The worst part of the New York takeout fiasco revealed last week is not the failure of so many agencies to catch an honest mistake, but that a short-term remedy to the situation may pre-empt a more serious and overdue discussion about takeout reduction.
A routine audit of the state breeding fund in early December turned up the colossal “oops” – that the New York Racing Association had been erroneously paying out 74 percent rather than 75 percent of its “super-exotic” (three or more horses) betting pools for the last 15 months. Every single racing and regulatory body in the state, not to mention those in the dozens of other states and foreign countries that bet into these NYRA pools, flat out forgot that the takeout rate on these bets was supposed to revert from 26 to 25 percent in September 2010. That was when a one-point takeout increase, hurriedly added to the 2008 NYRA franchise-renewal legislation as a sop to the state’s offtrack betting corporations, was supposed to expire.
You would think someone – anyone – would have had the expiration date circled on his calendar, but no one did. NYRA can be blamed for the oversight but no more so than the state Racing and Wagering Board, the Franchise Oversight Board, the state Department of Taxation and Finance, and anyone else charged with enforcing the racing laws of the state, or at least figuring out the current status of those laws. Takeout increases don’t usually have sunset provisions; this one did, but everyone forgot about it until the breeding-fund auditors stumbled on it.
At that point. FOB and SRWB officials angrily wagged their fingers at NYRA while neglecting to address why regulators had been equally negligent in overlooking the statute, and early reaction accused NYRA of knowingly keeping the extra money for itself. Then cooler heads pointed out that the primary beneficiary of the mistake was not NYRA, which only benefits from a higher takeout on the 15 percent of the handle bet directly through it ontrack or through its NYRA Rewards account-wagering system. For the 85 percent of the handle that is bet through OTB’s, simulcast outlets, and national-account wagering companies, NYRA gets the same negotiated percentage of handle regardless of the takeout rate. NYRA itself kept about $1 million more than the correct statutory rate, but over $7 million went straight into the profit margins of other bet-takers .
Few of those outlets have addressed whether they will try to track down and compensate the shortchanged bettors, whereas NYRA at least has agreed to make up the shortfall to NYRA Rewards customers, whose bets can be tracked. It also agreed to make up for the 15 months of overcharging with a remedial 15 months of undercharging – since the rate was applied at 26 rather than 25 percent, it will now be charged at 24 rather than 25 percent for at least an equal period of time.
This is a makeup, however, not the sort of forward-thinking takeout reform NYRA portrayed it as when it first addressed the issue with a press release misleadingly titled “NYRA Announces Takeout Reduction.” This was a little bit like someone being fined and sentenced to perform community service and then announcing that he has decided to take a more active role in community affairs.
NYRA also erred in saying it would not make up the overcharging on pick-six bets, citing an obscure statutory provision that actually allows takeout of as high as 36 percent in that pool. But no one had ever proposed or applied for such a rate, and it seems clear that the increase from 25 to 26 percent in the pick six was supposed to expire in September 2010 along with the increase on other super-exotics.
NYRA subsequently announced it will continue the new 24 percent rate past the 15-month makeup period, a positive gesture but still not enough. A 24 percent super-exotic rate is still higher than in most other major jurisdictions (including 19 percent in Kentucky). NYRA’s position has long been that it supports lower takeout, and it has opposed previous increases, including the 2008 one. After decades of losing that argument, however, NYRA is now positioned as never before to implement real and meaningful takeout reform.
The new Aqueduct racino is providing NYRA with as much as $100 million a year for purses and capital improvements, and some slice of that should be redirected to the public in the form of lower takeout. NYRA can finally afford it, and the crumbling of the state’s OTB system removes a major impediment to enacting it.
A short-term remedy to an error should not be mistaken for long-term reform.
TECHNOLOGY
DECEMBER 31, 2011
Verizon Drops Plan for New $2 Fee
By GREG BENSINGER
Verizon Wireless abruptly backed off a plan to charge some customers extra to pay their bills online or over the phone, joining the ignominious parade of corporate retreats in 2011.
Verizon Wireless backed off a plan to charge some customers $2 to pay their bills after a barrage of customer complaints and the scrutiny of federal regulators. George Stahl has details on The News Hub.
The reversal, just a day after the new $2 charge became public, followed a barrage of customer complaints and the scrutiny of federal regulators.
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Earlier: Verizon Outages, Fees Irk Customers
It capped a tough month for the nation's largest cellphone carrier, which was beset by three nationwide service outages after boasting it had exceeded its own goals in rolling out a new high-speed wireless data network.
Verizon Wireless had planned to implement the fee Jan. 15 for customers making one-time payments via its website or over the phone. An online petition on change.org calling for Verizon to drop the fee quickly drew more than 100,000 signatures, and the Federal Communications Commission said Friday it was "concerned about Verizon's actions" and was looking into the matter.
"We take great care to listen to our customers," Verizon Wireless Chief Executive Dan Mead said in an emailed statement. "The best path forward is to encourage customers to take advantage of the best and most efficient options, eliminating the need to institute the fee at this time."
The retreat echoed flip-flops this year by Bank of America Corp. and Netflix Inc., which backed off controversial plans of their own in the wake of heavy public criticism.
Greg Bensinger joins the News Hub to discuss Verizon's planned $2 fee the company says it will impose on some customers in 2012. AP Photo/Alan Diaz
Facing a customer backlash and the ire of some regulators, Bank of America in November dropped plans to impose a $5 monthly fee on many customers using their debit cards to make everyday purchases. Other banks including J.P. Morgan Chase & Co. and Wells Fargo & Co. also killed regional debit card fee trials in the wake of the outcry.
Netflix, meanwhile, abandoned its plan to split its DVD-by-mail service into a separate business named Qwikster as part of a new pricing structure that upset some of its users. The movie-rental company didn't back off a price hike it implemented in July, however—an increase for which CEO Reed Hastings issued an apology for failing to explain it better.
"Companies need to make changes like this in a way that their customers understand and in a way that they can see the benefit," said Helio Fred Garcia, a New York University crisis-management professor. "Verizon recognized the reaction and backed off—unlike Netflix which dug in its heels and tried to explain the change in a way customers didn't understand."
Hewlett-Packard Co. was another company that found itself in retreat this year, deciding to keep its personal computer division after announcing that it would explore spinning off the unit into a standalone company.
Verizon Wireless's fee hike didn't rise to the same franchise-shaking level, but it nevertheless riled consumers.
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Verizon had planned to charge a $2 fee on customers making one-time payments online or on the phone. Above, a Los Angeles store.
"How can it be they that they would charge their customers to pay their bill, except to extract just a little more money? Someone wasn't thinking when they tried to impose this fee," said Bill Eger, 76, a Verizon customer in Hilo, Hawaii. "I am delighted they took attention to the response; that was a pretty fast turnaround."
Verizon Wireless—co-owned by Verizon Communications Inc. and Vodafone Group PLC—had said the fee was necessary for "convenience," without providing additional details.
Users who paid through their bank's website or by automatic deduction from their credit cards, among other options, wouldn't have been subject to the extra charge. The company declined to comment beyond Mr. Mead's statement.
"Verizon thinks it can do anything to its customers, and that we're powerless to stop it," said one petition, begun by Molly Katchpole, who helped quash Bank of America's debit-card fee plan by gathering 300,000 signatures on an online protest.
Ms. Katchpole's letter calling on Verizon to drop the fee had secured more than 100,000 digital signatures by Friday evening. Other petitions against Verizon's plan popped up on sites including gopetition.com and petitiononline.com.
A Year of Flip-Flops
Several companies dropped pricing or strategic changes amid public push back
Netflix: Abandoned plans in October to separate its DVD-by-mail business from its Internet-streaming service, but stuck with price increases.
Bank of America: In November dropped plans to impose a $5 monthly fee on debit-card users that was announced five weeks earlier.
H-P: After saying it would explore a spinoff for its PC division, H-P ousted its CEO and later decided not to separate the business
Critics of Verizon's fee plan took a victory lap after the reversed decision. "The era of corporations walking roughshod over consumers without consequence is officially over," said Ben Rattray, chief executive of change.org.
The misstep comes as Verizon looks increasingly well-positioned against its rivals. AT&T Inc. was forced last week to drop its $39 billion acquisition of No. 4 carrier T-Mobile USA amid fierce opposition from antitrust authorities, and Sprint Nextel Corp. remains unprofitable and has to fund an expensive network buildout and a burdensome contract with Apple Inc. to carry the iPhone.
But Verizon has stumbled recently despite its advantages. The carrier has suffered through three outages to its new 4G network this month, denting its reputation for network quality.
The company, based in Basking Ridge, N.J., has rolled out the network to more than 200 million Americans, ahead of AT&T's 70 million, and offers a lineup of pricey smartphones that can make use of the zippy broadband service.
With 107.7 million subscribers, Verizon is the largest carrier in the U.S. AT&T and Sprint have 100.7 million and 53.4 million subscribers, respectively. Verizon didn't disclose how many customers would have been affected by the abandoned bill fee.
Write to Greg Bensinger at greg.bensinger@dowjones.com
Read more: http://online.wsj.com/article/SB10001424052970204720204577130802272138184.html#ixzz1iAxChK6k
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