Gural Concerned About Faraldo's Position

Published: October 25, 2010 02:45 pm EDT

Jeff Gural, chairman of American Racing and Entertainment LLC, which owns and operates both Tioga Downs and Vernon Downs in New York State, has penned an open letter in response to Standardbred Owners Association of New York President Joe Faraldo's letter

which spoke out against a proposed restructuring plan which has been proposed by New York City Off-Track Betting.

Gural's letter appears below in its entirety.

I am writing as someone who has a large stake in the viability of New York’s Racing and Agriculture industry. I am extremely concerned that Joe Faraldo, as president of the Standardbred Owners Association, is creating this completely false impression that the sky is falling and that our industry is in crises as a result of the agreement reached between NYC OTB and the official Committee of Unsecured Creditors of NYC OTB. Nothing could be further from the truth. I was on that committee representing the owners of 1501 Broadway where OTB is headquartered. At the same time I was also wearing my other hats as an owner of a dozen racehorses, over 40 mares, 30 weanlings, 20 yearlings, two breeding farms and two racetracks. I obviously felt it important that any deal that was reached was fair to the racing industry. After studying the financial condition of OTB and future projections it became obvious that without major restructuring of the organization it would be forced to close. The impact of a closure, in my opinion, would have been catastrophic to the horseracing industry since over $700 million dollars is wagered annually. The breeding industry receives over $6 million of which approximately $1.9 million goes to harness racing and the eight in-state tracks plus NYRA receive $57 million of which approximately $11 million goes to the harness tracks. Obviously having OTB shut down was certainly not a viable option. On the other hand, expecting the state with a $7 billion dollar deficit looming next year to subsidize the losses was not realistic either. Instead we tried to find a solution that would inflict as little pain as possible on all of the participants. Fortunately the Governor selected a strong restructuring person, Greg Rayburn, and together I believe the solution that was agreed on was the best deal possible for the industry under the circumstances. By the harness tracks agreeing to give up the dark day money, the maintenance of effort money and a portion of the commission on out of state thoroughbred wagers, I expect that will cost the harness tracks $5 million, which in most cases is split with the horsemen. The majority of these payments have not been made since 2003 so the loss is theoretical since none of these funds have been in the purse account. The harness breeding fund by agreeing to utilize the same formula that applies to the thoroughbred breeders will also lose approximately $500,000.

Now for the good news. In order to offset these losses to the industry it was agreed that OTB would be required to feature the New York racing product in all of the parlours and TV signals. This is something Mr. Faraldo has lobbied for and although he refused to provide his input when I reached out to him in early September we put broad language in that hopefully will accomplish that goal. In addition, the racetracks will take over the ADW (phone betting) function that OTB currently has in exchange for writing off approximately $65 million dollars that is owed to NYRA and the other eight tracks. By taking over the ADW not only will the horsemen share in the profit but, more importantly, going forward when a bet is made at Yonkers or a NYRA track it will be treated as if it were made at the track. Therefore, rather than getting 5.5% the tracks will get approximately 20% less a 1% administration fee. This alone should generate an extra $3 million for Yonkers which will be split with the horsemen at Yonkers. Most importantly, however, was the agreement by the state to implement the free play pilot program currently in existence at Monticello and Tioga on a statewide basis. I believe based on the results at Tioga that this will increase VGM revenue by 10% or approximately $100 million dollars of which the harness horsemen will receive almost $9 million and the breeding fund will receive an additional $1.25 million. More importantly, education will likely receive an additional $50 million dollars as well.

There are also increased incentives for the racetracks to make capital improvements which further benefit the horsemen as we have seen at Buffalo where VGM revenue is up about 30% since their new casino opened using these funds. The plan does have a provision to decrease race days at only one track, Monticello where they currently race 207 days, including during the freezing weather in the Catskills over the winter. Since 98% of the purse money comes from slots in essence it will mean a horse will race two or three fewer times but when they do race the purses will be increased to reflect the fewer days. This provision does not affect any other track. How any of these changes affects the viability of the sport in NY is beyond me. Currently, our harness industry is and will continue to receive approximately $100 million dollars from the slots at all of the harness tracks. If the legislature wants to take $22 million dollars that is currently owed Yonkers from the state treasury it is fine with me but I am not sure the taxpayers would be all that happy.

Let me also point out that the union has agreed to eliminate 500 jobs or half of their members and my clients, the owners of 1501 Broadway, have agreed to allow OTB to surrender a minimum of 50% of the space they currently have under lease. For Faraldo to attack the committee and the racetrack owners without knowing the facts is very unfair and potentially damaging to breeders like myself who are selling yearlings at Harrisburg in two weeks. As you can see, the effect of these changes is minimal and in the long run may actually increase purses.

Lastly, I want to make it clear that I am speaking for myself and not the other committee members who are free to offer their own opinion. I just want you and everyone in the industry to know the facts and feel secure that the racing and breeding industry in New York State is strong and to allow OTB to close would have been a catastrophic mistake.

Related Stories

Faraldo On Proposed NYC OTB Bailout
Faraldo Sounds Off On Restructuring Plan



I understand Jeff Gural's position but feel that as always what was a great opportunity to move this wonderful industry forward, recoup all losses and eliminate the political gravy train that was/is NYC OTB has been lost. Nobody asked but here is the way it should have gone down.

1. The NYC OTB has had a monopoly on the off track wagering business since the 1970s.
2. The political machinations have been such that it failed miserably but none of the people that raided its coffers have been held responsible.
3. NYC OTB stole $64-65 million or whatever amount Jeff pointed to from the racing/breeding industry of which a sizeable percentage would/should be available to supplement purses/breeders' awards/racetrack operations/Sires Stakes programs and the like.
4. The reorganization should have placed OTB in dissolution with the agreement that the racetracks across the state were charged with the responsibility and awarded the exclusive rights to operate off track wagering facilities/ telephone and internet wagering. This would remove the politicians from the operation and their continued plundering of the new operation.
5. Responsible racetrack operators/breeders and professional business operators would assure the efficient operation of the system. Not only would there be no loss of "$700 million dollars wagered annually", with the expert attention to the facilities assured by the involvement of the racing industry itself, the total wagered would most likely increase.
6. A consortium of the various racetracks would be formed to own operate and create facilities that would lend themselves to comfort, safety and convenience as entertainment centers for off track wagerers.
7. There would be an amount of employed union members as indicated by the needs of the facilities to conduct business activity.

NYC OTB would be dissolved and forever remain a reminder that politicians could not even operate a monopoly bookmaking operation without losing money like water pouring down an open storm drain in a squall. And they failed to honor their contractual obligations. With the NYC OTB dissolved, and a new entity operated by racing interests created; no more political plum jobs handed out to incompetents. As created and operated NYC OTB was parasitical to the NY racing and breeding industry. As suggrested herein, the OTB operations would be symbiotic to our industry and all would florish.

Jeff Gural, who has performed exemplary at Tioga Downs, would be my choice to assist in organizing the end operation as well as Bobby Galtierro of the Rooney family Yonkers Raceway operation and oversight to Mr. Faraldo and the NY State Harness Horseman's Association as well as the NYRA (Aqueduct, Belmont and Saratoga).

I must qualify my remarks with the caveat that I am not nor have I been privy to all the information provided to and under which the reorganization committee operated. The fact remains that bad and malicious behavior operation of a failed business model should not be rewarded by continuing that business in any manner, rather it should be disqualified from ever operating in the racing industry again.

Michael I. Deutsch

Faraldos views are typical of unionists who have never been in a venture capital position. There is a diminishing percentage of people in this industry that are prepared to invest for the future. There is , unfortunately, an increasing percentage of people who want to get what they can now and to hell with the future.

Hats off to Jeff Gural who combines his vision for the future with a business like approach to standardbred racing.