FNYR Study, OTBs Differ on Health of System

Revenue to localities in the six off-track betting regions in New York is down more than 50% from 2000 to 2004, according to the results of a study commissioned by Friends of New York Racing, the organization that seeks to build a better economic model for the pari-mutuel industry in the Empire state. Two OTB corporations, Capital and New York City, have issued responses to the report, which they believe doesn't tell the whole story.

More than 75% of all wagering on horse racing in New York is generated by off-track betting parlors, according to the FNYR study performed by Wargo & Co. The study tracks OTB numbers for selected years since 1980 and looks at handle, gross revenue, expenses, and local impact.

A FNYR overview that accompanies the report says benefits for communities in the OTB regions dropped from $97 million in 2000 to $45 million last year. It says the decline in benefits was primarily caused by a $27 million increase in OTB operating expenses (from $209 million to $236 million), a $13-million increase in payments to tracks (from $154 million to $167 million), and the imposition of an $8-million (0.39%-of-handle) state regulatory fee implemented in May 2003.

Since statewide annual OTB handle ($2 billion) and gross revenues ($500 million) have been roughly flat since 2000, the decline in benefits to localities reflects a shift in the distribution of gross revenue away from localities and toward the OTB corporations for their operating expenses, the state, and the racing industry.

The overview says that since 1985, the allocation of OTB revenue to the racing industry has gradually increased from 24% of gross revenue to 36%.

OTB operating expenses absorbed 37% of gross revenues in 1980, but by 2000, OTB operating expenses were 41%. Since 2000, OTB operating expenses have risen markedly and reached 47% of gross revenue in 2004.

"Analysis of their operating trends shows the OTB (corporations) are in rapidly declining financial health, a trend that has accelerated in the last two to three years," the overview states. "Recapitalizing and restoring the New York horse racing and pari-mutuel industries must include these off-track elements, and should not be limited to improving the economics of the racetracks."

In a statement released Nov. 1, Capital OTB president Michael Connery said the FNYR report validates what OTB corporations have been saying for three years about how industry and legislative actions have had a negative impact on revenue generated by OTB facilities for local governments. He said the initial report shared with OTB corporations "stated correctly that OTB expenses over that last decade have been 'kept in check'-- below the rate of inflation. This Friends report contradicts the initial Friends summary on OTB expenses."

"This new report also attempts to paint all OTBs with the same brush, which in my view is wrong and counterproductive," Connery said.

Connery said Capital OTB has operated "efficiently and effectively" for the past three years, and in 2005 has distributed nearly $6 million to 17 municipalities, up from last year. He said Capital OTB handle is up and spending is down by $1.2 million or 6.5% this year.

"In my view it is false for the Friends of New York Racing to claim that Capital OTB or any OTB is not providing its localities with significant revenues," Connery said in the statement. "I'm sure I speak for all the OTB corporations when I say that we welcome FNYR to assist us in our efforts to enact legislative changes that will help the racing industry and our county partners. Capital OTB generates millions of dollar annually for the more than 1.6 million residents/taxpayers of the municipalities the corporation serves.

"We recommend that any legislative changes take into account both the importance of the racing industry as well as the taxpayers that benefit from OTB revenues."

New York City OTB released a summary of recent trends in handle and revenue distribution. It said OTB corporations have made the same case to state legislators and regulators; increases in OTB expenses have been kept in line with inflation; and payments to bettors, the racing industry, and the state have acutally increased by percentage of handle.

"The OTBs are constantly exploring ways to minimize operating expenses, while continuing to deliver high-quality products and services, and continuing to work with legislators and industry particpants, including FNYR, to find solutions," the summary said.

New York City OTB noted the FNYR study would, however, "be helpful as the industry works together to strengthen New York's pari-mutuel industry and its many benefits to state and local government."

FNYR will participate in a Nov. 15 think tank at the Albany Law School. The idea is to bring all factions of the New York pari-mutuel industry to the table to facilitate consensus on omnibus racing legislation for 2006.

"The timetable is that we will be doing our last report for 2005 in December," said FNYR president Tim Smith, formerly commissioner of the National Thoroughbred Racing Association. "That's to allow us time to factor in whatever suggestions and reactions come out of the event on Nov. 15. Everybody involved understands this is a completely independent look at the issues."

FNYR is focusing on two major areas: proposed racing reform legislation and what Smith called "written components" of a franchise request for proposal a new state committee is charged with drawing up. Its initial report suggested such things as racetracks and OTB facilities being operated by the same entity, and installation of video lottery terminals at Belmont Park.

The relationship between the OTB networks and racetracks in the state is one of the key issues being addressed by FNYR.

The New York Racing Association franchise to operate Aqueduct, Belmont, and Saratoga expires at the end of 2007, though some state officials have indicated they want to accelerate the process.