06/16/2010 11:00PM

A chance to fix New York's OTBs


The resignation two weeks ago of New York City Off-Track Betting Corporation chairman Sandy Frucher has led to the scuttling of his plan to reorganize the company, leaving a blank slate the racing industry is seeking to exploit to its advantage. Officials contend it is their best opportunity yet to restructure off-track betting in the state.

The reorganization of New York City OTB, which was taken over by the state in 2009, is one of the critical issues facing the racing industry, both in New York and across the country. The company is the largest bet-taker in the U.S. and, before its bankruptcy filing, had provided $160,000 a day to the state's Thoroughbred industry and millions of dollars annually to out-of-state tracks in simulcast fees.

Equal to its importance is the complexity of its problems, financial and political. New York City OTB employs 1,300 people, most of them members of a politically influential union, and it has directed hundreds of millions of dollars in revenues to its previous owner, the city, while providing patronage in government jobs and leases for its 60 parlors.

Frucher, whose previous work experience was with financial exchanges, resigned after failing to build political or financial support for a controversial reorganization plan that relied on lower payments to the racing industry, state backing of a $250 million bond issue, vague promises of privatization, and the closure of more than half of the company's parlors. Frucher has been replaced by Larry Schwartz, a political aide to Gov. David Paterson, a move that has been widely applauded by racing officials.

"Sandy was locked into a reorganization plan that nobody else in New York wanted to embrace," said Rick Violette, the executive director of the New York Thoroughbred Horsemen's Association. "He was singing the same tune from the start of his tenure to his resignation, and it was a road to ruin for the racing industry."

Violette characterized the appointment of Schwartz as an opportunity for the racing industry to participate more closely in New York City OTB's reorganization, a view shared by other racing officials following the recent approval of a $25 million loan to the New York Racing Association, the state's largest racetrack operator. But some legislative officials have been disillusioned by the racing industry's seemingly endless pleas for help and Frucher's two ultimately empty threats to shutter OTB.

"It's safe to say there's a fair amount of fatigue with racing issues, especially difficult, complex racing issues," said Brad Fischer, the counsel to the New York Senate's Committee on Racing, Gaming, and Wagering. "I don't know if the legislature is in the mood to deal with OTB at all. After everything that happened with Sandy, and the brinkmanship that was involved, most people are disinclined to deal with OTB or OTB-related issues."

Charles Hayward, the president of NYRA -- which operates Aqueduct, Belmont, and Saratoga under a franchise agreement negotiated with the state as part of its own recent bankruptcy reorganization -- said the failure of Frucher's plan and his resignation is an indication the state is sympathetic to the problems facing the racing industry, problems that won't be solved without industry support for any reorganization of New York City OTB.

"I have enormous respect for Sandy, and it was unfortunate that we ended up in complete disagreement with what the solution was" for New York City OTB, Hayward said. "But I think through this whole process, the state became better informed about the problems New York City OTB and the racing industry are facing. And it also turned out that even though the harness tracks, the Thoroughbred horsemen, and the breeders have always been at odds with each other, Frucher's plan brought us all together."

Racing officials said they have yet to meet with Schwartz, who had acted as a political sounding board for Frucher's ideas and had pressed Frucher to resign when it became clear his reorganization plan had no support. Gov. Paterson's office did not respond to requests for an interview with Schwartz.

Racing officials are hoping to press the state to allow NYRA to take over the operation of New York City OTB's account-wagering platform, contending the takeover would eliminate duplication among NYRA and the state's six off-track betting corporations. But it is unclear how such a move would benefit New York City OTB.

And that might be the point. Racing officials have criticized New York's off-track betting system for placing the racing industry and the OTBs at loggerheads as they compete for a dwindling share of customers. NYRA operates on a state franchise and is owed $21 million from New York City OTB, a state-owned company. If NYRA had control over a larger slice of the account-wagering market, then the state would begin to see the benefits of consolidation. That, in turn, might start the ball rolling toward a larger role for NYRA in processing bets from New York customers, including, possibly, an eventual takeover of the state's entire off-track betting operation.

"We need to implement what other states have done with their OTB systems, and that means streamlining it down to the customer level," said Jeffrey Cannizzo, the executive director of New York Thoroughbred Breeders, Inc., which is owed $3 million by New York City OTB. "NYRA has the best-run account-wagering operation and the most lucrative rewards program for the consumer. That's the one we should use. It's a no-brainer."

Any reorganization of New York City OTB will need legislative approval. Although the racing industry is confident Gov. Paterson stands in its corner, the allegiance of legislators is not so easy to divine, especially in an election year when OTB's reorganization could cost hundreds of jobs and encounter resistance from the state's other five OTB corporations. New York's $9 billion budget deficit complicates the environment.

Frucher's plan included the layoffs of hundreds of workers but included large severance payouts and pension guarantees, costly moves designed to gain the union's support. Officials of the union, D.C. 37, did not respond to requests for comment about their role in the reorganization.

"You have the racing issues and then you have the labor issues," Fischer said. "Those are separate considerations."

In addition, New York's other off-track betting corporations have rallied around a recent report from the state comptroller that called for an overhaul of the OTBs' statutory obligations to the racing industry so that the OTBs would pay less to tracks and horsemen to address their own snowballing financial problems. Racing industry officials said they remain steadfastly opposed to any cuts in the statutory obligations, contending that supporters of the cuts are missing the forest for the trees by ignoring bloated, redundant structures.

The legislature is not expected to address the reorganization plan for months, probably in special sessions later this year. That could allow the racing industry time to build support for its reorganization plan, without relying on the shutdown threats that characterized Frucher's brief tenure at OTB.

"If there has ever been an opportunity to get real reform of New York City OTB, this is it," Violette said. "We can't blow it this time."