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September 17, 2003 

 

Hevesi Plan: Inspector General for NYRA, Strengthen the Racing & Wagering Board, Ensure Video Lottery Comes to Aqueduct

To restore confidence in the New York racing industry and ensure its continued contribution to the State’s economy, Comptroller Alan G. Hevesi today proposed a broad reform program for the New York Racing Association (NYRA), including:

  • An independent inspector general to monitor NYRA.
  • Steps to ensure video lottery terminals are installed and operated at Aqueduct no matter what happens to NYRA so the State gains the additional revenues.
  • A stronger, more focused Racing and Wagering Board to provide effective oversight for racing.

“NYRA, like too many other independent, government-related entities, is out of control without appropriate oversight. NYRA claims that holding it accountable for its bad management puts at risk Thoroughbred racing’s important contribution to New York. The real risk to racing and to the State economy is an unreformed NYRA that has lost public confidence,” Hevesi said. “ We must implement effective monitoring and oversight immediately. Otherwise, the entire governing structure of New York’s racing industry will be at risk at the end of NYRA’s franchise in December 2007. The racing industry is too important and the problems at NYRA are too serious not to take action now.”

The Comptroller’s Office today released an audit of NYRA’s franchise payments for 2000 and 2001, which shows that the Association has underpaid its franchise fee by as much as $15.3 million and continues to lose money despite a rapid increase in betting and revenues. The Comptroller also issued a report on the history of serious problems at NYRA, a quasi-governmental not-for-profit that has been the subject of a number of investigations and is currently awaiting a decision by federal law enforcement authorities on whether or not it will be indicted or sanctioned.

“It’s time to face the fact that NYRA is poorly run. It continues to lose money even though the amount of money wagered and its revenues continue to grow rapidly. NYRA has not sufficiently addressed its serious management problems, even in the face of evidence that many employees have been engaged in systematic criminal activity. Serious reform and monitoring are required, ” Hevesi said.

The report recommends a program of reform that will ensure significant change at NYRA and restore confidence in New York racing, including the following:

  • NYRA must hire an independent private sector inspector general (IPSIG) selected by the Comptroller. The IPSIG will have substantial power to monitor and reform operations, clean up corruption and set management milestones by which NYRA’s future will be judged at the end of its franchise. The IPSIG will work with the Comptroller to develop the milestones and standards and will report to the Comptroller and to the Governor, the Attorney General and the Legislature. By March 2007, the Comptroller will make final recommendations to the Governor and Legislature regarding NYRA’s performance and future.
  • The State should ensure that Aqueduct “Racino” can proceed. MGM-Mirage, the vendor that had reached agreement with NYRA for development of the Aqueduct Racino, has suspended the project citing regulatory risks of contracting with an entity that faces the possibility of indictment. The State must find a way to guarantee that Racino can operate regardless of NYRA’s status so this project can continue and the State can collect the expected revenues regardless of the racing industry’s governance after 2007.
  • The Racing and Wagering Board’s power and authority should be strengthened and expanded. The State should create a Gaming Commission to oversee other forms of gambling so that the Racing and Wagering Board can focus on racing. That is the successful model utilized in New Jersey and Nevada. The reconstituted Board would be charged with substantial oversight and regulatory power with the ability to impose penalties for non-compliance.


“ If NYRA does not agree to hire an IPSIG, I will step up my own Office’s oversight of NYRA. We will conduct a series of audits and reviews of NYRA before its franchise sunsets in 2007. We will examine administration, anti-corruption systems and controls, contracting and procurement processes and budget and franchise fee issues,” Hevesi said.

The audit issued today is statutorily required and narrowly focused. It looks at NYRA’s franchise fee obligations for 2000 and 2001. “This was a routinely scheduled audit focused on whether NYRA paid the correct amount for its franchise fee to the State. It started last year before findings of investigations into the Association and its employees by the Attorney General, the U.S. Attorney and the IRS were revealed. The audit found serious problems,” Hevesi said.

The audit findings include:

  1. NYRA underpaid its franchise fee to the State for 2000 and 2001 by at least $11.6 million and as much as $15.3 million. NYRA actually paid only $4 million for 2000 and claimed to owe nothing for 2001. NYRA has paid the State franchise fee in only five of the nine years ending in 2001.

  2. NYRA keeps losing money despite a rapid increase in betting and revenues.
    • In 2000 and 2001 alone, NYRA lost a total of almost $20.7 million on its racing operations. It was able to show a profit on its books for 2000 only because of a one-time $11 million real estate tax settlement.
    • The State cut taxes to help the racing industry. As a result of those changes and increased out-of-state betting on NYRA races via simulcast, NYRA’s gross handle increased from $2.8 billion in 1997 to $3.5 billion in 2001, an increase of almost 25 percent. Meanwhile, State pari-mutuel tax revenues fell almost in half, from $18.6 million in 1997 to $9.9 million in 2001.
    • NYRA’s revenues grew 18 percent, from $135.8 million in 1997 to $160.6 million in 2001. But its expenses grew even faster, up more than 25 percent, from $137 million in 1997 to $171.9 million in 2001.

  3. NYRA does not follow the law on its budgeting.
    • NYRA’s Board is legally required to pass a budget that does not exceed 90 percent of its revenues. NYRA could not provide adequate documentary proof that the Board actually approved the budget provided to the auditors.
    • In 2000 and 2001, NYRA’s actual spending was substantially more than budgeted and, as noted above, more than its revenues.
    • In 2000, NYRA spending was $13 million, 11 percent more than budgeted for major expense categories. In 2001, it was $23 million, or 19 percent more.
    • NYRA provides excessive pension benefits to a small group of executives.

“ The law requires NYRA to operate in a sound, economical, efficient and effective manner to produce reasonable revenue for the support of government. Clearly, it is not meeting that requirement,” Hevesi said.

NYRA officials disagreed with every finding of the audit. The Office of State Comptroller (OSC) made some minor revisions in its audit report based on information provided by NYRA, some of which had not been provided before the draft report was written. However, on the fundamental issues, the auditors believe NYRA’s arguments are incorrect and demonstrate the Association’s continued refusal to honestly accept the serious nature of its problems and implement an acceptable program of change.

NYRA oversees operations at Saratoga Racetrack, Belmont Park and Aqueduct.

Click here for a copy of the Comptroller’s report.

Click here for a copy of the Comptroller’s audit.

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