Purpose

To determine whether the New York Racing Association, Inc. received the appropriate amount of Video Lottery Terminal (VLT) revenues for its capital program as stipulated by statute, and whether NYRA officials used these monies appropriately. Our audit covered the period January 1, 2012 through June 30, 2014.

Background

The New York Racing Association, Inc. (NYRA) holds the exclusive franchise to operate New York State’s three major thoroughbred racetracks: Aqueduct Racetrack, Belmont Park, and Saratoga Race Course. Annual attendance at NYRA facilities approximates 1.8 million, with about $2.3 billion in all-sources wagering handle (e.g., on-track, simulcast) each year. In November 2006, NYRA officials filed for bankruptcy due to its poor financial condition. In September 2008, upon renewal of its exclusive franchise, NYRA entered into a bankruptcy settlement agreement that conveyed all rights, titles, and interests in the racetrack properties (land and buildings) to New York State in return for a financial assistance package.

In 2011, Resorts World New York City Casino (Resorts), operated by Genting New York (Genting), opened adjacent to Aqueduct Racetrack. According to NYRA’s Franchise Agreement with New York State (Agreement), a percentage of Resorts’ VLT revenues (Net Win) are to be directed to NYRA for enhanced purses, operational support, and capital expenses. In 2012, a temporary, Statecontrolled (Reorganization) Board of Directors was put in place to oversee NYRA operations. For the period January 1, 2012 through June 30, 2014, NYRA received about $259 million in revenue from Resorts, distributed as follows: $56 million for operations; $129 million for purses; and $74 million for NYRA’s capital program. 

Key Findings

• We found adequate controls over the VLT revenues collected by Resorts and the transfer of such funds to NYRA. However:
• NYRA officials lacked an adequate capital planning function. NYRA officials had not developed a long-term (multi-year) capital plan, and NYRA’s annual plans lacked pertinent details, such as completion dates, the projects to be financed, and support for their associated costs;
• Several of the actual capital projects initiated and/or completed by NYRA during the audit period were not on any of its annual plans, and several of the projects on the plans were not initiated;
• As a result of inadequate project planning, NYRA could be obligated to pay $2.3 million dollars more for a project than was originally anticipated;
• In addition, for part of the audit period, NYRA used material amounts of capital program funds for routine maintenance costs.

Key Recommendations

• Develop long-term (multi-year) capital plans that outline how available capital program monies will be used to promote NYRA’s long-term capital program goals and operational goals (e.g., enhanced safety, attraction of additional customers).
• Develop annual capital plans that detail each project’s need/justification, timeframe for completion, and project cost estimates.
• Develop and implement a formal project management system to effectively monitor the status of projects in long-term and annual capital plans.
• Minimize the extent to which VLT capital revenues are used for non-capital (operational) purposes.

Other Related Audits/Reports of Interest

NYRA: Financial Condition and Operating Practices: First Interim Report (2010-S-54)
New York Racing Association: Cost Savings Actions (Follow-Up) (2011-F-16)