05/19/2010 11:00PM

Auditor supports OTB payment cuts

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

The audit, which examined the county-owned Capital, Catskill, Nassau, Suffolk, and Western offtrack 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.

"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 Corporation is seeking 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.

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 while crediting the OTB companies for reducing some expenses.

Both the Thoroughbred and harness industries in New York have steadfastly resisted any proposed cuts, contending that any reduction would further imperil their business.

According to the audit, the five OTB companies in 2008 paid about $95 million in statutory contributions to the racing industries while operating revenue for the five companies was $112 million. The contributions were down seven percent from 2004 while operating revenue was down 8 percent for the same period.

The audit also said that the 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 acknowledged that only two of the companies, Capital and Nassau, operate their own internet-wagering platforms despite legislation four years ago to legalize the practice.