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Wednesday, January 06, 2010

NYRA To Court: Throw the Bums Out

NYRA's motion in the U.S. Bankruptcy Court in the Southern District of New York to throw out NYCOTB's bankruptcy petition is a two front assault - a highly technical and legal argument that OTB is not eligible to file for Chapter 9 protection; and a more subjective and skeptical view of its motivation to do so. And it would seem as if NYRA got its moneys worth (though the Comptroller will no doubt want to know where it came from); the citations of precedent-filled 23 page filing by the law firm Weil, Gotshal & Manges systematically and meticulously seeks to shred OTB's contentions to pieces on both counts.

I won't go too far into the Chapter 9 argument, which is far beyond my pay scale. Suffice to say that it lays out the criteria required to achieve such protection and, other than accepting the fact that NYCOTB qualifies as a "municipality," proceeds to explain why it fails to satisfy each of the other required precepts. A couple of key points: NYRA contends that legislative action is necessary for OTB to file for Chapter 9, and that Governor Paterson's Executive Order which specifically authorized it to do so is invalid.

Critically, however, there was and is no statute that empowered Governor Paterson to authorize — pursuant to Executive Order or otherwise — NYC OTB to file for bankruptcy protection under chapter 9. Therefore, the Executive Order could not provide the express written authority required for NYC OTB’s chapter 9 filing.
NYRA also claims that OTB did not, as required, negotiate with its creditors prior to the bankruptcy filing, disputing its claim that such negotiations were "impracticable" (impossible to do or carry out). NYRA argued that OTB's creditors were neither too difficult to identify (in fact, the entities that NYC OTB considers its principle creditors are statutory distributees, like NYRA..), and that such negotiations would have posed no risk of significant loss of NYC OTB's assets.

More interesting to me is NYRA's second line of attack; the notion that the filing was not made in good faith, and was rather "merely a tactic" to, among other things, delay further payments to creditors (payments which, as it notes, are statutorily mandated, and, as it does not note, are desperately needed by an entity fast running out of cash); and that OTB has no "reasonable prospects" for a reorganization.
First, NYC OTB’s business plan hinges on the State legislature’s “swift and decisive” action to modify the legislative distribution scheme..
That has to be by far the most self-explanatory statement in the entire filing; and perhaps a veiled swipe at Albany's failure to name an operator at the Big A. And here, in this section, lies the crux of the whole matter, and what was likely the main impetus behind this whole action - the fact that OTB is seeking to have its already low-by-comparison payments to the industry reduced even further.
Second, the most critical of the legislative changes NYC OTB seeks is modification of the legislative distribution scheme to allow NYC OTB to pay its operating expenses before it calculates its mandatory distribution to the State horse racing industry, as well as State and local governments (i.e., payment on the "net" rather than the "gross". However, it is likely that, if distributions are made on percentages of revenue after NYC OTB satisfies its hefty overhead costs, there will be insufficient funds to distribute to the State horse racing industry.

Ironically, this could put the State horse racing industry out of business, which would, in turn, put NYC OTB out of business. This result casts doubt on NYC OTB’s ability to “effect a speedy, efficient reorganization on a feasible basis.”
(Sarcasm here was not added by me.)

Finally, NYRA contends that OTB did not consider its alternatives to a bankruptcy filing, and saves one of its most effective points in my view for last.
For example, NYC OTB intends to incur $250 million of debt to finance its reorganization. However, it is unclear why, prior to coming into bankruptcy court, NYC OTB did not use its authority to issue bonds to raise revenue to pay its obligations, fund operations, and grow its business. NYC OTB's failure to make such an effort to raise revenue before filing points to its lack of good faith in this proceeding.
What would OTB chairman Sandy Frucher say about that? Perhaps he'll return Matt Hegarty's call and explain. And while he's at it, he can tell us what happened to his statements of this past September, when he spoke in far more profound terms then the simplistic survival plan of simply paying less to the industry which is OTB's lifeblood, actually questioning the dysfunctional structure of OTB in the state.
"There is no reason, candidly, to have seven totes, more than seven totes. Every track has its own tote. Every OTB has its’s done seven times and it has to be done identical."

"It really comes down to a bit of redundancy. I mean, how many presidents of OTBs do you want to pay for?"


Anonymous said...

Who is advising NYRA on its PR because I assume they have now managed to alienate The Governor’s office, The Assembly and Senate Leadership in the past month or so based on the following:

1. Charlie Hayward basically laid the blame for the VLT decision delay firmly at the Governor’s feet. Has NYRA and Hayward decided that the Governor is a lame duck and are supporting Andrew Cuomo. Michael Del Giudice, a NYRA Trustee, was Andrew Cuomo’s fathers Chief of Staff and I believe current chair of Andrew’s reelection committee (including his potential run at the Governor’s office to unseat Governor Paterson). Del Giudice is rumored to have been instrumental in guiding NYRA through its franchise renewal;

2. Stonewalling Tom DiNapoli’s audit, the one organization that previously detected the $54 million fraud by NYRA on the State of New York; and

3. Objecting to the bankruptcy of NYCOTB. This is definitely the ‘pot calling the kettle black’ and smacks of NYRA’s arrogance and being out of touch in an environment of accountability in an election year.

I am not a conspiracy theorist but NYRA is definitely giving Joe Public the impression that it is covering up something that is not kosher. Time will tell because I assume that Tom DiNapoli will win this one and get his audit. God help NYRA if anything negative is ‘turned-up’.

Anonymous said...

Governor Paterson State of State (SOS) address.

Governor Paterson said the following in his SOS address:

"Making upstate New York the back office of corporate America.”

Does this mean that The Governor is favoring Delaware North for the Aqueduct Casino License?

God I hope not as Delaware North was chosen nearly 18 months ago and subsequently failed to pay the promised $370 million franchise fee which has cost the thoroughbred horseracing industry hundreds of millions in delayed payments not to mention the substantial loss they have also caused the State.

There will be a massive outcry if the Governor chooses Delaware North given this recent history.

I hope for his sake he does not.

Anonymous said...

Time to run NYRA out of business
Letters to the Editor:
First published: Wednesday, January 6, 2010

I am getting sick of the arrogance and cavalier attitude of the New York Racing Association.

After the state used taxpayer money to bail NYRA out of its unbelievable incompetence and downright illegal activities that led to its bankruptcy status and huge debts, not to mention how they treated the horse owners and purses for races, NYRA initially refused to provide records for an audit by state Comptroller Thomas DiNapoli. It agreed to do so after subpoenas were issued.

Based on NYRA's past performance, an audit should be a regular, timely activity. Maybe then, NYRA's atrocious conduct could be stopped before it got too bad.

And I fault the state representatives who allowed NYRA to go back into business. Apparently they were blinded by the money involved or they were just plain dumb and no match for NYRA. Why do we need a separate and private, or so they say, entity to run horse racing in New York? There has to be a better way to manage the industry that doesn't penalize the taxpayers of New York.

Just get rid of the whole bunch, I say.



Anonymous said...

And that uninformed letter proves exactly what?

If anything, considering the sources of the NYRA slamming it becomes even more and more apparent that they are in the right.

Anonymous said...

from Google, FREDERICK J. HMIEL is a lawyer who was first licensed to practice law in NY in 1953.

Anonymous said...

An audit is a regular timely activity, just not by the Comptrollers office.

Wtf is Getnick and Getnick doing to earn their million dollars a year, or the other entities charged with auditing NYRA including the 12 trustees appointed by the state?

Its not like NYRA is operating in the dark here, there is plenty of timely oversight.

NYCOTB on the other hand, where are the cries for audits of that money pit????????????????

NYRA would be negligent not to challenge the bankruptcy petition, they are the single biggest creditor.

What are they supposed to do, sit by and let the debt be written off and their biggest source of revenue, one set by legal statute and as Alan indicates well below market pricing, be reduced even further?

Anonymous said...

And if you live in New Jersey, Pennsylvania, Massachusetts, New Hampshire, Delaware, or Virginia you can not bet on Santa Anita, Golden Gate, Gulfstream, Laurel, Fair Grounds and soon to be Oaklawn due to the ridiculous dispute between Tracknet (magna owned tracks) and the mid Atlantic states. Horse racing never passes up on an opportunity to screw over it's customers !!!!!

Steve Zorn said...

As Matt Hegarty pointed out in his DRF piece, the NY Thoroughbred Horsemen's Ass'n, representing the owners and trainers, basically said "me too" to NYRA's objections, a welcome instance of the two entities working together. Of course, if NYCOTB does succeed in having its contribution to NYRA and purses reduced, I'd assume that NYRA, with the horsemen's full support, would just cut off the signal. The state could order its creation, NYRA, to supply the signal to OTB, but wouldn't the 13th Amendment have something to say about that?

Purses are already down at Aqueduct, back to 1999 levels. And OTB owes $10-million-plus to the purse account. If I were running NYRA (fat chance!) I'd cut them off right now.

Anonymous said...

NYC OTB once evidenced a bit of common sense opening on Palm Sunday and Easter Sunday and a lack of common sense in failing to establish their right to do so in court.

OPEN ON 1ST PALM SUNDAY, OTB RAKES IN $2M. By JERRY BOSSERT DAILY NEWS SPORTS WRITER. Monday, April 14th 2003, 7:24AM. New York City Off-Track Betting made ... - Cached

Anonymous said...

The obvious solution to NYRA and OTB is to merge all the OTB's and NYRA into one organization, eliminate ridiculous overlapping expenses (including all that overlapping expensive management cost) and locate the Head Office at Aqueduct. NYRA's racing management would then move from track to track for each meet.

However will NYRA allow this to happen, especially if it requires a shake up in its management, and will each OTB give up its local fiefdom for the future benefit of horseracing?

Anonymous said...

Merge NYRA and the OTB's?
Totally makes sense to me.
However that would require real leadership in Albany.
What are the chances of that happening anytime soon.........

Anonymous said...

NYRA running the OTB's has been obvious for about 35 years now, but NYRA dropped the ball way back then and allowed the goverment run parasite to become firmly entranched.

Peeking into my crystal ball, there is a much better chance that OTB's end up running the franchise in the future than the other way more logical solution of the tracks running the OTB's, simply due to politics.

The only way this gets straightened out is if the whole bunch of criminals masquerading as public officials in Albany gets thrown out of office in some massive taxpayer uprising replaced by new honest representatives that put the needs of NYS residents ahead of their own.

Fat chance.

Anonymous said...

I dont believe anyone in Albany would have any confidence in the existing NYRA management. This whole thing is greater than anyone individual or group of people.

The sensible thing is to merge NYRA and the OTB's, appoint a Board of Trustees who have accountability and experience who in turn will appoint senior management who can get the job done and most important know what they are doing.

Will this happen? I certainly hope so.

El Angelo said...

Hey Alan, your boy Paterson, for the first time since he became governor, actually impressed me yesterday.

Anonymous said...

I believe Paterson's heart is in the right place but he will impress me as a leader if he and the legislative leaders agree on a VLT operator this month.

I finally believe the odds are good this might actually happen.

Alan Mann said...

El Ang....Well, that should be a boost for his approval rating, right? :-) Certainly a big change from his rambling, bumbling epic from last year. He's gone from one of the guys to one mean SOB!

But the Aqueduct thing remains a black mark as Anon 1147 points out. Let's see if he follows through on his pledge to name the winner on his own lacking a consensus from the other two (an idea he obviously got from me!)

Anonymous said...

I have a feeling that Paterson wont unilaterally name the Aqueduct winner because he cannot afford to lose this battle in the public eye if he cannot get the other two to agree with his choice.

Somehow I hope sense prevails and the two leaders agree on their choice and then reach agreement with The Gov. There is no reason why this should not be happening right now and a decision announced soon.

We can only hope.

jk said...

The judge will settle this one. All of the press releases are meaningless at this point.

NYRA has already won a battle in bankruptcy court, do not count them out.

The courts to not take kindly to bankruptcy fraud, which is what is alleged here. Some execs have done jail time for mis-stating assets in a bankrupcty case.

Stay tuned, this is getting interesting.

Anonymous said...

One solution that is never discussed but which is the best possible outcome is privatization of the whole damn racing industry in NY.

Sell NYRA, its land, and the OTB's to the highest bidder under the condition that the land is permanently designated for racing purposes.

Then the government should get out of the way and let the winning bidder restructure the industry in any way it sees fit and run the whole thing as a business.

What an interesting concept, eh, free enterprise, capitalism.

El Angelo said...

Privatization isn't a bad idea. But it's not happening any time soon.

Anonymous said...

An interesting article on recent NYRA history written by a journalist who clearly has worked in Government. An interessting read:

Stakes Held Hostage

Friday, 08 January 2010 00:00

The New York Racing Association’s (NYRA) president and CEO, Charles Hayward, hinted publicly last month that NYRA might not have the resources to host the Belmont Stakes on Saturday, June 5, 2010.

I knew immediately that NYRA’s Hayward would pay a high political price for his statement. Albany’s decision makers are the ones who make veiled threats. They are unaccustomed to receiving them, which made the bipartisan beat-down NYRA received a sight to behold.

The back story: the state Legislature authorized in 2001 the installation of video lottery terminals (VLTs) at Aqueduct Racetrack in Ozone Park, one of the three thoroughbred race tracks NYRA runs under a franchise agreement with the state. The others are Belmont Park and Saratoga Race Course. Despite receiving bids from qualified vendors with experience running so-called racinos, no company has been selected to establish VLTs at Aqueduct, thereby depriving NYRA of substantial revenues. Recognizing NYRA was suffering in part because of Albany’s inability to award an Aqueduct VLT contract, the state allocated $30 million to NYRA in 2008, the same year its franchise was renewed for 25-years.

“NYRA operates without a single penny of taxpayer subsidy,” the opening paragraph of a Dec. 28, 2009 NYRA statement said. “The revenue NYRA received as a result of the franchise renewal in 2008 was consideration paid to NYRA by the State in exchange for over $1 billion worth of real estate. The franchise renewal was not a “bailout” of NYRA. Moreover, the State agreed in the franchise Agreement that NYRA would need additional revenue if VLTs failed to be operational by April of 2009. NYRA’s current financial situation is not a surprise to anyone in state government who is familiar with the NYRA franchise agreements.”

Yeah, that final, condescending sentence was a nice touch, NYRA. The $1 billion real estate figure cited above might be challenged by anyone familiar with NYRA’s franchise agreement because it seemingly arises from NYRA giving up its disputed ownership claims to the Aqueduct, Belmont and Saratoga properties.

In addition, Hayward miscalculated terribly if he thought raising the specter of canceling one of New York’s premier sporting events would have repercussions limited to Aqueduct’s VLTs as the 2010 state election season gets under way.

State comptroller Thomas DiNapoli, a Democrat who represented northern Nassau County in the state Assembly for 20 years, was the first to jump on Hayward, followed by Hudson Valley state Senator John Bonacic (R-Mt. Hope), the ranking GOP member on the state Senate’s Committee on Racing, Wagering and Gaming.

Comptroller DiNapoli announced his office would audit NYRA’s books to see if Hayward’s assertions about NYRA’s dire fiscal situation were accurate. NYRA initially rebuffed the comptroller’s request, saying they were exempt from such a review, a stance NYRA quickly dropped after DiNapoli issued subpoenas. Senator Bonacic also had an intriguing reaction to Hayward’s statement, according to an Albany Times-Union article. If NYRA isn’t going to have enough money to operate Belmont’s spring 2010 racing season, the Senator said, why is NYRA collecting money already for season tickets to the summer 2010 meet in Saratoga? The public is about to find out the answer to that question.

Mike Barry, a corporate communications consultant, has worked in government and journalism.

Anonymous said...

There are consistent rumors that Charlie Hayward will be the fall guy on the DiNapoli flap and his days are numbered.

Anonymous said...

NYRA made a bad decision when OTB was available..........They were the first to get the ok to have VLT'S..........which opened the door for every racetrack in the country and here they are still with an gutted 2nd floor at Aqueduct..
For years NYRA had their own set of rules.......and still do.
And to think they are threating the Belmont Stakes...Will never happen.......They need to restructure and get capable people in there to get the ball rolling..Starting from the top right down to HR they are the ones that hire all these non productive people..