The NYRA Reorganization Board started to deal with some of the significant challenges facing it at its Board meeting on December 4. Almost all the coverage of the meeting focused on the proposal to increase admission charges to Belmont and Saratoga. General admission would go from $3 to $5 and the clubhouse would be bumped from $5 to $8. Charges for parking would also go up. No change was proposed for Aqueduct where admission is free.
While the increases affecting patrons understandably drew the most comment, the overall fiscal situation of NYRA is one that can hardly be described as rosy. At the August Board meeting, the continuing use of revenues from the Aqueduct Video Lottery Terminals was the financial issue attracting the most attention. It was clear from Governor Andrew Cuomo’s top appointees to the Board - Chairman David Skorton, President of Cornell, and Robert Megna, also Cuomo’s Budget Director - that NYRA had to start operating as if the VLT revenues were no longer available. It is a significant issue. Without the VLT revenues, NYRA’s racing operation realizes a loss; with the revenues, NYRA sees a profit. Incidentally, the loss of VLT revenues is only an immediate concern if you are the Governor - and we do not know what his thinking is on this matter, as with so many other issues affecting the state. The revenues are guaranteed to NYRA by statute.
The main purpose of last week’s Board meeting was to approve the NYRA budget for 2014. The proposal put forth by NYRA management would have the racing operation realize a $250,000 profit without factoring in the VLT revenues. That would be accomplished by cuts in spending and increases in revenue. The VLT revenues were not going away, however. The estimated $23.7 million for operating expenses from the VLT’s was to address retiree obligations of $12.5 million and an unanticipated obligation to the Internal Revenue Service of $13 million. Suddenly, the $250,000 surplus becomes a deficit of $1.5 million.
If we set aside for the moment the receipt and use of the VLT revenues, NYRA is proposing to turn a 2013 deficit in the racing operation of $10.5 million to that $250,000 surplus, from cutting costs by $3.9 million and increasing revenue by $6.9 million. The cost cutting is achieved primarily through a one-time payment of $3 million to the OTB network in 2013. The other big-ticket cuts are $400,000 in utility savings by closing the Aqueduct training track when there is not racing at the track, and $576,000 in outside legal fees. On the revenue side, fully one-third of the budgeted increase results from on-site track customers in the form of increased admissions, parking, programs and the food and beverage concessions. The increased costs to patrons are one of the only revenue increases over which NYRA has complete control. While the budget contemplates increased simulcasting fees of $1.6 million and additional sponsorship payments of $1.3 million, these are aspirational projections contingent upon successful negotiations.
The Board debate on increasing customer charges is one of the few issues on which this Board has seen a spirited debate in its year of existence. (I can only think of two other cases in which there was significant dissent.) It is clear NYRA needs additional revenue, even if you assume the VLT revenues are here to stay. What is less clear, however, is whether increasing admission and parking charges - estimated to be worth about $2 million - would be offset by a decline in attendance (and handle), resulting in either no net benefit or a financial loss.
I have had a mixed feeling about admission prices at race tracks ever since I started going. On the one hand, I did not understand why tracks did not let people in for free. While there may be folks who go to a track and don’t spend a penny, most are going to wager at least something. I don’t think I have ever brought anyone to the track for the first time who did not bet on every race. On the other hand, it is one of the cheapest entertainment expenses imaginable. For $3 (or $5), you get to go to a beautiful facility, watch magnificent animals up close, engage in the excitement, and wager. Kids get in for free. That’s why I do not think the small increase in prices will deter many, if any, people. (I do not know what the parking increases will be. That is something, I think, that could irritate enough people to cause folks to go elsewhere.)
That’s not to say, however, that NYRA was particularly brilliant in how it handled this issue. It is the kind of matter that is going to bring out the naysayers always on guard for any affront - just read some of the comments in the on-line media. (I think I have seen a single comment defending the decision.) While the 2014 budget had to be approved this month, it did not mean that the price increase could not have been floated in advance. NYRA may think it has a deep well of goodwill, but they have done little as the “new NYRA” (which is how they have started to refer to themselves), and what they have done is invisible to much of the public.
Then there are components of the budget that raise eyebrows. CEO Chris Kay is hiring additional executive-level staff, including something called a “Chief Experience Officer.” That would be in addition to the existing Chief Marketing Officer and a Vice President for Hospitality and Guest Services. There is also $800,000 set aside for a “long term planning consultant.” This is a Board that was appointed 14 months ago, named a “long-term planning committee” 10 months ago, and is down to its last 16 months before it must produce a recommendation for turning the “new NYRA” back to an “improved new NYRA” that will eliminate state government control. After apparently doing no long-term planning, they are down to paying top dollar for someone to tell them what to do. Then there is an item notable for its omission from the budget document. Prior CEO Ellen McClain proposed an effort to bring betting terminals into restaurants in New York City. Not only would this be a major benefit for racing fans in the largest United States market, but would greatly enhance revenues to NYRA. It’s hard to believe that you can go to Manhattan and not be able to place a legal bet, but nothing has apparently been done on this proposal since McClain left.
In his remarks supporting the increased charges on customers (or, as he likes to call them, “guests”), Kay acknowledged the importance of bringing “significant value” to justify the increased costs. In a speech this week, he referred to the “countless e-mails and letters telling us the wonderful things we’ve done,” according to Tom LaMarra in BloodHorse.com. Kay was not more specific, although I must say I did have several NYRA employees greet me in a friendly manner this year at Saratoga. The one specific I have heard from Kay is that increased satisfaction from patrons should not be measured by the decline this year in Saratoga’s attendance, but rather in the fact that those who did come spent more money on concessions and souvenirs. He attributed this to his increased focus on the “guest experience,” which would make him somewhat of a miracle worker since he started in the job just before the Spa opened. For 2014, the only “significant value” he has identified is High Definition TV’s. At this point, I think most people would take that as a given, rather than something warranting increased prices.
When NYRA Board Chairman David Skorton pushed for the authorization to increase prices on its customers, he repeatedly referred to the Board’s “fiduciary” duty. The Board undeniably has that responsibility, but it doesn’t end with jacking up prices. It means you also question the wisdom of $800,000 to do the long-term planning many people think was a primary duty of this Board, or the necessity of a “Chief Experience Officer,” when, again, many think that’s why this Board was appointed. Or it means you do something about placing betting terminals in New York City’s restaurants, a revenue enhancer that would lessen the pressure to increase costs for the customers who go to the track. Finally, exercising one’s fiduciary responsibilities means you push back on a Governor who is hell-bent on eliminating the VLT revenues - monies realized not from the state’s coffers but from the profits of a casino operator - if that is necessary to ensure a viable racing and breeding operation in New York State.
As I said earlier, I have mixed feelings about increasing admission prices. I would feel a lot better about it if I thought the Cuomo Administration and his top appointees were showing any interest in actually making it better for the racing and breeding businesses in the state.