NYRA: First, Let's Kill the Lawyers

Lots of coverage already on the NYRA cover-up: here, here, here and here, for starters. Here's what we know:


  • The New York statute permitting an extra 1% takeout (to 26%) on certain exotic wagers "sunsetted" on September 15, 2010. At that point, the takeout was supposed to drop back to 25% -- still way too high.
  • NYRA CEO Charlie Hayward was alerted to the upcoming change by an internal email from NYRA's vice-president for simulcasting before the deadline. Charlie apparently referred the matter to NYRA's $400,000-plus-per-year general counsel Pat Kehoe.
  • In September, 2011, a year after the deadline, Steve Crist of the Daily Racing Form passed a message on the Hayward from a DRF reader asking, hey, what about that takeout change? Hayward said he'd take care of it and asked Crist not to go public with the matter.
  • In December, 2011, the takeout problem finally became public and NYRA said "oops" and took steps to refund the $8 million-plus in overcharges, along with temporarily reducing the exotic takeout to 24%
  • Yesterday, the state's inspector-general connects the dots, charges NYRA with a cover-up, and NYRA chairman Steve Duncker, a proud graduate of the Goldman Sachs School of Business Ethics, promptly jettisons Hayward and Kehoe.
Much of the commentary so far has focused on the relative culpability of Hayward and Crist. Charlie's a very decent guy who's sincerely tried to improve NYRA, but he's repeatedly shown himself to have a tin ear when it comes to anticipating the reaction of state officials, the press and the public. Cases in point:  his initial refusal to disclose NYRA's budget and executive salaries to state auditors and the recent bizarre decision to charge low-volume NYRA Rewards phone bet customers $1 a call.

Apparently, his defense will be that he thought the takeout reduction was optional; at least that's what Crist suggests in the latter's not-quite mea culpa on the DRF website. I'm inclined to believe that; Charlie may be a bit arrogant -- that goes with the territory at NYRA -- and he may be a bit oblivious to the likely response to his actions, but I have no reason to believe he's a liar.

But if it's true that Hayward had an incorrect interpretation of the takeout law, then there's only one person to blame: NYRA's overpaid general counsel Pat Kehoe. CEO's of billion-dollar corporations aren't supposed to keep up with all the laws that affect them; that's why corporations have in-house legal staffs and compliance officers. Although the evidence hasn't surfaced yet, the only logical scenario is that Kehoe dropped the ball when Hayward first forwarded the email from NYRA's simulcast vp, and then dropped it again after Hayward's email exchange with Crist.

Under New York's Rules of Professional Conduct for lawyers, an attorney owes his or her client the duty of competent representation. General counsel Kehoe's client is NYRA. By any standards, missing a legal deadline and then mis-reading the relevant statute is something less than competent representation.

So, I guess it's inevitable that Charlie Hayward will be thrown under the bus by those he made look good. But if he's going down, he shouldn't go alone. Pat Kehoe and anyone else in the NYRA counsel's office who gave bad advice should be right there in the next cell.  

Comments

Post a Comment

Popular posts from this blog

The Economics of Owning a Race Horse in New York

I've been wanting for some time to write about the economics of racing from the owners' and trainers' point of view. And the quarterly ritual of preparing financial statements for my Castle Village Farm partnerships has finally provided both the motivation and the data to get started. So, this post will look at racing from an owner's point of view. I'll follow up later with a look at the economics of being a trainer. In both cases, I'll be focusing on the New York racing scene, that is, as an owner or a trainer stabled at Aqueduct or Belmont, and making an annual pilgrimage to Saratoga. New York has the best purses around -- they'll average over $700,000 a day at the upcoming Saratoga meet -- but it also has very high expenses. So, even with the kind of horses that most of us are satisfied to have -- solid, hard-working thoroughbreds -- not a stakes horse, but not a $4,000 Finger Lakes claimer either -- it's not easy to come out ahead -- even when you...
Read more

NEWSPAPER RESTRUCTURING IS PAINFUL, BUT NECESSARY

Financial pages are full of developments and changes at newspaper companies and these are being commented upon anxiously by those in the industry. Unpleasant conditions certainly abound, but these development are not indications that the industry is dead or dying in the near future. What they signal is that things which worked in the past are not working now, that newspaper companies are badly in need of restructuring, refocusing, and renewal, and that the boards of the companies and the company managers are taking badly needed action. The techniques for restructuring are no mystery. First, you need some cash. This can be obtained by attracting new capital through investment or loans. New York Times Co. did this recently by borrowings $250 million from Carlos Slim. Other firms are looking for friendly investors with liquidity. Another way of raising cash is by turning assets into cash. A classic move made by many types of firms is the sell their building and lease back any space that i...
Read more

Is the future of digital journalism an outside job?

Making small digital news providers sustainable has become the holy grail of journalists and the search continues for workable business models and revenue streams. Advertising may produce some revenue, but it will never generate sufficient resources to support digital journalism because so little advertising money is available for sites with small audiences. About three-quarters of all online advertising goes to the top 10 sites and Google, Facebook, Microsoft, and Yahoo account for about 60 percent of all online revenue. This leaves very little advertising expenditures to be contested among all other players--of which news providers are only a small fraction. At the same time, the prices paid for online advertising are falling because there are so many sites offering advertising, the advertising inventory is nearly infinite, and audiences continue fragmenting. This means the majority of funding for start-up digital journalism must come from elsewhere and online news sites—especially s...
Read more