Tom Noonan

As a firm believer that past performances are indicative of future behavior, it looks like the fix is in to take VLT payments that have been going to horse racing to use them for whatever Governor Andrew Cuomo thinks is a more deserving option.  As we learned from the state takeover of New York’s horse racing, when Cuomo speaks, his minions listen.

When Video Lottery Terminals were first authorized by a law passed in 2001, that law directed that a portion of net revenues go to education programs in New York, and that a smaller percentage go to the tracks hosting the VLT’s, or “racinos.”  While the Saratoga Harness Track was up-and-running by January, 2004, it took almost an additional eight years for Aqueduct to go live.  In less than a year after its October opening, however, Aqueduct has been remarkably successful, drawing a million customers who wagered over a billion dollars in July alone.  The VLT revenue has long been viewed as a necessary supplement to the New York Racing Association in its struggle to attain financial solvency.  Because of this revenue stream, NYRA is projecting a surplus in 2012.

Enter Governor Cuomo, whose first demonstrable interest in horse racing was his realization that he should run it.  After cowing an impotent NYRA Board of Trustees and a somnolent Legislature, he achieved his goal with a law passed in June, less than six weeks after first floating the idea he should be in charge.  Now the revenues produced by the Aqueduct casino that have been going to NYRA are in his sights.  In a press conference on June 4 to address questions resulting from the collapse of negotiations to award a multi-billion, no-bid contract to the operator of the Aqueduct racino, Cuomo raised the possibility of eliminating the payments by the racino to NYRA.  Among his remarks, he called payments by VLT operators to tracks a “scandal,” without either explaining why or recognizing that such payments were required by law.  As the great philosopher once said, “It’s deja vu all over again.”

In early July, the Franchise Oversight Board, chaired by Cuomo’s Budget Director, and on which his Lottery Director also serves, decided that “NYRA must establish a long-term financial goal to end its reliance on VLT subsidies and immediately develop plans on how it will meet this goal.”  Later in the month, the State Comptroller issued a report questioning whether the VLT revenues going to racetracks “are having their intended effect.”  The Lottery Director, who is responsible for administering the VLT payments, “shared” the Comptroller’s concerns and then added his own anecdotal perspective supporting the Comptroller’s conclusions about the “effectiveness of the horse racing subsidies.”

The conclusions of the reports by both the Franchise Oversight Board and the Comptroller are based on premises that are supported by neither the law nor the purposes of the VLT revenues.  The Board acknowledges that one purpose of VLT revenues, as stated in the law, is “ensuring the continuation of high quality thoroughbred racing.”  Their report then posits that if NYRA does not better control its expenditures, even the VLT revenues will not keep it solvent.  They then jump from that patently obvious statement to the conclusion that “NYRA must establish a long-term financial goal to end its reliance on VLT subsidies.”  What???  Keep in mind that when the Governor gets around to signing a bill that has been on his desk for two months  –  and that he wrote  –  these same state officials will be controlling NYRA and its expenditures.  So why is cutting off a necessary revenue stream from the VLT’s even being contemplated?

Lest you think I am being unduly paranoid, let’s move onto the report produced by the State Comptroller.  While the Comptroller is an elected official not subject to the Governor’s control, do not lose sight of the fact that the Governor’s Budget Director enthusiastically supported the Comptroller’s conclusions, specifically referencing the “ineffectiveness” of VLT revenues.  The Comptroller acknowledges that “the VLT revenues are to provide much needed financial assistance to the racetracks.”  He goes on, however, and makes the following statement:

“Pursuant to the Tax law, the commissions paid by VLT facilities to enhance racetrack purses are expected to result in an eventual increase in the number of horses entered in each race, an increase in the quality of the horses racing, and ultimately in increased wagering and more financially-stable racetracks.”  (Emphasis is mine.)

While I think that enhanced purses may well lead to the outcomes identified in this quote, the Comptroller is saying those are the results expected “pursuant to the Tax law.”  The report did not identify which portion of the Tax Law called for those outcomes, and I did not read the entire Tax Law to find them, but I did read Section 1612 which is devoted to distribution of lottery and VLT revenues.  That section describes the purpose of the VLT payments to NYRA as being for “enhancing purses.”  Period.  Also, the payments are made “as consideration for the operation of the video lottery gaming facility at Aqueduct racetrack.”  In other words, the State of New York is agreeing to a contractual arrangement with the NYRA tracks that it can have money for enhanced purses because it agreed to have one of its tracks host a VLT facility.  By law, NYRA is entitled to the VLT revenues with no strings attached.

That, however, is not the way the Cuomo Administration likes to operate.  As with the takeover of NYRA, the Governor puts forth a faulty premise and then crafts a solution that does nothing to address the purported problem inherent in the premise.  He succeeds, however, in getting others to play the game on his terms.  The media dutifully reports the headline conclusions of the government reports without assessing whether the conclusions are based on facts or even simple logic.  We even have leading  New York horsemen now arguing that attendance and handle are up, instead of making the case that NYRA has a legal right to this money by statute.

Worse of all, however, is that there is no discussion of what cutting revenue to NYRA will mean for the thoroughbred industry in New York.  We can hope that the Cuomo takeover of racing will result in improvements for the sport, but the next person I talk with who thinks that is likely will be the first one.