02/22/2008 12:00AM

Bloomberg's fraudulent OTB crisis


NEW YORK - The state motto of New York is "Excelsior," Latin for ever higher or upward. Perhaps it should be changed to "Aedificare Crisus," which would translate as "to create a crisis," the current modus operandi of state government, especially when it comes to racing.

The state had years to resolve the New York Racing Association's franchise but only did so on Feb. 13, the day before the tracks would have shut down. Now New York City Mayor Michael Bloomberg is trying to negotiate a better deal for the city's Offtrack Betting Corporation with a similar threat. He has orchestrated a series of theatrical announcements that NYCOTB will close down June 13 unless more money is funneled to the so-called public benefit corporation.

"The only way you can get Albany to act is to create a crisis," he told reporters Tuesday, shortly after arranging for his appointees on NYCOTB's board to vote unanimously to approve a shutdown plan.

That plan will never be executed. Government is not in the habit of needlessly shuttering operations that employ thousands of union workers and dozens of political-patronage appointees. Bloomberg would be a prime candidate for impeachment if he simply closed the nation's largest bet-taker and drove $1 billion in annual handle to outlets beyond the city's borders, costing New York not only jobs but tens of millions of dollars in annual revenue he falsely claims does not exist.

If only to honor the concept of "Aedificare Crisus," however, we are probably in for a few more months of posturing, the inevitable rally by employees on the steps of the state capital, and perhaps even an appearance by the giant inflatable rat that is a staple of political rallies in the state. Then, eventually, a few dollars will be thrown OTB's way and life will go on as before.

Bloomberg's case for shutting down OTB would be a sham even if it were realistic. He claims that the company loses money which will have to come out of taxpayers' pockets and that the evil racing industry, in league with the state, is seizing an outrageous share of funds that would otherwise be used to feed hungry schoolchildren.

Both are attractive talking points that have been unquestioningly reported as fact by the city's four biggest general-interest newspapers, all of which have applauded the mayor's bravery and endorsed his plan. Both points are also largely fictional.

OTB makes plenty of money for the city, even beyond all its jobs, but its accountants state its complicated revenue streams in a disingenuous way that makes profits appear to be losses. It collects over $10 million a year alone in "surcharge revenue," the dimes and dollars it filches from horseplayers by paying only $3.80 on a $4 winner, and that money goes straight to the city. Yet OTB categorizes this windfall as an expense, and then the city claims OTB is not giving it any money.

The idea that the racing industry is getting an unfairly large slice of the pie is similarly fanciful. OTB uses its size and power to pay the lowest simulcast rates for out-of-state signals in all of American racing. The higher rates it pays in-state tracks are fair compensation for its encroachment on those track's live-market areas, and it has negotiated and agreed to those rates. The tracks still get far less from a bet made at OTB than from one made onsite, which ultimately is why New York has over 20 percent of the nation's racing handle but pays out only 10 percent of its purses.

Whatever financial setbacks OTB might currently be undergoing stem from a bad business decision to overpay regulatory and other fees in exchange for adding evening Thoroughbred simulcasts to its menu in recent years, not from any new or onerous payments to the people who actually put on the races and maintain the racetracks.

The best way to improve OTB's finances would be to combine it with NYRA, the state's five other regional OTB corporations, or both. The redundancies among these seven entities is staggeringly wasteful. (Consider the cost of seven in-state phone-betting platforms alone.) That of course would mean eliminating many of the regional patronage jobs, not a proposition on which you should take a short price.

Short of such sensible reform, the last-minute answer to the current crisis is likely to take one or both of two forms: a reduction of OTB's payments to the purses of the NYRA races that are its most popular product, or a takeout increase on its customers. Those would be two bad solutions to two non-existent problems, an unhappy but likely resolution to an entirely fraudulent crisis.