Sunday, 22 August 2010

NYRA Gets It Right

Spent the morning at the annual Jockey Club Round Table on Matters Pertaining to Racing, the annual get-together of the rich and famous organized by Dinny Phipps and Co. at the famed Gideon Putnam Hotel in Saratoga. Was definitely underdressed for the occasion -- Steve Crist and I seemed to be the only males not wearing ties -- but nonetheless picked up all sorts of interesting info, which will be grist for a series of upcoming blog posts.

But first, congratulations to New York Racing Association chairman Steve Duncker, who managed to include three really good points in his brief presentation.

First, Duncker ended his Power Point slide show with a sincere, and very prominent, "Thank You" to the owners and trainers who, by sending their best horses to race in New York, help maintain the state's position as the country's pre-eminent racing venue. (As an example, 36% of all the Grade 1 stakes races in the US are run at NYRA tracks.) Even for those who ofrten disagree with NYRA management, it's nice to be appreciated.

More substantively, Duncker pointed out that our product -- betting on horse racing, is grossly overpriced, and has been getting more expensive. From a blended takout rate of 15% a few decades ago, NYRA's takeout is now at a level of 19.8%. That's undoubtedly one of the factors causing the rankings of NYRA tracks by HANA, the Horseplayers' Association of North America, to be well below what would be suggested by the quality of New York racing. In those ratings, Saratoga ranks 16th of 69 rated tracks (Keeneland is rated No. 1), and Aqueduct and Belmont languish at 26th and 27th, respectively.

In contrast to the nearly 20% that NYRA charges the bettor, Duncker pointed out that the price of other forms of gambling is much cheaper. The "takeout" on craps averages 2%, on blackjack 3%, on slot machines, 6%, and on casino poker tournaments, 8%. No surprise that we're losing the business of the numerate younger generation.

Duncker acknowledged the problems with reducing takeout -- how to accommodate rebates for the "whales" who provide a large share of total handle, how to fairly split the pie among purses, track operators and off-track bet takers, etc. But even raising the issue in public represents a huge step forward, especiallly at the same time that California seems to be moving in the wrong direction with a major takeout increase.

Duncker's other really smart point was to analyze race track results by how much in handle is generated by each dollar of purse money. It's a great metric, one that I've used myself in looking at how the Saratoga and Monmouth meets compare, and one that would certainly be expected of a former Goldman Sachs partner, as Duncker is, but it's the first time I've heard this sort of rigorous quantitative analysis from a racetrack official. Just compare this approach to the blatherings of, say, Frank Stronach.

NYRA, unsurprisingly, is way ahead of the rest of US race tracks on this measure. Each dollar of purses at NYRA tracks, according to Duncker, generates $22 in total handle. That's twice as much or more than at any other track, and, with slot machine revenue finally in the foreseeable future in New York, augurs well for the continued viability of racing in New York. (According to data presented by Duncker at the Round Table, a "conservative" estimate of slots revenue from the Aqueduct racino would add $13,000 to the average overnight purse in New York. Who knows, it might even be possible to think about breaking even with a good horse.)

I'm sure there will be lots to disagree about in the future, but for now, Steve Duncker and NYRA seem to have gotten a few things right.

Saturday, 21 August 2010

Bankrupt Newspapers Leave Employee Unions and Government Corporation Holding the Pension Bills

It has not been a good month for newspaper unions at bankrupt newspaper companies or the government corporation that insures pension funds. As part of their reorganizations, a number of bankrupt newspaper firms are not paying money owed union pensions or are quietly letting the guaranty pick up the tab for retiree costs.

  • Unions of Philadelphia Newspapers LLC (The Inquirer and The Philadelphia Daily News) were forced to accept 12 cents on the dollar for the $12 million the bankrupt company owned to employee pension plans as part the reorganization plan.
  • The Chicago Sun-Times off-loaded $49.1 million of its underfunded pension obligations for 2300 retirees and employees to the Pension Benefit Guaranty Corp. The paper and it suburban subsidiaries were purchased out of bankruptcy without the new owners assuming the pension obligations.
  • The Dayton News Journal dumped $15.4 million in underfunded pensions payments on the Pension Benefit Guaranty Corp. , which will ensure 1,100 current and former employees receive benefits owed to them. The newspaper and its assets were purchased out of bankruptcy by Halifax Media, but it did not take on the pension liability.

The Pension Benefit Guaranty Corp. is a federal corporation designed to protect pensions when company-run pension funds collapse or cannot pay agree benefits.

These types of problems occur when money due for benefits is not paid into pension funds or money is removed from company-run funds by the company. When this occurs companies use the money for other purposes: increasing liquidity, paying bills, giving executive bonuses, etc. However, this creates problems if the company ceases operating or if liabilities of underfunded pension obligations weigh too heavily on the balance sheet.

Existing laws allows employers to take money from company-run funds if they are overfunded, but do not require them to immediately fully fund them when they are underfunded. Overfunding and underfunding, however, are normal conditions caused by fluctuations in stock and bond markets in which pension funds are invested. Because overfunding and underfunding tend to even out over time, companies using the funds like a bank can create problems. Even when pension funds are not run by companies, delays in paying obligations create problems if the company closes or goes into receivership.

Newspapers across the U.S. have carried large stories about pension payment problems at other bankrupt companies, but coverage of the problems at their newspaper colleagues have drawn scant attention.