Thomas DiNapoli, New York State’s Comptroller, sharply criticized the management of the New York Racing Association for its failure to plan capital expenditures.  The findings are not surprising to anyone who has observed the government-controlled agency in action, but is yet another disturbing red flag for the future of racing in New York.

Under New York law, the operator of the racino at Aqueduct pays a share of its net revenues to NYRA:  a defined percentage is for capital expenditures, another for purses and a third for operating expenses.  The audit examined what NYRA does with the money for capital expenditures.

DiNapoli concluded  –  unremarkably one would think  – that “[s]ound business practices include both long-term and short-term capital project planning,” but “NYRA’s planning was weak.”  Particularly disturbing is that the Comptroller’s office cited NYRA for similar deficiencies in 2007, shortly before NYRA filed for bankruptcy.

While NYRA did submit capital plans to its Board of Directors, the documents were apparently not worth the paper they were printed on.  DiNapoli’s office found that over $7 million was spent on projects that were not included on the submitted plans, and another 114 projects that were on the lists were not initiated during the audit period.

As an example of the lack of planning, DiNapoli cited the Longshots simulcast facility and sports bar that was built at Aqueduct.  Genting, the racino operator, was committed to paying $5 million with NYRA being on the hook for anything over that amount.  In large part because of change orders, the cost spiraled to $9.4 million.  According to the report:

“The three largest change orders, exceeding $1 million, related to the installation of audiovisual equipment and HVAC-related work.  Because these items were basic to an indoor simulcast center, we question how and why they were overlooked to such an extent in the original planning and design of Longshots.”

That fiasco  –  the project was also delayed by two years  –  is typical of NYRA’s “management” of capital projects.  The DiNapoli audit also faulted NYRA for not adhering to basic components of any capital plan:  “its annual plans lacked pertinent details regarding the projects to be financed, such as completion dates, and support for their associated costs.”

In addition, DiNapoli faulted NYRA for using funds intended for capital projects on routine maintenance.  That allows NYRA to maintain its well-publicized fiction that it is now operating in the black without consideration of VLT revenues.  Of course, when VLT revenues for capital projects are reducing the need to rely on operating revenues, it becomes the NYRA version of three-card monte.

NYRA responded to the audit by denying any deficiencies in its planning, while not disputing any of the factual conclusions in the audit.  As they are wont to do when criticized, they blamed others for any issues.  Genting was to be blamed for Longshots because they were in charge of the project, ignoring that when you are exposed for what turned out to be almost half the costs, a responsible manager would intervene.  The state’s Franchise Oversight Board  –  a group like the NYRA Board composed largely of Cuomo appointees  –  was identified as having approved the plans NYRA submitted.

NYRA also cited what it has done for long-term capital planning.  It appointed a Long-Term Planning Committee at one of its first Reorganization Board meetings almost three years ago. To the best of my knowledge  –  and I have attended or observed every Board meeting  –  this Committee has never done anything, other than recommending an $800,000 consultant to advise it on long-term planning.

NYRA further said it “has been, and is currently, engaged in significant long-term planning for Saratoga.”  They are referring to a comprehensive plan for the track prepared by Turnberry Consulting, and available on its web site.  One of the most significant changes recommended by the report is eliminating the parking inside the fence along Union Avenue, and replacing it with an expanded area for picnic tables and an amphitheater.  At a Saratoga preview held at the Museum of Racing  –  across the street from the site of the parking area  –  NYRA’s CEO and President Chris Kay had no idea that this was being proposed.  So much for NYRA’s “engagement.”

It would be one thing if this the lack of capital planning was an aberration  –  and, of course, not identified as a deficiency eight years earlier prior to a bankruptcy filing  –  but NYRA’s inability to plan is a major problem. The 2014 Belmont Stakes was not a fiasco because of the unexpected, but because of a lackadaisical approach to even the most rudimentary planning.  The NYRA Board has been talking about restoring off-track betting to  New York City for the three years of its existence, yet nothing has happened.

There is one area, however, that is the most troubling.  The one thing that the NYRA Reorganization Board was required to do in the legislation written by the Cuomo Administration was to come up with a plan to return New York’s premier racing to a not-for-profit entity instead of a government-controlled one in April of this year.  It is the only thing they were required to do.  The transition was to happen this month.  They did not do it, and the budget for this fiscal year extended both deadlines for a year.

If this persistent, demonstrated incompetence is not enough to cause you concern, ponder this.  A proposal drafted by NYRA’s General Counsel and presented to the Board last November called for the current Board to appoint the new one under a reorganization plan.  That’s right, the idea to get the government out of running New York’s racing was to have the government appointees select their successor.  What could go wrong with that idea?