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Wednesday, February 21, 2007

Excelsior Outhustled Rivals

- On the day that the Ad Hoc Committee on the Future of Racing released their final report (available, all 270 pages of pdf, here at the Racing and Wagering Board website), a spokesperson for Gov. Spitzer told the Associated Press that "it will be reviewed and will be part of the governor's consideration and evaluation. He does not feel bound by it and in the next days we will be announcing a process for that evaluation."

The report provides a detailed breakdown of how the three bidders were evaluated and ranked in the various criteria, and, as we know, recommends that Excelsior be the next franchise holder in New York.

"Excelsior could reasonably be expected to best provide over the proposed franchise period for the operation and maintenance of the racing facilities, the conduct of race meetings at such facilities, the pari-mutuel betting on the races to be run at such race meetings and the video lottery gaming facility at Aqueduct racetrack in a sound and economical manner consistent with the traditions of thoroughbred racing in New York, ensuring the long-run viability of thoroughbred racing in the state for the support of government." [Daily Racing Form]
A reading of the Scoring section, in which the Committee highlights the aspects of the proposals they found most pleasing, shows that Excelsior went the extra mile as compared to Empire, adding exacting details, and ideas that the Committee found innovative; ideas that Empire probably wishes they had thought of too. With all of the solid industry experience on Empire's side as opposed to a company they derided as a "dog track operator," it's surprising that they would be outdone in that regard.

Proposal Detail was the category given the most consideration, at 50% of the overall score, and in the (b) options (those scenarios including VLT's at Belmont), Excelsior scored a unanimous 9-0 vote over Empire on the first roll call. What really jumped out to me here is that Empire, going against the generally accepted mantra that reduced takeout increases handle, actually proposed a takeout increase. Do I sense a bit of a sardonic tone when the committee wrote that they "appreciated the honesty of Empire in its detailing of a takeout increase on regular and multiple wagers."
"This action, however, was contrary to the advice of proffered by Bennett Liebman of the Albany Law School and Steven Crist of the Daily Racing Form. Excelsior's concepts of utilizing take-out reductions for marketing and promotional reasons were well received. Whether they can be implemented given the current state of law and technology is beyond the Committee's knowledge, but the concept was imaginative and inventive."

What was Empire thinking of here? We don't see that on their website or in their press releases; and I doubt it was brought up at the town meetings. Horseplayers want to hear "increased takeout" about as much as the Bush White House wants to hear "Senate investigation into use of prewar intelligence" these days.

On capital improvements, the Committee "was impressed with the amount, depth and immediacy of improvements guaranteed by Excelsior. The Committee was concerned that the installation of a synthetic surface at Belmont by Empire was simply left "to be determined."
"Likewise, the Committee was favorably impressed with Excelsior's guaranteed development of non-racing facilities, ancillary and satellite properties, even if minimal in scope. Empire's bids, by contrast, simply guaranteed development of the [VLT] facility at Aqueduct.."

The Committee noted that Empire's backstretch plans were "mainly geared toward Belmont Park" while Excelsior's "considered all three tracks and was considered by many to be more complete in approach and discussion than the other bidders."

And, the Committee was "pleased" with Excelsior's proposal to "retain all of NYRA's existing workforce" and, as had been previously reported, "make immediate payments to address existing pension shortfalls and seek to have the pensions fully funded within five years of franchise award." The report pointedly notes that Empire made no commitment regarding the employees, and stated that they consider the pension problem "to be the subject of franchise agreement negotiation."

So while Empire continues to portray themselves as Excelsior's equal, it seems to me that they were more or less "outhustled" in the most important category, and badly. Excelsior's proposals seemed to cover all the bases, while Empire stumbled in an area in which one would think they would have been more proficient.

But both Empire and Excelsior's bids have large clouds hanging over them at this point. Gov. Spitzer will have to have a good explanation, given his self-portrayal as a "steamroller" against the old ways of Albany, to award the franchise to Excelsior given the well-documented and investigated plane rides and campaign contributions he received from that company's Richard Fields. I imagine that the Governor will be singing a far different tune about the relevance and importance of the Committee's work if he decides to go with Excelsior. Empire would probably be helped if the federal grand jury investigation into Senator Bruno's ties to their former Director Jared Abbruzzese results in a new Senate Majority Leader. And then you have NYRA, who would be in a commanding position should the coming court rulings on the land issue go their way. I would no sooner venture a guess on this three horse field as I would right now on the Derby.

- In the Integrity category (20%), which was won by Empire, the Committee's report actually had little to say, and provided nothing in the way of fodder for the company's PR machine. "The Committee determined that Empire and Excelsior were close in integrity, evidenced by the fact that this category was the only one requiring three ballots before consensus was achieved." And that's about it, except for an explanation of why Empire, with all of the business experience amongst their investors, had more "positive responses" to explain. (Positive responses as in "yes, some of our principals are involved in investigation for a civil or criminal violation..."). The Committee concluded that there was no pattern of behavior "considered troublesome" and said the responses were "of the nature evidenced through business experience."

More interesting was the long-awaited explanation of NYRA's integrity score...or lack of one, I should say.
"NYRA extensively quoted from the federal monitor's final report as evidence of its address of the weaknesses that led to their being indicted....While the Committee was pleased that NYRA has made great advances toward remedying the underlying behavior that contributed to the indictment, many members questioned whether these positive steps would have occurred but for the indictment."
Hmmm, I guess that's one way of looking at it. The report also cited the fact that NYRA's Board still included members from before the indictments, and discussed the various liens and debts that the association is faced with; as well as citations by the Departments of Health and Sanitation, and the Environmental Control Board.

- NYRA tried to claim the $4 million it figures it's losing each year as a result of cutting off rebate shops as an annual expense on wagering security, but the Committee called them out on that, calling it "disingenuous."

- A footnote in the report reveals that Abbruzzese held the maximum 25,000 shares, or 6.1% of Empire's shares before being bought out. However, the resulting reduction in the number of shares outstanding means that the combined ownership percentage of Churchill, Delaware North, Magna, and Woodbine, is now 25.92 percent. That means that each of those companies are already over the 6% ceiling (that I guess was actually 6.1%) that Empire has been touting as the maximum investment all along.


Green Mtn Punter said...

Just wondering, Alan, have you or any LATG bloggers had the time and inclination to peruse the entire 270 page report just released by the Ad Hoc Committee? I don't have a printer that would last for 20 pages let alone 270! Wondering if there are some yet unearthed nuggets/bombshells buried in all those pages and footnotes, etc.? Will the "research staff" at LATG assume this task and report back to it's loyal bloggers?!

Alan Mann said...

Yeah, I have my "staff" right on it, and we're hoping to get through at least the most relevant portions this weekend!

Green Mtn Punter said...

Alan, thanks, that's great, I knew I could count on you and your "research staff"! Look forward to learning more after you burn the midnight oil!