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Wednesday, January 27, 2010

Fixing Broken Model Quite a Task

Got an email on Monday morning advising interested media types (like, I guess, myself) of the live webcast of that afternoon's meeting of the NYCOTB board of directors.

The New York City Off-Track Betting Corporation convenes its board of directors to provide an update of cash flow, headcount reduction and plans for shutdown by end of March if re-organization plan is not approved by Legislature.
Seems appropriate to me that the message came from Edelman, their public relations firm, because the ensuing announcement that the OTB will close its doors on March 30 if lawmakers don't approve its reorganization plan smacks more of PR than reality to me. Can't help but suspect that it's a ploy to get the legislature to focus on its plight, similar to the one engineered by Mayor Bloomberg which led to the state takeover of NYCOTB. Perhaps they are afraid that the bankruptcy court ruling on NYRA's motion to dismiss their bankruptcy filing will not go their way?

There's no word as to whether Edelman will be dispensed along with their employees. (OK, I know I just occasionally tend to harp on certain matters, but I find the fact that this bankrupt organization is employing a high-priced PR firm to be outrageous and disingenuous, at best. This is a legal and legislative matter of crucial importance to the state's racing industry, not a matter on which to trifle with public opinion. And besides, it's a waste of money they supposedly don't have. As bad a reputation as NYRA may have these days, I don't sense an ounce of sympathy for OTB from the media or horseplayers, and certainly not from the Task Force discussed below nor the legislators who grilled Sandy Frucher at the hearing in Lower Manhattan last week. Even the needy NYRA managed to scrounge up 5,000 bucks to send to Haiti; OTB's best PR move might be to send the money they're pissing away on a lost cause to that relief effort instead.)

As you may have read, shortly thereafter, the report of the Task Force on the Future of Off-Track Betting In New York State was released. It's not exactly sympathetic to NYCOTB, making clear its annoyance at the fact that it was the only OTB that declined to participate in its study, calling its abstinence "especially regrettable." Nor did it think much of the core of its reorganization proposal.
The Task Force does not support the OTBs recommendation that statutory amounts be paid only after payment of all OTB operating expenses. If this was adopted, there would be little incentive for the OTBs to reduce overhead. This would also result in the perverse outcome of out of State tracks receiving guaranteed payments while in State tracks would have to depend on the profitable operations of the OTBs. A distribution formula such as this seems to contradict Section 518 of the Racing Law that requires that off-track betting be conducted in a manner compatible with the well-being of the State’s horse racing and breeding industry.
You can see the report in its entirety here [gigundo PDF file]. I highly recommend that you read it if you are at all interested in the present, and what we hope is the future of horse racing in this state. Don't be put off by the 197 pages; the main body of the report runs around 36, and can easily be completed during the morning commute. Well, mine anyway. True, it could have used a little proofreading (by the way, I'm available, and yes, I proof others' work better than I do my own). But it's a comprehensive account of the situation which makes sensible recommendations with a nod towards the reality of the situation. Yes, everyone knows that the ideal goal is to consolidate the tracks with off-track betting. But this report acknowledges the sad truth that it's not going to happen.
If off-track betting was being created now, the present structure of six regional corporations, independently operated tracks, with racing regulated by one State agency and VLT’s by another, would not be the ideal plan. However, the political reality is that this will likely not change. Several commissions and task forces have recommended structural changes to the system without ever being acted on. Regional off-track betting is here to stay, so the question becomes how to optimize its operations.
And as with other reports of this sort, I particularly enjoy the historical accounts. I always find it instructive to review just how we got into the situation presently being assessed.

One of the many interesting items in the report may perhaps shed some light on OTB's threat of supposed impending insolvency. It concerns the accounting rules (GASB 45) which require the OTB's to record its future post-employment benefit programs as a current expense instead of deferring it until the time they are paid.
NYCOTBs reported accumulated deficit at the end of 2008 was $248.7 million, almost $200 million of that is caused from unfunded post-employment retirement benefits for its employees.
The reporting of the GASB 45 expenses by NYCOTB is technically the reason that it has been required to file for bankruptcy protection. If NYCOTB had continued to record the costs only when paid, it could have continued to appear financially distressed, not insolvent..
Of course, I'm speculating and could be wrong. Not that that would change the long-term fundamentals of the overall situation, but maybe they are truly running out of cash. In that case, perhaps Edelman can earn their money and set us straight.

As for the report's recommendations, Tom Precious has a good summary of the key points, so I'll let him do my job for me (or you can read them on pages 33-37 of the report. There's a lot more here to discuss than I can fit in one digestible post, so I hope to revisit the subject over the next few days.


Anonymous said...

I find it unfathomable how a Report on OTB cannot recommend consolidation, regardless of the political impracticalities of the situation. However pragmatic the observation, it simply ignores what everyone in the United States realizes and provides cover for a State Legislature reluctant to make tough decisions.

It strikes of giving up because doing the right thing is just too difficult.

It's mentioned that Section 518 of the Racing Law that requires that off-track betting be conducted in a manner compatible with the well-being of the State’s horse racing and breeding industry. It seems contradictory to permit the continued duplicity of operation under this statute. Less expense by the OTB's means more can be returned to the industry.

Anonymous said...

It is the right thing to do to merge NYRA and OTB. Albany should take the lead here and get this done, including whatever management changes are required in both the OTB's and NYRA. Our industry needs this and we should demand it. Thoroughbred racing is bigger than any one person be they senior management, NYRA Trustee or OTB Board members.

I wonder if the Task Force failure to recommend the merger of OTB and NYRA is based on NYRA's shortcomings?

Anonymous said...
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Anonymous said...

Why is Hal Handel suddenly hosting a web conversation on Friday on NYRA's site. Is this an indication of Charlie Hayward's impending demise at NYRA as some have been suggesting is about to happen?

Anonymous said...

January 27, 2010
Live NYRA web chat this Friday night January 29, 2010
From NYRA:


The NYRA Executive Vice President and Chief Operating Officer Hal Handel will participate in a live web chat on Friday, January 29 at 8:00 p.m. EST.

Handel joined NYRA in September of 2007 and has held executive roles at Philadelphia Park , Monmouth Park, and the Meadowlands. He has previously served as the Chairman of the Thoroughbred Racing Protective Bureau,President of Thoroughbred Racing Associations, and Trustee of the American Horse Council. Handel brought a
legal background to the racing industry, having been Deputy Attorney General for the State of New Jersey Organized Crime & Special Prosecutions Unit and also the New Jersey Racing Commission.

Fans interested in carrying on a live dialogue with Handel may log on to
beginning this Friday at 8 p.m. No pre-registration is necessary and users may simply type questions and
comments in the chat field at the bottom of the page for Handel to address.

Anonymous said...

To the anonymous poster who wonders if Hal Handel doing the chat signals the demise of Charlie Hayward....

Shouldn't you solve the JFK shooting first before tackling this one?

Anonymous said...

My understanding is that Albany is furious with Hayward and in this environment he cannot survive. The Trustees and Dunker will throw him to the wolves (politely of course), after which Dunker will exit the stage quietly as well.

Hal Handel is a good man and I am sure he will be a breadth of fresh air at the helm at NYRA.

Anonymous said...

We need a consolidation of NYRA and the OTB's. If this means that existing NYRA and OTB management have to go, so be it.

We cannot keep rewarding mediocrity, which is what we have had at NYRA and the OTB's in this State for a very long time. The future of Thoroughbred horseracing, breeding and the thousands of jobs and green space are at stake.

Is there anyone in Albany or in any of these organizations willing to stand up and fight for a plan to finally fix the racing model in NY and put it on firm footing for future prosperity for all?

I hope Chairman Sabini steps forward and leads this charge because he is the one person with one foot in the industry and one foot in Albany that could make this happen.

Anonymous said...

Why is NYC OTB the only OTB to stream its Board of Directors Meetings? google Executive Order Number 3 for other ideas? Suffolk OTB is the only OTB that posts (BELATEDLY!!!) its Board of Directors Minutes on its website.
Fiduciary Duty? Just empty words?

Anonymous said...

Each and every bettor, owner, trainer, track employee, OTB employee of any OTB should attend the Bankruptcy Court hearing on February 22, 2009 to make a statement(?) by presence. The Court room should be full.

A public benefit corporation should be a self sustaining distributive scheme for spreading money around to many like manure. An honest day's work for an honest day's pay. No entitlements? No cars? No not working? No corrosive corporate ethos? A good character? A pleasantness? Some brain activity? The little people by their silence et al and the big people share responsibility for the State of affairs. When it come execution /haircut time it should be distributed widely. Each and every OTB likely has a problem with corporate ethos, people too big for their britches, a sense of entitlement, etc.

It is vaguely recalled that years ago government agents were worked hard from dawn to dusk at some junkyard or another alongside the boss who was the object of their interest. Work and character? What novel concepts. A bit of common sense? Even rarer?