IT'S DUE TO PITIFUL TRA CK MAINTENANCE IT'S THE SO CALLED TRAINERS WHO RUN HORSES THAT BREAKDOWN. HOLD THEM ACCCOUNTABLE IF IT'S NOT DUE TO TRACK CONDITIONS. YET SOMETIME'S S#$%# DOES HAPPEN ,REGARDLESS OF THE MOST STRIDENT EFFORTS BY ALL INVOLVED, PROVING NEGLICENCE IS THE ONLY RESPONSIBLE WAY TO REGARD THE MATTER. THEY MAY BE TRAINERS( HANDICAPPERS) MANY ARE ANYTHING BUT HORSEMEN!
Anonymous More than 1 year ago
This is a devastating turn of events. Government is not the answer to business failures and mistakes. The relationship between racetracks and government should be no different then any other private business. In capitalism businesses come and go. NYRA or the three racetracks that it controls should be in business and there rise of fall should be on there own merit. It was always disturbing to me that NYRA, with the best racing product in the United State, could not make money. The strange situation where they survived becuase they held certain title deeds over Aqueduct property years ago left a target on their backs. Now becuase of, and hopefully, a honest mistake(takeout notchanged), the racing product may be subject to awful and shortsighted change. And probably by people who know little about the industry. Look at Chase, a mistake in business judgement has spawned government involvment...this is no different. Businesses need to run honestly and obey all related laws. When that does not happen government should get involved. Other then that business should be allowed to rise and fall based on their performance. Without this freedom inovation and success is dead. Imagine what could have been done by NYRA if they did not have to get every new bet or change approved by an oversight board. Food stores survive by varying prices, running specials and other constant changes. The racing industry is hamstrung. Imagine if on the slow days of the week NYRA could offer lower takeouts or other money related promotions. Mr Haywards job allowed him very little power to inovate, try new things for short periods of time. Wow other private companies aren't tied in these knots(yet). Ray
BigAfan More than 1 year ago
Very well said.
peter k More than 1 year ago
Agreed
Kevin More than 1 year ago
How long has NYRA been in "business", now? How many chances have they had to "right the ship" themselves?
Robin Dawson More than 1 year ago
Indeed, well said. What you're assuming, and most normal people expect, is that those in charge know what they're doing. And this is where the problem lies with horse racing throughout North America: the people in charge are put there by the 'powers that be' (Phipps in New York, Willmot in Canada, a whole bunch of antiquated hardboots in Kentucky) to obdeiently do what they're told to do. Hence you get guys like Hayward, Eaves, Duncker, Baedeker etc. who are lackies that know precisely zero about the subject. Unfortunately nothing will change until people who know horse racing are put in charge...and this is defintely not the Government.
Nick Gunritz More than 1 year ago
Gambling is left up to the states to regulate, therefore the arguments you make, although valid, are moot. Gambling is not treated like any other business, and until it is, which will be never, there's no point in trying to make comparisons with other businesses.
Rufus More than 1 year ago
The Aqueduct Entertainment Group bid rigging scam was facilitated and supported by corrupt Democratic politicians. Does anyone need to ask why nothing was done after Joseph Fitch, the Chief Investigator selected to look into the dealings, issued his scathing report, and recommended state and Federal prosecution?
Rufus More than 1 year ago
Does one need to ask why the New York Racing and Wagering Board and the Governor of New York didn't indict and prosecute Paterson, Silver, Sampson, and Smith, who cost the state and it's citizens millions of dollars and were caught red-handed trying to enrich themselves and their cronies? Cuomo and the rest of the politicians should be ashamed of themselves for aiding and abetting their political cronies. Cuomo should be impeached for malfeasance, the same that should have been done with Paterson and Spitzer before him. Does anyone detect a pattern here?