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
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
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
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
The report recommends a program of reform that will ensure
significant change at NYRA and restore confidence in New York
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
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
The audit findings include:
- 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
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.
- NYRA keeps losing money despite a rapid increase in betting and
- 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
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
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
up more than
from $137 million in 1997 to $171.9 million in 2001.
- 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
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
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
for a copy of the Comptroller’s report.
Click here for a copy
of the Comptroller’s audit.
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Albany Phone: (518) 474-4015 Fax:(518)
NYC Phone: (212) 681-4825 Fax:(212) 681-4468