Tuesday, December 3, 2013

NYRA wants to raise admission to help cut operating deficit


The proposed 2014 budget for the New York Racing Association attempts to answer critics who attack the group's racing operations deficit.

NYRA came under fire this summer for its inability to turn a profit solely with its racing operations, even though Video Lottery Terminal revenue from Aqueduct will ensure them a profit of millions this year. This year NYRA is projected to have an operations deficit of about $10 million, but next year they're projecting a slim surplus with the help of cost cutting measures and higher fees.

According to the 2014 draft budget executive summary, NYRA will generate new revenues from "new funding opportunities for customers with MoneyGram," its improved online wagering platforms, increased prices for admissions, box seats and parking, a more expensive simulcast signal and attract more sponsorship revenues. To reduce spending, the executive summary says NYRA will close Aqueduct’s training center during non-racing months, reduce legal expenses, reduce costs related to NYRA’s phone wagering operation, reduce overall labor expense and find efficiencies, including through a reorganization, strategic hires and long-term planning.

Oh yeah, they'll also save money by cutting their charitable contributions by $169,000. (Does that mean Marylou Whitney and John Hendrickson need to increase their contributions by $169,000?)

The budget reflects a clear push within NYRA to turn a profit without VLT revenue from Aqueduct. "We intend to use VLT operating monies to invest in revenue generating initiatives rather than using those funds to pay for operating deficits," reads the 2014 draft budget executive summary.

This is a confusing goal, since the funding was initially intended to be used for "purses, capital expenses and operations," according to the same executive summary.

The new direction of this budget is a direct consequence of criticisms NYRA received this summer and has heard in the past about its reliance on VLT revenue to turn a profit. Unfortunately this reaction is overkill.

There is a consensus that NYRA needs to close its operating deficit, but there is serious disagreement about how to do that and how fast to act. There is also a disagreement about how important an operating budget profit really is, if the overall budget is likely going to be in the black for the next two decades as the result of the VLT contract (which is not some state handout). On NYRA's board there are members who don't think it makes sense to focus so much on one aspect of the budget and want to look at the big picture.

The only people that really care about turning a profit with the operating budget are state regulators. They've harped on this issue repeatedly, while not giving NYRA the freedom to make as much money as possible, such as the failure to allow them to expand into the New York City market left vacant by the New York City OTB's collapse.

It's not clear why the state is taking such a hardline on this position, but one possibility is they want the three NYRA tracks to be as attractive as possible in 2015 so they can be sold to a new operator. There is also the possibility that the state could try to force NYRA to agree to give up some of its VLT money, which would make the racing portion of the budget.

None of this matters to fans and they will be annoyed when a day at the races costs more next year. Alienating fans is extremely shortsighted considering NYRA needs to do everything it can to attract new fans and keep its old fans.

Essentially, a projected $250,000 operations profit is completely meaningless (and far from guaranteed). NYRA CEO Chris Kay can pat himself on the back if it happens, but it doesn't matter much in the long run.

Instead, NYRA should have proposed a budget that cut the racing operations deficit and laid out a long-term plan for racing profitability. This long-term plan could have included expanding into New York City with restaurants, phasing out the antiquated OTB parlors and reducing administrative costs.

Ultimately, though, NYRA will likely remain reliant on VLT revenue for its purses, capital projects and balancing its books. That's not a bad thing considering its an investment in an industry that is worth millions of economic activity to New York.

Hopefully state regulators don't decide in the future that NYRA is too reliant on gambling to turn a profit...

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