Setting the stage for a nasty battle between two racing giants, New York City Mayor Rudolph Giuliani Thursday afternoon tapped a group led by Frank Stronach's Magna Entertainment over the New York Racing Association as the winning buyer of the lucrative New York City Off Track Betting Corp.
The $389 million deal, nearly two years in the making, gives Magna and its partners, Greenwood Racing and thoroughbred owners and real estate developers Robert Baker and William Mack, a crucial entry into the New York gambling market as part of an enterprise that company officials have said will eventually become a worldwide betting syndicate.
The deal includes an immediate payment of up to $260 million, plus an ongoing cash flow that will be worth millions more each year to the city. City officials said Magna's bid came in $113 million higher than NYRA's.
The official purchaser is GMR-NY LLC, a partnership consisting of Magna, Greenwood, and Racing Enterprises LLC, the company owned by Baker and Mack.
"OTB used to be known as the only bookie in the world who lost money," Giuliani said. "It was a sad commentary on the times when government shifted its focus from delivering essential services to trying to run a commercial enterprise for profit.''
"When I first proposed selling OTB in 1993, few investors were interested in bidding for an organization that operated with a $5.3 million deficit. Since then, our management team reformed the corporation, emphasized accountability, and succeeded in turning this money-losing operation into a profitable business venture. Today OTB has an enormous market value, and it is the right time to sell it. I am very pleased to be able to make good on my earlier campaign promise. But the real winners today are the people of the City of New York, who will see returns of hundreds of millions of dollars to the city's coffers. This is a great example of how privatizing non-essential services can bring tremendous benefits to our city," he added.
``We are very pleased to be selected as the successful bidder for NYCOTB'', said Stronach, chairman of MEC. ``We applaud the Mayor and his colleagues for delivering on their commitment to privatize NYCOTB. The goal of our group is to make NYCOTB an industry leader, offering 21st century wagering facilities, amenities and technology to OTB customers. We will begin immediately to meet with union leaders representing NYCOTB employees to develop a win/win relationship. For as long as I have been in business the key to success has been aligning the needs of workers, managers and the providers of capital to produce a better product at a competitive price. We are committed to utilizing this proven formula in building NYCOTB. In this way we will not only improve profits but we will grow and thereby create more and higher paying jobs. Growing NYCOTB will also generate additional purse money and benefit New York horsemen.''
"While completion of this transaction is dependent upon the passage of enabling legislation and certain other conditions, we will work with labor, the city, the state and racetracks throughout New York to bring about a successful transition from public to private ownership that all of New York can be proud of,'' Stronach continued.
``The success of the off-track betting business depends on the quality of the live racing product being offered to the wagering public'', said Jim McAlpine, MEC's president and CEO. ``To this end, GMR is committed to working with the racetracks in New York to ensure we deliver a first class product to our off-track customers.''
A deal was all set to be announced a couple weeks ago, but Stronach's team made several last-minute bid changes that sources said Giuliani found unacceptable. The press conference was called off just a half hour before Giuliani and Magna officials were set to appear.
The announcement this afternoon came just a few weeks after NYRA Chairman Barry Schwartz said it would be "an affront'' for Giuliani to award the NYCOTB contract to the Canadian-baesd Magna and Pennsylvania-headquartered Greenwood over NYRA, which has run racing in New York for decades.
The sale is far from complete, however. A host of changes in state law, not the least of which includes allowing a private enterprise to take over a public authority. NYRA officials have already planned an all-out blitz to block the deal at the state Capitol, where approval of the sale is needed. Legislative insiders have been saying for months that the sale faces an uphill battle in Albany, in part because of NYRA's political might, opposition from New York City Democratic leaders and the lameduck status of Giuliani, who leaves office at the end of the year.
But the Magna team has a host of political power of its own, including a high-priced lobbying team that includes the former state Republican Party leader and a former aide to the legislature's top elected Democrat.
NYRA officials strongly disagreed with the decision to award the contract to the Magna group.
"We are obviously disappointed," NYRA chairman Barry Schwartz said. "We can't understand how the city could make such a stupid decision. It goes against the industry, the players and all interested in the welfare of New York racing. It shows callous disregard and it won't be shoved down the throats of the legislature."
NYRA president Terry Meyocks added: "It's only round one. We will do whatever best for the for the state of New York and our industry."
The agreement announced Thursday includes contingencies that could push the total sale price to $389 million, which would include $50 million in improvements to OTB locations.
"I'll bet right now that Magna will not pay $260,000,000 to the city," Schwartz said. "He'll never write that check. The $389,000,000 figure is pure 'fuzzy math.' Our contract with OTB remains in force and it is not assignable."
Meyocks said: "We feel this decision does not represent what is best for the state, as well as the breeding industry, horsemen and our fans. There are 40,000 jobs that could be affected."
NYRA had been joined in its bid by Churchill Downs and the TVG Network. In response to the announcement, Thomas H. Meeker, Churchill's president and chief executive officer, said, "We respect the City's decision and, assuming the transaction closes, we look forward to working with the new owners. The strategic focus of our involvement in the bidding process was to ensure continued access to the New York City market for our Churchill Downs Simulcast Network programs. We currently have an agreement with NYCOTB through 2003, and beyond that, we expect we will be able to continue our strong relationship with NYCOTB as one of our simulcast customers."