Rotten Apple

If the privatization of the New York City Off-Track Betting Corporation was a horse race, the inquiry sign would have lit up immediately after the city's mayor, Rudolph Giuliani, on Aug. 2 announced the bureaucracy would be sold to a group headed by Frank Stronach's Magna Entertainment and Bob Green's Greenwood Racing.

There is no logic to the decision, and of course no interest on the part of the seller to do what is best for the racing and breeding industry in New York or for the fans who have put up with decades of incompetence and arrogance from OTB. According to the mayor, it was all about money--which group made the highest bid. Giuliani said the Magna-Greenwood offer was so significantly higher the decision was a "no brainer." Barry Schwartz, chairman of the New York Racing Association, the losing bidder, vehemently disagreed, and pledged to do everything in his power to prevent the proposed sale from getting the necessary approval from the New York state legislature.

New York City OTB has represented the worst of government intrusion on private enterprise. For the past three decades it has been an insidious leech, siphoning millions out of the racing industry. Worse yet, the OTB parlors have shaped racing's image in the minds of a generation or more of New Yorkers. The image, reflecting the dirty and seedy atmosphere of the typical OTB, has delivered a huge blow to NYRA's efforts to compete in the entertainment marketplace.

NYRA and New York's horsemen own what should be the world's best racing product, and that partnership should control the distribution of the product in its most important market. Under that scenario, NYRA would better market and promote racing, to the betterment of the sport and to the bottom line of the city and state of New York. It's logical to think a NYRA-owned OTB system would prove far more profitable than any other arrangement, and subsequently pay more in taxes.

Since he began his aggressive pursuit of racetrack ownership in the last few years, Stronach has frequently spoken of a desire to own a track in New York, and he has publicly butted heads with NYRA. Green, with his background as a legal bookmaker in England, is a calculating businessman who has made the most of his opportunities with Philadelphia Park and telephone wagering in Pennsylvania, and is positioned to benefit from the expansion of off-track and account wagering in New Jersey. The third party in this alliance, Racing Enterprises, consists of William Mack and Robert C. Baker, two influential real estate developers who happen to be friends and co-owners of racehorses with New York City OTB chairman David Cornstein.

This is a shrewd partnership that recruited some high-profile lobbyists who helped them over the first hurdle, convincing Giuliani and his staff to let them buy the OTB system. I wouldn't sell short the partnership's ability to woo state legislators, either.

This deal isn't about Magna getting a toehold to build a racetrack in New York. The acquisition of New York City OTB would give Magna and Greenwood the opportunity to bring their out-of-state product into the betting parlors and homes in the nation's largest population center. With tracks in California, Florida, Ohio, Michigan, Oklahoma, Pennsylvania, and New Jersey, Magna and Greenwood have an enormous number of simulcast signals to sell. Who's to say the partnership won't push those out-of-state signals to New York fans more than the local product operated by NYRA?

Years ago, Giuliani made a campaign pledge to sell the city's OTB system to a private company. He leaves office later this year and wants to be able to say he made good on that promise. But while the sale may bring a quick infusion of cash to the city's coffers, Giuliani is putting the future of New York racing in the hands of people whose interests lie elsewhere.