THE NEW YORK RACING ASSOCIATION, INC. (A Component Unit of the State of New York) Basic Financial Statements and Required Supplementary Information

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1 Basic Financial Statements and Required Supplementary Information (With Independent Auditors Report Thereon)

2 Table of Contents Page(s) Independent Auditors Report 1 2 Management s Discussion and Analysis (unaudited) 3 15 Basic Financial Statements: Statements of Net Position (As of ) 16 Statements of Revenues, Expenses and Changes in Net Position (Years ended December 31, 2015 and 2014) 17 Statements of Cash Flows (Years ended ) Required Supplementary Information (unaudited) Schedules of Changes in Net Pension Liability and Related Ratios Schedules of Plan Contributions Schedule of Funding Progress for Other Post-Employment Benefits 69 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 70 71

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 audited the accompanying financial statements of The New York Racing Association, Inc. (NYRA), a component unit of the State of New York, as of and for the years ended, and the related notes to the financial statements, which collectively comprise NYRA s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NYRA as of, and the changes in its financial position and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the management s discussion and analysis and the schedules listed as required supplementary information in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 31, 2016, on our consideration of NYRA s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering NYRA s internal control over financial reporting and compliance. Melville, New York March 31,

5 Management s Discussion and Analysis (Unaudited) Years ended The following Management s Discussion and Analysis (MD&A) of The New York Racing Association, Inc. (NYRA) provides an overview of NYRA s financial position and activities for the fiscal years ended December 31, 2015 and 2014 with selected comparative information for the fiscal year ended December 31, Following this MD&A are the basic financial statements of NYRA. The basic financial statements are designed to provide readers with a broad overview of NYRA s finances and are prepared in a manner similar to a private-sector business in that the economic resources measurement focus and accrual basis of accounting are applied. The Statement of Net Position presents 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 Statement of Revenues, Expenses and Changes in Net Position presents information showing how NYRA s net position changed during the fiscal year. The basic financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The basic financial statements are followed by a section of required supplementary information that further explains and supports the financial statements. Financial Highlights Summary of net position December 31 '15 vs. '14 Change '14 vs. '13 Change Dollar % Dollar % (Dollars in thousands) Current assets $ 96,814 85,794 78,351 11,020 13% 7,443 9% Capital assets, net 100,407 74,436 51,930 25, , Other assets 11,801 16,480 18,207 (4,679) (28) (1,727) (9) Deferred outflows of resources 8,175 9,043 11,456 (868) (10) (2,413) (21) Total assets and deferred outflows of resources $ 217, , ,944 31,444 17% 25,809 16% Current liabilities $ 70,495 65,955 66,104 4,540 7% (149) % Accrued pension liabilities 11,510 11,544 30,232 (34) (18,688) (62) Accrued post-employment benefit obligations 33,131 30,907 29,366 2, ,541 5 Other noncurrent liabilities 3,750 4,644 3,780 (894) (19) Deferred inflows of resources 11,869 15,570 3,211 (3,701) (24) 12, Total liabilities and deferred inflows of resources $ 130, , ,693 2,135 2% (4,073) (3)% Net position: Net investment in capital assets $ 96,561 68,853 48,188 27,708 40% 20,665 43% Restricted 18,458 18,766 12,147 (308) (2) 6, Unrestricted (28,577) (30,486) (33,084) 1, ,598 8 Total net position $ 86,442 57,133 27,251 29,309 51% 29, % 3 (Continued)

6 Management s Discussion and Analysis (Unaudited) Years ended December 31, 2015 Compared to December 31, 2014 In the twelve months ended December 31, 2015, total assets and deferred outflows of resources increased $31.4 million (17%) driven by a $26.0 million increase in net capital assets due to earning $33 million of VLT capital contributions in 2015 to invest in capital projects and equipment at all three racetracks. Current assets increased $11.0 million due to a $4.9 million increase in cash, a $2.7 million increase in restricted cash, a $1.3 million increase in net accounts receivable, and a $1.3 million increase in current deferred tax assets. The increase in operating cash is a function of higher revenue in Q compared to 2014, and the increase in restricted cash was primarily due to an increase in horsemen restricted cash as a function of deposits and withdrawals by the horsemen in their individual accounts. Net receivables increased due primarily to an increase in export handle compared to Current deferred tax assets increased $1.3 million primarily due to increases in our bad debt reserves. Total liabilities and deferred inflows of resources increased $2.1 million (2%) due to a $4.5 million increase in current liabilities and a $2.2 million increase in accrued post-employment benefit obligations, offset by a $3.7 million decrease in deferred inflows of resources. The increase in current liabilities is due to a $1.7 million increase in horsemen s liability, a $1.6 million increase in accounts payable and other accrued expenses, and a $1.0 million increase in accrued stakes and purses. The horsemen s liability is a function of the purses awarded to horsemen offset by horsemen withdrawals from their individual accounts. The $1.6 million increase in accounts payable and other accrued expenses is due to a $2.6 million increase in accrued expenses stemming from $2.0 million of accrued expenses related to construction of dormitories at Belmont, offset by a $1.2 million decrease in accounts payable. Stakes and purses are accrued based on statutorily required percentages of revenue that are required to be paid out in the form of purses to the winning owners of races run at the racetracks. Accrued post-employment benefit obligations increased $2.2 million based on the calculation of the Annual Required Contribution (ARC), which includes both Normal Cost (the cost of benefits earned each year) plus a Past Service Cost (a catch-up accrual to amortize the Unfunded Accrued Liability). The amortization period is reasonably related to the period of service over which retiree medical benefits are earned. NYRA has selected a 30 year open amortization period, which is permitted by GASB 45. NYRA has adopted a method of amortizing the unfunded liability using a payment schedule that increases each year, as permitted by GASB 45. This approach will accumulate a reserve that will produce an accrual for unfunded liabilities that increases as a percentage of covered payroll. However, the unfunded liability is not expected to decline under this approach. Unfunded liabilities will decline as a percentage of payroll, but the magnitude of the unfunded liability will increase. Deferred inflows of resources decreased $3.7 million primarily due to amortization of actual earnings on pension plan investments exceeding projections. Net position, the difference between total assets combined with deferred outflows of resources and total liabilities combined with deferred inflows of resources, increased by $29.3 million (51%) from $57.1 million to $86.4 million. Net investment in capital assets increased 40% to $96.6 million. Restricted net assets (unexpended funds received for particular specified purposes) decreased 2% to $18.5 million. Unrestricted net position (which can be used to finance operations without constraints established by enabling legislation, or other legal requirements) increased $1.9 million or 6%. 4 (Continued)

7 Management s Discussion and Analysis (Unaudited) Years ended December 31, 2014 Compared to December 31, 2013 In the twelve months ended December 31, 2014, total assets and deferred outflows of resources increased $25.8 million (16%), driven by a $22.5 million increase in net capital assets due to earning $32 million of VLT capital contributions in 2014 to invest in capital projects and equipment at all three racetracks. Current assets increased $7.4 million primarily due to a $6.5 million increase in the VLT capital expenditure fund due to increased VLT capital contributions and the timing of spending of VLT cash receipts. Other assets decreased $1.7 million due to a decrease in net deferred tax assets associated with pension and post-retirement benefits. Deferred outflows of resources decreased $2.4 million due to differences between expected and actual experience and employer contributions made subsequent to the measurement date. Total liabilities and deferred inflows decreased $4.1 million (3%) primarily due to an $18.7 million (62%) decrease in accrued pension liabilities, partially offset by a $12.4 million increase in deferred inflows of resources. The changes in the accrued pension liability and deferred inflows of resources are related to stronger than expected performance on pension plan investments. Both line items are based on actuarial valuation under GASB Statement No. 68, Accounting and Financial Reporting for Pensions. Net position, the difference between total assets combined with deferred outflows of resources and total liabilities combined with deferred inflows of resources, increased by $29.9 million (110%) from $27.3 million to $57.1 million. Net investment in capital assets increased 43% to $68.9 million. Restricted net assets (unexpended funds received for particular specified purposes) increased 54% to $18.8 million. Unrestricted net position (which can be used to finance operations without constraints established by debt covenants, enabling legislation, or other legal requirements) increased $2.6 million or 8%. 5 (Continued)

8 Management s Discussion and Analysis (Unaudited) Years ended Summary of net position (Dollars in thousands) December 31 '15 vs. '14 % '14 vs. '13 % change change change change Operating Revenue Pari-mutuel and simulcasting revenue $ 242, , ,648 7,611 3% 3,852 2% State of New York off-track betting 20,055 26,078 24,330 (6,023) (23) 1,748 7 Other revenues 38,513 35,717 29,666 2, , Total operating revenues 300, , ,644 4, ,651 4 Operating expenses: Employee compensation and benefits 87,056 85,806 85,741 1, Stakes and purses 106, , , ,081 2 VLT purse expense 60,794 59,310 55,202 1, ,108 7 Statutory and contractual commissions 31,620 31,912 31,191 (292) (1) Professional fees 3,303 4,355 7,010 (1,052) 24 (2,655) (38) Facility operating expenses 69,424 67,101 69,574 2,323 3 (2,473) (4) Pension expense 1,367 2,028 5,585 (661) 33 (3,557) (64) Other post-employment benefit expense 5,963 5,751 7, (2,185) (28) Depreciation 7,697 5,449 3,530 2, , Total operating expenses 373, , ,815 6,018 2 (1,976) (1) Operating loss (73,178) (71,544) (85,171) (1,634) 2 13,627 (16) Nonoperating revenues (expenses): VLT operating and purse support 86,655 84,233 78,756 2, ,477 7 Interest expense (8) (51) (232) 43 (84) 181 (78) Income tax benefit (expense) (17,409) (15,076) 19,402 (2,333) 15 (34,478) (178) Net nonoperating revenues 69,238 69,106 97, (28,820) (29) Income/(loss) before capital contributions (3,940) (2,438) 12,755 (1,502) 62 (15,193) (119) Capital contributions 33,249 32,320 31, Change in net position 29,309 29,882 44,160 (573) (2) (14,278) (32) Total net position, beginning of period 57,133 27,251 (16,909) 29, , Total net position, end of period $ 86,442 57,133 27,251 29,309 51% 29, % Year Ended December 31, 2015, Compared to Year Ended December 31, 2014 Operating revenues increased $4.4 million (1%) from $296.3 million to $300.7 million. Pari-mutuel and simulcasting revenue increased $7.6 million driven by a $7.9 million increase in interstate simulcasting revenue. The increase from 2014 is primarily due to an increase in out of state wagering. Out of state handle increased $74.8 million despite eight less race days, aided by a strong Triple Crown Belmont Stakes day and a strong Saratoga meet, as well as increases in host fee rates to simulcasting partners. Other revenues increased $2.8 million 6 (Continued)

9 Management s Discussion and Analysis (Unaudited) Years ended compared to 2014 due to strategic price increases and new seating and parking options for Belmont Stakes Day and the Saratoga 2015 season. State of New York off-track betting revenue was $6.0 million lower compared to 2014 due to increasing our bad debt reserves for these locations by $4.7 million. Handle from these facilities declined $9.4 million or 4.9%. Operating expenses increased $6.0 million from $367.8 million to $373.8 million. Increases included $2.3 million in facility operating expense due to increased marketing and advertising and repairs and maintenance, $2.2 million in depreciation due to new assets placed in service, $1.5 million in VLT purse expense, and $1.3 million in employee compensation and benefits due to filling of open positions and retro adjustments in the prior year. Professional fees decreased $1.0 million due to long-term consulting in the prior year. Under GASB, the VLT purse revenue must be included in nonoperating revenue, while the associated VLT purse expense is included in operating expenses representing $60.8 million of additional operating loss to NYRA in 2015 due to these required classifications. In order to evaluate the performance of racing operations internally, we exclude net VLT revenue and nonoperating expenses (including taxes, depreciation, interest, pension and OPEB expenses) to get to operating income from racing operations of $3.6 million and $1.7 million for the years ended, 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. Nonoperating revenue remained flat with a $2.3 million increase in income tax expense offset by a $2.4 million increase in VLT operating and purse support revenue. Year Ended December 31, 2014, Compared to Year Ended December 31, 2013 Operating revenues increased 4% from $284.6 million to $296.3 million. The increase was positively impacted by Belmont Stakes Day 2014 which contained a higher number of stakes races, enhancements to the entertainment, increased seating and dining offerings, and Triple Crown potential that generated an increase in handle for the day of $62.9 million or 69% compared to Estimated operating income for the day was a record of approximately $10.0 million, including the increases in admissions, box/reserved seats, group sales and parking revenue. Other revenues also increased due to price increases implemented for admissions, seating and parking at the Belmont and Saratoga racetracks in Pari-mutuel and simulcasting revenue increased $3.9 million (2%) due to Belmont Stakes Day, six more race days in 2014, and increased host fee rates charged to simulcasting partners. State of New York off-track betting (NYS OTB) revenue was $1.7 million higher due to a $3 million one-time settlement credit extended to the OTBs in Independent of the credit, the downward handle trend continued from these locations. Operating expenses decreased $2.0 million from $369.8 million to $367.8 million. The decrease in operating expenses is driven by a $3.6 million decrease in pension expense (due to strong asset performance), a $2.7 million decrease in professional fees (lower legal fees associated with integrity counsel and litigation accruals in 2013), a $2.5 million decrease in facility operating expenses (reduced marketing & advertising, a favorable sales tax audit, and reduced outside services), and a $2.2 million decrease in post-employment benefit expense. The decreases were partially offset by increases in VLT purse expense, stakes and purses and depreciation expense. Under GASB, the VLT purse revenue must be included in nonoperating revenue, while the associated VLT purse expense is 7 (Continued)

10 Management s Discussion and Analysis (Unaudited) Years ended included in operating expenses representing $59.3 million of additional operating loss to NYRA in 2014 due to these required classifications. In order to evaluate the performance of racing operations internally, we exclude net VLT revenue and nonoperating expenses (including taxes, depreciation, interest, pension and OPEB expenses) to get to operating income from racing operations of $1.7 million, and an operating loss of $12.9 million for the years ended December 31, 2014 and 2013, 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. Nonoperating revenue decreased $28.8 million primarily due to a incurring a net tax benefit for the year ended December 31, 2013 resulting from the release of a $29.4 million deferred tax asset valuation allowance. Capital Spending (Dollars in thousands) Aqueduct: Guest area improvements $ 1,298 7,726 4,614 Barn area improvements 465 1, Other Total Aqueduct spending 2,480 9,339 5,321 Belmont: Barn area improvements 16,312 5,380 2,546 Guest area improvements 1,339 1, CAFO & storm water management Other 2, ,141 Total Belmont spending 19,933 7,738 5,200 Saratoga: Guest area improvements 3,393 2,849 1,015 Barn area improvements 2,370 2,363 1,348 Master development planning Other 1, Total Saratoga spending 7,736 6,537 3,164 Fleet and equipment 1,802 2,156 1,290 Information technology 936 1,374 1,928 NYRA TV ,553 Total $ 33,682 27,991 19,456 8 (Continued)

11 Management s Discussion and Analysis (Unaudited) Years ended 2015 Capital spending highlights: Barn area improvements: $19.1 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 spend also included construction of new dormitories and upgrades to existing barns and dormitories. Saratoga improvements included renovations to dormitories and barns. Aqueduct improvements included the installation of security cameras and dormitory renovations. Guest area improvements: $6.0 million was spent on guest area improvements at all three racetracks. These improvements included the NYRA Walk of Fame, backyard video boards and upgrades to the Carousel and restrooms at Saratoga, construction of a horsemen s lounge at Aqueduct and improvements to the walkway to the Long Island Rail Road at Belmont. Fleet and equipment: $1.8 million was spent on fleet and equipment including a tractor trailer for horse transportation, tractors, a grader and other equipment to support facility and track maintenance. NYRA TV: $0.8 million was spent on television production equipment including equipment to increase storage capacity and finish line cameras. Information technology: $0.9 million was spent on information technology including expanded Wi-Fi for guest use. Other capital spending: Other significant capital expenditures included irrigation of the Mellon and Inner Turf Courses at Saratoga, fire prevention sprinkler system upgrades, improvements to the track irrigation system at Belmont, and improvements to the track and retaining walls at Aqueduct. 9 (Continued)

12 Management s Discussion and Analysis (Unaudited) Years ended Handle Analysis Handle refers to amounts wagered at the track, by phone, by internet, and at simulcast centers. NYRA retains an average of 10% of handle as pari-mutuel commission reflected in operating revenues. The following table analyzes fluctuations of handle underlying operating revenue: Twelve months Twelve months ended ended December 31, Percentage December 31, Percentage Percentage 2015 share 2014 share 2015 vs (Unaudited, dollars in thousands) Aqueduct Winter Meeteet: Race days (16.7)% Live $ 47,965 11% $ 61,159 11% (21.6) Export 306, , (21.4) Import 101, , $ 456, % $ 553, % (17.6)% Belmont Spring Meet: Race days % Live $ 88,293 12% $ 84,627 13% 4.3 Export 559, , Import 71, , $ 719, % $ 662, % 8.5% Saratoga Summer Meet: Race days % Live $ 157,648 23% $ 150,387 24% 4.8 Export 498, , Import 41, ,824 7 (0.8) $ 697, % $ 616, % 13.1% Belmont Fall Meet: Race days % Live $ 39,989 11% $ 42,698 13% (6.3) Export 281, , Import 44, , $ 365, % $ 339, % 7.5% 10 (Continued)

13 Management s Discussion and Analysis (Unaudited) Years ended Twelve months Twelve months ended ended December 31, Percentage December 31, Percentage Percentage 2015 share 2014 share 2015 vs (Unaudited, dollars in thousands) Aqueduct Fall Meet: Race days (2.4)% Live $ 32,681 11% $ 35,517 12% (8.0) Export 231, , Import 40, , (21.8) $ 304, % $ 305, % (0.2)% Total: Race days $ Live 366,576 14% $ 374,388 15% (2.1)% Export 1,876, ,803, Import 299, , (0.1) $ 2,542, % $ 2,477, % 3.0% 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) within North America. 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 that originates from a NYRA facility. Import refers to the importing of race signals from all around the world. (Examples of import locations are Gulfstream, Santa Anita, Churchill Downs, Finger Lakes, and Dubai). Aqueduct Winter Meet (January 1 st through April 26 st ) Results for the Aqueduct Winter Meet 2015 were impacted by extreme weather conditions that resulted in twelve less race days compared to the prior year. Weather conditions also affected many regional tracks resulting in depressed import handle in addition to the handle lost on-track and off-track. NYRA generated $456.2 million in all source handle compared to $553.3 million during the same period in 2014, a decrease of $97.1 million or 17.6%. 11 (Continued)

14 Management s Discussion and Analysis (Unaudited) Years ended Belmont Spring Meet (April 29th through July 19th) Results for the Belmont Spring Meet 2015 were impacted primarily by the Belmont Stakes Racing Festival which had Triple Crown potential, favorable weather conditions and five additional race days compared to last year. There was also a 15% increase in turf races. Turf races attract larger fields and higher handle. NYRA generated $719.5 million in all source handle compared to $662.9 million in 2014, an increase of $56.6 million or 8.5%. Saratoga Summer Meet (July 20th through September 7th) Results from the Saratoga Summer Meet 2015 were impacted by favorable weather conditions and an increase in wagering from off-track locations, including national retail ADWs, traditional brick and mortar locations and from incentive based players. There were ten races taken off the turf during the meet compared to thirty in the prior year. A race taken off the turf handles an estimated 40% less during this meet compared to if it was run on the turf as scheduled. NYRA generated $697.6 million in all source handle compared to $616.9 million during the same period in 2014, an increase of $80.7 million or 13.1%. Belmont Fall Meet (September 8th through November 1st) During the Belmont Fall Meet 2015, handle compared to last year increased from both import and export wagers driven by an increase in wagering from incentive players that receive lower host fees based on increased handle levels. The handle decline on NYRA races from on-track players was offset by increased import wagers primarily due to the Breeder s Cup occurring during this meet compared to the Aqueduct Fall meet in On-track handle declines were attributed to loss of higher volume players associated with NYRA s strategic initiative to mitigate minus pools by restricting certain high volume show wagering customers (bridge jumpers). During the meet NYRA generated $365.1 million in all source handle compared to $339.8 million in 2014, an increase of $25.3 million or 7.5%. Aqueduct Fall Meet (November 2nd through December 31st) The Aqueduct Fall Meet 2015 experienced continued growth in off-track handle driven primarily by incentive players, offset by declines in NYRA and import wagers from on-track players. Due in part to the Breeder s Cup being held during the Belmont Fall Meet in 2015, import handle declined by 21.8%. The result of the loss of higher volume brick and mortar rewards players as well as reduced handle from players that had been wagering heavily in minus pool races during this period last year also negatively impacted import handle. There was also one less race day in 2015 compared to For the meet NYRA generated $304.3 million in all source handle compared to $305.0 million during the same period in 2014, a decrease of $743 thousand or 0.2%. 12 (Continued)

15 Management s Discussion and Analysis (Unaudited) Years ended Statistical Handle Highlights Twelve months ending December 31st Change Dollar Percentage (Unaudited, dollars in thousands) On-Track Handle Components: ADW (phone, internet, and on-track) $ 280, ,315 (2,546) (0.9)% Aqueduct 177, ,781 (4,163) (2.3) Belmont 104, ,042 (5,531) (5.0) Saratoga 103,382 99,187 4, Total NYRA on-track handle 666, ,325 (8,045) (1.2) Off-Track Handle (Export): NYOTB downstate 110, ,273 (9,148) (7.7) NYOTB upstate 72,194 72,451 (257) (0.4) NY inter-track wagering 44,538 44, Out-of-state 1,611,513 1,536,714 74, International separate pool 38,094 31,083 7, Total off-track (export handle) 1,876,464 1,803,591 72, Total handle $ 2,542,744 2,477,916 64, % During the twelve months ended December 31, 2015, NYRA generated $2.54 billion in total handle compared to $2.48 billion last year, an increase of $64.8 million or 2.6%. On-track handle of $666.3 million decreased $8 million or 1.2% compared to the prior year, primarily due to extreme weather conditions in the first quarter that resulted in eight fewer race days compared to the same period last year offset by record breaking handle during the Saratoga Summer meet. Handle decreased in the fall months, specifically during the fourth quarter due primarily to a decrease in import wagers compared to the prior year. Export handle of $1.9 billion increased $72.9 million or 4.0% compared to the prior year despite eight fewer race days. Out of state handle increased $74.8 or 4.9%. Increases were driven by record breaking handle during the Saratoga Summer meet and increased handle during the Belmont and Aqueduct fall meets from incentive based players that receive lower host fees based on increased handle levels. 13 (Continued)

16 Management s Discussion and Analysis (Unaudited) Years ended 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. Twelve months ended December 31 Percentage NYRA vs. Industry Comparison variance Industry as provided by Equibase: Wagering on U.S. races* $ 10,676,977,042 10,551,219, % U.S. purses 1,093,592,986 1,111,714,145 (1.6) U.S. race days 4,754 4,973 (4.4) Handle yielded per purse dollar invested $ NYRA: Wagering on NYRA races* $ 2,195,038,041 2,146,895, % NYRA purses 157,534, ,942,675 (3.3) NYRA race days (3.3) Handle yielded per purse dollar invested $ NYRA as Percentage of Industry: Wagering on U.S. races* 20.6% 20.3% 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 twelve months ended December 31, 2015, wagering on U.S. races increased 1.2% compared to a 2.2% increase in wagering on NYRA races. NYRA contributed 5.0% of total industry race days, offered 14.4% of purses and generated 20.6% of thoroughbred handle across the United States. Every dollar invested in purses at NYRA during the twelve months ended December 31, 2015 yielded $13.93 in handle compared to $9.76 industry-wide. 14 (Continued)

17 Management s Discussion and Analysis (Unaudited) Years ended 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. 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 going forward. 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 in We have increased our reserves for bad debt by $4.7 million in 2015 related to these locations. NYRA will continue to monitor the remaining OTBs operational viability. NYRA operates in a geographic region with many competitive gaming options, including state-sponsored lotteries, VLTs, other casinos in the state, as well as casinos 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 63% of employees working under 25 collective bargaining agreements. One of those 25 contracts was expired as of December 31, 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 than other states. The ability to offer races with less than 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 field sizes 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 15

18 Statements of Net Position (Dollars in thousands) Assets and Deferred Outflows of Resources Current assets: Cash and cash equivalents $ 20,226 15,355 Restricted cash: Horsemen s account and NYRA Rewards account 25,887 24,001 VLT capital expenditures fund 17,723 18,031 Other 7,717 6,590 Receivables, net of allowance for doubtful accounts of $8,747 in 2015 and $3,770 in ,986 15,641 Deferred tax asset, current 3,748 2,426 Prepaid and other current assets 4,527 3,750 Total current assets 96,814 85,794 Noncurrent assets: Capital assets, net 100,407 74,436 Deferred tax asset, non current 10,653 15,249 Other assets 1,148 1,231 Total noncurrent assets 112,208 90,916 Total assets 209, ,710 Deferred outflows related to changes in net pension liabilities 8,175 9,043 Total assets and deferred outflows of resources $ 217, ,753 Liabilities, Deferred Inflows of Resources and Net Position Current liabilities: Horsemen s liability $ 22,140 20,479 NYRA Rewards liability 3,747 3,522 Unearned revenue 1,867 2,790 Stakes and purses 7,278 6,327 Accounts payable and other accrued expenses 29,530 27,970 Accrued environmental liability 391 Outstanding pari-mutuel tickets 2,581 2,164 Other 2,961 2,703 Total current liabilities 70,495 65,955 Noncurrent liabilities: Accrued pension liabilities 11,510 11,544 Accrued post-employment benefit obligations 33,131 30,907 Other 3,750 4,644 Total noncurrent liabilities 48,391 47,095 Total liabilities 118, ,050 Deferred inflows related to changes in net pension liabilities 11,869 15,570 Total liabilities and deferred inflows of resources 130, ,620 Net position: Net investment in capital assets 96,561 68,853 Restricted for capital expenditures and other 18,458 18,766 Unrestricted (28,577) (30,486) Total net position 86,442 57,133 Total liabilities, deferred inflows of resources and net position $ 217, ,753 See accompanying notes to basic financial statements. 16

19 Statements of Revenues, Expenses and Changes in Net Position Years ended (Dollars in thousands) Operating revenues: Gross pari-mutuel commission and breakage $ 128, ,020 State of New York off-track betting 20,055 26,078 On-track racing related revenues 19,484 18,609 Intrastate simulcasting 4,349 4,286 Interstate simulcasting 107,700 99,752 International simulcasting 2,026 2,442 Other revenues 19,029 17,108 Total operating revenues 300, ,295 Operating expenses: Employee compensation and benefits 87,056 85,806 Stakes and purses 106, ,127 VLT purse expense 60,794 59,310 Statutory and contractual commissions 31,620 31,912 Professional fees 3,303 4,355 Facility operating expenses 69,424 67,101 Pension expense 1,367 2,028 Other post-employment benefit expense 5,963 5,751 Depreciation 7,697 5,449 Total operating expenses 373, ,839 Operating loss (73,178) (71,544) Nonoperating revenues (expenses): VLT operating support payments 24,937 24,240 VLT purse support payments 61,718 59,993 Interest (8) (51) Income taxes (17,409) (15,076) Net nonoperating revenues 69,238 69,106 Loss before capital contributions (3,940) (2,438) Capital contributions: VLT capital support payments 33,249 32,320 Total capital contributions 33,249 32,320 Change in net position 29,309 29,882 Total net position beginning of year 57,133 27,251 Total net position end of year $ 86,442 57,133 See accompanying notes to basic financial statements. 17

20 Statements of Cash Flows Years ended (Dollars in thousands) Cash flows from operating activities: Cash receipts from: Customers $ 283, ,907 Cash payments for: Statutory commissions and purses (118,753) (120,757) VLT purse funding (60,794) (59,310) Vendors (72,902) (66,820) Employees (96,518) (98,943) Taxes (15,490) (10,002) Net cash used in operating activities (81,227) (75,925) Cash flows from noncapital financing activities: Cash receipts from VLT operating support 24,916 24,192 Cash receipts from VLT purse support 61,667 59,964 Principal payments of loan payable (3,549) Payments for interest (8) (51) Net cash provided by noncapital financing activities 86,575 80,556 Cash flows from capital and related financing activities: Cash receipts from VLT capital support 33,221 32,256 Purchase of capital assets (31,297) (25,490) Payments of capital lease obligations (583) (624) Other Net cash provided by capital and related financing activities 1,841 7,090 Cash flows from investing activities: Equity investments Net cash provided by investing activities Net increase in cash and cash equivalents 7,576 12,065 Cash and cash equivalents and restricted cash, beginning of the year 63,977 51,912 Cash and cash equivalents and restricted cash, end of the year $ 71,553 63,977 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (73,178) (71,544) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 7,697 5,449 Income from equity method investments, net of cash received (305) (447) Unearned revenue from concession agreement (659) (495) Income taxes (15,490) (10,002) Changes in assets and liabilities: Receivables, net (1,245) 1,687 Prepaid and other assets (562) 972 Horsemen s liability 1, NYRA Rewards liability Stallion series unearned income (923) 829 Stakes and purses 951 (88) Accounts payable and other accrued expenses (170) 443 Accrued environmental liability 391 (78) Accrued pension costs and postretirement obligations including deferrals (643) (4,657) Outstanding pari-mutuel tickets Other liabilities Net cash used in operating activities $ (81,227) (75,925) For 2014, capital expenditures on the statement of cash flows excludes $2,465 of capital asset additions provided by a concession agreement with a service vendor. See accompanying notes to basic financial statements. 18

21 (1) General (a) Organization and Description of the Business The New York Racing Association, Inc. (NYRA) was incorporated on September 12, It was formed under Section 402 of the Not-for-Profit Corporation Law of the State of New York and Section 201 of the Racing, Pari-Mutuel Wagering and Breeding Law (Racing Law). NYRA is headquartered in South Ozone Park, New York. On September 12, 2008, NYRA commenced operations under a New York State Franchise Agreement (Franchise Agreement), which will expire in Under the Franchise Agreement, NYRA operates the three largest thoroughbred racetracks in the State of New York (State): Aqueduct Racetrack (Aqueduct) in South Ozone Park, New York; Belmont Park (Belmont) in Elmont, New York and Saratoga Race Course (Saratoga) in Saratoga Springs, New York (collectively, Racetracks). NYRA conducts racing year round with approximately 240 scheduled race days per year. NYRA operates the Racetracks and offers pari-mutuel and simulcasting wagering via its telephone and internet platforms and also exports its racing signal for wagering at off-track locations in the State and to major tracks throughout the United States along with various support activities (retail, food, beverage, and entertainment). The Aqueduct meet is conducted from November through April. The only racetrack located within New York City limits, it first opened in 1894 and was rebuilt in In 2008, legislation was enacted providing for development and operation of Video Lottery Terminals (VLT) at the Aqueduct facility, by Genting New York LLC (Genting or VLT Operator), an unrelated entity. Statutory revenues derived from the VLT operations are intended to provide resources to the State for education, and to support the operation and improvement of the Racetracks. The Belmont meets are conducted each year from May to July and from September to November. Belmont first opened in 1905 and is home to the third and final leg of the Triple Crown, the Belmont Stakes. Its mile and a half main track is the largest dirt course in thoroughbred racing in the world. The Saratoga meet is conducted for the 40 days leading up to Labor Day. Saratoga, originally opened in 1863, is the oldest organized sporting venue of any kind in the United States. (b) The Franchise History NYRA Inc., formerly known as The New York Racing Association Inc., was a nonprofit racing association incorporated in June 1955 pursuant to Chapter 440 of the Laws of the State of New York. On November 2, 2006 (Petition Date), NYRA Inc. filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code in the Bankruptcy Court. In April 2008, the Bankruptcy Court confirmed NYRA Inc. s Third Amended Plan of Debtor (Debtor Plan, Modified Plan) and authorized the consummation of the transactions contemplated by the Modified Plan, including the execution and delivery of a State Settlement Agreement (Settlement Agreement) and the Franchise Agreement. Concurrently, on September 12, 2008, a compromise and settlement between NYRA, the State, and the newly formed New York State Franchise Oversight Board (FOB) was entered into. As a result, the agreements included provisions for the granting of the franchise to NYRA, levels of operational 19 (Continued)

22 support fees, capital expenditure (CAPEX) support, and performance standards as set forth in the Franchise Agreement. The Settlement Agreement was also executed on that date. (c) (d) Settlement Agreement The Settlement Agreement provided, among other terms, for: the execution of the Franchise Agreement; conveyance of the racetracks and other property; and leases of real property. Additionally, the Settlement Agreement provided for operational support fees, CAPEX support; financing alternatives; the release of any obligation to pay future real estate taxes and the withdrawal of certain state claims. Franchise Agreement The Franchise Agreement addresses, among other things: term of the franchise; performance standards; franchise fee; governance standards; and conditions relating to VLT operations. Term of Franchise NYRA was granted a Franchise for a twenty-five year period commencing on September 12, 2008 and ending on September 12, Performance Standards During the term, NYRA shall use its best efforts to satisfy certain performance standards with respect to racing operations against which they will be evaluated by the FOB every four years. They include: conditions related to racing dates, New York Bred Races, stalls, jockey and equine safety, concentrated animal feeding operations (CAFO) requirements, backstretch environment, Saratoga training, handle and attendance, purse accountability, expenses, and community interaction. Franchise Fee NYRA is required to remit to the State a Franchise Fee to conduct pari-mutuel wagering at the Racetracks. NYRA s failure to remit the Franchise Fee as required may give rise to the revocation of the franchise. See note 9 for calculation of the Franchise Fee. Governance Standards Pursuant to the Franchise Agreement, NYRA s Board of Directors was comprised of twenty-five members: fourteen selected by NYRA Inc. s Board of Directors or NYRA s designated directors, seven appointed by the Governor, two selected by the Speaker of the Assembly and two selected by the Temporary President of the Senate. See note 1(f) for discussion of changes to the composition of NYRA s Board of Directors in VLT Operations The Franchise Agreement also provides for collaboration on Aqueduct VLT operations. The agreement provides for the State, in consultation with NYRA (but not subject to NYRA s approval), to select an entity to develop VLTs and serve as the VLT operator at Aqueduct by March 31, 2009 (ultimately determined to be Genting). The State, the FOB, the VLT Operator and NYRA will 20 (Continued)

23 coordinate issues associated with the VLT operations, NYRA s racing operations, and the lease agreements governing the Aqueduct property, so as to address the joint use and occupancy of Aqueduct by the VLT Operator and NYRA. The Franchise Agreement governs the disposition of the VLT support payments received by NYRA from the VLT operator as follows: Operational Support Payments Upon the commencement of VLT operations at Aqueduct, on a daily basis, and for the term of the license to operate VLTs at Aqueduct, an amount equal to three percent (3%) of total VLT revenues derived from VLT operations at Aqueduct shall be deposited into a NYRA account to be used by NYRA for the support of NYRA s racing operations and satisfaction of NYRA s operating expenses, including the payment of NYRA s pension plan obligations. Capital Expenditures Upon commencement of VLT operations at Aqueduct, on a daily basis, and for the term of the license to operate VLTs at Aqueduct, an amount equal to four percent (4%) of VLT revenues shall be deposited by the VLT Operator into a NYRA account to be used for capital expenditures in maintaining and upgrading the Racetracks. NYRA may also use these funds for the payment of debt service associated with borrowings or other indebtedness incurred in connection with maintaining and upgrading the Racetracks. Purse Support Upon commencement of VLT operations at Aqueduct, on a daily basis, and for the term of the license to operate VLTs at Aqueduct, an amount equal to (a) six and one-half percent (6.5%) of VLT revenues for the first year of VLT operations at Aqueduct, (b) seven percent (7%) of VLT revenues for the second year of VLT operations at Aqueduct and (c) seven and one-half percent (7.5%) of VLT revenues for the third year of VLT operations at Aqueduct and thereafter, shall be deposited by the VLT Operator into a NYRA account to be used by NYRA solely for the enhancement and funding of purses for races run at the Racetracks. Breeder Support Upon commencement of VLT operations at Aqueduct, on a daily basis, and for the term of the license to operate VLTs at Aqueduct, an amount equal to (a) one percent (1%) of VLT revenues for the first year of VLT operations at Aqueduct, (b) one and one-quarter percent (1.25%) of VLT revenues for the second year of VLT operations at Aqueduct and (c) one and one-half percent (1.5%) of VLT revenues for the third year of VLT operations at Aqueduct and thereafter, shall be deposited by the VLT Operator into a NYRA account to be used by NYRA solely for the enhancement and funding of breeding for the manner of racing conducted the Racetracks. Since the commencement of VLT operations at Aqueduct on October 28, 2011, as agreed to by the NYS Lottery and Genting, the Breeder Support payments are being sent directly to the New York State 21 (Continued)