State of New York Franchise Oversight Board State Capitol Room 113 Albany, NY 12224

April 29, 2012

C. Steven Duncker Chairman New York Racing Association PO Box 90 Jamaica, NY 11417 Dear Mr. Duncker: On December 21, 2011, I wrote to the New York Racing Association (NYRA) detailing NYRA managements error in calculating takeout rates that cost bettors over $8 million in overcharges, expressing my concern about mismanagement at NYRA, and requiring immediate corrective action. As I wrote at the time NYRA itself was improperly benefited by more than $1 million. Whether or not this overcharge was due to malfeasance or inadvertence, swift action must be taken to repair the damage caused by NYRA. In the letter, I wrote that an outside investigation overseen by the Racing and Wagering Board (RWB) must be commenced to determine responsibility for the overcharge and I directed that NYRA comply with the RWB investigation. Attached is RWBs interim report. The report is deeply troubling. Although NYRA management maintained that the takeout error was an unintentional oversight, the report contains evidence that senior NYRA executives knowingly overcharged bettors for fifteen months but failed to correct the takeout out of concern for financial and political consequences to NYRA. The report shows that after the takeout error was brought to light, NYRA executives made inaccurate claims to the Franchise Oversight Board, to the RWB, and to the public, regarding their knowledge of and actions pertaining to the takeout error.

During the subsequent RWB inquiry, NYRA has refused to turn over thousands of documents requested by RWB that could shed further light on NYRA actions. Specifically, the report contains these findings: The documentation received from NYRA indicates a knowledge of the violation, failure to report that information in a timely fashion and take corrective action. While it is clear that NYRA knew they were collecting an inappropriate rate. they decided to continue to collect the excess takeout in violation of the Racing Law without notifying any parties including the Board, the FOB, its tote company or its auditors. NYRA has yet to submit several thousand documents that NYRA had indicated are responsive to the Boards request. [S]everal NYRA personnel, including CEO Charles Hayward, were notified and/or aware that the exotic takeout rate had expired. Mr. Hayward stated in an email prior to the rate expiration that Since we are showing substantial losses in 2010 and 2011....we decided to wait. Mr. Hayward took action to keep from the public any knowledge of the takeout error, asking a reporter to keep confidential NYRAs failure to correct the takeout rate. As part of its 2010 financial statement audit, NYRA provided the incorrect exotic takeout rate to its independent auditor. NYRAs official explanation of this matter was that it was an inadvertent error and a mistake. However, Board staffs review of NYRA records indicates that several individuals were well aware that the Chapter 115 takeout rates had expired. The report raises serious questions about the actions of senior management of NYRA. This is not an isolated instance. Previously, I raised concerns about managements failure to reveal the salaries of top officials. Last month, I requested an independent inquiry into equine deaths at NYRA facilities. While NYRA is a private entity and not subject to direct control by the State, the franchise agreement that permits NYRA to operate racing in New York does require NYRAs obligation to adhere to the laws and rules governing racing in New York State. A failure to meet this most fundamental obligation puts into doubt the continued efficacy of the States franchise agreement with NYRA.

I am requesting the NYRA Board to review the attached report and report back to me by May 4th on the Boards response and action. The report presents the possibility of violations of State law, and calls into question whether the character and general fitness of NYRA executives meets the standard necessary to be licensed in the racing industry in New York. I am simultaneously requesting RWB to review the conduct of the executives cited in the report in regards to licensing standards, and requesting the New York State Inspector General to conduct a review to determine if civil or criminal laws have been violated.

Sincerely,

Robert L. Megna Chair

cc:

John D. Sabini Catherine Leahy Scott Gordon Medenica John Crotty Richard Aurelio Steven Newman