Battle Lines Drawn in NYCOTB Reorganization

Battle Lines Drawn in NYCOTB Reorganization
Photo: Courtesy of NYCOTB
New York OTB

Officials said they are close to a deal to try to bring New York City Off-Track Betting Corp. out of bankruptcy protection, but that a final agreement is being blocked by several harness tracks in the state.

“We’re not going to allow the harness tracks to take down the entire racing industry and to take down this corporation,’’ said an official familiar with the NYCOTB negotiations.

The official, speaking on condition of anonymity, said the harness tracks are insisting on the state rescinding the 1% additional take from racetrack casino revenue-sharing proceeds that was approved to help with the state’s deficit. The extra 1% is worth about $11 million for the state this year.

In addition, the harness tracks are demanding a sharp increase in free-play vouchers to try to lure more bettors to their video lottery terminal facilities.

On the bankruptcy negotiating table is a series of major changes for NYCOTB and the racing industry. NYCOTB, which plans to close nine branches, has reached tentative deals with its unionized workforce to cut about 40% of 1,300 people.

The tentative deal would create a new entity managed by the New York Racing Association and other tracks in the state to handle NYCOTB’s current telephone and Internet wagering programs. In return, tracks would give up millions of dollars in statutory payments now made by NYCOTB, such as maintenance of effort and “dark day’’ payments.

NYCOTB would also create partnership opportunities with tracks to open new betting and entertainment centers to try to attract a new generation of bettors.

“Everyone is making sacrifices,” the official said. “Everyone is feeling the pain across the board. But now the harness tracks are holding this up.”

The source involved in the talks said the harness push is coming strongest from Jeff Gural, who owns Vernon Downs and Tioga Downs.

“If they want to continue to be an obstacle, then we’re just going to cut off further negotiations and pursue a different strategy,’’ the official said.

The source said the 1% additional take by the state this year was done by the governor and legislature as part of the budget process. “That had nothing to do with NYCOTB,’’ the official said.

“Jeff is continuing to insist on getting the state to agree to that,’’ the official said of rescinding the 1% takeout. “He, as well as Yonkers and Monticello (raceways), have been told by the governor’s office and the division of the budget that it is a nonstarter. There’s nothing that he or the harness tracks can say that’s going to change our minds.’’

The official said patience is growing thin, and NYCOTB and other creditors are preparing to go to the bankruptcy judge without the support of the harness industry. NYCOTB is owned by state government.

“We plan on going back to the bankruptcy judge with or without the harness tracks and get this done by the end of October,” the officials said. “The bankruptcy judge will clearly know if we don’t get this done who is trying to prevent New York City OTB from getting out of bankruptcy.”

But Gural said it is NYCOTB and some others that are the obstacles. He said some officials are dismissing his ideas even though he claims the plan he is pushing will bring more money to the industry and state.

“Everybody just assumes that we’re just a bunch of greedy racetrack owners who are trying to take advantage of the situation to line our pockets,’’ Gural said. “The truth is exactly the opposite. We recognize it’s good for the industry to keep OTB afloat.’’

Gural said his plan to expand use of free-play vouchers is the best marketing tool racinos can have to bring in customers. But he said the current system imposes a state tax on the giveaway money so that under the current system a bettor would have to lose $100 at a racino before the track would break even from giving away a $20 voucher.

As a result, racinos offer few vouchers to try to win over new customers. Gural said a pilot program he entered into with the state to permit a small amount of the vouchers to be issued has proven profitable for both the track and the state, which gets a 65% share in the revenues.

“They’re shooting themselves in the foot,’’ Gural said of the state. “We’ve proven this free-play formula works.

Gural said the state is hitting the racinos by not expanding the free-play vouchers and by taking the extra 1% in revenue sharing this year. “I own two tracks. They took $1 million out of my pocket. And by the way, I’ve lost $50 million on my tracks. And they think this is a joke,’’ he said.

Gural said the state may get $10 million this year from the extra 1% takeout but is giving up $30 million that could come from expanding the free-play program.

Gural said the plan being pushed by NYCOTB “has no shot’’ because, eventually, the state legislature will need to get involved in any long-term effort to save the betting giant. Gural said he is confident he can convince legislators to back his plan.

The track owner said he is willing to compromise, but officials have been unwilling to listen to his offers. If NYCOTB is trying “to just shove this down our throats, that would be a sad situation, and then we’d have an all-out war,’’ Gural said.

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