What if NYRA is indicted ?

[karlskorner]

http://news.bloodhorse.com/viewstory.asp?id=19097

[Valuist]

If they're indicted look for the Magna or CDI to buy NYRA rumors to be in full force. Why not? They own just about everyone else.

[doophus]

If the NYRA is indicted....

Will Bill Clinton's "friendship" with Madame Magna win the day for Magna?

Will Meeker's appointment by Bush win the day for CDI?

Damn, as usual, politics prevail!!!!

George

[VetScratch]

Some Other Links:

NYRA debt estimate tops $100-million as the press digs deeper into NYRA's murky finances. MGM seeks payment of $4-million from NYRA and announces alternative projects for VLTs. Deficit in Horsemens' accounts now upwards of $25-million. http://www.hbpa.org/NewsDisplay.asp?STORYID=2326

Levin and Hevesi allege that NYRA, after falsely claiming that it had been granted loan repayment deferrals, has been taking federal tax deductions for interest that it never paid to NYS Thoroughbred Racing Capital Fund (CIF). http://www.timesunion.com/AspStories/story.asp?storyID=171352 and http://www2.als.edu/glc/wagering/compvnyra.pdf

The interesting aspect of the interest deduction controversy is that someone must suffer consequences. If the IRS allows the NYRA deductions for accrued but unpaid interest, CIF is in a pickle because it never recognized the other side of these transactions (i.e., the forgone interest income). This same issue looms over the $25-million that NYRA claims to have "borrowed" from the Horsemen. If the Horsemen acknowledge that NYRA "borrowed" the funds, IRS Below-Market-Rate loan rules would apply, and NYRA could deduct accrued but unpaid interest on the $25-million while the Horsemen would be liable for taxes on the forgone interest income. This would seem to be an opportune time for the Horsemen to insist that NYRA agree to actually pay interest on these "borrowed" funds.

[PaceAdvantage]

A quote from Dennis Brida, executive director of the New York Thoroughbred Breeders Association:

"The fear is the change because with all the aspersions cast on NYRA, true or false, the one good, honest quality about the whole thing has been the racing. The racing has integrity. Non one has ever challenged the fairness of racing. And the quality of racing has improved. Those are the things you don't want to lose in the mix,'' Brida said.

You really want Magna to run NY racing??? Or OTB?????? Now THAT would be a disaster.

Let's get this show on the road already. If you're going to idict, indict already. Shit or get off the pot, as Richard Nixon once said....(I know, how ironic that I quote Nixon in this instance)

Indict the idiots who broke the law, but leave the association (who has proven that it RUNS A FABULOUS SHOW) intact.

[VetScratch]

PA,

Who has been posting criticisms about the quality of the racing show? I think financial management is what is being questioned. Many of the published allegations and rebuttals may be politically motivated, so it is difficult to tell what crimes or misdeameanors, if any, has been committed.

Only one thing seems clear... New York politicians have been banking on the VLTs to generate tax revenues that far exceed the needs of the NY Thoroughbred industry. Justice will probably have to take a back seat to pragmatism in order to re-start the VLT implementation.

Right now, MGM Mirage holds the high card. When MGM capped NYRA's credit worthiness at a mere $4-million, the message was heard in the legislature just as loudly as if Standard & Poors dropped New York State debt obligations to a "CC" rating. One way or another, the politicians will have to reform, restructure, or replace NYRA because MGM has backed away from circumstances that are not completely transparent... it is hard to imagine that a mere $4-million is blocking the path to the VLT revenue bonanza!

Our greatest fear should be that pragmatism will tempt the politicians to throw the baby out with the bath water. We want them to keep the show going. If NYRA is best suited to run the racing show, maybe just the purse strings have to be placed in new hands. That may be the very message that MGM has tried to send to Albany. An operating budget subsisized by takeout and VLT taxes should enable NYRA to keep the show going in fine fashion.

[Valuist]

PA-

I don't know if anyone wants Magna to run it; but can anyone stop them if they come up w/enough money?

[stgeorge]

Originally posted by VetScratch
...or replace NYRA because MGM has backed away from circumstances that are not completely transparent... it is hard to imagine that a mere $4-million is blocking the path to the VLT revenue bonanza!

Just to be clear -- MGM hasn't backed away from continuing to work on the VLT facility at Aqueduct because of $4 million. They stopped work on the facility because Nevada law (where they are based) prohibits them from doing business with any individual or organization under indictment.

So when the threat of indictment was raised a couple of months ago, construction stopped.

[VetScratch]

StGeorge,
They stopped work on the facility because Nevada law (where they are based) prohibits them from doing business with any individual or organization under indictment.Doesn't that simply mean that MGM needs credible financial guarantees and prompt payments every step of the way through the course of the project... since indictments are only a contigency at this point?

It could take months/years to get past all the allegations, investigations, and indictment contingencies. What if the IRS drags its feet pursuing Hevesi's written allegations?

Like bad weather, there are always negative contingencies in business deals. Indictments are a contingency in every business venture that MGM undertakes. Money is the usual hedge against negative contingencies. Should anyone at NYRA be shocked that someone has finally hung the "Pay In Advance" sign on the pump?

[stgeorge]

Originally posted by VetScratch
Doesn't that simply mean that MGM needs credible financial guarantees and prompt payments every step of the way through the course of the project... since indictments are only a contigency at this point?

No.

This is from another article in last week's Albany Times Union, "MGM backed away from the project in August because of the threat of criminal prosecution against NYRA. MGM had planned to manage the VLT parlor and promised to arrange financing for the project... MGM reported in a U.S. Securities and Exchange Commission filing Wednesday that it has booked $4 million as a receivable owed by NYRA. The sum is how much MGM spent on development costs on what it pegs as a $135 million VLT project."

In other words, MGM, knowing a cash cow when they see one, and slots in the NYC area certainly add up to big bucks, agreed to arrange to finance the VLT project. They stopped on the project when the threat of indictments came up because as a Blood-Horse article says, "But NYRA's VLT partner, MGM Mirage, has put on hold plans for a racino until NYRA's legal picture is clearer... That's because regulators in Nevada, where MGM is based, and New Jersey, where other potential VLT partners reside, bar licensees from doing business with individuals or companies under indictment."

The potential for indictments has caused the delay, not the $4 million. That amount is a drop in the bucket for this project and the potential revenues.

[VetScratch]

StGeorge,

I read the same Albany Times copy but didn't think it was the whole story because there are no actual indictments against NYRA (the association)... but what was literally said could certainly be all there is to it.

Who would control the purse strings and repay MGM for financing the project? Since they will finance the project, why not franchise the VLT operation directly to MGM?

The planned allocation of funds for horseracing from net VLT proceeds could still be awarded to NYRA by New York State. This avoids any present or future contingencies regarding NYRA indictments. New York State will never be indicted, so the VLTs can flourish while NYRA runs the horseracing as a separate subsidized entity.

Other states have implemented or proposed plans where slots and gambling boats subsidize racing without entangling the Nevada and New Jersey companies in the legal affairs of third party partners. The current indictment contingency mess could drag on... and then erupt again whenever the winds of politics change... what will prevent political opponents from levying new allegations in the future? What would happen then?

[stgeorge]

Originally posted by VetScratch
I read the same Albany Times copy but didn't think it was the whole story because there are no actual indictments against NYRA (the association)... but what was literally said could certainly be all there is to it.

The project was going along quite smoothly until the possibility of an indictment was raised a couple of months ago. And at the time all the press accounts pointed to the rules prohibiting MGM for dealing with organizations under indictment. This makes sense since, from a business standpoint, it would be questionable to continue a $135 million project when you (MGM that is) could just be out in the cold at any moment if those indictments are handed down.

Who would control the purse strings and repay MGM for financing the project? Since they will finance the project, why not franchise the VLT operation directly to MGM?

I haven't read the VLT legislation but I think it's aimed directly at helping the racing industry and therefore only tracks are allowed to operate the VLTs. However, virtually all the tracks in the state have brought gaming companies onboard to run their VLT operations.

...what will prevent political opponents from levying new allegations in the future? What would happen then?

Frankly that's already the stench that's in the air over the allegations against NYRA brought to light by reports by the attorney general and comptroller. Some of the allegations deal with things that happened years ago. Why now, just as VLTs are about to debut? And why does a guy like Donald Trump take out full-page ads this summer comparing NYRA to Al Capone? Hmmmm. I don't remember hearing any comments on NYRA or hrose racing in the past from Mr Trump. Of course, racinos in the NYC area might not help the bottom line at some Atlantic City casinos.

[VetScratch]

StGeorge,
I haven't read the VLT legislation but I think it's aimed directly at helping the racing industry and therefore only tracks are allowed to operate the VLTs. However, virtually all the tracks in the state have brought gaming companies onboard to run their VLT operations.I think publicity has generated the feeling that VLT legislation is primarily for the horse industry, but I don't think that's close to true. The state budget is on the table insofar as the politicians are concerned. The stakes are much higher than the amount that will end up in the various breeding programs.

According to what I've seen published, the last revision to VLT regulations in New York State divide the VLT handle as follows:
90.0% to Payouts (machines will return $.90 on the dollar to players)
06.1% to State Tax Revenues
01.0% to NY Lottery Division
02.9% to Track Operators (NYRA and others)

These splits supposedly went into law as amendments when budget measures were passed.
See http://www.osc.state.ny.us/press/releases/sept03/nyra903.pdf

Clearly, the state tax revenue fund will be the greatest benefactor from VLTs.

Track operators (like NYRA) would get 2.9% of the VLT handle to cover:
(1) Stipulations about sub-percentages to be given to the appropriate breeding funds.
(2) Operating expenses (including payments to organizations such as MGM).

[VetScratch]

BTW, several editions of the regulations for dividing VLT handle have been posted on the web. Most notably, the document archives at the Albany Law School trace the revisions as they have been enacted since the original VLT legislation.

Based on 90% payouts (i.e., 10% VLT takeout) the trend has been to raise the share of VLT handle going to racetrack operators (was 2.5%, now 2.9% of handle).

In 2002 legislation (Chapter 85, L. 2002, Part EE.), when the track operator's share (NYRA) was still pegged at 2.5% of VLT handle, the breeders and horsemen were to receive ZERO dollars during the first two years of VLT operation. Thereafter, the breeders would get 0.03125% of the handle while horsemen would receive 0.28125% of handle for three years, and then re-negotiate with NYRA. So VLTs would help breeders and purses beginning in the third year of operation.

By the February 2003, the share allocated to horsemen was reduced to 0.25000% of VLT handle (coming from 2.5% going to NYRA).

As amended in 2003 legislative budget measures, NYRA's share of VLT handle was increased from 2.5% to 2.9%. This, "presumably" changes the horsemens' share to 0.29000% (beginning in the third year of operation).

In the event that the VLT payout percentage is modified from 90%, all these figures would change. However, 10% takeout on VLTs is pretty steep, so whether takeout can be increased remains to be seen.

[VetScratch]

Let all the warring factions agree to light up one lousy VLT machine at AQU, BEL, and SAR. We'll raise enough money through contributions from PA members so that the night watchmen can make one minimum play each year. Then, when the legal mess has finally been resolved sometime in 2006, it will already be the third year of operation, and public money will immediately flow into horseracing. The racing will be fantastic and every horseman will praise the PA board!

=====
Racing historians will say, "Never have so few put up so little to help so many!"

[VetScratch]

StGeorge,
I haven't read the VLT legislation but I think it's aimed directly at helping the racing industry and therefore only tracks are allowed to operate the VLTs.Do you think the average Joe thinks the VLT program was conceived primarily to benefit the Standardbred and Thoroughbred industries? If this is true, is that good?

As horseplayers, we don't care what happens to Joe, but maybe we should care what he thinks. The VLTs will be at the tracks, so it may appear that horseracing is the benefactor. However, the facts are that Joe will lose well in excess of $1-billion (out of pocket) before the first dime is allocated to benefit horseracing. And when VLTs finally begin to benefit horseracing, Joe will have to lose about $10 for every $1 that goes to breeders and racing purses. Since we may have to co-mingle with Joe at the track, I'm not sure we want him to blame the horseplayers and horsemen.

Last year, the combined handle for all Thoroughbred tracks in America was about $10-billion. Given takeout, about $1.7-billion was lost by horseplayers. Joe will have to lose almost that much before he even begins to help horseracing in New York. Just in case Joe becomes bitter, maybe NYRA should segregate Joe from the horseplayers with barbed wire or barricades. If this can't be done, maybe something should be done to change the way Joe perceives the purpose of the VLT legislation.

[stgeorge]

Originally posted by VetScratch
StGeorge,
Do you think the average Joe thinks the VLT program was conceived primarily to benefit the Standardbred and Thoroughbred industries? If this is true, is that good?

We might be debating a fine point here: VLT legislation is aimed at helping racetracks. Will they? That's another point.

However, the fact is VLT's would be here anyway. The first states to introduce them found that they were more palatable to the citizenry if they were tied into tracks, because tracks are already houses of gambling.

So Delaware and West Virginia (and whichever other states hopped on the bandwagon early) have benefitted the most. With racing getting more lucrative cuts.

NY tracks at least were still able to eek out a deal where they get slots. So they will benefit, at least as opposed to having to compete with slots.

Take a look at how the landscape has changed in just the last few months. As other states, such as Pennsylvania and Maryland, debate the slots question, states' leaders are now questioning why tracks should benefit at all. And suggestions are being made that slots be placed at venues other than racetracks.

How much will slots help NY racing? Well at least it will help more there than it will help racing in those states where separate slots facilities are built and therefore directly compete with the racing product.

[VetScratch]

After revisiting a lot of published analyses, here is my final two cents on the New York VLT situation.

OVERVIEW
In every horseracing state where slots/VLTs and casino games have been considered and/or approved, the lion's share of either taxes or takeout always goes to the state (usually for education). As of September 2003, New York State is scheduled to receive 61% of takeout (a.k.a., drop) from VLTs. Since a 10% takeout is targeted, this is equivalent to 6.1% of VLT handle. The NY Lottery Division is scheduled to receive 10% of takeout (1.0% of handle). VLT operators are scheduled to receive 29% of takeout (2.9% of handle).

In every horseracing state, the foundation argument for subsidizing both racing purses and breeding is that competitive forms of gambling will erode the revenue stream derived from pari-mutuel takeout and thereby dilute the agribusiness infrastructure associated with horses. The New York State horse industry annually supports 12,800 FTE jobs while producing goods and services valued at $1.7-billion. The aggregate annual impact of the horses on the NY economy has been estimated at $4.8-billion. As elsewhere, the concept of subsidizing racing purses and breeding from slot/VLT revenues gained support in the NY legislature.

THE DEVIL IS IN THE DETAILS

The Governor of New York proposes that breeders and racing purses will not receive one penny until the third year of VLT operations at each track. Thus, the horse industry would miss out on subsidies during the very period when VLT popularity and handle usually peak at new slot/VLT locations. Such a moratorium would certainly set New York apart from other states.

When horsemen (owners and trainers) negotiate with racetrack managements, the bargaining power of horsemen is founded on two extreme options:
(1) Horsemen can elect to boycott local racing at the host track (i.e., refuse to race).
(2) Horsemen can elect to block the host track from accepting simulcast wagers on out-of-state races.
Obviously, both of these options negatively impact horsemen because their livelihood depends on receiving a share of pari-mutuel takeout from wagering pools for both local and simulcast races.

If the projected impact of VLTs is realized, VLTs will become the major source of racetrack revenue. At each track, this can be expected to happen during the first two years of VLT operation. The consequences of this will be:
(1) Horsemen may receive no benefit from VLTs during the first two years.
(2) By the third year, horsemen will have essentially lost their bargaining powers. Local boycotts and simulcast blockages will no longer provide horsemen with sufficient leverage to effectively negotiate with racetracks.

Evolutionary changes in VLT legislation have made it abundantly clear that racetracks are pressing for a position of extreme advantage over horsemen. NYRA and other racetrack interests have succeeded in lobbying to dilute subsidy provisions for NY horsemen. Here is a summary history of these legislative revisions:
(1) Originally, racetracks were scheduled to receive 25% of VLT takeout, and both breeders and horsemen were scheduled to benefit immediately. Paid from the 25% takeout share allotted to tracks, breeders were to receive 1.25% and horsemen were to receive 8.75% in the first year, then 11.25% thereafter.
(2) In 2002 legislation, provisions for breeders were unchanged, but tracks were authorized to negotiate with horsemen such that the percentage received by horsemen could decrease to a floor level of 6.25%
(3) The Comptroller cites amendments included in the 2003-4 enacted budget:
Takeout from VLTs is targeted at 10% with VLT handle to be
divided as follows:
90.0% to Payouts (machines will return $.90 on the dollar)
06.1% to NY State (education fund)
01.0% to NY Lottery Division
02.9% to Track Operators (NYRA and others)
Effectively, breeders would receive 0.003625% of VLT handle,
and horsemen could potentially receive 0.032625% of
VLT handle (compared to a national average of over 5.0% from
combined pari-mutuel handle).The worst case scenario for horsemen is:
(1) Horsemen will receive no benefit from VLTs during the first two years.
(2) Horsemen will be forced to repeatedly negotiate subsidy percentages while their bargaining power is evaporating. This is truly ominous. whether or not horsemen are initially excluded from benefits, because racetracks have been given statute authority to re-negotiate subsidies at any time.

It would seem that the current crisis is a window of opportunity for breeders and horsemen to unite. Since breeder subsidies are guaranteed, horsemen should insist on legislation that guarantees a fair subsidy. Breeders and horsemen should both insist on receiving immediate benefits when VLTs go into operation. Indeed, the current crisis has temporarily elevated the bargaining power of horsemen to its zenith because they can "threaten" to bankrupt NYRA by emptying their accounts before VLT revenues commence.

[Figman]

VS
Suggestion...go to the Albany Law School site and read Part EE of Chap.85 especially the new parts that are underlined. You may have to alter your analysis slightly. In essence, the tracks MAY negotiate with their horsemen but the horsemen are guaranteed a minimum amount during the early years.
http://tinyurl.com/w2xq

[VetScratch]

Figman,
I did... the Governor's proposal applies to proposed amendments in the next packet of budget legislation. The law you cite predates the Governor's proposal.

And you may want to reread section EE again... 25% of the track's 29% is 7.25% of 10% takeout, which is 0.00725% of handle.

[VetScratch]

Oops, calculitus again... make that 0.725% of handle compared to a national average above 5.0% from pari-mutuel handle.

BTW, another ALS document cited 6.25% as the negotiation floor, probably after mistakenly deducting breeder subsidy... so your reference is almost assuredly correct (as of 2002).

[VetScratch]

No, I take that back about the other ALS article. 6.25% was the correct negotiation floor because the the track share was still 25% in 2002 legislation, so 25% of 25% is 6.25% for horsemen, or 0.625% of handle based on 10% takeout.