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.
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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.