In the first of two races on Saturday, which kicked off a best-of-17 final series to win the Cup, the two teams' catamarans nearly collided on several occasions as they crisscrossed the bay. New Zealand was slightly ahead at the start and was passed by Oracle for a short time before regaining its lead and winning the race.
It was the first neck-and-neck race in the regatta after two months of relatively tame qualifying matches easily dominated by the Kiwis.
The final series of matches is culmination of a regatta plagued by controversies including cheating by Oracle, dangerous catamarans, a fatal accident and accusations of mismanagement.
The latest setback came on Tuesday, when an international jury docked Oracle two points and kicked three team members out of the event for adding illegal weight to boats used in a previous preparatory Cup competition.
The penalties, unprecedented in the history of the 162-year-old event, are a big boost for New Zealand, which demolished other would-be challengers in qualifying races in July and August.
Bookmakers see the Kiwis as favorites to take the America's Cup from Oracle although, in a twist of fate, they are now up against one of their country's most accomplished sailors.
Due to the penalty, Oracle needs to win 11 races to retain the Cup, while New Zealand only needs to win a total of nine. Oracle is also sailing without a key crew member, Dirk de Ridder, a 40-year-old Dutchman who was banished from the event for his role in the weight scandal.
The debacle first came to light in July, when 45-foot Oracle catamarans that had been used for a regatta known as the America's Cup World Series of Racing - and were raced again last week in a youth competition - were found to have illegal bags of lead and resin wedged into their frames. Adding weight can help improve the yachts' stability.
In most countries, sailboat racing is a niche sport, and this year's America's Cup so far has done little to change that. Ellison, who won the cup in 2010, and with it the right to set the rules for this year's races, hoped to make the competition more accessible to everyday sports fans with super-fast, high-tech 72-foot boats called AC72s sailing close to shore on the picturesque Bay.
But the regatta stumbled from the start, with high costs scaring off many challengers and a fatal training accident in May throwing the four-team competition into chaos. Mounting a serious challenge in the America's Cup costs $100 million or more, a pricey entry fee even for billionaires.
Sailing is not a big draw for US sports fans and the turnout in viewing areas set up along the Bay to watch the races has fallen short of expectations, with few local residents showing interest in the regatta let alone rooting for Oracle.
But the sport is a major passtime in New Zealand. That country first won the Cup in 1995 and then successfully defended the Cup in 2000 under the leadership of Wellington-born skipper Russell Coutts.
Coutts was lured away by Swiss biotechnology billionaire Ernesto Bertarelli to take the helm of Alinghi. He took the Cup from New Zealand in 2003, then switched to Oracle and helped that team win the Cup in 2010. He has won the America's Cup four times and never lost.
On the water on Saturday, Oracle's catamaran was skippered by Australian James Spithill, who also skippered Oracle's boat in its 2010 Cup victory.
At the helm of Emirates Team New Zealand's AC72 was Dean Barker, whose good start against Oracle was foreshadowed by his aggressive positioning against Italy's Luna Rossa in qualifying races leading up to the finals.