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Thursday, December 20, 2007

Playing the Percentages

This is the sign that was posted at Vernon Downs last week by track owner Jeff Gural. I think that most reasonable people on either side of the issue would agree that it was Gural, and not Joe Faraldo, the attorney for the Harness Horse Association of Central New York (HHACNY) (and the President of the Standardbred Owner’s Association of New York), who ordered the barn area shut. Gural also ended the fall race meeting early in defiance of the State Racing and Wagering Board, and is threatening to shutter the casino next month.

Faraldo called the action "childish." On Monday, after he argued that the closure was in violation of the HHACNY's contract with the track, a judge ordered Gural to keep the barns open and to resume maintaining the track pending a full court hearing scheduled for Friday.

The dispute centers around the casino bill, championed by Gural and opposed by the horsemen, which was passed by the Senate last week (but not taken up by the absent Assembly). It would increase some New York tracks' revenue cut from their racino operations. But Faraldo and Gural have actually been tangling since late 2005. A group led by the latter had entered into an agreement to purchase the track, which had been dark since 2004. When negotiations with the HHACNY on purse funding broke down, Gural helped facilitate the formation of a rival group; the horsemen claim he funded it. The State Racing and Wagering Board eventually denied the new group's certification, and Gural was forced to negotiate with Faraldo's group; the hard feelings on his part obviously persists.

Gural claims that he's losing $1 million a month and needs the added money the bill provides to stay open. But the horsemen are piqued at the 8.5% contribution to purses that Bill #S6512-A provides, and are particularly galled by the fact that Vernon Downs is singled out for the most special of the special treatment it contains. The current statutory rate calls for racinos to retain a 32% cut of VLT net revenues, plus an additional 8% for marketing. The latter increases to 10% across the board. However, the legislation provides carve-outs to benefit certain tracks deemed to need additional support - 36% for racinos with less than 1,100 machines; 40% for tracks with a population less than one million within 40 miles. (All figures are for the first $50 million in annual revenue.) It also provides 42% for tracks located within 15 miles of an Indian gaming facility; and that's the kicker as far as the legislation's opponents are concerned. Vernon Downs is located a virtual stone's throw from the Turning Stone casino - an 11 minute drive according to Google Maps - and is the only track eligible for the highest rate. (Yonkers, Finger Lakes, Saratoga Harness, and Aqueduct (some day) would remain at 32%.)

The horsemen are furious that Gural would receive special treatment to basically bail him out of the flawed, to put it mildly, business decision to open a racino within shouting distance of a full-blown Indian casino (a sentiment shared by others, including Assemblyman Gary Pretlow, chairman of the Committee on Racing and Wagering). At the time, Gural said:

"Hopefully, we'll be able to offer a different product and people will go both to Turning Stone and us.....Turning Stone attracts a lot of people to the area and hopefully they will take a ride over to Vernon if they want to watch some racing." [Oneida Daily Dispatch]
Wishful thinking indeed. Gural also fancifully expressed hope that bettors would patronize his racino given the fact that the revenue is taxed for education, and Turning Stone is not. Now, he complains that he can't compete against an operation that isn't taxed.

Faraldo and the horsemen see their 8.5% share as a reduction from the intent of the original VLT legislation, passed in 2001 but declared unconstitutional by a state judge in 2004, which, they contend, provided for an effective rate of 9.25%, which they want set as the minimum standard. That was actually a blended rate in the 2001 bill - the actual percentages were 7.50% for the first three years, 7.75% for the next two, and 10% over the next ten. The state legislature amended the law to address the court's concerns, but had to strike those required revenue splits in order to do so. Thus, the splits were then determined through negotiations between individual tracks and their horsemen (or, at least in one case, at Monticello, by arbitration after a dispute in which the horsemen withheld their approval for out-of-state simulcasting of the track's signal). The rates currently range from 8.25% (Vernon, Yonkers, Monticello, Tioga), to 8.5% (Saratoga), to 9.25% (Buffalo Raceway).

In this rebuttal to Faraldo's statement linked to above, Gural decries the losses he's suffered at Vernon and at Tioga Downs, points out that the 8.5% is actually an increase from the current rate, and describes improvements he intends to make to the barn area. However, his arguments fall apart when he writes that why "the State would be taking money from education to give to the horsemen is anybody’s guess." It's Vernon Downs which stands to reap the greatest benefits; and the horsemen's request seems paltry in comparison to the 12% total increase the track stands to receive.

Having said all of that, the bill also contains a provision which allows tracks and horsemen to negotiate deals above or below the stated 8.5% share. So, like everything else political that has to do with horse racing in NY, that brings us back to the franchise issue. The MOU which proposes to extend NYRA's term for 30 years includes a cut of only 6.5% for the horsemen. (In fact, the actual percentage may actually drop going forward, a somewhat complex mathematical exercise which we'll try to get to in a later post.) Charles Hayward explained in a September article in Thoroughbred Times.
NYRA President Charles Hayward said that NYRA also gets a much lower share of VLT revenues under the Spitzer plan. NYRA would receive 7%, but 4% would have to go toward capital improvements, leaving 3% for operations.

“The VLT splits for the horsemen we negotiated as aggressively as we could,” Hayward said. “The government wanted them to be lower; we wanted them to be higher. The horsemen we’ve talked to, although they realize that it’s less, what’s more important is to get this process going and get this thing built, starting to get some money to purses.

“Because even 6.5% … we’re still going to have a purse increase of about $30-million. That’s an increase of almost 30%. It’s less than the other deal, but the financial dynamics the components of the other deal were quite different.” [Thoroughbred Times]
John Pricci, in a column dated September 13, pointed out that NYRA's original plan when MGM was slated to run the racino, was more beneficial to the horsemen, and to breeders too.
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% [1% under the MOU].
.....
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 Spitzer’s advisors and the inspector general ever bother to check the proposal made by the original awardees?

Excelsior’s 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. [HorseRaceInsider.com]
And the thoughts of the NY Thoroughbred Horseman's Association (NYTHA)? I don't really know. The NYTHA has been rather silent since its split from Empire and the departure of its outspoken former president Richard Bomze. I'm sure that Joe Faraldo would have something to say. He might even order the barn area to close.

10 Comments:

glimmerglass said...

I'm not a harness racing guy although I was raised in Cooperstown NY so I still recall as a kid in the late 1970's and early '80's ads from Utica promoting at the time (during the boom era) Vernon Downs.

Then again so too were ads for the Catskill Game Farm which has since shuttered and the animals dispersed. Every entertainment, recreation and vice dollar has more ways then ever to be spent.

That said it is in my view sadly the advent of Indian casinos means the handwriting on the wall for a lot of racing. The same will happen in the Catskills if the casino opens there - Monticello will have the exact same woes.

Vernon no matter how you adjust the takeout shares will just get further crushed by Turning Stone as that 'foreign nation' swallows up more land and adds more ways to extract money from visitors. If racing was more profitable I'm sure they'd add a track within the resort instead of a PGA quality course.

How long before his already slowing Tioga Downs becomes a separate source of financial complaints to the State?

Anonymous said...

Quick math and some questions on the NYRA (for now) Franchise.

IF 6.5% equates to $30M in additional purses for horsemen, then 3% equals $14M to NYRA.

Is this before or after the Casino operator gets its cut?

Is this enough to make them solvent going forward, taking into account that all capital improvement will theoretically be funded by the 4% allocted thereto
($18M per annum)?

Their debt payments and Pension liability would be forgiven or paid by the state, so the remainder would need only to cover ongoing operations.

Curious if anyone has their actual operating results and could apply the above figures to see if this is all pie in the sky or not.

Anonymous said...

The idea that those were the best percentages that NYRA could get for the Horsemen and the Breeders is a joke, the state caved to all NYRA's demands.

Considering how NYRA has been robbing the Horsemen blind for so many years now you would think Charlie and Steve would want to insure a higher percentage so they can steal it again next time they run out of money.

Anonymous said...

Look. Faraldo and his cronies are a bunch of throwbacks to the era when the mafia ran EVERYTHING up in Utica.
Ask Faraldo where the $250,000 are that was provided to him by Vernon Downs to supply his horsemen with insurancce. He won't answer becaise >>POOF<< it's gone.
The Horsemen in Tioga are extremely happy with the management, and they work together for common goals. They have their insurance. Seems the money given to them for it went to the right place.

Yes, Gural and Faraldo have it out for each other, but if you had to label them, picking Good and Bad would be easy. Gural is fighting for the entire industry, Faraldo for himself.

Also keep in mind, there are over 600 families hanging in the balance here. The Assembly gives a handshake deal then retreats on it. Then they take the entire winter off? These people make 6 figure salaries to work 77 days a year. The assembly is filled with NY City politicians who could give a rats butt about upstate New York.

Time to cut Faraldo and the rest of New York City free. Let him run the legal aspect of setting NYC up at the next state.

Signed,
Pissed Off In 'Tiogaville'

Anonymous said...

Another solution would be to shut the Indian casino. Of course, that will never happen. How did this sort of scam get started in the first place? Who benefitted then, who benefits now?

Anonymous said...

Well at least NYRA is protected under this law if the Native Americans start buying up land parcels on Rockaway Blvd (or if Albany sells the parking lot to them).

J. Lopresto said...

I have been an active harness horse owner of many horses since 1974, a provisional driver for several years prior to having a serious on-track accident, and have followed all of the activities of the Faraldo and the Gural factions in harness racing.

If there was ever a person who has dedicated his life to harness racing (owners, drivers, track owners, and, more importantly, the bettors who support this business enterprise, it is Joe Faraldo.

I have followed Faraldo's career in all the important positions held in the harness racing game, and honestly there is no one who has done more for our industry, past, present and future than him.

Everyone knows that Faraldo is dedicated, honest and most respected and knowledgeable with his efforts on behalf of all horsemen in all aspects of this business and sport.

Good Luck to Faraldo, and continued success for harness racing in Mew York.

Mutaman said...

"Time to cut Faraldo and the rest of New York City free. Let him run the legal aspect of setting NYC up at the next state."

NYC sends $11 billion more each year to the state of New York than it receives back. Please, upstaters, cut us free.

Paul S said...

I don't know either Faraldo or Gural personally, but I do know ths: As a horseman from NY the racing opportunity is limited. I haven't seen anyone put up money to open any tracks in the state since I started, plus Gural. He is a horseman himself and by the facility in Tioga he is posotive to the sport. The garbage about stall space and closing down of facilities is not new. Come to WNY and find out what I'm talking about. We need to have a common goal and not a bunch of politics getting in the way. I would love to see Vernon open back up, but honestly how many people would keep running a business at that kind of loss without any help or cooperation from horseman and reps?

Anonymous said...

Faraldo is sitting in his New York Office making money off the horsemen by dragging this on and on. He is only looking out for himself and not the horsemen. Get smart you Vernon Downs guys and stop the bickering and crying. Your the cause of half the problems plus your money eatin buddy Faraldo.