'Immediate' Action Only Way to Save NYCOTB

“In two months, NYCOTB will run out of operating cash and close its doors,’’ Meyer Frucher, the NYCOTB leader, told a state legislative hearing this morning in Manhattan.

The shut-down, Frucher warned, could have devastating consequences on the state’s equine industry, both at the tracks and farms, but can be avoided if the Legislature takes “immediate’’ action to embrace the plan OTB officials have devised to turn around an operation long derided by officials as the only money-losing bookie operation.

The New York Racing Association made clear in court papers earlier this week that it opposes the NYCOTB bankruptcy petition and its plan to change its revenue distribution formula. At the Jan. 8 hearing, NYRA president Charles Hayward reportedly floated the idea -- long talked about in the industry -- of NYRA taking over NYCOTB. He provided no details, but said NYRA is working on making a plan public in the next couple of weeks.

The OTB last month filed a Chapter 9 bankruptcy reorganization petition, with officials saying the state has to change the formula by which the OTB pays industry entities and the state and local governments to let the OTB keep more of its revenues to run its operations. Industry groups, including the New York Racing Association, have roundly condemned the plan, saying it would sharply cut needed revenue-sharing funds they now get from the off-track giant.

Frucher told the Senate and Assembly committees holding the Jan. 8 hearing that the distribution formula is the “most critical’’ change the state must adopt in order to save the NYCOTB. The OTB wants to have the formula be based on proceeds left after it pays for its operations, not as before as is now done.

“NYCOTB will pay for the product and services it receives, at fair market value, as part of its operating structure. All other payments to the industry will be from the residual,’’ he said. “Without this change there can be no refinancing and, thus, no OTB. This is a zero-sum game.’’

Frucher also wants to push more OTB betting onto the internet and away from its traditional bricks-and-mortar operations. He is proposing to close 34 of 54 of the OTB’s branches that are scattered around New York City. He also wants to add 1,300 betting kiosks scattered around the city in bars, restauratns, and possibly other locations.

The OTB plan also includes:

•  slashing its current, union-dominated workforce by 55% through early retirement, attrition, and a severance package; the current workforce is 1,300 employees

•  opening five new, entertainment centers in each of the city’s five boroughs

• tapping into private financing – an unusual move for a state-created, public benefit corporation – to help close its deficit and raise money for new capital needs

• getting new state laws passed criminalized unlicensed, out-of-state betting centers;

• creating a new entity to help consolidate redundant operations between the state’s regional off-track betting corporations.

The OTB boss, though, said the state Legislature needs to act “swiftly and decisively’’ to embrace those plans in order to save the NYCOTB.

Frucher predicted a “closer alignment’’ of the long and nasty competition between the OTBs and tracks if his plan to change the revenue distribution formula is adopted by the Legislature.

To push the seriousness of the situation, the OTB leader said more than 1,000 OTB workers will receive layoff notices in the next few weeks.

Frucher defended the NYCOTB, which he said over the years has contributed more than $2 billion to the state and New York City in the form of revenue sharing. He said shutting down the OTB will cost the state up to $700 million in various pension and employee benefit costs.

“I am here to ask you to rescue NYCOTB from insolvency. We have never received taxpayer money and we are not going to ask for it. That would be wrong. We are, however, $95 million in debt,’’ he said in written remarks delivered to the legislative panels.

As Frucher was promoting a new doomsday scenario for the OTB – last year, city officials threatened to close it before the state ended up taking over the NYCOTB – representatives from the New York Thoroughbred Breeders condemned the revenue change being sought by the OTB.

Jeffrey Cannizzo, NYTB’s executive director, said in prepared remarks that NYCOTB was attempting to perform an “accounting trick’’ that will sharply cut revenues to industry entities that now share in NYCOTB revenues. He predicted a “death spiral’’ for the industry if NYCOTB is successful.

In his written testimony, Hayward made no mention of a straight takeover by NYRA of the NYCOTB, and sources close to NYRA Saturday were trying to walk away from a media report that quoted Hayward as floating the idea at the hearing.
 

The New York Racing Association earlier this week submitted court papers challenging the NYCOTB bankruptcy petition, saying it should be tossed out and that a plan to permit it to re-do the formula by which it shares revenues with the industry and government should be scuttled.
 

In the Jan. 8 hearing, NYRA President Charles Hayward called the NYCOTB plan "preposterous.''

"This change would destroy the thoroughbred racing and breeding industry in New York,'' he said.

Hayward noted that the NYCOTB has taken no serious steps to reign in expenses since New York City officials first talked of closing down the operation more than a year ago through the current state-run period of its existence. "No action. No plan. So let's reduce payments to the racing and breeding industry says NYCOTB,'' Hayward said.

Hayward said NYRA and NYCOTB should consolidate several efforts, including creating a single tote system, a joint phone and internet wagering system, a single television and broadcast media effort and a unified marketing effort between the tracks and OTB.

The plan being pushed by NYCOTB will hit hard the state’s breeding program, which relies for 70% of its revenues from the state’s OTB operations. “And if the New York breeding industry goes belly up, this will put the racing industry here in New York out of business,’’ Cannizzo said.

Not all racing interests, however, oppose the NYCOTB plan. Robert Galterio, vice president and general manager of Yonkers Racing Corp., spoke in favor of Frucher's plan, though he included several caveats, such as continuing simulcasting payments to tracks competing with the OTB simulcasts, regardless of the breed, and that the OTB be required to better showcase New York races in all their media and wagering platforms. Galterio also pushed a consolidation plan for the state's current six regional OTB operations on Long Island, New York City and upstate.

Yonkers is the NYCOTB's largest creditor, and the Frucher plan includes a borrowing component that would provide funding to pay off creditors 100 cents on the dollar.

But Galterio said any OTB reorganization should not, as some OTBs are seeking, permit them to offer VLTs. "Giving OTB our product, decimating our attendance base, destroying our revenue stream, requiring the tracks to seek relief from our heavy tax burden and, in a short time, looking for ways to keep OTB afloat; isn't that exactly the problem we are addressing now?'' Galterio said in his written testimony.