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Tuesday, July 13, 2010

Comptroller's Report Not Worth the Paper It's Written On

Charlie Hayward had reminded the Times Union's Jim Odato that it's "political season" when asked about the impending release of Comptroller Tom DiNapoli's audit of NYRA's finances (pdf file). And sure enough, there was DiNapoli, up for re-election this fall, in full campaign mode on Monday as he announced his shocking findings that NYRA Faces Insolvency Without VLT Revenues!

Oh boy...really?

Of course, since many media outlets reflexively portray NYRA as a hopeless and incompetent money sucking void, most omitted the "without VLT Revenues" part from their headlines... like this, or this, or this, or even in the three major racing dailies: the Thoroughbred Times, the Daily Racing Form, and Bloodhorse; all of whom should know better and should be ashamed of themselves. That's like running a headline which reads Yankees Pennant Hopes Tenuous if CC Sabathia, Mark Teixeira, Derek Jeter, Nick Swisher, and Mariano Rivera suffer season-ending injuries

Indeed, it's common knowledge that VLT's are essential to the industry's survival in the state; we didn't need a third-rate politician to tell us that. DiNapoli was going to extract his pound of political flesh no matter what; and this farce of a report shows to what lengths he would go. (Not to mention his grandstanding announcement that auditors will be on site at Saratoga to provide a “real time” picture of NYRA’s finances. Seriously, gimme a break, what are they going to do, pat down the admission clerks and keep a watchful eye on the Chinese food deliveries?)

The report acknowledges that the lack of VLT's has cost NYRA $30 million since April 2009, and that the association is owed $17.1 million (now closer to $20 Million) by NYC OTB. (But it doesn't bother discussing the devastating effect on the industry of OTB which is singular to New York State....nor the arcane laws such as the one which prohibits NYRA from streaming its own races.) Yet, along with some unspecified notions regarding saving on personnel costs (and recycling the already-debunked idea that NYRA's officers are overpaid) and the 20/20 hindsight idea that NYRA should have acted as if it knew there would be no VLT's in the specified timeframe even immediately upon emerging from bankruptcy, the Comptroller, for all his efforts, could only actually identify some $1.2 million that he says NYRA could have saved on an annual basis. Even an untrained accountant like myself (well, and like DiNapoli for that matter) can tell you that that's not material to the question of NYRA's survival when we're talking about nearly $50 million in revenue going missing each year. And that's if even that relatively insignificant amount was valid.

Because it's not. DiNapoli states that NYRA spends $900,000 a year on transporting horses among its three tracks. However, as NYRA points out in its response, that's merely a normal cost of doing business, especially given the keen competition among jurisdictions, many if not most of them flush with slots revenues, for horses. That service is also provided in California, Maryland, between Churchill and Keeneland (competing tracks), Arlington and Churchill, and at Gulfstream Park (from Palm Meadows). The balance of the supposed waste is $320,000 in "potential savings" from its $125,000 per month contract with Getnick and Getnick for its services as its Integrity Monitor (as required and approved by the bankruptcy court). That idea is debunked point by point in a response by NYRA board member James Heffernan. It's just not enough money for me to spend the time going into the details here; you can read his letter if you're interested.

Besides, I wonder how much less than that $320,000 this whole idiotic political exercise has, and will (with the Saratoga Audit Squad turning in their Shake Shack receipts for reimbursement) cost taxpayers.

- One point on which I actually agree with DiNapoli is his observation on the latest round of the Aqueduct racino selection process.

“It looks like the selection of a VLT operator for Aqueduct is still an open question....When you start with six potential bidders and end up with only one, it begs the question of how the process was handled and whether the state can actually close the deal. [Troy Record]
Indeed. The former Aqueduct Entertainment Group (now known as Aqueduct Entertainment Company) is looking to further complicate that matter with its lawsuit against New York State and the individuals involved in that company's DQ after "winning" the previous bidding round.
The suit's central argument is that the Lottery Division, at Silver's request, changed the rules "in the middle of the process" by requiring "passive investors" to be subject to the same level of disclosure as AEG's managers. [Albany Times Union]
Of course, AEG didn't complain when Senator John Sampson changed the rules by giving them the details of their rivals' bids. The fact is that the rules were changing all the time. I don't think that this lawsuit will ultimately prove to be worth anything more than DiNapoli's report.


El Angelo said...

Let's be fair for a minute: if NYRA can save a million or so a year by cutting unnecessary expenditures, then it should be in the audit and pointed out. I agree that it's missing the forest for the trees because NYRA's insolvency is wholly because of the OTB and VLT issue, but that's no reason that an independent party can't criticize NYRA's expenditures. It's not like the organization has earned the benefit of the doubt.

That said, I agree that DiNapoli is doing this for purely political reasons and everything should be taken with a metric ton of salt.

Figless said...

The entire point of this audit was to determine whethar NYRA needed the $25M loan to survive, DiNapoli originally questioned NYRA's honesty in requesting the loan.

Buried in the report was the finding that indeed they would have had to close down without the loan.

Questioning the Getnick expenditure is hilarious, as if NYRA has a choice here, same with shipping the horses from track to track.

The one valid point, and I would love to know who is getting this money is:

"NYRA spent more than $6 million on contracts for personal and miscellaneous services. NYRA did not justify the need for price of these contracts so it is unclear whether some of these contracts were necessary;"

I suspect these are temporary workers/outside contractors which is not unusualy in this day and age, especially for a struggling company, and perhaps it also include the Getnick shakedown, but it would be nice if NYRA or DiNapoli could provide a little more detail here.

Figless said...

PS- they criticize wage increases which are entirely due to previously negotiated union contracts.

DiNapoli is wasting his time on this when NY is facing a huge budget deficit????

Instead of hanging around Saratoga all summer his auditors time (and our taxpayer money) would be much better spent looking for areas to cut costs in Albany.

Anyone think he might be able to find a few undocumented contacts in his own backyard?

Figless said...

OK, I read the whole damn thing, and the only questionable item appears the $1M plus paid to an advertising consultant, which includes advertising costs allegedly at rates lower than NYRA could have obtained without said consultant.

Thats it.

7 auditors spending all that time and now scheduled to hang out at Saratoga all summer while the state is in financial ruin.

I can recommend one cost savings measure to the State, stop wasting our taxpayer dollars auditing an entity that already is audited by both an independent monitor and an independent accounting firm.

There were issues in the past, time to move on.

Alan Mann said...

Figless, in NYRA's response, they claim that, of the $1 million paid to the advertising consultant, nearly $875,000 was "applied directly to the purchase of advertising," with the balance paid as consulting fees. If, as they claim, the consultant helped them obtain favorable rates and placement, then the expense would in theory pay for itself. NYRA added that they would have the consultant better document the comparisons between their rates and the published ones.

steve in nc said...

Most places hire consultants to negotiate rates and place ads rather than navigating the various publicity outlets themselves. This is just another necessary and typical cost of doing business. The audit is either a hatchet job or the work of a know-nothing (or both).

Anonymous said...

Just wanted to post and admit my Dead Wrongedness about post-Belmont Day analysis as both Trappe Shot and Tahitian Warrior have returned in great fashion. I was wrong, haha.

Nihilator said...

Rail Trip to Dutrow barn.

Quality Road is in deep shit! No more easy leads.

Wait till Dutrow juices this fucker!

Anonymous said...

A business organization should be out of business if the product or service they offer does not generate enough income to offset expenses and costs.

Surviving by accepting, actually displaying an entitlement attitude by management, extraneous income (slot income) is repugnant.

I will keep my lemonade stand open all year long if you all will send me money every week.

steve in nc said...

Hey anon 4:24 - your general statement may be correct (and is a great argument for why crucial services should be socialized). But it doesn't apply to NYRA. Do you have any clue as to how much revenue is generated for NY State by NYRA???? Racing is one of the few operations that can honestly claim to be damaged by taxes and regulation.

jk said...

A state Supreme Court judge ordered a halt Wednesday to the latest Aqueduct bidding process so he can consider a developer’s lawsuit against the state for rescinding its lucrative racino contract.

Figless said...

Steve in NC hit the nail on the head, racings problems are obscene taxation on gross handle, absurd regulation AND, in NY's case, direct competition from government.

No other industry faces those obstacles.

Anonymous said...

Alan said...Besides, I wonder how much less than that $320,000 this whole idiotic political exercise has, and will (with the Saratoga Audit Squad turning in their Shake Shack receipts for reimbursement) cost taxpayers.

Alan, have you joined the Tea party?

Must be embarrassing for those who voted for these Jokers.