THE NEW YORK RACING ASSOCIATION, INC. (A Component Unit of the State of New York) Quarterly Financial Statements. June 30, 2016

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1 Quarterly Financial Statements June 30, 2016 (With Independent Auditors Report Thereon)

2 Table of Contents Page(s) Independent Auditors Report Condensed Basic Financial Statements: Condensed Statements of Net Position 17 Condensed Statements of Revenues, Expenses and Changes in Net Position 18 Condensed Statements of Cash Flows 19 Notes to Condensed Basic Financial Statements 20 24

3 KPMG LLP Suite Walt Whitman Road Melville, NY Independent Auditors Report Board of Directors The New York Racing Association, Inc.: Report on the Financial Statements We have reviewed the accompanying condensed statement of net position of The New York Racing Association, Inc. (NYRA), a component unit of the State of New York, as of June 30, 2016, the related condensed statements of revenues, expenses, and changes in net position for the three and six-month periods ended June 30, 2016 and 2015, and the related condensed statements of cash flows for the six-month periods ended June 30, 2016 and Management s Responsibility NYRA s management is responsible for the preparation and fair presentation of the condensed interim financial information in accordance with U.S. generally accepted accounting principles; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with U.S. generally accepted accounting principles. Auditors Responsibility Our responsibility is to conduct our review in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information. Accordingly, we do not express such an opinion. Basis for Modification Based on information furnished to us by management and as more fully described in note 2 to the interim financial information, we believe that NYRA has not reported pension benefits provided through its defined benefit pension plans in accordance with U.S. generally accepted accounting principles. Conclusion Based on our review, with the exception of the matter described in the preceding paragraph, we are not aware of any material modifications that should be made to the accompanying condensed interim financial information for it to be in accordance with U.S. generally accepted accounting principles. Report on Condensed Statement of Net Position as of December 31, 2015 We have previously audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the statement of net position as of December 31, KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 2015, and the related statements of revenues, expenses and changes in net position, and cash flows for the year then ended (not presented herein); and we expressed an unmodified audit opinion on those audited basic financial statements in our report dated March 31, In our opinion, the accompanying condensed statement of net position of NYRA as of December 31, 2015, is consistent, in all material respects, with the audited basic financial statements from which it was derived. Melville, New York January 6,

5 The following (MD&A) of The New York Racing Association, Inc. (NYRA) provides an overview of NYRA s financial position and activities for the quarter ended June 30, Following this MD&A are the condensed basic financial statements of NYRA. The condensed basic financial statements are designed to provide readers with a broad overview of NYRA s finances in a manner similar to a private-sector business in that the economic resources measurement focus and accrual basis of accounting are applied. The condensed statements of net position present information on all of NYRA s assets and liabilities and deferred inflows and deferred outflows of resources, with the residual balance among the elements being reported as net position. The condensed statements of revenues, expenses and changes in net position present information showing how NYRA s net position changed during the fiscal year. The condensed basic financial statements also include notes that explain some of the information in the condensed financial statements and provide more detailed data. Financial Highlights June 30, December 31, Dollar Percentage Summary of net position change change (Dollars in thousands) Current assets $ 120,300 96,814 23, % Capital assets, net 114, ,407 14, Other noncurrent assets 11,199 11,801 (602) (5) Deferred outflows of resources 8,175 8,175 Total assets and deferred outflows of resources $ 254, ,197 37, % Current liabilities $ 95,792 70,495 25, % Accrued pension liabilities 11,913 11, Accrued post-employment benefit obligations 33,906 33, Other noncurrent liabilities 3,420 3,750 (330) (9) Deferred inflows of resources 11,869 11,869 Total liabilities and deferred inflows of resources $ 156, ,755 26, % Net position: Net investment in capital assets $ 111,354 96,561 14, % Restricted 16,592 18,458 (1,866) (10) Unrestricted (30,301) (28,577) (1,724) 6 Total net position $ 97,645 86,442 11, % In the six months ended June 30, 2016, total assets and deferred outflows of resources increased $37.3 million due to a $23.5 million increase in current assets and a $14.5 million increase in net capital assets, partially offset by a $0.6 million decrease in other noncurrent assets. The $23.5 million increase in current assets is directly impacted by seasonality of the business. Within the $23.5 million increase in current assets, cash increased $13.6 million 3 (Continued)

6 due to advanced ticket sales and a build up of purse cushion to be paid out during the upcoming Saratoga meet, net accounts receivable increased $7.7 million due to an increase in handle related to Belmont Stakes Day in the second quarter compared to the Aqueduct winter meet in December 2015, and prepaid and other current assets increased $2.0 million due to prepaid expenses relating to the upcoming Saratoga meet. Capital assets increased $14.5 million predominantly due to barn and dormitory improvements at Belmont. Total liabilities and deferred inflows of resources increased $26.1 million primarily due to a $25.3 million increase in current liabilities driven by an $11.9 million increase in accrued stakes and purses, a $6.2 million increase in accounts payable and other accrued expenses and a $6.8 million increase in unearned revenue. The $11.9 million increase in accrued stakes and purses is due to an increase in the purse cushion. Stakes and purses are accrued based on statutorily required percentages of revenue and paid out to the winning owners of races run at the racetracks. Historically, purses that are earned in the first half of the year are paid out after Belmont Stakes Day and the Saratoga meet. Accounts payable and accrued expenses increased due to timing of payables related to Belmont Stakes Day. Unearned income increased due to an increase in deferred ticket sales and sponsorship revenue associated with the upcoming Saratoga summer and Belmont fall meets. Net position, the difference between total assets combined with deferred outflows of resources and total liabilities combined with deferred inflows of resources, increased by $11.2 million from $86.4 million to $97.6 million. Net assets invested in capital assets increased 15% to $111.4 million. Restricted net assets (unexpended funds received for particular specified purposes) decreased to $16.6 million. Unrestricted net position (which can be used to finance operations without constraints established by debt covenants, enabling legislation, or other legal requirements) decreased $1.7 million or 6%. 4 (Continued)

7 Three Months Ended June 30, 2016, Compared to Three Months Ended June 30, 2015 Three months ended June 30 Change Percentage Summary of changes in net position change (Dollars in thousands) Operating revenues: Pari-mutuel and simulcasting revenue $ 64,914 65,178 (264) % State of New York off-track betting 5,119 6,486 (1,367) (21) Other revenues 10,984 11,397 (413) (4) Total operating revenues 81,017 83,061 (2,044) (2) Operating expenses: Employee compensation and benefits 22,181 22,588 (407) (2) Stakes and purses 29,005 29,896 (891) (3) VLT purse expense 16,079 15, Statutory and contractual commissions 8,543 8, Professional fees Facility operating expenses 15,991 16,753 (762) (5) Pension expense ,594 Other Post-employment benefit expense 1,375 1,538 (163) (11) Depreciation 2,293 1, Total operating expenses 96,929 96,950 (21) Operating (loss) (15,912) (13,889) (2,023) (15) Nonoperating items: VLT operating and purse support revenues 22,918 21,893 1,025 5 Interest (4) 4 (100) Income taxes (5,665) (5,777) 112 (2) Net nonoperating revenue 17,253 16,112 1,141 7 Income before capital contributions 1,341 2,223 (882) (40) Capital contributions 8,794 8, Change in net position 10,135 10,623 (488) (5) Total net position, beginning of quarter 87,510 56,952 30, Total net position, end of quarter $ 97,645 67,575 30, % Operating revenues decreased $2.0 million or 2% from $83.1 million to $81.0 million. The decrease in operating revenue is driven by four fewer race days and the absence of a Triple Crown potential in the second quarter of 5 (Continued)

8 2016. Operating revenue from State of New York off-track betting decreased $1.4 million affected by fewer race days and a $0.9 million bad debt reserve for Nassau OTB. Operating expenses remained flat at $97.0 million, primarily due to an $891 thousand decrease in stakes and purses which is a function of revenue earned, a $762 thousand decrease in facility operating expenses driven by more favorable weather conditions in the current year and reduced requirements for a non Triple-Crown potential Belmont Stakes Day, offset by an increase in marketing and advertising expense due to advertising for Belmont Stakes Day and rebranding of NYRA s online wagering platform, NYRA BETS. VLT purse expense increased $719 thousand due to higher revenue earned at Resorts World Casino, and pension expense increased $526 thousand due to a change in the discount rate as a result of changes in underlying capital market assumptions for Net nonoperating revenue increased $1.1 million due to a $1.0 million increase in VLT operating and purse support revenues. Resorts World Casino (RW) had an average win per machine (WPM) of $436 per day with the number of machines averaging 5,544 compared to WPM of $460 and an average number of machines of 5,011 for the same period last year. Under U.S. generally accepted accounting principles for governments prescribed by the Governmental Accounting Standards Board (GASB), VLT purse revenue is included in nonoperating revenue, while the associated VLT purse expense is included in operating expenses, representing $16.1 million of additional operating loss to NYRA due to these required classifications. In order to evaluate the performance of racing operations internally, we exclude net VLT revenue, net loss from our new ADW services venture (NYRA Bets), and nonoperating expenses (including taxes, depreciation, interest, pension and post-employment benefit expenses) to get to operating income from racing operations of $5.0 million and $5.1 million for the three months ended June 30, 2016 and 2015, respectively. We believe that the measure of income or loss from racing operations is a key performance measure of the results of operations which enables management and financial statement readers to evaluate and compare from period to period our operating performance specific to the racing segment in a meaningful and consistent manner. Capital contributions increased $394 thousand from $8.4 million to $8.8 million. Capital contributions are composed of the 4% VLT capital support payments received from RW that are restricted for use in maintaining and upgrading NYRA s racetracks. Those VLT capital contributions also increased due to an average of 533 more machines in service at RW. 6 (Continued)

9 Six Months Ended June 30, 2016, Compared to Six Months Ended June 30, 2015 Six months ended June 30 Change Percentage Summary of changes in net position change (Dollars in thousands) Operating revenues: Pari-mutuel and simulcasting revenue $ 103,199 99,163 4,036 4 % State of New York off-track betting 9,310 11,709 (2,399) (20) Other revenues 12,776 13,261 (485) (4) Total operating revenues 125, ,133 1,152 1 Operating expenses: Employee compensation and benefits 41,485 41, Stakes and purses 45,795 45, VLT purse expense 31,991 30,200 1,791 6 Statutory and contractual commissions 14,960 14, Professional fees 1,636 1, Facility operating expenses 26,569 27,724 (1,155) (4) Pension expense 1, ,115 1,664 Other Post-employment benefit expense 2,750 3,075 (325) (11) Depreciation 4,562 3,529 1, Total operating expenses 170, ,574 3,356 2 Operating (loss) (45,645) (43,441) (2,204) (5) Nonoperating items: VLT operating and purse support revenues 45,603 43,048 2,555 6 Interest (4) 4 (100) Income taxes (6,252) (5,678) (574) 10 Net nonoperating revenue 39,351 37,366 1,985 5 Income before capital contributions (6,294) (6,075) (219) 4 Capital contributions 17,497 16, Change in net position 11,203 10, Total net position, beginning of quarter 86,442 57,133 29, Total net position, end of quarter $ 97,645 67,575 30, % Operating revenues increased 1% from $124.1 million to $125.3 million. The increase in operating revenue is driven by one additional race day in 2016, favorable weather conditions compared to the prior year, and an increase 7 (Continued)

10 in handle. Operating revenue from State of New York off-track betting decreased $2.4 million due to a $2.0 million bad debt reserve for Nassau OTB. Operating expenses increased $3.4 million from $167.6 million to $170.9 million, primarily due to a $1.8 million increase in VLT purse expense due to higher revenue earned at Resorts World Casino, a $1.1 million increase in pension expense due to a change in the discount rate, a $1.0 million increase in depreciation expense and a $642 thousand increase in stakes and purses which is a function of revenue earned. These increases were partially offset by a $1.2 million decrease in facility operating expenses driven by lower repairs and maintenance, utilities, and operating supplies, offset by increased marketing and advertising due to additional advertising for Belmont Stakes Day and rebranding of NYRA s online wagering platform, NYRA BETS. Net nonoperating revenue increased $2.0 million primarily due to a $2.6 million increase in VLT operating and purse support revenues. RW had an average win per machine (WPM) of $437 per day with the number of machines averaging 5,496 compared to WPM of $456 and an average number of machines of 5,007 for the same period last year. Under U.S. generally accepted accounting principles for governments prescribed by the Governmental Accounting Standards Board (GASB), VLT purse revenue is included in nonoperating revenue, while the associated VLT purse expense is included in operating expenses, representing $32.0 million of additional operating loss to NYRA due to these required classifications. In order to evaluate the performance of racing operations internally, we exclude net VLT revenue, net loss from our new ADW series venture (NYRA Bets), and nonoperating expenses (including taxes, depreciation, interest, pension and post-employment benefit expenses) to get to operating loss from racing operations of $4.3 million and $6.1 million for the six months ended June 30, 2016 and 2015, respectively. We believe that the measure of income or loss from racing operations is a key performance measure of the results of operations which enables management and financial statement readers to evaluate and compare from period to period our operating performance specific to the racing segment in a meaningful and consistent manner. Our income tax expense increased $574 thousand due to higher taxable income. Capital contributions increased $980 thousand from $16.5 million to $17.5 million. Capital contributions are composed of the 4% VLT capital support payments received from RW that are restricted for use in maintaining and upgrading NYRA s racetracks. Those VLT capital contributions increased due to an average of 489 more machines in service at RW. 8 (Continued)

11 Capital Spending June (Dollars in thousands) Aqueduct: Barn area improvements $ Guest area improvements Other Total Aqueduct spending Belmont: Barn area improvements 6,222 6,326 Guest area improvements 1, Other 1,399 1,194 Total Belmont spending 8,676 8,490 Saratoga: Barn area improvements 2, Guest area improvements 1,994 1,325 Other 1, Surveys and master planning Total Saratoga spending 5,922 3,004 Information technology 1, NYRA TV Fleet and equipment Advanced Deposit Wagering Services Other Total $ 19,026 14,428 Capital spending highlights for the six months ended June 30, 2016 include: Barn area improvements: $8.8 million was spent on barn area improvements at all three racetracks. Spending was most significant at Belmont, where multiple barns are being expanded to create more stall space. Belmont spending also included stall flooring, construction of new dormitories and upgrades to existing barns and dormitories. Saratoga improvements included dormitory and pony barn renovations, replacement of stall flooring and landscape improvements. Guest area improvements: $3.4 million was spent on guest area improvements at all three racetracks. Saratoga spending included installation of a new clubhouse escalator, backyard video boards, benches and upgrades to the Carousel and restrooms. Belmont improvements included making the restrooms compliant with the Americans with Disabilities Act (ADA), backyard video boards, winterizing of rest rooms and 9 (Continued)

12 building security cameras. Aqueduct improvements included electrical work, carpeting, new televisions and installation of glass in the Horsemen s Lounge. Information technology: $1.5 million was spent on information technology including a network switch upgrade, server upgrades at all three tracks, Wi-Fi for guest use, computers and printers. NYRA TV: $0.9 million was spent on television production equipment including work on the TV production trailer, equipment to convert signals to high definition and digital, air conditioning units, production monitors and wireless camera angle integration. Fleet and equipment: $0.7 million was spent on fleet and equipment, including a human ambulance, tractors and other equipment to support facility and track maintenance. Advanced Deposit Wagering Serices: $0.4 million was spent on ADW system upgrades. Other capital spending: Other significant spending at Belmont included new chairs for the boxes, outside building security cameras, infield signage, a sprinkler system, North Shore Terrace roofing, paddock pavers and standpipe replacement. Saratoga spending included irrigation of the Mellon and Inner Turf courses and master planning to comply with the State Environmental Quality Review Act (SEQR). 10 (Continued)

13 Handle Analysis Handle refers to amounts wagered at the track, on computers, by phone, by internet, and at simulcast centers. NYRA retains an average of 10.8% of handle as pari-mutuel commission reflected in operating revenues. The following table analyzes fluctuations in handle underlying operating revenue: Three-Months Handle Analysis Percentage Percentage Percentage Q share Q share 2016 vs (Unaudited, dollars in thousands) Aqueduct winter meet: Race days (10.5)% Live $ 14,825 11% $ 16,300 12% (9.0) Export 98, , Import 25, , Total handle $ 138, % $ 133, % 3.7% Belmont spring meet: Race days (4.5)% Live $ 64,638 12% $ 68,507 12% (5.6) Export 427, , (1.2) Import 60, , Total handle $ 552, % $ 557, % (0.9)% Total Race days (6.3)% Live $ 79,463 12% $ 84,807 12% (6.3) Export 526, , Import 85, , Total handle $ 691, % $ 691, % % Live handle Wagering on live NYRA races that originates from a NYRA facility (Aqueduct, Belmont, Saratoga, or NYRA Rewards). Export handle Wagering on live NYRA races that originates off-track. Export refers to the exporting of the NYRA race signal to outside entities. Examples of export locations include, but are not limited to, New York OTB s as well as race tracks and national Advanced Deposit Wagering sites (ADW s). Also included in Export handle is noncommingled international handle. Noncommingled handle refers to international handle that does not enter the NYRA pools and is not captured by NYRA s totalisator but is instead reported by the various international jurisdictions. Import handle Wagering on races run by entities other than NYRA. Import refers to the importing of race signals from around the world. Examples of import locations are Gulfstream, Santa Anita, Churchill Downs, Finger Lakes, and Dubai. 11 (Continued)

14 Aqueduct Winter Meet (April 1 st through April 24 th ) Handle results for the second quarter portion of the Aqueduct Winter Meet were impacted by two fewer race days and higher export handle compared to the same period last year. NYRA generated $138.5 million in total handle compared to $133.6 million last year, a $4.9 million or 3.7% increase. There were a total of 155 races compared to 171 races during the same period last year, a 9.4% decrease. Belmont Spring/Summer (April 29 th through June 30 th ) Handle results for the first portion of the 2016 Belmont Spring/Summer Meet through June 30, 2016 were impacted by Belmont Stakes Day and two fewer race days compared to the same period last year. Instead of opening on a Wednesday, the meet returned to the traditional opening day on the last Friday in April, resulting in two fewer race days compared to the same period last year. Belmont Stakes Day handle was the highest for a non-triple Crown, totaling $102.0 million compared to the previous record of $99.9 million achieved in NYRA generated $552.6 million in total handle compared to $557.5 million in 2015, a $4.9 million or 0.9% decrease. There were a total of 399 races compared to 412 races in the prior year, a 3.2% decrease. Six-Months Handle Analysis ended Percentage ended Percentage Percentage June 30, 2016 share June 30, 2015 share 2016 vs (Unaudited, dollars in thousands) Aqueduct winter meet: Race days % Live $ 51,647 10% $ 47,965 11% 7.7 Export 364, , Import 102, , Total handle $ 518, % $ 456, % 13.7% Belmont spring meet: Race days (4.5)% Live $ 64,638 12% $ 68,507 12% (5.6) Export 427, , (1.2) Import 60, , $ 552, % $ 557, % (0.9)% Total Race days % Live $ 116,285 11% $ 116,472 11% (0.2) Export 792, , Import 162, , $ 1,071, % $ 1,013, % 5.7% 12 (Continued)

15 Aqueduct Winter/Spring Meet (January 1 st through April 24 th ) Handle results for the 2016 Aqueduct Winter/Spring Meet were impacted by favorable weather conditions that reduced the amount of race day cancellations seen during the same period last year. For the 2016 Aqueduct Meet the racing strategy was adjusted by moving to a four day race week for January through March. This strategy led to consistency in the race program and reduced the amount of days susceptible to cancellation, and as a result there were three more race days during this period compared to last year. In addition to the favorable weather conditions, NYRA saw an increase in export wagers. NYRA generated $518.5 million in total handle compared to $456.2 million last year, a $62.3 million or 13.7% increase. There were a total of 571 races compared to 532 races during the same period last year, a 7.3% increase. Belmont Spring/Summer (April 29 th, through June 30 th ) Handle results for the first portion of the 2016 Belmont Spring/Summer Meet through June 30, 2016 were impacted by Belmont Stakes Day and two fewer race days compared to the same period last year. Instead of opening on a Wednesday, the meet returned to the traditional opening day on the last Friday in April, resulting in two fewer race days compared to the same period last year. Belmont Stakes Day handle was the highest for a non-triple Crown, totaling $102.0 million compared to the previous record of $99.9 million achieved in NYRA generated $552.6 million in total handle compared to $557.5 million in 2015, a $4.9 million or 0.9% decrease. There were a total of 399 races compared to 412 races in the prior year, a 3.2% decrease. Statistical Handle Highlights Three months ended June 30 Change Dollar Percentage (Unaudited, dollars in thousands) On-track handle components: ADW (phone, internet and on-track) $ 79,336 73,084 6, % Aqueduct 45,916 45, Belmont 39,828 47,042 (7,214) (15.3) Total NYRA on-track handle 165, ,787 (707) (0.4) Off-track handle (export): NYOTB downstate 27,785 31,734 (3,949) (12.4) NYOTB upstate 16,855 17,473 (618) (3.5) NY inter-track wagering 11,451 12,449 (998) (8.0) Out-of-state 460, ,926 7, International separate pool 9,681 10,749 (1,068) (9.9) Total off-track (export) handle 526, , Total handle $ 691, , % 13 (Continued)

16 For the three months ended June 30, 2016, NYRA generated $691.1 million in total handle, flat compared to the same period last year, with a $0.7 million increase in export handle offset by a $0.7 million decrease in on-track handle. On-track handle of $165 million decreased $0.7 million or 0.4% compared to the prior year, driven primarily by four fewer race days. In addition, on-track handle was impacted by Belmont Stakes Day, which saw the first Triple Crown winner in 37 years in the prior year. Total handle for the day in 2016 was $102.0 million, the highest handle for a non-triple Crown compared to the previous record of $99.9 million achieved in Belmont Stakes Day handle was $36.4 million lower than last year, which realized the second highest Belmont Stakes Day handle in history. If we exclude Belmont Stakes Day, second quarter handle was up $36.4 million or 6.6% compared to last year, despite four fewer race days. On-Track, the platform with the strongest handle performance was the internet as increased internet and mobile specific promotions continue to drive handle to this platform. On the export side, out-of state handle was impacted by high volume players in the second quarter and the growing ADW market. Total wagers from this sector totaled $460.3 million, an increase of $7.3 million compared to the prior year. Six months ended June 30 Change Dollar Percentage (Unaudited, dollars in thousands) On-track handle components: ADW (phone, internet and on-track) $ 139, ,205 13, % Aqueduct 91,826 91, Belmont 47,623 56,932 (9,309) (16.4) Total NYRA on-track handle 278, ,824 4, Off-track handle (export): NYOTB downstate 44,235 46,047 (1,812) (3.9) NYOTB upstate 25,933 25, NY inter-track wagering 17,748 17,814 (66) (0.4) Out-of-state 689, ,592 56, International separate pool 15,209 17,330 (2,121) (12.2) Total off-track (export) handle 792, ,858 53, Total handle $ 1,071,139 1,013,682 57, % For the six months ended June 30, 2016, NYRA generated $1,071.1 million in total handle, an increase of $57.5 million or 5.7% compared to the same period last year. On-track handle of $278.9 million increased $4.1 million or 1.5% compared to the prior year ADW handle increased $13.3 million, driven by one more race day and an increase in internet and mobile specific promotions 14 (Continued)

17 which continue to drive handle to the ADW platform. Belmont on-track handle was $9.3 million lower due to Triple Crown potential on Belmont Stakes day in the prior year. Export handle of $792.2 million increased $53.4 million or 7.2%. Off-track wagering was heavily impacted by wagering from high volume players and the retail ADW marketplace, offset by a decline in the downstate OTB network. Industry Update NYRA management evaluates NYRA s position in the industry to ensure continued competitive positioning and high quality racing. The following table analyzes NYRA s position in relation to the industry. Three months ended Six months ended June 30, June 30, Percentage June 30, June 30, Percentage NYRA vs. Industry Comparison variance variance (Dollars in thousands) Industry as provided by Equibase: Wagering on U.S. races* $ 3,046,386,423 3,054,255,098 (0.3)% $ 5,544,682,403 5,478,300, % U.S. purses 292,941, ,724, ,293, ,356,496 (0.8) U.S. race days 1,326 1,368 (3.1) 2,173 2,283 (4.8) Handle yielded per purse dollar invested $ (0.7) $ NYRA: Wagering on NYRA races* $ 595,849, ,388,537 (0.6)% $ 893,297, ,999, % NYRA purses 42,109,960 42,687,845 (1.4) 62,371,780 59,814, NYRA. race days (6.3) Handle yielded per purse dollar invested $ $ NYRA as Percentage of Industry: Wagering on U.S. races* 19.6% 19.6% 16.1% 15.3% U.S. purses U.S. race days * Equibase provides wagering information on commingled handle only and does not include noncommingled international handle. For purposes of this schedule, wagering on NYRA races only includes commingled handle. Based on information provided by Equibase, for the three months ended June 30, 2016, wagering on U.S. races decreased 0.3% compared to a 0.6% decrease in wagering on NYRA races. NYRA contributed 4.4% of total industry race days, offered 14.4% of purses and generated 19.6% of thoroughbred handle across the United States. Every dollar invested in purses at NYRA yielded $14.15 in handle compared to $10.40 industry-wide. 15 (Continued)

18 For the six months ended June 30, 2016, wagering on U.S. races increased 1.2% compared to a 6.6% increase in wagering on NYRA races. NYRA contributed 4.8% of total industry race days, offered 12.7% of purses and generated 16.1% of thoroughbred handle across the United States. Every dollar invested in purses at NYRA yielded $14.32 in handle compared to $11.31 industry-wide. Factors Bearing on NYRA s Future The horse racing industry is impacted by a number of risk factors including, but not limited to, general economic conditions, legislative and regulatory oversight, gaming competition and consumer interest as follows: The horse racing industry is heavily regulated by various agencies and heavily influenced by various governmental entities. Changes in regulations and political influences could materially impact NYRA s business. The New York off-track betting corporations represent a risk to NYRA s financial condition, with the NYC OTB bankruptcy in 2010 and Suffolk OTB bankruptcy in Nassau OTB has fallen significantly behind in payments to NYRA since December of NYRA will continue to monitor the remaining OTBs operational viability. NYRA operates in a geographically concentrated region with many competitive gaming options, including state-sponsored lotteries, VLTs, other casinos in the state as well as in neighboring Connecticut, New Jersey, and Pennsylvania. Additionally, legalized internet-based interactive gaming and wagering is becoming increasingly competitive. NYRA has a significant dependence on unionized labor with approximately 51% of employees working under 24 collective bargaining agreements. Two of those 24 contracts was expired as of June 30, All of our racetracks compete for horses with other racetracks that run live race meets at the same time as ours. Our ability to compete for horses is substantially dependent on our ability to offer and fund competitive purses as well as other regulations imposed that make NY State different from other states. The ability to offer races with full field sizes may result in less wagering on our races. Our ability to offer full fields depends on our ability to attract a sufficient number of horse owners and trainers, the overall horse population available, and our ability to offer competitive purses. Inclement weather conditions may affect our ability to conduct live racing. The number of live racing days we are able to offer directly affects our results of operations. A significant decrease in the number of live racing days could have a material, adverse impact on our business. Inclement weather conditions could also force races to be taken from turf to dirt. Dirt races typically attract lower fields and betting pools, which negatively impacts our financial results. Other risks include maintaining attendance and wagering on live horse races at North American racetracks, competitive pressures from external ADW s, success of marketing/sponsorship initiatives, success of other strategic initiatives, and the effect of price increases. Contact information for financial related requests can be found at 16

19 Condensed Statements of Net Position (Dollars in thousands) June 30, December 31, Assets and Deferred Outflows of Resources Current assets: Cash and cash equivalents $ 33,743 20,226 Restricted cash: Horsemen s account and NYRA Rewards account 27,608 25,887 VLT capital expenditure fund 15,857 17,723 Other 7,943 7,717 Receivables, net of allowance for doubtful accounts of $10,789 in 2016 and $8,747 in ,718 16,986 Deferred tax asset, current 3,911 3,748 Prepaid and other current assets 6,520 4,527 Total current assets 120,300 96,814 Noncurrent assets: Capital assets, net 114, ,407 Deferred tax asset, non current 9,723 10,653 Other assets 1,476 1,148 Total noncurrent assets 126, ,208 Total assets 246, ,022 Deferred outflows related to changes in net pension liabilities 8,175 8,175 Total assets and deferred outflows of resources $ 254, ,197 Liabilities, Deferred Inflows of Resources and Net Position Current liabilities: Horsemen s liability $ 23,503 22,140 NYRA Rewards liability 4,105 3,747 Unearned income 8,630 1,867 Stakes and purses 19,154 7,278 Accounts payable and other accrued expenses 35,736 29,530 Accrued environmental liability 391 Outstanding pari-mutuel tickets 930 2,581 Other 3,734 2,961 Total current liabilities 95,792 70,495 Noncurrent liabilities: Accrued pension liabilities 11,913 11,510 Accrued post-employment benefit obligations 33,906 33,131 Other 3,420 3,750 Total noncurrent liabilities 49,239 48,391 Total liabilities 145, ,886 Deferred inflows related to changes in net pension liabilities 11,869 11,869 Total liabilities and deferred inflows of resources 156, ,755 Net position: Net investment in capital assets 111,354 96,561 Restricted for capital expenditures and other 16,592 18,458 Unrestricted (30,301) (28,577) Total net position 97,645 86,442 Total liabilities, deferred inflows of resources and net position $ 254, ,197 See accompanying notes to condensed basic financial statements. 17

20 Condensed Statements of Revenues, Expenses and Changes in Net Position (Dollars in thousands) Three months ended June 30, Six months ended June 30, Operating revenues: Gross pari-mutuel commission and breakage $ 31,862 31,967 54,288 53,404 State of New York off-track betting 5,119 6,486 9,310 11,709 On-track racing related revenues 4,868 5,279 5,342 5,738 Intrastate simulcasting 1,146 1,182 1,883 1,847 Interstate simulcasting 31,399 31,399 46,191 43,008 International simulcasting Other revenues 6,116 6,118 7,434 7,523 Total operating revenues 81,017 83, , ,133 Operating expenses: Employee compensation and benefits 22,181 22,588 41,485 41,430 Stakes and purses 29,005 29,896 45,795 45,153 VLT purse expense 16,079 15,360 31,991 30,200 Statutory and contractual commissions 8,543 8,308 14,960 14,864 Professional fees ,636 1,532 Facility operating expenses 15,991 16,753 26,569 27,724 Pension expense , Other post employment benefit expense 1,375 1,538 2,750 3,075 Depreciation 2,293 1,807 4,562 3,529 Total operating expenses 96,929 96, , ,574 Operating loss (15,912) (13,889) (45,645) (43,441) Nonoperating revenues (expenses): VLT operating support payments 6,595 6,300 13,123 12,388 VLT purse support payments 16,323 15,593 32,480 30,660 Interest (4) (4) Income taxes (5,665) (5,777) (6,252) (5,678) Net nonoperating revenues 17,253 16,112 39,351 37,366 Income (loss) before capital contributions 1,341 2,223 (6,294) (6,075) Capital contributions: VLT capital support payments 8,794 8,400 17,497 16,517 Total capital contributions 8,794 8,400 17,497 16,517 Change in net position 10,135 10,623 11,203 10,442 Total net position beginning of period 87,510 56,952 86,442 57,133 Total net position end of period $ 97,645 67,575 97,645 67,575 See accompanying notes to condensed basic financial statements. 18

21 Condensed Statements of Cash Flows (Dollars in thousands) Six months ended June 30, 2016 June 30, 2015 Cash flows from operating activities: Cash receipts from: Customers $ 121, ,211 Cash payments for: Statutory commissions and purses (47,073) (42,639) VLT purse funding (31,991) (30,200) Vendors (23,621) (27,056) Employees (44,864) (45,812) Taxes (3,449) (6,000) Net cash used in operating activities (29,198) (35,496) Cash flows from noncapital financing activities: Cash receipts from VLT operating support 13,165 12,440 Cash receipts from VLT purse support 32,584 30,788 Payments for interest (4) Net cash provided by noncapital financing activities 45,749 43,224 Cash flows from capital and related financing activities: Cash receipts from VLT capital support 17,554 16,586 Other 500 Purchase of capital assets (20,507) (13,541) Payments of capital lease obligations (335) Net cash (used-in) provided by capital and related financing activities (2,953) 3,210 Net increase in cash and cash equivalents 13,598 10,938 Cash and cash equivalents and restricted cash, beginning of the year 71,553 63,977 Cash and cash equivalents and restricted cash, end of the period $ 85,151 74,915 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (45,645) (43,441) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 4,562 3,529 (Income)/Loss from equity method investments, net of cash received (177) (42) Unearned revenue from concession agreement (330) (330) Taxes (3,449) (6,000) Changes in assets and liabilities: Receivables, net (7,935) (16,002) Prepaid and other assets (2,212) (2,805) Other assets Non Current (151) Horsemen s liability 1,363 4,278 NYRA Rewards liability Unearned income 6,763 6,030 Stakes and purses 11,876 12,228 Accounts payable and other accrued expenses 6,579 7,587 Accrued environmental liability (390) (35) Accrued pension costs and postretirement obligations including deferred in(out)flows 468 (791) Outstanding pari-mutuel tickets (1,651) (556) Other liabilities Net cash used in operating activities $ (29,198) (35,496) See accompanying notes to condensed basic financial statements. 19

22 Notes to Condensed Basic Financial Statements (1) Summary of Significant Accounting Policies (a) Basis of Presentation The New York Racing Association, Inc. (NYRA) is considered a governmental entity engaged only in business type activities. Accordingly, except as disclosed in note 2, the accompanying condensed basic financial statements of NYRA have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for governments. Such principles are prescribed by the Governmental Accounting Standards Board (GASB), which is the standard setting body for establishing governmental accounting and financial reporting principles in the United States of America. NYRA follows the economic resources measurement focus and the accrual basis of accounting for revenues and expenses whereby revenues are recognized when earned and expenses are recognized when obligations are incurred. Certain amounts in prior-period financial statements have been reclassified to conform to the current year s presentation. The financial information as of June 30, 2016 and for the three months and six months periods ended June 30, 2016 and 2015 is unaudited. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the statement of net position, the statements of revenues, expenses and changes in net position and the statements of cash flows for the periods presented have been made on a consistent basis. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed financial statements should be read in conjunction with NYRA s audited financial statements for the year ended December 31, NYRA s earnings are seasonal in nature. For instance, the majority of live racing occurs during the second and third quarters with the Belmont Stakes Day and Saratoga meet. Therefore, the results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, (b) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The most significant estimates relate to allowance for doubtful accounts, pensions and post-employment benefit liabilities, and judgments regarding the realizability of deferred tax assets. (2) New Ventures During May 2016, NYRA entered into a joint venture with GBE Technologies Limited (GBE) to develop and operate an Advanced Deposit Wagering (ADW) business called NYRA BETS that is licensed as a multi-jurisdictional simulcasting and interactive wagering hub in the state of Oregon. 20 (Continued)

23 Notes to Condensed Basic Financial Statements Through the joint venture agreement, NYRA formed a single member limited liability company, NewCo Ventures LLC, and an operating company, NewCo Ventures North America LLC. which will manage the development and operation of the ADW business, owned 91% by NYRA and 9% by GBE. NYRA funded $2 million in initial capital contributions to the joint venture. The two entities are considered component units of NYRA. Included in the condensed statements of net position, statements of revenues, expenses, and changes in net position, and statement of cash flows is financial activity for the three months ended June 30, 2016 for NYRA s component units. In accordance with GASB statement No. 14, The Financial Reporting Entity, and GASB statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34, which address requirements for reporting component units, the financial activity was blended with NYRA s financial results (consolidated), based on the criterion that management of the primary unit (NYRA) has operational responsibility for its component units. For the quarter ended June 30, 2016, $232 thousand of expenses were included in professional fees and $99 thousand in facility operating expenses from NYRA s component units. In addition, $1.9 million is included in cash and restricted cash which is primarily from NYRA s initial investment. NYRA BETS will commence operations in August (3) Defined Benefit Pension Plans NYRA sponsors five Defined Benefit Pension Plans (DBPPs) covering its union and administrative employees and the obligations of contributing sponsor under the Employee Retirement Income Security Act (ERISA). This includes the obligation to make required minimum funding contributions pursuant to the DBPPs and ERISA. Some of the DBPP benefits are based on years of credited service and employee compensation. NYRA s policy is to fund, at a minimum, amounts as are necessary on an actuarial basis to provide assets sufficient to meet the benefits to be paid to plan members in accordance with the requirements of ERISA. Assets of the plans are administered by an independent trustee and are invested principally in common collective trusts, registered investment companies, equity securities and immediate participation guarantee contracts. For the three months ended June 30, 2016 and 2015, employer contributions paid by NYRA totaled $1.0 million and $1.4 million, respectively. For the six months ended June 30, 2016 and 2015, employer contributions paid by NYRA totaled $1.4 million and $2.0 million, respectively. For the full year ended December 31, 2016, NYRA expects total employer contributions to be approximately $5.6 million (compared to $4.8 million of actual contributions in 2015). GASB Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27, establishes standards for the measurement, recognition, and reporting of NYRA s DBPPs. For purposes of these condensed interim financial statements, NYRA estimated its pension expense for the three months ended June 30, 2016 and 2015 of $0.6 million and $0.0 million, respectively, and $1.2 million and $0.0 million for the six months ended June 30, 2016 and 2015, using actuarial and other assumptions that were consistent with those used to prepare NYRA s audited financial statements for the year ended December 31, However, all the necessary adjustments required by GASB Statement No (Continued)

24 Notes to Condensed Basic Financial Statements were not calculated or recorded. NYRA does not believe that this departure from GAAP has a material impact on the condensed interim financial statements. (4) Other Post-Employment Benefits (OPEB) Obligation NYRA sponsors certain other post-employment benefits (OPEB) plans. The OPEB plans include post-employment benefit plans (PRPs), post-employment healthcare, as well as other forms of post-employment benefits such as life insurance provided separately from a pension plan. GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, establishes standards for the measurement, recognition, and reporting of the OPEB plans. Annual OPEB costs are equal to NYRA s annual required contribution to the plans, with certain adjustments for past contributions. The PRPs are contributory and contain cost sharing features such as deductibles and co payments. NYRA s policy is to fund the costs of these benefits as the costs are incurred. For the three months ended June 30, 2016 and 2015, employer contributions paid by NYRA totaled $1.0 million and $1.0 million, respectively. For the six months ended June 30, 2016 and 2015, employer contributions paid by NYRA totaled $2.0 million and $1.9 million, respectively. For the full year ended December 31, 2016, NYRA expects total employer contributions to be approximately $4.9 million. For the three months ended June 30, 2016 and 2015, OPEB expense was $1.4 million and $1.5 million, respectively. For the six months ended June 30, 2016 and 2015, OPEB expense was $2.8 million and $3.1 million, respectively. (5) Income Taxes NYRA is subject to Federal income tax and foreign withholding taxes. Under its agreement with New York State, NYRA is not subject to NYS or NYC corporate income tax; however, it is subject to other nonincome taxes, which are included in statutory and contractual commissions in the accompanying condensed statements of revenues, expenses, and changes in net position. Although NYRA s operations were located solely in New York during 2016, NYRA does hold an interest in certain pass-through entities doing business in Kentucky and therefore, is subject to Kentucky income taxes. NYRA had income tax expense of $5.7 million and $5.8 million for the three months ended June 30, 2016, and 2015 respectively. NYRA had income tax expense of $6.3 million and $5.7 million for the six months ended June 30, 2016, and 2015 respectively. At June 30, 2016 and December 31, 2015, NYRA had net deferred tax assets of $13.6 million and $14.4 million, respectively. Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes, primarily related to pension and post-employment obligations, allowances for doubtful accounts, accrued expenses, and tax attribute carry forwards. In assessing the realizability of deferred tax assets, management considers all positive and negative evidence as to whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, or prior to expiration of carry forward items. Management considers the expected reversal of deferred tax liabilities, expected levels of future 22 (Continued)