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Friday, February 23, 2007

Racino Approval Imminent?

- We've heard this one before, but Charles Hayward told the Saratogian that NYRA is in talks with the Governor that he believes will lead to approval of the Aqueduct racino within 30 days. The difference is that he is now dealing with Eliot Spitzer, instead of the former Governor, who we believe, and as NYRA will try to prove in court, helped to drive the association into bankruptcy by stalling on the go-ahead for slots. Spitzer has already included anticipated revenues from the racino into his budget proposal, so there's ample reason to believe that this will finally get done, despite the fact that neither side is willing to back off of the pending court battle over the land. "We certainly aren't going to drop our land claim," Hayward told reporter Paul Post.

Hayward also said that he believes that Spitzer will approve a $50 million bailout to keep racing going for the rest of the year; the latest state loan will only keep them going through mid-March.

According to Hayward, state officials including Spitzer don't want NYRA to get financing from an outside party. GE Capital's financing would be secured by a mortgage on Belmont Park, potentially opening up all kinds of legal issues. Also, interest rates on a state loan are much less, 4 percent versus 10-15 percent.
Once again, for an issue on which the state, along with many well-informed impartial observers, has so adamantly insisted is on their side, the land claim seems to be quite a powerful card that Hayward has played masterfully throughout this drama. Every time we get to the point where it looks as if the decision will fall to the judiciary, the state seems to back down. You just gotta wonder if the state will ever be willing to take the risk of an unfavorable ruling, and if NYRA will indeed be able to parlay the claim into at least a partial role in the future of racing in the state.


Anonymous said...

If the state wins the land claim, do they have to pay NYRA back for 50 years of property taxes? Maybe they do not want to find out.

Green Mtn Punter said...

Alan, if GE Capital is willing to lend NYRA $X million secured by a first mortgage on Belmont Park then you can be assured that GE Capital attys and the title insurance co have passed on merchantable title being vested in NYRA. Have to assume that's why the state doesn't want GE Capital or any other secured lender in the picture, i.e., that would be ipso facto recognition that fee simple title to the mortgaged property is vested in the borrower. Of course, the lender may also require additional security in the form of assignment of other collateral, i.e., future revenue streams from parimutuel income and/or State of NY advances just to be sure, haha! Nonetheless, NYRA's land claim would be strengthened du to the fact that GE Capital loaned them X millions secured by a first mortgage on Belmont Park.

Anonymous said...

First, the State would not be obligated to repay NYRA anything. The best way to view the land is that NYRA has a life estate. During their life, they are required to pay taxes, utilities, upkeep, etc. When they die, the land is passed to their assignee, in this case, the State. It is not an unusual business occurence to require "tenants" or "occupants" to pay taxes. NYRA's claim on their payment of real property taxes are meaningless.

GE Capital is willing to lend the money only after the title is securedly deemed to be NYRA's, not before. The bankruptcy judge could allow financing before the land decision is made. The State simply doesn't want the another mortgagor because they would be obligated to satisfy that claim when NYRA dies.

Under the Racing Law, the State must satisfy or make provision for NYRA's liabilities upon its termination. The State just doesn't want to have another mortgagor involved. Why let GE Capital make all those transaction fees if the State ultimately has to pay off the mortgage anyway.

As to GE Capital making a business decision, didn't NYRA trustee Dennis Dammerman head GE financial?

Alan Mann said...

Yes, he was chairman of GE Capital from Dec 1998 to the end of 2005, and he joined the NYRA board in March 2006. Thanks much for the information. So, you're saying that the state is motivated here more by practical and financial considerations than any concern over implications for the land issue?

t said...

damn...haven't read that anywhere before. this story just gets thicker and thicker. constant twists and turns, and a bunch of the were mentioned here first.

Green Mtn Punter said...

Here's the way I see the NYRA land claim issue as of today: The 2007 working capital is coming from either the state's $50 mill advance or a mortgage on Belmont, there's no difference to the state, in the end the dough is coming from the state no matter what. Since 1955, title to the 3 racetracks has never been vested in any entity other than NYRA, and no subsequent legislative act is ever going to change that absent a voluntary title transfer from NYRA, or by prevailing in some kind of title litigation. NYRA has merchantable title to the properties today so GE Capital will make the secured loan on that basis. No, it's not the state's worrying about paying off the Belmont mortgage, the state is going to pay either way, it's the land title vested in NYRA's name further reinforced by the fact of receiving a loan secured by a real estate mortgage which has the state concerned. The land claim issue, coupled with the state's vulnerability in re the Pataki Admin's RICO-like behavior toward NYRA, currently the subject of a lawsuit from NYRA, are the reasons why the state avoids the land claim showdown and NYRA keeps forging ahead with it's refinancing plan. NYRA has to go out of business before the state gets a dime of it's assets, and if NYRA controls the assets, i.e., the real estate, it really isn't going out of business. A franchisee other than NYRA would have to lease from NYRA, or enter into a joint venture with NYRA in re operating the franchise. Keep playing that hand, Charlie Hayward, it looks like the trump split is going your way.

Anonymous said...

No. NYRA received the franchise in exchange for the explicit understanding that the land would be distributed after their demise. They never had any expectation that they could keep the land. In fact, NYRA freely acknowledged this until political winds changed in the last ten years and they lost favor (i.e., could no longer get franchise extensions without public review).

There needs be no subsequent legislative act - they agreed to this in 1955. The only thing that changed was in 1983 the State decided not to distribute the land to charity, they allowed the governor to make a distribution in accordance to law. This secured the state as the Capital Investment Fund was founded, ultimately loaning NYRA over $100 million. NYRA required state assistance with the franchise because they couldn't secure financing without a long-term franchise. In other words, NYRA received a quid pro quo. The long-term franchise in exchange for the land when they died.

I assume the state doesn't want GE Capital or any of the other three potential lenders NYRA has floated because of concerns with a secured party that could try to force a land sale in the event of a default. A forced land sale could mean the end of either Aqueduct or Belmont - something no one wants. Bringing another party in is dangerous and reckless.

Regardless, the state has paid for the lands time and time again. As early as 1956 NYRA sought takeout rate reductions to provide them more money. I believe they've done this on more than one occasion. The state received less so NYRA could make their payments. Time and time again.

Don't expect the land issue to be contested in bankruptcy court until the State's motion-to-dismiss is decided. The land issue would be premature until then.

Anonymous said...

Thanks for pointing out the GECapial connection to the board of trustees.

Would be interesting to see the fees attached to this loan, guessing they are way above market standard.

This is the only logical reason for the state to object. The state will end up funding one way or another, assuming they eventually prevail, so why incur the fees?

If NYS is confident in their case THEY should just lend the money to NYRA. Obviously, they are not THAT confident.

To clarify some points from above, there is no issue with land ownership now or in the past, NYRA is the title holder.

Under state law, in the fine print to which NYRA did not object when they recieved their first extension, all assets and liabilities including the land title pass to NYS when NYRA ceases to exist, and under the original NYRA corporate bylaws NYRA ceases to exist when it no longer holds the franchise.

NYRA's exists as an entity solely to hold the franchise, it may not stay in existence as a landowner or for any other purpose, it automatically disolves upon termination of its franchise.

Intent is another matter which NYRA will argue but will likely have no impact.

When NYRA was formed there was no anticipation of OTB's, VLT's or other bidders for the franchise. The trustees donated the land for the good of racing, a sport they loved. The land was supposed to go to charity if racing ceased, which in the day meant if it were outlawed in its entirety by the state, which had been the case not long before.

The trustees, faced with the sport they loved being outlawed, agreed to this structure to ensure racing continued, in almost a shake down scenario if you think about it.

The State did fund the reconstruction of the downstate tracks, and improvements later on, but I believe all of that money has been repaid or remains on the books as a loan payable at a fair interest rate, it was a secured loan, not an exchange for the land as the state claims.

Also remember one thing that even NYRA fails to mention, in the many years that racing was actually profitable, mostly prior to the OTB creation, NYRA was forced to turn over all profits to NYS instead of retaining them like a normal entity would. They were then forced to borrow from the Capital Improvement Fund at high interest rates. So the state made out quite well during the early part of the franchise, and only began to suffer when they themselves created an unfair competitive edge for themselves with the OTB's.

In short, the state is as much to blame, both for creating the OTB's and for their lack of oversight, as NYRA for the current plight.

In the interest of fairness and intent, they should not get away with this blatant land grab which is worse than the Brooklyn eminent domain issue currently being scrutized in the press. At least the residents in Bklyn are being compensated.

My attempt at a Solomon like proposal is as follows;

IF NYRA is not awarded the franchise the land should be placed in a charitable trust, the trustees of which will be named equally by the state and by the families of the original land donors.

The entity awarded the franchise will lease the land from the charitable trust at fair market value, including payment of all real estate taxes. The net profit will be distributed to racing related charities annually.

Feel free to use this as you see fit, I actually think it might work the more I think about it.

Green Mtn Punter said...

The fact remains: No matter what all of that legislation purports to legislate, fee simple title to the tracks belongs to NYRA, and unless and until NYRA goes out of business, or voluntarily ceases operations and/or voluntarily conveys title to the state and/or a new franchisee, the real estate is NYRA's. Forcing NYRA to go out of business was obviously the strategy employed by the Pataki Admin; this was the only way they could see to get control of the real estatesince NYRA was a bidder for the new franchise. Since that didn't work, the state, to avoid long and tangled legal battles while NY racing continues to decline, must keep NYRA in the game and try to broker a compromise in the form of a JV with Excelsior as the price Excelsior will pay for the franchise. Those talks, I believe, are what is going on behind the scenes now. If this is settled without NYRA receiving a franchise extension, and/or not being a player in the new franchise, I will be very surprised.