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State of New York

Franchise Oversight BoardState Capitol

Room 113Albany, NY 12224

April 29, 2012

C. Steven DunckerChairman

New York Racing AssociationPO Box 90Jamaica, 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, andrequiring immediate corrective action.

As I wrote at the time NYRA itself was improperly benefited by more than $1million. Whether or not this overcharge was due to malfeasance or inadvertence, swiftaction must be taken to repair the damage caused by NYRA.

In the letter, I wrote that an outside investigation overseen by the Racing andWagering Board (RWB) must be commenced to determine responsibility for theovercharge 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 executivesknowingly overcharged bettors for fifteen months but failed to correct the takeout out ofconcern for financial and political consequences to NYRA.

The report shows that after the takeout error was brought to light, NYRAexecutives made inaccurate claims to the Franchise Oversight Board, to the RWB, andto the public, regarding their knowledge of and actions pertaining to the takeout error.

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During the subsequent RWB inquiry, NYRA has refused to turn over thousandsof 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 Lawwithout notifying any parties including the Board, the FOB, its tote company or itsauditors.

NYRA has yet to submit several thousand documents that NYRA had indicatedare responsive to the Boards request.

[S]everal NYRA personnel, including CEO Charles Hayward, were notifiedand/or aware that the exotic takeout rate had expired. Mr. Hayward stated in an emailprior to the rate expiration that Since we are showing substantial losses in 2010 and2011....we decided to wait. Mr. Hayward took action to keep from the public anyknowledge of the takeout error, asking a reporter to keep confidential NYRAs failure tocorrect the takeout rate.

As part of its 2010 financial statement audit, NYRA provided the incorrect exotictakeout rate to its independent auditor.

NYRAs official explanation of this matter was that it was an inadvertent errorand a mistake. However, Board staffs review of NYRA records indicates that severalindividuals were well aware that the Chapter 115 takeout rates had expired.

The report raises serious questions about the actions of senior management ofNYRA. This is not an isolated instance. Previously, I raised concerns aboutmanagements failure to reveal the salaries of top officials. Last month, I requested anindependent inquiry into equine deaths at NYRA facilities. While NYRA is a privateentity and not subject to direct control by the State, the franchise agreement thatpermits NYRA to operate racing in New York does require NYRAs obligation to adhereto 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 franchiseagreement with NYRA.

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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 possibilityof violations of State law, and calls into question whether the character and generalfitness of NYRA executives meets the standard necessary to be licensed in the racingindustry in New York. I am simultaneously requesting RWB to review the conduct of theexecutives cited in the report in regards to licensing standards, and requesting the NewYork State Inspector General to conduct a review to determine if civil or criminal laws

have been violated.

Sincerely,

Robert L. MegnaChair

cc: John D. SabiniCatherine Leahy Scott

Gordon Medenica

John Crotty

Richard Aurelio

Steven Newman