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Thursday, October 11, 2007

NYRA Facing Smaller Cut

- Excelsior was full of surprises at Wednesday's hearing. For one thing, they showed up. The group had been mum about their plans to do so, muttering instead about slots at Belmont being a condition of their continued involvement. But they were there, and they brought Jerry Bailey with them.

The biggest surprise however, was treated as a mere footnote in the press reports; it was in the second to last paragraph of Matt Hegarty's comprehensive report that it was revealed that one of its major partners, Richard Fields, has dropped out of the company. Excelsior is now quite a different entity than it was back in the days of Fields and Steve Swindal. Who's running the show now isn't really clear - Steve Wynn has been mostly silent; Richard D. Bronson was referred to as the "development leader" by the Times-Union's James Odato, who wrote that he stunned the crowd with the announcement of Fields' departure. Given Excelsior's current makeup, it seems a bit surprising to me that they would bring Bailey in to make a pitch for the racing; and, quite frankly, even more so that Bailey would continue to recommend them as the most qualified to run the tracks.

Fields' withdrawal, of course, deprives the Republicans of a major squawk box should Governor Spitzer cut Excelsior in on the casino. But while it gives Spitzer a green light to do so, a skeptic would say that now, with a major contributor no longer there, he doesn't have any reason to!

You may have read by now about the sharp exchanges between Charles Hayward and Republican Senators, some of whom expressed outrage at what they took to be NYRA's threats to shut down racing. NYRA didn't characterize it quite the same way, asserting that the bankruptcy court may not allow the state to operate the tracks while the land claim issue is not settled. Haywared warned against a “slippery slope with a bad outcome that NYRA and the Legislature might not control." [Bloodhorse]

But Matt Hegarty's latest report shows, I think, where this process is ultimately going.

The New York Senate is considering a proposal by state Sen. William Larkin that would change the breakdown of slot-machine revenue at the Aqueduct casino, awarding the casino operator a larger share and the New York Racing Association less, legislative officials said. Larkin's proposal would alter the terms of a 30-year extension of NYRA's franchise to run the state's three major racetracks that is supported by Gov. Eliot Spitzer and the state's Assembly. [Daily Racing Form]
It's the first time I've heard the Republicans discuss altering the terms of the agreement, and in doing so acknowledging that NYRA will be the racing operator, rather than disputing the selection of NYRA itself. Personally, I would feel safe in going ahead and making plans to spend your New Year's Day at the Big A. Senator Bruno kept talking about getting the other bidders involved, and specifically mentioned Churchill and Magna. But now that they, Delaware North, and, according to this commenter, Woodbine are all gone, perhaps this story is an indication that Bruno and the GOP are ready to accept reality and get down to the gritty details.

However, the substance of the counterproposal is certainly alarming. Excelsior and Mohegan Sun, Capital Play's casino partner, told the committee that they would not bid for the racino unless the rates are higher. That would mean less money for the horsemen and for capital improvements.
"What's the point of giving a subsidy to a company that is taking $20 million from the taxpayers each year?" [Sen Larkin's counsel Steve] Casscles said, in reference to recent financial losses for NYRA, which filed for bankruptcy late last year. "They'll just keep losing money."
He's of course missing the point that anyone would lose money under the current business model in the state, and reminds us again that nothing is being done to change that model. I'm starting to see a gloomy scenario in which New York racing just sputters along on crumbs it gets from slots with only modest improvements in purse money and infrastructure.

If the OTB's are not merged into the racing operator now, at this definitive point in time (which it obviously won't), what possible incentive will there ever be for Albany to tackle it later? As long as NYRA is surviving in one way or another (whether through subsidies or not), racing continues and enjoys its annual renaissance in Saratoga, the state gets its takeout, Spitzer gets his slots money for the budget, local communities get their regional OTB money, politicians retain their patronage outlets and the well-connected their jobs....then really, why would the system ever change?


Anonymous said...

You missed the point that Richard Bronson said Excelsior said they will not bid on the Aqueduct-alone slot machines, thus Spitzer cut them in on the video lottery management and development contract.

Any reasonable person interprets NYRA's statements as a veiled threat to oppose use of the lands after January 1st. In other words, "back us or risk shutting down." Granted, its the logical position for NYRA to make, but take it for what it is: a threat.

It is equally likely that the bankruptcy court will allow racing to continue with a different operator to ensure that there is some flow of money. Hayward's comments can cut both ways: he has no idea what the bankruptcy court will do. It could be good for NYRA; it could be bad for NYRA.

Don't be so quick to blame Capital Play and Empire regarding the distribution from the video lottery machines. The harness tracks have successfully made this argument (see: Jeff Gural). Many potential video lottery operators have made a similar argument: the splits are too low to drive capital funding of the improvements. Will the horsemen suffer? It depends on your economic theory. Higher video lottery distribution could equal high net revenues which would equal higher revenues to horsemen. Or not. Either way, the horsemen began their bath when the Spitzer MOU allowed a reduced return from what was previously negotiated with NYRA.

I'm not sure that I would take the musings of Senator Larkin or his counsel as indicative of the Senate Republicans' collective minds. Only one republican matters: Joe Bruno.

Good point on the OTB's. The most disappointing thing about the whole franchise process is the lack of interest in fixing that major, major problem.

What a wasted opportunity.

ljk said...

As a (mostly) out of stater, I'm constantly amazed by the bizarre nature of NY OTB. I'm constantly amazed that someone would pay a premium to bet OTB when there are ADW alternatives availble. But here's what I'm wondering. Soon people will be able to fund their NYRA internet account on-line. When that happens, why would any New Yorker with a computer and a phone ever bet with OTB, and their reduced payouts, again? To me the future looks gloomy for OTB and that may force some structural changes.

alan said...

>>Hayward's comments can cut both ways: he has no idea what the bankruptcy court will do. It could be good for NYRA; it could be bad for NYRA.

He's issuing a threat, but at the same time trying to disassociate NYRA as the actual threat-maker. Kinda passive aggressive if you ask me. Where'd you get that thing about Spitzer cutting Excelsior in on the mgmt contract?

I'm not blaming the bidders for asking for a higher cut. Of course they're going to take that position, especially after seeing some of the disappointing revenue figures around the state. And they'll make the same argument that Gural has about not being able to compete with the Pennsylvania racinos that have more money for marketing.

ljk - Actually, NYC OTB now has internet wagering, online funding, and no surcharge. And harness racing too.

Anonymous said...

Yes, the gloomiest part is that there is no sign of real racing and wagering law reform on the horizon-practically status quo ante. Too many entrenched interest groups, the arteriosclerosis just keeps getting worse, more signs of decline and fall. Spitzer came in on his high horse and through his own political ineptitude has been thrown to the wolves; it could have been much different for NY racing if we had had real leadership. /S/Green Mtn Punter

Anonymous said...

Alan -

I made the first post and, unfortunately, made a typo.

Reads: You missed the point that Richard Bronson said Excelsior said they will not bid on the Aqueduct-alone slot machines, thus Spitzer cut them in on the video lottery management and development contract.

Should read: You missed the point that Richard Bronson said Excelsior said they will not bid on the Aqueduct-alone slot machines, thus Spitzer cannot cut them in on the video lottery management and development contract.

Sorry. I'm a lousy editor.