NYCOTB Fix Easy - But Only For Now

- As you may have read by now, Governor Paterson will meet with Senator Bruno and Speaker Sheldon Silver in an attempt to head off the threatened closure of New York City OTB on June 16 which would cost around 1,500 people their jobs.

Gov. Paterson - uttering the words OTB officials have been waiting years to hear - said it would make sense to restructure the state-mandated revenue-sharing formula that has brought OTB to the brink of bankruptcy.
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Assembly Speaker Sheldon Silver told The Post, "We are looking at all the places that OTB spends its money and see where we can reduce some of the expenditures to make them profitable."[NY Post]

Whew! That was close! I mean, did anyone think that the state would let the operation shut down over a relative pittance of money, considering the $17 million in state taxes and regulatory fees, the latter in the form of payments to the State Racing and Wagering Board that didn't exist in 2000 but which grew to excess of $5 million in 2006, that it generated in 2007? Or the $100 million it contributes annually to tracks and purses? And run the risk of taking the political blame for layoffs during the present difficult economy?

Not a part of the upcoming discussions on saving NYCOTB will be Patrick Foye, who resigned last month as the head of the Empire State Development Corporation. When I spoke to NYRA President/CEO Charles Hayward a few weeks ago, he told me that the most disappointing consequence to him of the resignation of Governor Spitzer was Foye's resulting departure. "He really drilled down on the matter and understood the issues." In particular, he realized that OTB needs relatively little cash, and that the situation is not as dire as Mayor Bloomberg has portrayed. In a letter to the Mayor's office and NYC-OTB earlier this year, Foye wrote: "..NYCOTB's own cash projections indicate that the entity will be cash flow positive each month of this current fiscal year ($7.6 million this month alone) through and including May 2008 and will be short by only approximately $1.1 million in cash in June 2008. NYCOTB projects that July and August 2008 will be cash positive months and then NYCOTB will require approximately $2.5 million in September 2008, the last month for which cash flow projections have been furnished."

Perhaps Bruno had a look at this, because he told Paul Post, reporting for the Thoroughbred Times, Bruno proposed that OTB defer its monthly $1-million payments to the state for April and May, enabling it to keep operating into summer when revenues are expected to increase.

So it sounds as if all three men in the room are on board. This is one issue on which they can satisfy Bloomberg without much in the way of financial or political pain.

Of course, the fact that the longer term future of OTB and the viability of the current business model in the state was not addressed even in the most basic fashion, not to mention any talk of consolidation, during the franchise debate is the most regrettable aspect of the whole regrettable process. In 2006, the split in total handle wagered at OTB versus on track was 80/20. And as you know, the tracks retain a far lower percentage of the wagers made at OTB; in the case of NYRA, it keeps approximately 9.9% of wagers placed on track wagers or through its internet wagering system, vs 2.69% of downstate OTB's, and less than 1.5% on bets placed upstate.

Paterson spoke of a long-term plan to make OTB "more profitable and productive," and Bruno went further, saying: “The plan that we adopt should include an alignment of the economic interests of the tracks and the OTBs in order to succeed.” But Charles Hayward for one was doubtful that the basic competitive business structure is going to change. "I don't see the statutory rates being adjusted," he said. Instead, NYRA is proposing a more modest and politically realistic consolidation in an attempt to improve efficiency, increase its profitability, and to present a united front by which to better market the sport in New York to the public. Specifically, NYRA proposes a consolidated tote system, a single state-wide account wagering system, a statewide TV network (Capitol OTB pays $600,000 a year to get on Time Warner Cable, while the downstate corporations and NYRA get free carriage), and a statewide marketing campaign. In addition, NYRA would guarantee the current amounts paid to local governments, and establish metrics by which each regional corporation could earn additional payments.

There's one particularly jarring set of numbers that I saw in a report released by State Senator William Larkin's Committee on Racing, Gaming, and Wagering which I think demonstrates the need for the track operator and OTB to at least get on the same page if nothing else. From 1990 through 2006, the total overall handle for all the OTB's was relatively stable - $1.923 billion in 1990 to $2.057 billion in 2006. However, comparing the monies wagered on New York tracks as opposed to out-of-state simulcasts, the total wagered on New York tracks declined over that time period from $1.86 billion, or 96.7% of the total handle, to $756 million, less than 37% of overall wagering. Conversely, money bet on simulcasts now makes up 63.2% of the total; it has climbed every year. OTB is basically becoming a bookie joint for races run in other states. Besides the fact that NYRA and the horsemen each get lower percentages of the handle from the downstate OTB's (NYRA actually gets slightly more from upstate, but that handle is only around one sixth of the state total), it's just counterintuitive to the idea of promoting the industry and marketing the sport in the state. OTB can, and probably will, continue to compete with NYRA for handle, and NYRA feels it can be profitable even in that environment. But I would think that everyone benefits from a renaissance of interest in the local sport.

Of course, as with everything in New York, there's a catch, according to Hayward. "There's a clear incentive for them to take out of state tracks because they're paying less money." That sounds like something that could be worked out. But OTB has expressed no interest in change other than a reduction in their payments.

So it seems as if, despite the potentially transformative events of the past few years, we're only maybe just a little closer to addressing the state of OTB. And who knows if we'd be hearing anything about it at all had Bloomberg not thrown his little tantrum and threatened to turn off the cash flow to Albany.