Thursday, September 13, 2007

State Politics Deliver Another Blow to New York Racing

Saratoga Springs, NY--Given the state of affairs in Washington and Albany, it has become increasingly difficult--if not impossible--to believe that this country, and especially this state, will ever resolve the issues that affect its taxpaying citizenry the most.

For five years, taxpayers and horseplayers in New York State have been awaiting a resolution to New Yorks racing franchise issue. And if you dont believe that top class racing translates into dollars for state run programs, see the record handle figures for the recent Saratoga race meet.

Reasonable people would assume the process is finally in its 11th hour. After all, Gov. Eliot Spitzer recommended on Sept. 4 that the New York Racing Association retain the franchise for 30 years while ceding title of its three racetrack properties to the state.

Spitzers decision was rubber stamped almost immediately by House Speaker Sheldon Silver, a member of the same political party. But everyone expected that the Memorandum of Understanding would meet strong opposition from the other side of the aisle by powerful members of the State Senate at their meeting, Sept. 12.

There is only one conclusion that can be drawn after the State Senate hearing: The hijacking of our system of government is almost complete.
The only thing that matters in politics anymore is politics. Abuses of power, at every level, are rampant. True dialogue doesnt exist, only a series of monologues. The result is that problem solving in government no longer can be accomplished in an honest, efficient, economical fashion.

And horseplayers are not the only losers here.

There may be only one man capable of solving racings problems fairly for all involved parties and for the citizens of New York State; Bennett Liebman. A former racing commissioner, Liebman lost that job years ago because at the time he was perched on the wrong side of the aisle. He is now acting director of the Albany Law School racing and wagering program.

Speaking before the Senate panel, Liebman said that NYRA was a reasonable choice to run the franchise, but that provisions in the Memorandum of Understanding returns less video lottery money to horsemen than under previous accords, and that there were no safeguards requiring that NYRA officials and its board operate transparently.

Liebman said that the governors decision was based on a final inspector generals report that was extraordinarily sloppy and a particularly bad product. The fact that NYRA had pleaded guilty to felony charges and had not paid its taxes didnt appear to be part of the decision- making process.

The professor also was critical of the controversial findings of the state monitoring firm Getnick & Getnick declaring the existence of a new NYRA when, in Liebmans view, it is not enough to proclaim reform at NYRA but to achieve reform at NYRA. If you believe NYRA is transparent, you have blinders on, Liebman concluded.

Liebmans remarks that the original intent of a VLT operation at Aqueduct--to provide money for education and to insure New York racings preeminence in the industry--fell short of the mark especially rang true.

Under the terms of the MOU, 7% percent would go to NYRA for operating expenses and capital improvements, and 6.5% for purses. Originally NYRA had agreed to distribute more, on a sliding scale 7.5% of gross gaming revenues to purses for the first three years, 7.75% in years four and five, and 10 percent in year six and beyond. The share to the breeders was constant at 1.25%.

Along with the reduction to 6.5% for purses, the breeders share would be lowered to 1%. Considering that Spitzers proposal would forgive NYRA $130 million in existing debt to the state and give them $75 million more so that NYRA can clear bankruptcy and pass clear title of the land on to the state, the governors proposal certainly seems exceedingly generous. Which raises a question.

One of the four franchise bidders, Excelsior Racing, was awarded the rights by the Ad Hoc Committee on Racing appointed by previous Governor George Pataki. Did Spitzers advisors and the inspector general ever bother to check the proposal made by the original awardees?

Excelsiors proposal not only promised the same higher purse distributions from VLT revenue as the original NYRA accord, but it proposed to raise the percentage of the gross gaming revenue to the New York Breeding and Development Fund from 1.25% to 2% which, based on projections, meant $11 million more for the breeders.

Under the Excelsior plan, it was proposed the breeders would also receive 5% of out-of-state simulcast revenue, worth another $3 million annually. How did that get by everybody before Spitzer declared NYRA the winner of the franchise derby?

Worse, the fine print in the MOU indicates that the 6.5% figure allotted for purses is a capped maximum, as is 1% for the breeders. The real numbers starting out are more like 4.7% for purses and .7% for the breeders, begging a third question.

Why did the Spitzer administration proclaim this a great deal for racing when it allowed less to purses and breeders? It hadnt even equaled the original NYRA agreement, and was demonstrably less than what was proposed by Excelsior in the original Request for Proposal process. The truth is we may never know how this happened.

As Liebman suggested, there is no transparency. NYRA is not in the habit of disclosing the minutes of its board meetings nor its attendees. For instance, was board member Barry Ostrager, president of the New York Thoroughbred Breeders Assn., in attendance when the board agreed to distribute a lesser share to the breeders? Was he indeed a lone voice crying in the wilderness? And isnt his presence on the NYRA board a potential conflict of interest in the first place?

Of course, the other side is no better. Does the thoroughbred-loving Senate Majority Leader Joseph Bruno truly believe its in New York racings best interests to be run by more than one racetrack operator? Does he see no conflicting agenda there? In the 1970s, off-track betting was created which essentially competed with the tracks for the same customers. Now powerful out of state for-profit companies would come here to run this circuits other tracks? And this is a good thing?

Bruno knows better and eventually his agenda will be made known. In the meantime, however, he has promised there will be a lot of changes and the MOU is not going to be the final product. Until then, Brunos solution is no solution and hell wait for a shoe to drop.

Finally, after the MOU and the Senate Committee hearing in the past 10 days, we are no closer to knowing what will happen to New York racings future than we were in 2001 when, by the way, NYRA did not join the VLT coalition, help in the legislative efforts and tried to prevent Saratoga Harness from getting its VLT machines.

And what now? Bring Australia-based Capital Play to the table, a group that proposed raising parimutuel takeout by a devastatingly destructive five percent?

Or maybe invite Empire Racing to come in, replete with its proposed two percent takeout increase and with a casino partner, Delaware North, that gave Saratoga harness horsemen the lowest share of the gross gaming revenue possible, refused to fix horrendous backstretch conditions unless it came from the horsemens pockets and, seemingly on purpose, failed to integrate VLT and racing operations. And, of course, the improvements yet to be made at Finger Lakes from its VLT operations.

Liebman, one of the best legal minds on racing anywhere in this country and a man of integrity, passion and fortitude, said it best: I have to wonder if state government can get anything right."

Written by John Pricci

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Wednesday, September 05, 2007

Power Politics, New York Racing Association Big Winners In Franchise Derby

Saratoga Springs, NY--Pete Townsend, of the legendary rock n roll band, The Who, said it best: Meet the new boss, same as the old boss.

And so New York States new Democratic governor, Eliot Spitzer, made a recommendation to have a reconstituted New York Racing Association run racing for the next 30 years.

In exchange, the NYRA would irrevocably relinquish any present and future rights to the ownership of the land upon which Aqueduct, Belmont and Saratoga stands.

As franchise agreements go, 30 years is a lifetime. But before any of that happens, of course, NYRA must clear Chapter 11 bankruptcy so it can pass on clear title of the tracks to the state.

The process, for as long and convoluted as it was and for all the speculation it engendered, ran right to the past performances. The result could not have been any more formful.

In an open letter to Gov. Spitzer on June 22, it was stated that your own past performances indicate you believe in reforming troubled industries through changes in operational procedures and management, and by rewriting bylaws and reconstituting boards.

All these elements were major considerations in a non-binding Memorandum of Understanding between the governors office and the New York Racing Association, Sept. 4.

NYRAs Board of Directors will be reduced from 28 members to 19, 13 existing or new board members plus two appointed by the governor, one each by the leaders of the Assembly and Senate, and one by groups representing horsemen and breeders.

Streamlining and concentration of power isnt usually a bad idea.

For NYRA going forward, the elements contained in the MOU is a sweet deal, certainly not bad for an organization that was hanging on by a thread, but one which got a flood of late money that drove a 50-1 shot down to even money in the final flashes.

No matter how an emotional Charlie Hayward spun the Sept. 4 announcement, this was a big win for NYRA, power politics, and for racing in New York State and beyond.

Provincialism notwithstanding, the thoroughbred market needs a thriving New York the way the NBA needs the Knicks, the NHL the Rangers, and MLB the Yankees and Mets.

In exchange for dropping its suit against a state that suddenly feared it could lose its de jure land claims to a de facto property tax payer of $440 million since 1955 that has physical possession of the deeds.

NYRA played its hand beautifully and made out like a bandit. In its bankruptcy filings, NYRA argued that the state could not take the properties without compensation in violation of the state constitution. Despite earlier protestations to the contrary, the governor acknowledged he feared that in litigation anything was possible.

The terms are that NYRA would receive 4% of the VLT revenue to pay for upgrades and maintenance, 3% for racing operations and up to 6.5% for purses. Projections would be approximately $25 million over present purse levels.

Thats not all. The state would provide NYRA, from projected casino revenue at Aqueduct, up to $75 million to clear Chapter 11 bankruptcy protection and until that revenue flows, that it, or the future casino operator, would provide reasonable and necessary funds to meet operating expenses. The state would also forgive NYRA $130 million in debts.

Predictably, Spitzers plan met with affirmation and opposition, not coincidentally rooted in partisan politics.

Assembly Speaker Sheldon Silver (D-Manhattan) said he was pleased the agreement clarifies the land issue, calls for continued racing at Aqueduct, and a separate franchisee for VLT operations. Assembly Majority Leader Ron Canestrari (D-Cohoes) said he favored separation because Saratoga would be preserved and that the tracks would not be sacrificed for other gambling initiatives.

On the other side of the aisle, Senate Majority Leader Joseph Bruno (R-Brunswick) said the recommendation had a questionable finish after several false starts and promised that the Senate committee on racing would take a very good look at the recommendation at a scheduled meeting Sept 12. Assembly Minority Leader James Tedisco (R-Schenectady) said the governor came up with a half solution to a whole problem and that separating racing from gaming creates competition between the two. And so it goes.

The perceived one-sidedness of the governors recommendation was not lost on the other bidders.

Empire Associates, of which Bruno has known friends and associates as investors, said the recommendation to retain the status quo was bad for horse racing and taxpayers.

Capital Play Ltd. said it would continue trying to convince state leaders it had the best racing and gaming proposal.

Excelsior Associates, the group that won the original Request For Proposals recommended by the Ad Hoc Committee on Racing (appointed by the Pataki administration but whose findings were reconsidered by the sitting governor) had no comment.

The Excelsior group has always taken a low profile approach to the entire process, and now might be regretting it because theyve allowed their political rivals to define who they are.

Excelsiors silence yesterday was deafening. Unless, of course, theres another unknown component. The same sources that were whispering to us months ago and reported on believed then that NYRA would get the franchise and Excelsior would be their gaming partner.

One down, one to go?

Timing is everything. It was widely reported last week how would-be franchisees made political contributions to the Spitzer campaign and how much each spent. There also was reiteration of how Spitzer had the use of Richard Fields private jet, an Excelsior member, to transport him to fundraisers in Kentucky. And how Spitzer later paid for those services.

Given that the governor stated he will recommend in 60 days, with NYRAs input, the gaming franchisee, expect the political in-fighting to begin again in earnest following the Sept. 12 meeting.

Even before it was learned that members of Spitzers staff used State Troopers to find potentially embarrassing information, or worse, on Bruno, the governor found out how difficult it is to get things done in Albany. Last February, Spitzers efforts to appoint a state comptroller went nowhere. Spitzers steamroller never get out of first gear.

And there were other important measures that the governor and legislature failed to agree on. Remaining on the docket are unrelated issues such as changes in campaign finance laws, building projects estimated at $1 billion, and property tax rebates to seniors of $200 million.

Aside from the VLT money earmarked to maintain New York racings continued preeminence under NYRAs auspices, the bulk of the VLT money goes to the State Lottery and its obligation to a school system in dire need of funding.

It would be good if an accord were reached on all these issues without holding racing hostage, that Senator Bruno means what he says about the whole thing being about New York racings preeminence and the 40,000 industry jobs within the state.

Otherwise, Townsend might be inclined to sing a different tune to lawmakers from the people of the State of New York: Were not gonna take it. Never did and never will. We dont have to take it. Gonna break it! Gonna shake it! Lets forget it better still!

Written by John Pricci

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Friday, July 20, 2007

Experiments With Lower Takeout Gaining Momentum

There has been no announcement as to whether the revolution will be televised. What is clear, however, is that the uprising might be coming to a simulcast venue near you.

Reducing parimutuel takeout to increase the bottom line is not a new concept. Its been tried before and has worked when given the right opportunity.

The New York Racing Association, for instance, lowered takeout three times since the 1970s if memory serves. Every time, the trial period resulted in a handle increase.

Keeneland tried it six years ago but its effect was unclear since both of their boutique meets are short in duration and the simulcast venues balked because they thought they would lose money and failed to buy the signal.

In the short term, they would be right. And since executives are paid for what theyve done lately and state houses shutter when any revenue shortfall fails to meet their bloated projections, the concept often doesnt get a fair shake.

Takeout is too high but politicians will pay lip service to lowering taxes and supply-side theory only when it suits their campaigns. But they just refuse to get it when it comes to the hold on parimutuel wagers.

The states believe that the revenue generated from wagering gives them a right to tax tracks, OTBs and horseplayers at a far higher rate than anyone else. The concept of churn is lost on them.

Then how do we know that when more money is returned to winning bettors the more they bet in return? Because every serious study proved it.

Instead, politicians and myopic track operators look at the bottom line and figure that low takeout is bad for profits as if the systems inefficiencies have nothing to do with it. Some OTBs even overtly campaign for a higher take.

But the tide may be turning. When the Ellis Park meeting opened recently, new owner and president Ron Geary instituted a Pick Four with a four percent takeout, the lowest parimutuel hold anywhere in America.

Despite a lack of promotion because Ellis was awaiting commitments from some simulcast venues and had a racing dates overlap with Churchill Downs, early results were very promising.

In week one, Ellis averaged daily handle of almost $19,000. After the word spread, week two averaged $46,148, with a record high of over $65,000 last Saturday. In 2006, the bet averaged $18,000 daily.

[Ed. Note] A chart of payoffs comparing the 4% Pick Four with a conventional four-race parlay and with last years payoffs with a 22% hold is available at

So far were very pleased, Geary said by telephone Thursday. Its growing every day. Our goal is to reach $100,000 when we host the National Claiming Crown [August 4th]. That will be our first national platform.

I applaud him said Lou Raffetto, chief operating officer of the Maryland Jockey Club, whose Laurel Race Course will institute a Ten Days at Ten Percent promotion at their upcoming 10-day race meet beginning August 10.

The short summer session will feature a blended takeout of 11.4 percent that includes a mandated 1.4% for the Maryland Million Fund. Its the lowest takeout of any race meet in the country.

We needed to do something to get people to focus on our races and this is a perfect time to experiment with a lower take. Not only does lower takeout increase churn but it takes rebates off the table. The rebate is built in, Raffetto explained yesterday.

Clearly, Raffetto and Geary get it. Geary already is reaping a financial benefit. In lowering his takeout rate to the lowest in the country, Raffetto put Laurel on the map at a time when all roads lead to Del Mar and Saratoga.

Not coincidentally perhaps, the trend seems to be spreading internationally. Two major betting platforms in Australia have reduced the takeout on their superfecta wager from 22.5 percent to 3.12 percent.

The superfecta is significantly more popular in Australia than it is here, attracting more than five percent of the betting market. Its appeal lies in the very large fields and huge jackpots that result when no one hits it.

Racing often is a strange game. The industry acts as if wagering is an embarrassment instead of its the life-blood. Handicapping is not promoted as an interesting diversion, an intellectual pursuit akin to poker in that its also a game of people, played with horses instead of cards.

There are lessons to be taught that would give customers an edge, giving them a better chance than the 52.5 win percentage needed to break even making illegal bets on NFL games. Racing doesnt teach that.

With forward-thinking track executives like Geary and Raffetto leading the way, all might learn what a great wagering game thoroughbred racing can be, including legislators.

There is that point where proper pricing allows demand to meet supply to optimize profits. The lowering of parimutuel takeout gets us closer to that truth.

Written by John Pricci

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