Flawed System, Flawed Report

So I've finished reading State Comptroller Thomas DiNapoli's audit report on New York City OTB. Old news, you might say, but....well? You can read the more timely articles in the trades which merely summarize what was written, or you can wait a few days and get my own unique, at times and to put it one way, spin. (Or, you could just read the damn thing yourself.)

What made the document somewhat interesting reading was its inclusion of OTB's sometimes testy responses to the criticisms in what was referred to as the 'final draft' of the report. The main point of contention was over the reasons behind NYC OTB's recent deficits. To the Comptroller, it was a failure to do enough to cut costs. OTB dismissed that notion, instead blaming "the State's 'flawed' mandatory distribution system that compels OTB to distribute significantly more money than is available after allowance for its necessary operating expenses." The phrase 'flawed mandatory distribution" is sprinkled throughout the response. The sides even argued over whether certain payments to NYRA were actually statutory or not.

To me, it's just semantics, really. NYC OTB isn't generating enough revenue to cover its expenses, whether they be statutory, fixed overhead, or whatever; period. The payouts to the tracks which so rankles OTB are necessary operating expenses! As a matter of fact, they are the main reason for OTB's existence! Not patronage opportunities for politicians or SUV's for highly compensated execs, but payouts, and suitably quite generous ones, at least in terms of its own revenues, to the tracks, horsemen, and breeders who stage the sport off which OTB exists.

I looked at the financial info, and it seems to me that OTB in NYC is suffering from the same kind of problems as everyone else. Its business is down, and its fringe benefits costs are up. Salaries have remained flat despite cutbacks, and given what we're finding out about Mayor Bloomberg's generosity to unions, that's probably not too bad (though we don't quite know how he treats unions at entities he intends to eliminate). When revenue is down, businesses cut back. OTB should stop whining about payouts to the industry, and do all those nasty things businesses do when their survival is in jeopardy.

The Comptroller mainly held the line on his argument in the actual report. While acknowledging OTB's cost-cutting efforts, he writes:

However, management has not performed a comprehensive assessment of the Corporation’s operating expenses as one would expect from an entity in its unsound financial situation. For example, its internal audit department has not systematically examined operating expenses to identify opportunities for cost savings, nor performed vulnerability assessments to identify areas of control risk.

The report suggests several areas where OTB can save, in particular the notion of changing from the bricks and mortar model to account wagering for which the costs are significantly less. (The problem there is that OTB doesn't want to give up the surcharge that it collects in the shops).

But in the cover letter to the report, DiNapoli seems to have fallen under the sway of OTB's argument, and takes a different tone, writing that "serious consideration must be given to changing the mandated state formulas." Then, under a section subtitled Distribution formula changes not enough, he writes:

The NYC OTB’s statutory distributions are a significant financial outlay. By far the most significant of these distributions are to the horse racing industry. Over a four-year period, distributions to the industry totaled $386 million and accounted for more than 72 percent of the NYC OTB’s total $533.5 million in statutory distributions.

Yeah? So? What exactly is the point of this passage, Mr. Comptroller? The distributions to the racing industry make up a large portion of their distributions; isn't that the way it's supposed to be? Who else exactly should be getting 72 percent of the distributions? Pedro Espada? In fact, why is it only 72%? Whatsmore, the Comptroller never discusses the larger and more fundamental picture of the efficiencies and savings that would be inherent in a consolidation of operations amongst all of the state's OTB corporations and the racing entities it could be serving instead of competing against.

It's kinda weird to me the way the cover letter takes such a different tone than the report which it's supposed to cover. It almost seems like somebody "got to" DiNapoli. Maybe someone should check his recent campaign contributions, or inspect his coffee cups for residue of brainwashing powder that makes him chant "flawed mandatory distribution" system every time he sees the queen of diamonds or a losing OTB ticket lying in the street.