Courtesy NYCOTB

Audit Shows Declines at New York OTB

State comptroller says future bleak without changes in way OTB operates

The financial health of off-track betting corporations in New York is “substantially’’ deteriorating, and policymakers must react by considering everything from changes to the formula by which OTBs share revenues with racetracks to whether out-of-state advance deposit wagering companies should be regulated, the state’s chief fiscal watchdog warned.

Dragged down by a continual decline in wagers on horse racing, the OTBs have seen total handle drop 10% over the last five years, according to state Comptroller Thomas DiNapoli.

“If OTBs are going to remain viable, New York will have to take action to bring back the bettors and fix OTB,’’ DiNapoli said May 20.

An audit of the state’s five regional OTBs, not including the money-losing state-owned New York City Off-Track Betting Corp., showed them taking in about $4.9 billion in handle from 2004 to 2009. But the level fell during the period, including as recent as the first five months of 2009, in which OTB handle was off 10% from the same period in 2008.

After paying bettors, the OTBs, by law, were required to pay 56% of the remaining handle to the state, local governments, and the racing industry. DiNapoli said that, with the decline in wagers and the mandatory payments to the racing industry and governments, the OTBs saw their total net operating revenues decline 67% during the period.

“The point of the report is to suggest if the political choice is to keep OTBs viable for the future we’re at a point where we need to look at the framework of where they operate based on our laws,’’ DiNapoli said.

With the stress of the economy and more gambling competition, the audit suggests the off-track betting corporations “on their own will not be able to manage all the challenges they have,’’ the comptroller warned.

One OTB--Western Regional Off-Track Betting Corp.--has fared better than the trend. But that is only because, DiNapoli said, that OTB is alone in owning a racetrack with a casino--Batavia Downs, which has helped prop up the loss of handle on pari-mutuel wagering. But he warned those revenues are not a guaranteed winner into the future.

The comptroller recommended state officials “review” the formula by which OTBs make statutory payments to racetracks and the state, the ability to place remote wagering locations, and whether out-of-state ADWs should be regulated in New York.

DiNapoli said he is not formally embracing any one solution, but said he hopes to prod the sides into action. “Something should be done,’’ he said.

State Racing and Wagering board chairman John Sabini put a share of the blame for the declines facing the OTBs on the OTBs themselves. “The OTBs have really never made any effort to change their business model…that’s unfortunate,’’ he said.

While OTBs focus on what the state should do, such as changing the revenue distribution formula, Sabini said the OTBs need to better embrace changes, such as consolidated systems for tote, Internet, and marketing programs, as a way to save money.

“If they’re doing those things, it is glacial and just around the edges,’’ he said of current efforts by the OTBs.

Sabini said there is a “general agreement’’ the OTB distribution formula needs work, especially money they must pay to tracks with lucrative casino operations.

But some of DiNapoli’s ideas are not practical, the top racing regulator said. He noted, for instance, the state would have a difficult time overseeing ADW companies. “It’s hard for us to regulate activities we don’t license,’’ he said, arguing matters like internet wagering is an issue the federal government can better resolve. “We’re not confident we’re in a position to enforce (ADW laws),’’ he added.

The DiNapoli audit of the regional OTB operations said their total handle fell by a combined $103 million over the past five years. The audit criticized a 2003 state law that allows OTBs to take wagers on nighttime racing but only if they compensate harness tracks for those simulcasting rights. The audit said those compensation rates are “outdated and too high.’’ It also noted harness tracks can halt an OTB's ability to locate a remote betting operation.

“As conditions in the industry change, the legislation governing the (OTB) corporations must also evolve to address the existing conditions,’’ the audit said. The DiNapoli audit said some OTBs have cut costs in the face of decline handles, but said they should more swiftly move to rewards-type betting programs, automated telephone wagering, and closing of money-losing parlors.

In a statement released by the presidents of Capital, Catskill, Suffolk, and Western OTBs, officials called the audit a "clear-sighted analysis'' by DiNapoli that the betting corporations are limited how far they can cut spending and that state policy actions are needed. They said the OTBs have already embraced such ideas as a group internet wagering platform and have closed branches in favor of self-service locations.

The OTB presidents of the quasi-government entities called for an "overhaul'' of the distribution formula to reduce payments to private racetracks. They noted DiNapoli's finding that the OTBs distributed $420 million to the racing industry between 2004 and 2008, and that local governments saw proceeds from the OTBs drop from $37 million in 2004 to $24 million in 2008.

“The current economy is bruising to businesses of all sizes in just about any sector,” said Catskill OTB President Donald Groth. “As CEOs, we recognize that we must continue to shrink, reinvent and economize our operations. What we cannot tolerate is the fact that no matter how we cut our expenses or grow our businesses, the siphoning by private tracks negates any progress we make.”