Tom Noonan

The New York Racing Association announced the sudden resignation of its President and CEO, Chris Kay, on January 23.  Six weeks later, one of the government agencies responsible for monitoring NYRA had a brief discussion of the matter.  It left more questions unanswered than addressed.

Neither NYRA nor either of two government bodies charged with oversight, the Franchise Oversight Board and the State Gaming Commission, have stated why Kay’s unanticipated resignation was compelled.  David Grening of the Daily Racing Form reported that “according to multiple sources,” NYRA’s Board “asked for Kay’s resignation after it learned that Kay had used NYRA employees to do private work for him at the house he owns in Saratoga, considered a breach of company policy.”

I have never seen any denial or refutation of Grening’s reporting.  At the March 7 meeting of the Oversight Board there was implicit confirmation of this being a reason for Kay’s termination.  A NYRA executive also stated there were two additional disciplinary actions, including one of an unidentified Senior Vice President.

The approach of the Oversight Board appeared to have less to do with any meaningful oversight, but rather to get this matter behind them as quickly as possible with the hope that people would simply forget about it.  When NYRA’s General Counsel was asked what caused this, he could not answer because he did not know the motivation of Kay “and others.”  He added there was a “culture” at NYRA “where people were reluctant to report bad things.”

Kay’s motivation was obvious and, frankly, not all that important.  He was getting stuff for free.  And if there was such a culture at NYRA, it does not distinguish it from any other work place. It is also not a reason why the CEO would act with seeming impunity.

The real culture that caused this is the one that enabled Kay.  There were theoretical checks on his conduct:  he reported to a Board of Directors, and was answerable to two government oversight agencies, the Oversight Board and the Gaming Commission.  But the sad history of these supposedly independent bodies is that only one individual in the six years of Kay’s tenure ever stood up to him.  And that person resigned in the early part of 2017.

The NYRA Board of Directors became subject to the public records law and open meeting law once Andrew Cuomo seized control of it in 2012 and turned it over to government control  –  mostly, his own.  I observed every public meeting of the Board until it was supposedly returned to private control in 2017.  With two exceptions, the meetings of the Board were a joke.  For the most part, they consisted of Chris Kay slide shows in which he discussed either matters already reported in the media, or a summary of his accomplishments.  The Board, at that time, had audit and internal control functions.

It was clear from the public meetings that the Board was either doing nothing or conducting its real business behind closed doors.  There are, of course, legitimate (and limited) reasons for meeting in private, but much of what was being done  –  if anything was being done  –  did not fall into that category.  When I complained to New York’s Committee on Open Government, they agreed and ordered the Board to comply with the law.  They ignored that directive.

The Gaming Commission is another government agency charged with, among other things, oversight of NYRA.  It also adjudicates disciplinary matters and issues regulations.  It makes NYRA’s former public meetings look like the Lincoln-Douglas debates.  There is rarely a discussion of any substance, nor do they feel any obligation to explain publicly their reasons for anything.

The Franchise Oversight Board has been the one body that cannot be dismissed summarily as a check on either NYRA or its CEO.  (Although it is not a high bar to clear when the meetings of the other two can be described as a joke.)  There was one member in particular, Steven Newman, an accountant experienced in the operations of government agencies, who took oversight seriously.

Newman questioned the claims of NYRA and Kay that they had started operating as a profitable entity.  He thought that reconfiguring the financial books to move certain expenses off the operating ledger was not an indicator of profitability.  He questioned why NYRA would not allow its independent auditor to appear at a meeting of the Oversight Board.  He questioned why Kay’s performance standards and annual evaluations were not available to the Board.  He raised significant, meaningful questions to which Kay often responded angrily or defensively.  Newman resigned in the first half of 2017.

Other Oversight Board members were less rigorous.  One incident that stands out was the time Kay was being questioned about his request for increased funding for the Saratoga “Walk of Fame,” a vanity project for which only he saw the need.  The Board Member assured Kay he did not have to discuss it if he did not want to.  This same Board Member once offered to assist Kay in his desire to be “unshackled” from the NYRA Board  –  as if they were an impediment to Kay getting his way on everything.

At its March 7 meeting, Board members expressed their concern that “something as dumb as” the Kay scandal would affect what they believed to be the progress they made since Cuomo took control of NYRA in 2012.  You know what is said of karma, and hubris only makes it worse.

The 2012 Cuomo coup was facilitated by compliant state actors and a flaccid NYRA Board.  They trumped up charges of malfeasance by the then-CEO and the General Counsel, firing both of them.  They challenged the integrity of Board members, threatening to rescind the licenses they needed to race their horses.  A review by the Governor’s own Inspector General, however, concluded that the NYRA CEO did nothing wrong, and that a mistake that resulted in a short-changing of bettors was actually the result of poor legal advice.

The media went along with the Cuomo narrative, talking about the need to restore integrity to NYRA.  They ignored the juggling of financial books to turn a deficit into a profit.  They further reported the falsified Saratoga attendance figures fed to them by NYRA.  Regrettably, the demands of deadlines prevent most reporters from delving too deeply into NYRA’s press releases.

That is not an impediment, however, for government agencies charged with oversight.  The Franchise Oversight Board, in particular, only has such responsibility for NYRA.  But the issues that were supposedly at the fore in 2012 were no longer in play when now it was Cuomo’s appointees in charge.

One Board member back then  –  who is still on the Board  –  questioned why settlements were paid to the terminated CEO and General Counsel.  (The answer is that the payments were required by contracts.)  This time around, the CEO was a Cuomo pick, and there was no such question.  That is in spite of the fact that in 2012 there was no allegation of personal impropriety and this year there clearly is.

This represents just another example of that “culture” in which NYRA operates.  The “culture” is not that a groundskeeper is “reluctant to report bad things.”  The culture is one where established professionals and business people are so beholden to a Governor that they will not stand up for what is right.

At the March 7 Oversight Board meeting, NYRA officials said they were revising an ethics policy and doing more training.  Right.  The problem is not that a CEO with several senior positions in major organizations did not know that using a company’s employees to cut his grass would be an issue.  The problem is not that a carpenter needs ethics training or whistleblower protection.  The problem  –  as it so frequently is  –  is that the entitled feel entitled.  And that members of the Oversight Board and Gaming Commission are entitled persons who think other entitled persons should get a free pass.

But for those on the Oversight Board and NYRA management who think a satisfactory response is providing a mutuel clerk with more training and whistleblower protection, here are some basic questions that must be addressed and answered publicly:

• What were all of the reasons leading to the termination of Kay’s employment?
• Did NYRA conduct a review of the allegations and, if so, what did it conclude?
• Did NYRA’s Internal Control function, assuming it still has one, conduct a review and, if so, what were its conclusions?
• Did either the Franchise Oversight Board or the State Gaming Commission conduct an independent review and, if so, what were their conclusions?
• Has the Governor’s Inspector General, who conducted a review in 2012, done so this time and, if so, what were her conclusions?
• Has there been a review, by any entity, of financial transactions authorized by Kay, including his expense accounts?
• Is NYRA going to seek damages from Kay, as one Franchise Oversight Board member suggested in 2012?
• Has a review been conducted of whether shortcomings within NYRA leading to these issues implicates their retention of the franchise, as was done in 2012?

These are all basic questions that would be asked by any organization when confronted with the unethical conduct of its CEO.  My fear is that there is a considerable desire to sweep all of this under the rug, and move on to planning for the Belmont Stakes.

A comparison between the terminations of NYRA’s CEO in 2012 and 2019 is instructive.  As I wrote about regularly in 2012, the Cuomo takeover of NYRA was purely a political power play using a manufactured scandal and intimidation, including threats against NYRA Board members. The threats were conveyed in a letter by Cuomo’s Budget Director, who served as Chair of the Franchise Oversight Board, and the head of the Racing and Wagering Board (now the Gaming Commission), who prepared a report alleging malfeasance without interviewing anyone or reviewing all relevant documents.

There was never an allegation of personal impropriety by the CEO.  The Governor’s own Inspector General conducted a review in which she actually interviewed numerous individuals and examined documents.  She issued a lengthy report that dispelled none of my statements in this or the preceding paragraph.

By contrast, the 2019 termination of Chris Kay was for personal impropriety according to a published report that has not been disputed.  In contrast to 2012 when the Cuomo staff were actively publicizing their “investigations” and opinions, there has been none of that this time.  The difference?  I’ll take a wild guess and suggest that it is purely political.

Political motivations are, of course, a similarity between the two years.  Another similarity is the avoidance of those in positions of responsibility to accept accountability.  Ironically it is only the 2012 CEO who acknowledged an error  –  and took immediate steps to rectify it even before it became a political football.

But no one else, in either instance, who served in a position with oversight responsibility has stepped forward to acknowledge responsibility  –  whether it be a NYRA Board member or a member of the Franchise Oversight Board or the Gaming Commission.

And that is the “culture” desperately in need of change.

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