05/19/2010 11:00PM

Audit: New York OTBs should pay less to racing

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New York's five regional off-track betting corporations must be allowed to cut their payments to the racing industry in order to remain solvent, the state's comptroller, Thomas P. DiNapoli, said in an audit of the corporations released on Thursday.

The audit, which examined the financial performance of the Capital, Catskill, Nassau, Suffolk, and Western off-track betting companies over the past five years, cited declining handle over the past two years and the corporations' statutory obligations to the racing industry as the principal reasons that the financial viability of the companies "has substantially deteriorated." DiNapoli called on the state legislature to amend the state's racing law in his recommendations.

"If OTBs are going to remain viable, New York will have to take action to bring back the bettors and fix OTB," DiNapoli said. "The current business model just doesn't work."

The audit was released at the same time that the state-owned New York City Off-Track Betting Corp. is pushing for legislative relief as part of its bankruptcy reorganization. Several of the audit's recommendations - such as reducing payments to the harness and Thoroughbred industries - are being sought by New York City OTB as part of its reorganization plan.

The audit also said that the county-owned OTB companies are facing significant competition from casinos in New York and neighboring states and from out-of-state account-wagering companies. However, the report also acknowledged that only two of the companies, Capital and Nassau, operate their own Internet wagering platforms despite legislation that was passed four years ago legalizing the practice.

According to the audit, the net operating revenue of the five companies declined by 67 percent from 2004 to 2008. Part of that decline was due to an industry-wide contraction in handle, the audit said, but the audit also blamed "up front" payments to the racing industries for contributing to the decline while crediting the OTB companies for reducing some expenses.

"We believe that corporations will be unable to cut expenses fast enough to continue as financially viable entities if no action is taken to reduce these required payments," the audit said.

The audit specifically singled out payments to the harness industry required by law when New York's OTBs take night-time simulcast signals. Those payments are "outdated and too high," the audit said.