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July 12, 2010

DiNapoli: NYRA Facing Insolvency Without VLT Revenues

Announces Real-Time Auditing of NYRA’s Fiscal Condition

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The New York Racing Association (NYRA) is facing financial insolvency in 2011 if revenues from the video lottery terminal (VLT) racino at Aqueduct Race Track fail to materialize and expenses are not curtailed, according to an audit released today by State Comptroller Thomas P. DiNapoli. DiNapoli announced that he is putting auditors on-site at NYRA to provide intensive monitoring of its fiscal condition and efforts to restructure operations.

“NYRA is still on very shaky financial ground,” DiNapoli said. “After declaring bankruptcy and getting bailed out by taxpayers, NYRA continued business as usual for too long. There’s too much at stake to let NYRA continue its fiscal mismanagement. My auditors will begin real-time auditing of NYRA’s books.

“The state also has to live up to its end of the deal. But 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. The fact is NYRA can’t make it long without significant restructuring and revenues from VLTs.”

The audit examined NYRA’s financial condition as of May 20, 2010 and operations from September 12, 2008 to March 31, 2010. DiNapoli had to use his subpoena power to force NYRA to turn over financial records after it initially refused to give DiNapoli’s auditors access to NYRA records.

DiNapoli’s auditors verified that NYRA would not have had sufficient cash to run track operations by early June without external financing. On May 24, the Legislature approved a $25 million loan for NYRA. Auditors determined that the $25 million loan should enable NYRA to continue operations through the end of the state fiscal year.

Auditors identified several reasons for NYRA’s continued financial troubles including:

  • After emerging from bankruptcy in 2008, NYRA continued spending more than it was taking in rather than restructuring its operations. NYRA incurred an operating deficit of $8.9 million in 2009 and is projecting a $19 million deficit in 2010;
  • NYRA has not received more than $47 million in expected revenue: $30 million from the VLTs at Aqueduct and more than $17 million from the bankrupt New York City Off-Track Betting Corporation; and
  • Most of NYRA’s revenue is generated from wagers on horse races, which declined by 13.2 percent from $2.56 billion to $2.22 billion between 2006 to 2009.

Auditors found that NYRA finally began to identify significant spending reductions in February 2010, more than a year after it declared bankruptcy and only after the Aqueduct VLT contract was rejected. NYRA reduced purses for some races and laid off 12 professional staff, for a total annual savings of $5 million. NYRA also plans to close the Aqueduct training facility for a savings of about $3.5 million, as well as a back stretch security barn saving another $1.2 million annually.

DiNapoli’s audit identified an additional $1.2 million in immediate savings opportunities for NYRA. Auditors noted that while NYRA cannot balance its books alone with cuts, there are steps the organization must take to reduce costs long-term, including:

  • Since emerging from bankruptcy, NYRA’s overall payroll costs increased by $1.9 million to $69.2 million. Seven executive staff make from $255,000 up to $460,000. NYRA has not performed a formal staffing analysis to determine the optimal number of employees and salaries for its operations;
  • NYRA spent more than $6 million on contracts for personal and miscellaneous services. NYRA did not justify the need for or price of these contracts so it is unclear whether some of these contracts were necessary; and
  • NYRA spent $900,000 to transport horses between tracks at no cost to the trainers or owners. NYRA should evaluate whether, and to what extent, the practice of transporting horses between NYRA tracks at no cost is necessary for NYRA to remain competitive and, depending on the results of the evaluation, consider either charging a fee for the service or discontinuing it.

DiNapoli’s auditors will be on-site at NYRA in the near future and will routinely issue reports on NYRA’s real-time fiscal condition.

NYRA generally agrees with the audit findings but cites that it reduced operating expenses by 2.2 percent between 2008 and 2010 and operating expenses for 2010 are below those projected in the bankruptcy reorganization plan. NYRA’s full response is included in the audit.

For a copy of the audit, click here or visit: http://www.osc.state.ny.us/audits/allaudits/093010/09s89.pdf

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