The New York Racing Association, Inc.

2009 BudgetN arratlve Presentation to the Finance Committee Of the Board of Directors November 24, 2008

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The.New York Racing Association, Inc. 2009 nudgct Narratlve

November 24, 2008

The proposed 2009 operating budget projects gross revenues of $285 million and net income of $2.5 million. The last profitable year for NYRA was 2000. NYRA posted a profit of $1.6 million of which $11 million was related to a property lax. settlement with Nassau County,


The state of the United States economy has negatively impacted NYRA's operations during the last six. months of 2008. Daily average handle on NYRA races during the Belmont and Aqueduct full race meeting declined 8% and 13%, respectively, year-over-year. Similarly, casino operators such as Harrah's and MOM report wagering decreases of 7·] 0% over the same period. Churchill Downs, Inc. and Magna Entertainment Corporation have experienced similar handle downturns,

Naturally, NYRA has taken the current economic situation into account in preparing its 2009 revenue budget.

Handle-Generated Revenue

Overall NYRA handle for 2009 is budgeted to decline by approximately 5,51%, however, handle derived revenue is budgeted flat year-over-year, This is a result of obtaining increased fees from out of state sites. NYRA is a market leader in thoroughbred simulcastingund is currently receiving the best pricing in the industry for its product.

On-fmc" Handle

On-truck handle is budgeted to decline 4% in 2009, This projected decrease is a result of both a poor economic outlook fOI' 2009 and a continuation of tile economic headwinds facing the racing industry, This decrease in handle is offset by the 1% take-out increase in all pools (implemented September! 5,2008) resulting ina net J ,3% decline in on-track gross revenue,

interne! revenue is budgetedto remain flat year-over-year. Whi le NYRA continues to expand its NYRA Rewards program, management's current outlook is that the gains achieved through this program will likely be offset bya challenging economy.

Ollt oDs·tate commingled ami international ftolt"cmmu iftlJ.led Handle

Interstate handle is budgeted to decline 7% as compared to the 2008 forecast. However, the handle decreases are offset by a projected effective rate of 5.2YYo versus an effective rate of 4.75%1 in 2008,


I NYRA herebyrequests (hilt \'hi.~ dOC\lI111mt and its attuchrrcnt be excepted from disclosure under the New York Freedom of Juformation Law because they contain proprietnry ITHdc secret information ofNYRA the dissemlnatlon of which will harm NYRA's competitive posltion.

, The 2009 budget does not assume any proceeds from any asset sales 'The 2009 budget docs not assume a Triple Crown contender,



The New York Racing Association, Inc, 2009 Budget Narrative

November 24, 2008

OTB's aiul JIt~St(lte Racetracl(s

The 2009 budgeted handle on NYRA races derived from Downstate and Upstate 01B'$ is projected to decrease 4,6% and 1.2%, respectively. This decline in handle is a result of the continued trend away from OTB betting in favor of ADW outlets,

The 2008 budget also assumes that In-State handle will decrease by 4.4% as compared to the

2008 forecast. .

The l'el'e!lI((! budget does !wt assume tl J% f(I"e~Qut lncrease 011 out-of-state imports.

New state legislation currently scheduled to take effect in March 2009 will increase the take-out I % on all out-of-state races. NYRA believes that this 1 (X, take-out increase on out-of-state imports will put NYRA and the other In-State sites (OTSs, Finger Lakes, harness tracks) at a competitive disadvantage versus Out-of-State pari-mutuel wagering entities and ADWs, NYRA is diligently working to change this legislation; however there are no assurances that NYRA will be successful in this regard. NYRA believes that the loss of handle resulting from the takeout increase will outweigh any benefit that may be derived from same.

Other Revenue

On~TracA Refuted Revenue

NYRA has budgeted free admission and parking for all 2009 Aqueduct Race Meetings. Although NYRA has budgeted a revenue shortfall because of this new policy, NYRA's net savings by going to free admission and parking will be approximately $250,000.

Flea Market

of the flea

Sponsorships and Group Sales

The 2009 sponsorship budget is $4,2 million, which represents an 6% increase as compared to the 2008 forecast. This increase reflects NYRA'.s continued focus on increasing its sponsorship revenue. It should be noted that NYRA' s sponsorship revenue was $1,5 million in 2007.

Approximately 66% or $2,7 million of NYRA's $4,2 million sponsorship budget is already memorialized in written agreements, The additional budgeted $1.5 million herein is bailed on the assumption that NYRA will successfully complete written agreements with respect to 75% of the items (worth approximately $2.3 million) that are currently in process,

The Group Sales revenue budget


CON FH)E·)'\I·n Al.,

The New York Racing Association, Inc. 2009 Budget Narrative

November 24, 2008

Te/(wisioJ! iJl'Oadc(lst Revenue

. television revenue is

COlllefil Fees

In 2008, NYRA received $2.5 million in content fees from three Advanced Deposit Wagering organizations. NYRA assumes herein that it will be successful in negotiating $2.5 million in such fees again for 2009.


Statuto!")! Ey;penses

Statutory expenses for, pari-mutuel tax, New York State Racing and Wagering Board regulatory fees, and the Thoroughbred Breeding and Development Fund are directly related to On-Track handle. Therefore, the budgeted expense decrease for statutory items correlates with the revenue decreases discussed above.

The purse expense calculation is based on the New York Racing, Pari-Mutuel W

B Law

NYRA is forecasting a purse cusbion of_as of December 31,2008, an amount that is lower than the contractual commitment with NYTHA.




Pnld Stukes Ovornighls NTRA Fce Trophies


Net It> Cushion


Purse Cushion Projectlnn 2009


The New York Racing Association, Inc. 2009 Budget Narrative

November 24, 2008

OpeN/ring b:'(peltse.~ (in thousands)

Total Operating Expenses Bankruptcy Cost

2009 BUdget

s 144,002


2008 Forecast

s 144,147


$ 1431702

$ ]39,041

NYRA'g recurring operating expenses (excluding statutory payments) are budgeted to increase $4.7 million or 3.4%.

Employee compensation is budgeted to increase an average of 3% with approximately 60% of this increase attributed to union contracts. In 2008, NYRA continued the prior 401(K) 3% grant to all non-union administrative employees, as well as adding a 1.5%> matching contribution effective July 1,2008.

NYRA Information Technology costs are budgeted to increase by$! million 2009. This increase is a result of the corporation's commitment to leveraging technology to increase both productivity and revenues. Major non-capital initiatives include expanding disaster recovery and redundancy as well enhancing the NYRA Rewards Internet functionality.

NYRA is proposing $900,000 in capital expenditures for two cost cutting initiatives.

I, NYRA management must reduce the number of horses stabled at Aqueduct to a level below the threshold requirements of a small Concentrated Animal Feed Operation ("CAllO") (i.e., less than 150 horses) or incur substantial costs. However, in order to continue to stable the numberof horses needed to operate a year-round racing operation, more barns need to be built at Belmont. As such, NYRA has budgeted for a capital expenditure of $400fOOO in 2009 to begin the precess of building these new barns. It should be noted that an additional $600,000 will have to spend in this regard during the first quarter of 20 I O. The alternative to this proposal is to continue to stable the current number of horses at Aqueduct and to spend approximately $2 million in additional CAPO compliance. .

2, NYRA has budgeted a $500,000 capital expenditure for a facility management software package. Currently, NYRA overtime expenditures constitute 40%, of base hours for NYRA's various unionized employees. Moreover, NYRA pays benefits on each haul' worked, thereby incurring additional overtime costs. NYRA· believes improved scheduling and oversight of these employees will significantly improve productivity and efficiency. Deploying the proposed package will enable NYRA to effect same. NYRA management Intends to Implement this functionality by the third quarter of 2009. NYRA management believes that it can reduce costs by greater than $500,000 in the first full year of the operation of this system.

NYRA has budgeted $300,000 for bankruptcy-related professional fees to complete the bankruptcy action.



The New YOJ~k Racing Association, Inc. 2009 Budget' Narrative

November 24, 2008

NOll-Operating hxpellses

As part of the seulementagreemenr, Old NYRA has transferred, the three racetracks (0 the State of New York, NYRA is no longer responsible for the payment of real estate taxes. This represents a savings of at least $11 million in 2009.

NYRA has budgeted $1,3 million for federal income tax, which will arise from NYRA's anticipated profitability and which cannot be offset by net operating losses. Allexisting NOLs will be utilized by Old NYRA for the sale of the properties.


Since New NYRA does not have any debtno interest expense exists except with respect to the operating leases.

Video Lottery Terminals

NYRA docs not anticipate and has not budgeted for any revenue from VLT operations in 2009,

Cash Flow

As of December 31, 2008, NYRA is forecasting an operating cash balance of $20 million with an , additional _contained in the pari-mutuel department vault At December 31, 2009,

NYRA is forecasting a cash balance of $9.7 million plus ined in

the pari-mutuel department vault.

Potential Positive Impacts

• Residual funds from the sale of the ancillary property after repayment of the IRS $11 million, for which Old NYRA remains liable

• Increase in sponsorship revenue

l)otentiaJ Risks

• The greatest adverse risk to NYRA's cash Dow may be NYCOTB's financial inability to remain current on the agreed upon payment plan. Recent projections demonstrate that NYCOTB will run out of cash mid-2009 unless contingency measures are put in place.

• Handle may continue to erode further th(1I1 budgeted.

• Racetrack operators continuing to struggle. NYRA's risk is that it will be unable 10 collect simulcast revenue from these entities.



The New York Racing Association, Inc. 2009 Budget Narrative

November 24,2008

Franchise FecPnymcnt

Set forth below is the section of the NYRPWBL that governs franchise fcc payments:

Section 208-1

. In consideration of the franchise and in accordance with its franchise agreement, the franchised corporation shall remit to the slate, each year, no later than April fifth, a franchise fee payment. The franchise fee shall be calculated and equal to the lesser of paragraph (a) or (b) of this subdivision as follows: (a) adjusted net income, including all sources of audited generally accepted accounting principles net income as of December thirty-first (i) plus the amount of depreciation and amortization for such year as set forth on the statement of cash flows (ii) less the llJ110Lm( received by the franchised corporation for capital expenditures and (iii) less principal payments made for the repayment of debt; or (b) operating cash which is defined as cash available on December thirty-first (i) which excludes all restricted cash accounts, segregated accounts as per audited financial statements and cash on hand needed to fund the on-track parimutuel operations through the vault, (ii) less forty-five days of operating expenses PUI'SUMt to generally accepted accounting principles which shall be an average by dividing the current year's annual budget by the number of days in such year and multiplying that number by forty-five.

Although NYRA is projecting a net profit of $2.5 million for 2009, it will not have to pay a franchise fee payment in April 2010 because the relevant cash on-hand will constitute less than the forty-five days' operating 'expenses for 2010 that are referenced in the NY RPWBL


NYRA Summary P&L
(in thousand s)
Sudget Forecast Actual
2009 2008 2007
Gross Revet\ue
On-track $ 71,124 $ 72,153 $ 74,304
Internet 3,092 3,019 1,84(}
PM Breakage 1,435 1,435 1,350
Uncashed tickets 1,050 1,550 1,295
On track revenue 12,918 13,632 13,523
New York OTB 85,436 88,730 92,746
tn-stete 3,330 3,604 3,585
Commingled Out of Slate 79,966 75,929 67,560
Non-commingled 1,668 1,623 1,423
Olher revenue 24,795 24,600 • 23,055
Total Gross Revenue 285,315 286,276 280,691
Statutory Peyments
Stakes & Purses
Oncashed llckets 1,550 1,550 1,295.
Breeding Fund 2,836 2,963 3,015
NYS R&W Board 2,026 2,116 2,147
NYRA Rewards rebate 1,875 1,339 1,111
Tolal Statutory Payments 129,073 130,318 130,351)
Not Revenue 156,242 155,959 150,341
Operating Expenses:
Racing 11,011 10,074 10,311
Facilities 50,066 50,705 49,649
SGcurity 11,824 11,500 11,232
Customer service 11,084 11,549 10,942
Adverllslng & Prornotlon 9,368 9,379 10,588
Administration 50,64B 9.Q&UL_._ 57,037
Total Operating fOxpenses 144,002 144,147 149,159
o po rating I ncorne 12,239 11,812 1581
Non-Operatmp Expenses:
Pension 4,500 4,500 . 5,358
Post Retiree Benefits 954 900 881
Depreciation 3,000 5,193 1,074
Real Estate lax 11,435 17,072
lnlerest 24 1,906 4475
Total Non.Operatfng Expenses 6,478 24,936 34,859
Total Expensos 152,480 169,083 184,619
Net Income before Tax 3,761 (13,124) (34,276)
Federal Tax 1,279
Nl)t Profit s 2,482 s (13,124} $ (34,278)

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