New York ponders OTB consolidation

Updated: December 15, 2010, 10:54 PM ET
By David Grening | Daily Racing Form



ALBANY, N.Y. -- In the wake of the shutdown of New York City Off-Track Betting Corp last week, state Assemblyman J. Gary Pretlow said he believes a consolidation of the state's remaining five regional Off-Track Betting companies is something that is feasible and necessary to preserve New York's racing industry.

"I think it is," Pretlow said after his Committee on Racing and Wagering held a hearing Wednesday in Albany. "Of course the OTBs say no, that they're doing a yeoman's job providing funds to counties, but I think with the duplication that's going on that could be eliminated and more monies could be sent to the counties."

Pretlow and fellow Assemblymen Robert Reilly (D-Colonie) and Timothy Gordon (D-Rensselaer) heard three hours of testimony from Thoroughbred and Standardbred track operators, breeders, as well as representatives from two of the state's five regional OTBs. With the exception of the OTB representatives, most witnesses called for the consolidation of duplicative services such as account wagering, marketing, tote systems, and television under one banner.

Joe Faraldo, present of New York's Standardbred Owners Association, suggested that a third entity be created made up of a consortium of track people, horsemen, and breeders, a system "that is currently being done in Illinois, Pennsylvania, and New Jersey," Faraldo said. Faraldo suggested that the current OTB management not be involved in the new entity.

"I don't believe the OTB corporations have a unity interest in the sport," Faraldo said.

Charles Hayward, president and CEO of the New York Racing Association, which runs Aqueduct, Belmont, and Saratoga, said he believes an independent third party should be brought in to examine the financial records of the regional OTBs -- and offered up NYRA's books as well -- and make a recommendation of how a consolidation should be done and who should run the new OTB model.

"I don't think it would be difficult to get somebody objectively under the aegis of the Assembly or Senate or the Governor to form a task force," Hayward said. "There's plenty of good models that are out there. We'd be happy to contribute to that, we'd be happy to do the study, but frankly it would be tainted and it wouldn't go anywhere. I think with the demise of New York City OTB we need a call to action. The solution shouldn't be for the other OTBs asking for more money, that's just not going to be work for anybody."

Hayward was referring to the regional OTBs seeking the same legislative relief that New York City OTB was seeking in an effort to get out of bankruptcy. Primarily, the remaining five regional OTBs are asking to pay less in statutory payments to the racing industry, which they claim will then enable it to pay more money to state and local governments.

Don Groth, the long-time president of Catskill OTB, said that OTBs are profitable and that the legislature needs to decide "whether it wants to utilize that revenue for private racing corporations or for local and state governments. Either the legislature fixes the statutory laws or its inaction will kill off OTB and each region will ultimately succumb to bankruptcy"

Hayward claims that the regional OTBs contributions to local governments have decreased from $96 million in 2000 to less than $25 million in 2010.

"I guess in my view patronage has won out over support of the communities," Hayward said.

Pretlow said he doesn't believe that the state's OTBs are paying too much to the state and rejected out of hand the notion of OTBs paying the industry off their net receipts as opposed to the gross receipts.

"No they don't pay too much," Pretlow said after the hearing. "They're supposed to run their business efficiently. The reason they pay on the gross and not on the net is because if they're allowed to pay on the net there would be nothing left over."

Groth and Joseph Signor, president of Capital OTB, were the only two OTB representatives present at the hearing. Both rejected the notion that none of the regional OTBs took any cost-cutting measures.

Groth said that Suffolk OTB's expenses are the lowest they have been since 2001 and that it has eliminated 30 percent of its workforce, closed two branches, and has given its employees one 3-percent raise in five years.

He said that Capital OTB closed unprofitable branches, cut expenses by $4.5 million and reduced staff by 45 percent. Finally, he said Catskill OTBs expenses are the lowest since 2001.

One of the primary topics brought up by a majority of the 13 witnesses was the ability to allow the state's tracks and OTBs to offer live video-streaming of the races. It was believed that the OTBs were holding up this initiative, but according to Groth, a meeting was held among all parties on Tuesday and that he believes it will eventually happen.

"I think it has to happen, it is the future or it will be the future," Groth said.

Naturally, Groth was not in favor of a consolidation of the OTBs into one entity.

"I don't see how that solves the problem," Groth said. "You still have to change the laws. New York City OTB would be alive today if the laws were changed regarding the formulas."

Pretlow said his committee will analyze the testimony and make its recommendations to the new administration, led by incoming Gov. Andrew Cuomo, in 2011.

"This was a budget hearing, we're trying to raise revenues or save expenditures for the state; that was the real purpose of this," Pretlow said. "I don't know who'll be handling this area in the new administration, but we're going to be in contact with them and see if they want to do something with it."

Hayward defends raises

Though he agreed that the timing of the announcement was "completely horrible," Hayward defended the fact that NYRA's board of directors approved a 3-percent pay raise to non-union employees and a 5 1/2-percent raise to upper management on Dec. 7, the same day NYC OTB shut down and a day after NYRA threatened bankruptcy had a Senate Republican bill designed to save OTB passed.

Hayward said that NYRA had to submit its 2011 budget to the board at its December meeting and that it just so happened to coincide with OTB closing. He said that the Franchise Oversight Board would have released the information to the public in January, but that a board member obviously leaked it to the press last Friday.

However, Hayward said that the raises were justified because NYRA employees had not had a raise in three years while having their pensions frozen and having to pay higher health insurance premiums.

"I will stand by the work of our employees, the work they've done to downsize," Hayward said. "They've given up their pension, made big contributions to medical payments. In Albany that might be a little interesting for them to take up what we're doing."

Hayward said NYRA has reduced 250 jobs, or 22 percent of its workforce over the last three years, including one top-level executive position.