Judge Rules NYCOTB Bankruptcy Can Proceed

New York City Off-Track Betting Corp. can continue its bankruptcy case.

New York City Off-Track Betting Corp., facing a possible shutdown, can continue its bankruptcy reorganization case, a federal judge ruled March 22 in a stinging rebuke of the New York Racing Association’s bid to halt the legal protection.

Bankruptcy Court Judge Martin Glenn said NYCOTB “will either reorganize or liquidate under the watch of this court.”

The judge rejected, point by point, all of NYRA’s legal arguments for trying to halt the Chapter 9 bankruptcy filing by NYCOTB, and offered a seemingly sympathetic take on the fiscal plight facing the nation’s largest off-track betting entity.

The ruling came on the same day the NYCOTB board of directors went another step toward issuing layoff notices to its employees. NYCOTB is looking for a major rework of how it distributes its revenue to fix what it calls a broken business model; NYRA has opposed the move, saying it would lead to the loss of millions of dollars each year to NYRA tracks and other stakeholders.

NYCOTB recently floated a plan to the state legislature and Gov. David Paterson to delay certain statutory payments—including to the state and racetracks—until the end of June to give officials time to work out a permanent deal to save the operation.

The clock is ticking; lawmakers are due to leave Albany for an 11-day break at the end of the week, not returning until April 7. NYCOTB said it will run out of money to continue operations on April 11, forcing it to close its 66 branches and lay off workers.

The NYCOTB board March 22 authorized layoff notices to be sent to its 1,300 workers, effective at the close of business April 11.

NYRA had argued the NYCOTB Chapter 9 reorganization petition should be tossed out, insisting the entity sought the protection in bad faith to avoid paying creditors, including NYRA, which claims it is owed $15 million by the state-owned corporation. NYRA also claimed NYCOTB failed to seek other alternatives to bankruptcy, and filed its case as inappropriate leverage for negotiations on its proposed changes to its business model.

NYRA said NYCOTB also knew its plan would face challenges at the state capital on its plan, such as sprawling new gambling centers, unstaffed betting kiosks, and $250 million in borrowing.

But the bankruptcy judge dismissed the NYRA claims, calling them, for instance, “an overreach” by NYRA to say NYCOTB needed the state legislature to approve the bankruptcy filing. Glenn noted Paterson issued an executive order approving the filing by NYCOTB, which was created by the state in 1970.

Glenn countered a number of NYRA’s chief talking points, saying its financial problems are largely the result of its state-created business model, and that NYCOTB has made budget cuts to try to address the problems.

The betting corporation makes payments to various stakeholders, including tracks and breeding funds, based on its total handle, not net revenue. The result, the judge said, is its distributions “frequently outpace” its earnings.

The judge, in a 43-page ruling, noted the state increased the NYCOTB’s mandatory distributions by $7.8 million a year, on average, between 2003 and 2005. He said the corporation has run deficits since 2006.

NYCOTB’s total handle as of last September was $441 million, with total revenue after paying bettors down to $109 million. When all payments were made, NYCOTB was left with an $8.7 million deficit.

The judge said NYCOTB has “limped along” since the state in 2008 took it over from New York City government, which was threatening at the time to shut down the operation. The fate of the corporation, the judge said, will depend on the actions of state officials and the NYCOTB’s “further negotiations with each of its important constituencies.”

Meyer Frucher, chairman of the NYCOTB, said he is encouraged by the judge's granting of the OTB's Chapter 9 protection. But, he added, "We face the sobering reality that without immediate legislation not even the protection of Chapter 9 will keep us afloat.''

Frucher said layoff notices will go out March 26 if no deals are reached in Albany by then. "We sincerely regret this action and remain hopeful that the Legislature will take action this week that will enable NYCOTB to remain in operation while a long-term solution can be finalized,'' Frucher said in a statement.

NYCOTB filed for Chapter 9 reorganization protection Dec. 3, 2009. NYRA was joined in its opposition to the NYCOTB bankruptcy case by the New York Thoroughbred Horsemen’s Association and the New York Thoroughbred Breeders.

Charles Hayward, NYRA's president, declined comment, saying NYRA lawyers are still reviewing the decision.