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New York State's OTBs looking for help to survive

Matt HegartyAug 06, 2019

NYRANYRA president David O'Rourke said a massive rework of the revenue laws that would enable both NYRA and the OTB companies to operate with a freer hand was needed to make the OTB system work.

SARATOGA SPRINGS, N.Y. -- New York’s five remaining off-track betting corporations can survive as legitimate racing outlets but only if the state continues to remove restrictions on their business practices and the corporations cooperate more fully with each other and with the state’s dominant racetrack operator, speakers at the annual Saratoga Institute on Equine, Racing, and Gaming Law said on Tuesday.

The fate of the corporations, which are organized as public-benefit companies for the localities in which they operate, was the subject of a single presentation on the morning agenda of the conference. Speakers included the chief executive of one of the corporations, the chief executive of the New York Racing Association, and a top official of a simulcasting cooperative owned and operated by The Stronach Group, one of the largest racing companies in the U.S.

The survival of the companies has long been a question mark due to changing consumer preferences, a patchwork of racing regulations that complicate their business models, and the gradual decline in the companies’ operating profits since they regularly churned out millions of dollars annually for their counties in the 1980s and early 1990s. When New York City OTB – the largest bet-taker in the U.S. -- closed all of its parlors late in 2010, those problems came into stark relief, and it also seemed to serve up a signal that the remaining OTBs would soon follow suit.

Panelists at the law conference on Tuesday outlined the vast number of reasons that OTBs have declined in importance and profitability over the past 20 years, but they also said that there are some recent reasons for hope, including several changes to state regulations over the past two years that have been beneficial for the companies. In addition, the two Long Island OTB companies, Suffolk and Nassau, along with Western OTB, have all been granted licenses to operate slot machines, so those companies are not considered imperiled, even if their commitment to promoting racing has already begun to wane.

John Signor, the chief executive of Capital District Regional OTB, which serves of Albany and nearly every county north and east of the city, said that the decline in OTB companies’ fortunes had many factors, including a 2008 decision by the racing and wagering board to allow out-of-state account-wagering companies into the state, ending a restriction that effectively granted regional monopolies on computer and telephone wagering to the OTB companies.

But Signor said that Capital has attempted to reposition itself since then by cutting costs and pushing the state legislature to loosen the reins on their operations, including successfully pressing for approval of a law in 2018 allowing OTBs to distribute their profits to counties based on annual results, rather than quarterly, which was resulting in net-cash losses due to the inability of the companies to offset bad quarters with good quarters.

While Signor said that 2018 was “one of our better years” and that the company is now operating profitably in 2019, he said that upstate OTBs should merge their account-wagering operations to capitalize on reduced costs and economies of scale, and said that state legislators need to include OTBs in any law that would open the state up to sports wagering. (Legislative efforts to immediately authorize sports betting in New York failed this year, but efforts on that front are expected to continue next year.)

David O’Rourke, who took the reins as the head of NYRA earlier this year, said at the conference that the OTB companies will not survive unless both the state and the operations make fundamental changes to how they conduct their businesses. Citing his prior experience at NYRA working in the association’s financial development department, O’Rourke said that he used to pore over spreadsheets detailing payments to the OTB companies based on a byzantine labyrinth of laws and regulations.

“It honestly seems like I have a Ph.D in failed economic theory,” O’Rourke said.

One potential solution to the companies’ troubles, O’Rourke said, would be a massive rework of the revenue laws that would enable both NYRA and the OTB companies to operate with a freer hand. Along with Signor, O’Rourke cited a regulation on the books that requires New York’s harness tracks to be “held harmless” if Thoroughbred tracks are offered at night, which results in many OTBs losing money when they offer betting on night-time Thoroughbred signals while sending meager payments to harness tracks that already operate lucrative casinos.

“We’re both competing with our arms behind our backs,” O’Rourke said, citing the patchwork of regulations.

While O’Rourke stopped short of calling for a merger of the OTBs with NYRA, the final panelist, Jack Jeziorski, said that the only solution to saving the OTB business in New York was to put control of the state’s off-track business in the hands of NYRA. That would mean merging all account-wagering operations with NYRABets, which would vastly increase profit margins on telephone and computer betting in the state, Jeziorski said, and give NYRA the authority and incentive to go back into New York City, using bricks-and-mortar models that work best to attract new and existing customers.

Jeziorksi, the executive vice president of Monarch Content Managment, put up graphs in his presentation showing dwindling net operating returns for New York’s OTBs, and said that he did not see a reasonable way for that trend to reverse under the current system, even with minor tweaks. If that’s the case, then New York’s localities will eventually lose the meager payments they currently get from their racing operations, so why not force the change prior to that?

“At some point they are all going to be in the hole,” Jeziorski said, “and they will be unable to dig out of it unless there is some major change.”

Jeziorski also said that the opportunity to merge the operations with NYRA had never been better, citing his work with O’Rourke over the past 10 years and O’Rourke’s recent elevation to chief executive officer.

“This guy gets it,” Jeziorski said, pointing to O’Rourke. “He understands the needs of the industry to go forward.”