- One of the benefits of this blogging gig is that I occasionally open my email inbox to find a message from an unexpected source. Yesterday, it was Charles Hayward. No, not a personal invitation to sit in the NYRA box, but at least I've made it onto the big guy's press mailing list. Contained therein was the Disclosure Statement - the association's latest proposed reorganization plan to be presented to bankruptcy court, and to be accepted or declined by the approved creditors. In his introduction to the document, Hayward points out that all creditors will be paid in full - "100 cents on the dollar;" and that NYRA will fully fund its pension plans, and continue to do so in the future.
He also makes an emphatic point that the MOU which would grant NYRA the franchise for the next 30 years is not a bailout, a term that I and other observers have been using freely in reference to the financial obligations that the state would assume should the plan be approved by the legislature (as in: Spitzer, Silver, and Bruno).
The reorganization does not constitute a “bailout” of NYRA. Under the September 4, 2007 Memorandum of Understanding (MOU) between NYRA and the State of New York, the contemplated transaction resolves significant and contentious litigation that could have lasted several years, in exchange for the NYRA’s agreement to relinquish any present or future rights with respect to the ownership of Aqueduct Race Track, Belmont Park, and Saratoga Race Course, whose value has been recently appraised in excess of $1 billion. The reorganized NYRA shall receive, among other items, 1) a 30-year thoroughbred racing franchise, and 2) sufficient funds (not to exceed $75 million) to satisfy its creditor obligations. Moreover, if NYRA does not obtain the new franchise, and the State were successful in connection with the aforementioned litigation, by statute, the State of New York must assume all of NYRA’s liabilities which are in excess of $300 million.That's certainly one way of putting it, and whether or not one accepts that spin depends I suppose on what one believes were NYRA's chances of prevailing had the matter gone to court. What Mr. Hayward does not mention here, but what is contained in the document, is that the deal also calls for the state to relinquish $132 million in claims against NYRA, and to provide sufficient operating funds until the time that slots money begins to flow; that could be as high as $30 million per year (and what the hell is going on with the naming of the racino operator anyway?). So, call it what you will, bailout or a settlement of pending litigation, but it's an expensive bill for the state.
The document (again, please contact me privately if you'd like to have a look....it's a 62 page pdf file) is most interesting to me as a historical account of NYRA's descent into bankruptcy, with all the details of the various loan packages, the prohibited sales of land and artwork, the Pataki Administration's refusal to sign off on the MGM racino and NYRA's subsequent lawsuit against it (to be dropped as part of the MOU), and much more. It also contains an analysis of the OTB issue that we discussed the other day (and since day one of the franchise debate). So let's try to put some numbers together and try to make some sense out of them. From the Disclosure Statement:
One of the major challenges facing the Debtor [NYRA] was the migration of customers from the Racetracks, where, as described above, on average, the Debtor retains 9.3% of each wager, to off-track establishments where, on average, the Debtor retains only 2.5% of each wager. As a result of the migration and drastic difference in retention rates, over the ten-year period prior to the Petition Date, the Debtor's revenues were virtually flat despite a 65% increase in overall Handle. The competitive relationship between racetracks and OTB's is unique to New York. In other jurisdictions, OTBs are owned by racetracks, operate as joint ventures with racetracks, or otherwise have their interests aligned.Of course, Ben Liebman's recent 12 Months of Bankruptcy report puts the losses at a staggering $30 million for the 12 months from last November through this past October. Perhaps that last paragraph from the Disclosure Statement above, plus all of the bankruptcy costs, partly answers the recent commenter's question as to why NYRA seems to have been bleeding so much money just in the last five years.
During the ten-year period prior to the Petition Date, the Debtor's expenses increased 20%. As a result, after earning almost $20 million in 1995, Debtor's profitability began to decline and, since 2001, the Debtor sustained losses every year, including a loss of almost $16 million in 2004 and approximately $15 million in 2005.
Let's take a closer look at some numbers with respect to the OTB's. I sense that some people are tired of hearing about 'changing the business model' and 'fixing the OTB's,' ignoring the issue and blaming everything on NYRA. The following is an unscientific look, but I think it provides a general idea of what has been going on. Another Albany Law School report entitled NY Racing By The Numbers in 2006 (pdf file) states that, in 2006: At the OTB's, the NYRA signal averaged $2.518 million in per diem handle. If you multiply that out by the approximately 250 racing days in the year, that comes to $629.5 million. Let's say, just to be conservative, that the figure is actually $500 million.
The percentage spread between NYRA's take of 9.3% from on-track bets compared to 2.5% of OTB bets is 6.8%. 6.8% of $500 million is $34 million. Had those bets been placed on-track or its equivalent, that's enough to cover all the losses, pay their bankruptcy lawyers ( and Getnick), do some work on the backstretch, and maybe even hand out some Xmas bonuses for their beleaguered employees. I certainly may be missing something here, and, as always, I welcome any corrections or criticism of what is, as I said, a simplistic analysis. But even give or take a few million bucks, it seems clear that no matter who is running the tracks - NYRA, Capital Play, Joe Bruno, or Bill Gates for that matter, the operation is not going to be successful financially on its own unless the OTB model is changed.