NYRA: The Present, The Future
Charles E. Hayward - President & CEO, New York Racing Association, Inc.

Ogden Mills Phipps: Actually, anyone who knows Charlie Hayward knows that he loves horse racing. It was his passion for this sport that first lured him from a successful career at Simon & Schuster and Little Brown and to the Daily Racing Form. His experience, his business skills, and his knowledge of the Thoroughbred, of Thoroughbred racing, have served him well since he was named president and CEO of the New York Racing Association in November. There have been some choppy seas, but he's deeply committed to getting the ship headed in the right direction. Today, Charlie is going to share with you some of his thoughts.

Charles Hayward: Dinny, thanks very much for those kind words, and welcome everybody…

Just by way of background, as Dinny pointed out, I have a 25-year career in book publishing, I've been a long-time racing fan, what I would call an episodic owner, I've been a Saratoga resident here since 1986, a NYRA trustee from 1995 to 1999, and I resigned that position to become president and later CEO of the Daily Racing Form. I left the Daily Racing Form last summer after it was sold to the Wicker Group and I thought I was going to take a little bit of time off. As it turned out, I joined NYRA on November 4, 2004. And it was more than one of my friends that wanted to know what in the world I was doing and why I was doing it. And, frankly, the reason I did it is that Barry Schwartz, Peter Karches, Steve Dunker and the board of trustees had started a significant turnaround at NYRA. They'd made management changes and significantly improved business practices were underway. One of my goals was to develop stronger analytical tools to run the business and improve the business, develop better marketing and customer service, and promote racing integrity. And one thing to keep in mind despite the difficulties that have occurred at NYRA over the last few years, NYRA has maintained without question the strongest racing in the country.

Our goals are pretty simple. We want to increase revenue to the state, we want to ensure the highest quality of racing with contribution to breeders and purses, and very importantly, as Tim pointed out, improve communication and collaboration among all the stakeholder, regulators, owners, breeders, trainers, jockeys and the fans. NYRA's still currently operating under deferred prosecution agreement with the federal-appointed monitor, Getnik and Getnik, who's been tremendous help to NYRA and helping us right this ship. The federal monitorship ended on July 24. A report is meant to be given to the U.S. attorney and a judge is expected to make a determination by August 23.

I'd like to go over a couple of the activities that have happened in NYRA in the time that I've been there. I think the most significant one was a huge wake-up call that Thoroughbred racing got on January 13, which was the Uvari indictment. These are only allegations; it has not gone to trial, so these aren't stating the facts, but this is what appears in the indictment. I want to go through it, because I think it's important.

This was an 88-count indictment for an illegal sports-book that wagered on horses through unregulated offshore rebate shops. During the period of the investigation, there was alleged $200 million in horse racing handle conducted by this illegal bookmaker. Just to give you an idea of exactly how it worked, this bookmaker, with an offshore that still exists today, opened up 15 accounts with this one bookmaker and put the same social security number on all 15 accounts. He then distributed these account numbers to his clients and customers, who with a PIN number could order through those 15 accounts. Over the period of 2003, there was $156,794 in withholding that was withheld on those accounts, and the bookmaker filed his income tax for that year, reported losses for that amount and got a refund from the federal government to the tune of $156,794.

Also during that period, a $300,000 rebate was rebated back to a players' organization and presumably divided between the players' organization and the bookmaker.

Well, NYRA shut down all unregulated rebate shops shortly thereafter. Keeneland, Tampa Bay, Oaklawn and Canterbury have also followed. I feel very strongly, unequivocally, that off-shores are bad for this game.

They have a technological advantage to serial-port wagering, which makes them win often times more than the actual takeout, and there's no question that they are havens for money-laundering and tax evasion. And if anyone in this room thinks one bookmaker in New York is the only guy that's figured this gig out, I've got a bridge I'd love to sell you.

Moving on, in mid-February, we initiated milkshake testing with the assistance of Dr. Maylin and the assistance of Mike Hoblock of the state racing and wagering board. And as you all know, elevated levels of CO2 will reduce muscle fatigue and enhance the performance of a horse. On May 4, 2005, with the opening of Belmont Park, NYRA initiated the first race-day security barn. It's pretty simple, we place horses in secure barns six to seven hours before the race, and the goal is pretty simple: Keep the private vets out of the stalls and hopefully help level the playing field. By the time we get through Saratoga, we'll have enough data that we think we can start to put some of this together and perhaps share that information with you.

In July we also announced a number of management changes in the racing office and on the business side that we think will help improve our business going forward. Again, back to Tim's point, I work very hard to pursue a business relationship with the OTBs despite the fact that we have a business model that doesn't necessarily make sense for us to work together. However, for the first time, NYRA, along with Capital OTB and Nassau OTB, actually went to the state racing and wagering board with a rewards program that we're hoping to hear about shortly. There are tremendous, redundant infrastructure costs, with each of us having account wagering, each of us having separate tote operations. There are significant opportunities, but it's going to require some changes in the law and a desire and ability to work together.

I want to give you a quick update on VLTs because that's obviously very important for all concerned. Our MGM deal is in place. The oversight for the VLTs has been moved from the state racing and wagering board to the state lottery. We're very close to selecting a construction manager and construction will begin some time by the end of September. Our goal is still to try to get the slots up and operating by Labor Day 2006. The financial assumptions are that we'll have 45,000 machines, $400 win per day per machine, which will be a gross win in excess of $660 million. Over $450 million will go to the state and over $50 million in the first year will go to purses and breeders' funds.

If NYRA has the prosecution dropped, NYRA will move forward with a proposal for a re-characterization of the franchise. As Tim pointed out, and it's pretty clear, the NYRA business model is broken and needs repair. In fact, if the state were to say, "Hey, fellas, wouldn't you like to have the franchise renewed under current terms?" We'd say, "No, thanks." We need to develop a new franchise model. We do believe that we also have a strong case regarding the ownership of the land. It's not clear, as Tim Smith pointed out, but what is clear is that we have spent $460 million in local real-estate taxes since NYRA was formed in the '50s. We have the deeds and we've also borrowed with those deeds and made significant capital improvements in the '60s at both Aqueduct and Belmont.

New York State is in the process of appointing a nine-member committee that's being set up to drive the RFP process in early 2006. Make no mistake: NYRA will be an active participant in any RFP process.

I would like just to take a second to acknowledge the good deeds and the hard work that's been done by Tim Smith and the Friends of New York Racing. He highlighted a number of things, but from our perspective, the most important things are the Economic Impact Study of Breeding and Racing, and again you can take that information and go to Albany and be much more persuasive in terms of getting things changed. Correctly, Tim has done a brilliant thing in enlisting the Albany Law School program to propose changes in the racing law, because without changes in the law, there's not much that's going to be able to get done. And finally, he's been a voice of reason and information in Albany and he's made people understand just how important this great game is.

We're at a unique crossroads in the history of Thoroughbred racing here in New York. The franchise is expiring, the franchise model is broken, racing laws are outdated and depressing industry growth, racetracks and OTBs need an economic and legal reset. There's a little bit of good news in that VLTs and harness tracks are up and operating, and it'll be a huge financial influx to the industry with slots operating at Yonkers next year as well as at Aqueduct.

The stakes are high and the time is now. At risk is the future health of Thoroughbred racing and breeding in the state. Finally, when all is said and done, I believe that New Yorkers will strongly prefer to have Thoroughbred racing run by New Yorkers and not run from Louisville, Kentucky; Toronto, Ontario; or Las Vegas, Nevada.

Thanks very much.

Ogden Mills Phipps: Thank you, Charlie. You've put in tremendous hours over the last nine months and we really appreciate your efforts on behalf of all of us.

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