ALBANY—The New York Inspector General’s office has released an “integrity review” of the bidders for the franchise rights to operate Aqueduct, Belmont Park, and Saratoga thoroughbred racetracks and any associated VLTs.
Kristine Hamann, inspector general, said that neither the consulting firms who reviewed the four entities seeking the franchise rights nor the Office of the Inspector General, have analyzed the capacity of any of the bidders to meet its financial or operational obligations if selected as the franchisee.
“This report presents no assessment of the financial viability and sustainability of any of the proposed bidders, nor does it assess any bidder’s capability to manage the franchise or operate the specified facilities. Except for criminal history and licensing information gathered by the FBI, DCJS, and the State Police, the information contained herein was collected by the consulting firms, and has not been independently verified by the Inspector General’s Office”, Hamann said.
The report, released July 2, cited four “general areas of concern” which include associations with rebate shops and bookies who take bets on racing. http://www.ig.state.ny.us/
The four firms seeking the franchise rights are Capital Play, Empire Racing Associates, Excelsior Racing Associates and the New York Racing Association which is the current holder.
The report notes that all four of the entities have some connection to the rebate shops and it was found that “numerous civil lawsuits involving key persons or business entities” associated with all four bidders. The IG’s report also noted that some of the individuals associated with the bidders have made “sizable contributions”, albeit legal, to political leaders.
The IG’s office had been charged by Gov. Eliot Spitzer to conduct a “due diligence” review of the ethics and integrity of the entities seeking the 20-year franchise to conduct thoroughbred horse racing meetings at the three racetracks. There was no recommendation that any of the four bidders be dropped from consideration.
Regulatory actions, lawsuits and newspaper reports were included in the review as well as background checks of the principals of the entities.
“For some time now, state officials have been considering what to do with the State’s racing franchise”, Spitzer said after the release of the report. “Throughout this process, I have tried to emphasize the need for integrity and accountability. That is why I asked the State Inspector General (IG) to review the qualifications and record of companies that have expressed interest in running State tracks and to flag any integrity issues. With the IG’s release of its Integrity Review of the four potential operators, one of the important predicate steps in the selection process has been completed”.
Spitzer said his administration would now “move forward with its discussions with the Legislature and other interested parties, towards making a recommendation regarding which group should be awarded the racing franchise for New York State beginning next year. The administration may recommend awarding one entity the right to operate racing and a different entity the right to manage non-racing development and gaming operations, or may recommend that a single entity be awarded the racing franchise and also be given responsibility for developing gaming and other non-racing operations.
“The IG’s report released illustrates why racing is one of the most heavily regulated industries in the nation”, Spitzer said. “istory has shown that the large amounts of cash at stake in racing pose risks for illegal activities including money laundering at rebate shops, tax schemes and race fixing.
“This potential means that we must be scrupulous in monitoring and regulating activity. Indeed, this is why I required an integrity review in the first place. As we go forward, we will all need to examine the full range of available integrity tools, ranging from private monitors to enhanced state regulatory powers, to ensure the continued integrity of racing and other gaming in New York State.
Since 1955, the New York State Legislature has awarded to the New York Racing Association (NYRA), previously known as the Greater New York Racing Association, the franchise rights to operate Belmont Park, Aqueduct, and Saratoga racetracks. Today, these franchise rights also include the Legislative authorization for the granting of a license to operate video lottery terminals, or VLTs as they are commonly known, at Aqueduct Racetrack. In the future, these rights could be extended.
Under New York State Racing, Pari-Mutuel Wagering and Breeding Law, NYRA’s franchise will expire on Dec. 31. In 2005, then-Governor George Pataki formed the Ad-Hoc Committee on the Future of Racing, which solicited and reviewed proposals from bidders seeking the racing franchise. Ultimately, on Feb. 21, the Ad-Hoc Committee recommended that Excelsior Racing Associates be granted the franchise. This recommendation was neither binding on the Governor nor the Legislature, with the final franchise award to be granted through the legislative process. The Legislature did not act on the Ad-Hoc Committee’s recommendation.
After taking office, Governor Spitzer pledged to make integrity a prerequisite for any firm seeking to obtain the racing franchise. Rather than follow the recommendation of the Ad-Hoc Committee, in which “integrity and responsibility” was simply one factor, comprising 20 percent of the final decision, Governor Spitzer, on Feb. 28, formed a new panel (Franchise Review Panel) headed by Richard Rifkin, Special Counsel to the Governor, to solicit and review new bids for the management of the thoroughbred racetracks and associated VLTs.
In the panel’s review, integrity would be a prerequisite to being considered for the franchise award, rather than just one of several factors to be weighed together. In early March 2007, the Governor’s Office requested that the Office of the Inspector General assist the panel by reviewing the integrity of the companies that had identified themselves as bidders.
Anticipating that the Legislature might select a bidder by the scheduled end of its session on June 21, the Governor requested that the integrity reviews be completed by early May. Given the time available for this important process, the Governor’s Office and the Office of the Inspector General agreed to seek outside assistance to help gather the information required for the integrity reviews.
Criminal history checks were performed with the assistance of the New York State Division of Criminal Justice Services (DCJS) and the Federal Bureau of Investigation (FBI), and the New York State Police provided investigative assistance regarding the subjects’ prior regulatory histories with gaming and licensing authorities. In addition, each bidder was required, at its own expense, to engage directly with a private consulting/investigative firm that would perform the essential research for the integrity review. Upon completion, the private firms furnished their reports to the Office of the Inspector General which, after its own review and analysis, presented its report to the Franchise Review Panel.
Initially, each firm was asked to conduct integrity reviews for two bidders. After ensuring that there would be no conflicts of interest, such as a firm examining a bidder with which it had a pre-existing business relationship, the Office of the Inspector General assigned bidders to the consulting firms balancing their respective workloads. Deloitte Financial Advisory Services was assigned Excelsior Racing Associates and the New York Racing Association (NYRA). PricewaterhouseCoopers was assigned Capital Play, Ltd. and Thoroughbred Racing-NY. Thacher Associates was assigned Empire Racing Associates and Catskill Off-Track Betting Corporation.
Before the work could begin, Thoroughbred Racing-NY withdrew. Catskill Off-Track Betting failed to engage the assigned firm to conduct the required research for the integrity review, and was therefore disqualified as a bidder.
