Daily Gazette

The New York Racing Association is discussing operating without video lottery terminals about 20 years before it has to, following pressure from state officials to balance its books just with racing operations.

New York State Gaming Commission Executive Director Rob Williams, state Comptroller Thomas DiNapoli and Budget Director Robert Megna, who also serves on the NYRA board, have all said NYRA has become too reliant on revenue from Aqueduct Race Track generated by VLTs. Despite this revenue being contractually owed to NYRA until the end of its franchise agreement in 2033, some on the NYRA board are already resigned to life without the income.

NYRA’s spokesman declined to comment on whether the organization wanted to alter the terms of its VLT contract.

“We have to act like the [VLT revenue] isn’t staying here,” said NYRA board member Stuart Subotnick in the August board meeting, just a few minutes after the board was told that NYRA had a deficit for the first half of the year of more than $10 million without the VLT revenue.

With the money, though, NYRA was up more than $8 million for the year and was on track to more than double that profit for the entire year.

In 2012, the first year in recent memory that NYRA realized a profit, more than $93 million in VLT revenue went into its operating budget, capital projects, purses and support for the breeding industry. The most notable benefit was NYRA’s ability to command a large portion of the country’s gambling dollars with higher purses, as it had less than 5 percent of the country’s race days in 2012 and accounted for about 20 percent of all gambling.

The impact of the funding wasn’t limited to NYRA’s bottom line; New York Thoroughbred Breeders Executive Director Jeffrey A. Cannizzo has credited the additional funds with sparking a revival among New York breeders. He noted that mares shipped into the state and foal births were up last year.

The success of supporting racing with outside gambling revenue, which was first done in New York with harness racing, has led to similar programs in other states, including Delaware, Maryland, West Virginia, Pennsylvania, New Mexico, Louisiana and Florida.

Late last year, James Featherstonhaugh, president of the New York Gaming Association, said New York’s system of supporting breeders and funding higher purses with outside gambling revenue was the talk of Kentucky, which hasn’t completely embraced a support system. He said Kentucky’s state Legislature and governor indicated they want a similar system.

“I think it’s fair to say that there will be a reaction to what happened in New York,” he said.

The negative consequence of abandoning racing support payments has already been demonstrated at Woodbine Racetrack in Canada, according to Rick Violette, a NYRA board member and president of the New York Thoroughbred Horsemen’s Association. When the support was taken away, he said, there was a significant drop in the foal crop.

“They’re now realizing they made a mistake, and they’re trying to undo what was done,” Violette said.

Some on the NYRA board, including special adviser John Hendrickson, have been vocal about not changing the revenue stream. In the last board meeting, he noted NYRA secured VLT payments by giving up its property rights to Saratoga Race Course, Belmont Park and Aqueduct, which were conservatively valued at $1 billion.

“NYRA in its history fought for VLT revenue … so let’s not forget, this isn’t a gift,” Hendrickson said.

It took NYRA almost 10 years to work out a plan with the state to get the VLT funds. A bankruptcy filing, competition for the racing franchise, a change in governors and delays in the state picking a VLT operator contributed to the VLT operation not coming on line until the fall of 2011 — two years later than promised to NYRA in its franchise agreement.

Despite a contract that guarantees NYRA the funding until 2033, there are signs the contract could be shortened or altered. Megna said the board’s return to private control could depend on its ability to demonstrate it doesn’t need VLT revenue to prop up racing.

The board currently has a majority of its members appointed by the state, a makeup the old board agreed to last year with the understanding it would return to private control in 2015. NYRA CEO Chris Kay said this summer it will be up to Gov. Andrew Cuomo to decide who runs racing at Saratoga, Belmont and Aqueduct in 2015.

No end in sight

Morris Peters, a spokesman for the state Division of Budget, stressed that NYRA’s VLT revenue isn’t going anywhere and the state had no plans to force NYRA to give up the revenue — that would take a federal bankruptcy court review. If the NYRA board was willing to alter its VLT agreement, he added, it could be done by simply changing the franchise agreement.

As long as the franchise agreement remains in effect, NYRA will be due VLT revenues, Peters said.

He reiterated the importance of NYRA’s racing operations to be profitable, saying it would be significant in determining how to return to the board to private control.

State Sen. Kathy Marchione, R-Halfmoon, whose district includes the Saratoga race track, argued that NYRA had a duty to run its tracks effectively, but noted the long-term stability of NYRA relies on VLT revenue. She said any plans to end NYRA’s reliance on VLTs was short-sighted and would likely be a violation of the franchise agreement.

Saratoga County Chamber of Commerce President Todd Shimkus added that the VLT revenue is not a short-term influx of cash that can be phased out. He described it as a permanent solution to the problems facing thoroughbred racing, such as an aging fan base and new gambling competition. If NYRA were to falter, Shimkus said, the impact locally could be devastating. He cited a recent study by the Saratoga County IDA that calculated NYRA had a $200 million economic footprint in the Capital Region.

Regardless of how NYRA board members feel about the future of VLT revenue, they all support tapping into new revenue streams. NYRA is in the process of selecting a firm to improve its online wagering platform, so it can attract more online gambling, and is seeking permission to expand into New York City with sports bars that could serve gamblers who used to bet with the New York City Off-Track Betting Corp.

The next NYRA board meeting isn’t scheduled until later this fall.