NY Breeders Group Issues Warning

Group joins with NYRA in seeking rejection of OTB Chapter 9 petition.

The New York City Off-Track Betting Corp.’s bankruptcy petition and attempt to alter how it funds the racing industry risks severely undermining the state’s already hard-hit breeding programs, New York’s leading breeding group is warning.

The New York Thoroughbred Breeders this week joined the New York Racing Association seeking to get a federal bankruptcy court to reject the NYCOTB’s Chapter 9 reorganization petition.

The breeders, the 11th largest unsecured creditor of the NYCOTB, which owes the group $1.8 million and growing by the day, said the state’s Thoroughbred Breeding and Development Fund would lose one of its chief financing sources if NYCOTB is successful in changing how its statutory distributions to the industry are altered.

The NYCOTB, which faced insolvency last year before being taken over by the state government, sought Chapter 9 reorganization protection in early December in a federal court in Manhattan. It is hoping to buy time with creditors in order to get enacted at the state Capitol a change allowing the calculation it makes to industry groups, tracks and state and local governments to be made after it funds its own operating expenses.

“This new distribution scheme would be based on revenue that results after NYCOTB pays its hefty overhead costs, which would result in insufficient or potentially zero funds…left over to distribute to the New York Thoroughbred breeding and racing industries,” the NYTB said in its Jan. 6 filing with the U.S. Bankruptcy Court in the Southern District of New York.

The breeding fund account, covered by state law, provides money from a small percentage of wagers made at the state’s OTBs for the industry through higher purses and breeding fund awards.

The court filing says NYCOTB provides $3.8 million to the breeding fund, which represents about 36% of the fund’s total revenues. OTBs pay the fund a half of 1% of the various total daily betting pools, except 3% on super-exotic wagers.

The NYTB said the timing of the NYCOTB’s court action and reimbursement change proposal is especially bad for the industry. The court papers from NYTB said the past two years “have been the most devastating ever suffered by the state’s breeders.”

“The economic slowdown has hit New York’s equine industry hard and the national industry has begun a contraction phase that has further hurt New York breeders,” the papers state.

The NYTB said three of the state’s largest commercial equine farms have closed in the last year--taking more than 400 broodmares, or 15% of producing horses, with them.

Moreover, competition from bordering Pennsylvania racinos have pushed some breeders across the state lines to a  program there that is now 36% larger than the New York fund, the NYTB said. It predicts 500 fewer horses in New York within two years following a 2009 foal crop that was off 15% from the previous year.

The court filing said the NYCOTB plan will worsen the fund’s balance that, in turn, will add to the recession-worsened slide in breeding operations in the state. In the end, that will affect not only breeders. “The horses they breed are the ‘product,’ without which no venue could conduct pari-mutuel wagering,” the papers state.

“Without the product--the horses--there would be no race to hold, no ticket to wager and no handle to disburse. The simple fact is organizations such as NYCOTB might cease to exist without the production of horses by breeders of New York state,” the NYTB said.

The court filing comes as stakeholders are set to testify before a state legislative hearing Jan. 8 in Manhattan by lawmakers considering the NYCOTB plan.

The NYTB's executive director, Jeffrey Cannizzo, is expected to repeat the warnings laid out in the court papers at the Jan. 8 legislative hearing, warning that breeding operations risk widespread shut-downs if the NYCOTB plan is successful.