(Edited press release)
New York Gov. David A. Paterson on Sept. 1 signed Executive Order No. 27, authorizing the New York City Off-Track Betting Corporation (NYCOTB) to file a petition for reorganization under Chapter 9 of the federal bankruptcy code. The governor issued the order after it was determined that NYCOTB requires major restructuring to regain solvency. Paterson has directed the NYCOTB board of directors, led by Chairman Meyer “Sandy” Frucher, to provide the governor’s office with a restructuring plan within two months, which likely will include a Chapter 9 filing for NYCOTB.
“This Executive Order will provide necessary flexibility to help restore NYCOTB to financial viability without any investment of State resources,” Paterson said. “When we assumed responsibility for the struggling NYCOTB from New York City, we acted decisively to protect approximately 40,000 jobs statewide, which are maintained by the horseracing and breeding industries and depend on OTB revenue. After a year of study and intense effort at reorganization, we have determined that Chairman Frucher and the NYCOTB board need the tool of a Chapter 9 restructuring to keep NYCOTB in operation.”
NYCOTB is currently running a structural deficit of nearly $600,000 per month. This is compounded by unfunded liabilities in excess of $500 million, a significant portion of which is employee retirement, health, and related benefits. Declining wagering revenues, an outdated business model. and an unfavorable statutory funding formula are contributing factors to NYCOTB’s insolvency.
Frucher, appointed by Paterson last June, said: “NYCOTB will likely be unable to fund operations beyond March 31, 2010. We are considering a range of options aimed at restoring fiscal equilibrium to NYCOTB. Our goal is make NYCOTB a modern wagering operation that can operate lean and maximize revenue for state and local governments as well as the horse racing and breeding industries. In this process, we are committed to treating the NYCOTB workforce in a fair and equitable manner. And to the fullest extent possible, the NYCOTB Board intends to achieve consensus among all of the corporation’s racing industry stakeholders, its employee representative organizations, and other creditors during this reorganization process.”
Frucher’s findings are supported by an audit produced by the New York State Comptroller’s Office, which recognized NYCOTB as a critical component of the horse racing industry that it called “too important to fail.” The comptroller’s report added that “inaction will mean insolvency.”
At Paterson’s direction, the NYCOTB Board’s restructuring plan will focus on reducing NYCOTB’s expenses, and will include recommendations to modernize the operational model to meet the demands of a changing wagering demographic.
Pari-mutuel betting on horse racing is authorized by the New York State Constitution in order to derive reasonable revenue for the support of government. In 1970, the legislature authorized the off-track betting system in New York, which included the establishment of NYCOTB as a public benefit corporation. Since its establishment, NYCOTB has generated in excess of $4.5 billion for the support of State and local governments and the horse racing industry. NYCOTB handles almost half of the total amount of money wagered on horse racing annually in New York State.
New York Racing Association president and CEO Charles Hayward said: “NYRA applauds the bold initiatives that Gov. Paterson and Chairman Frucher are undertaking to reorganize NYCOTB, which plays a critical role in the horse racing industry and the economy of New York State. We pledge to work with them in advancing the interests of racing industry stakeholders and the citizens of New York.”