Updated on 09/15/2011 1:43PM

City picks Magna for OTB, but legislation still needed

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NEW YORK - Mayor Rudolph Giuliani said Thursday that New York City had selected a partnership headed by Frank Stronach's Magna Entertainment as the winning bidder for the New York City Off-Track Betting Corporation.

The city's decision does not guarantee a sale to Magna, which made its bid in partnership with Greenwood Racing - the owner of Philadelphia Park and a Pennsylvania-based telephone wagering system - and two real estate developers. The New York legislature would have to pass a bill that changes the state's racing law, and many lawmakers have said that is unlikely with the end of the session approaching.

The city selected Magna over a partnership that includes the New York Racing Association, Churchill Downs, and Television Games Network. NYRA, which operates Belmont Park, Aqueduct Racecourse, and Saratoga Race Course, had also submitted a second bid on its own.

Frank Stronach, chairman of Magna, said in a statement: "The goal of our group is to make NYCOTB an industry leader, offering 21st century wagering facilities, amenities, and technology to OTB customers."

After the city's announcement, which was made at a news conference at City Hall in lower Manhattan, NYRA chairman Barry Schwartz called his own news conference in Saratoga Springs, N.Y., to criticize Giuliani and the city.

"Anybody in the state that knows anything about racing knows that this decision is ridiculous, and I would really highly doubt that [Giuliani] is going to be able to shove this down the throats of the politicians in Albany," Schwartz said.

New York City OTB is the largest bet taker in the United States, handling more than $1 billion from 75 sites last year and paying $35 million to the city.

Even if the legislature decides to change the racing law, it is not yet clear what price Magna would pay for New York City OTB. The highest price would be a $260 million down payment along with annual payments based on the amount of handle at OTB. Magna would pay that price if the legislature approved an expansion of simulcasting and relaxed regulations governing the operation of OTB's and the company's account-wagering system, according to Jim McAlpine, the chairman of Magna Entertainment.

If legislators merely approve the sale, then Magna would pay $150 million in cash up front, with two additional $25 million cash payments over the next two years and annual contributions to the city based on handle.

Giuliani's office estimated the value of Magna's highest bid to be $389 million, based on projected growth in handle from increased simulcasting. Giuliani used the $389 million figure to calculate that the Magna bid was $113 million higher than the bid offered by the NYRA partnership.

"It was a no-brainer in terms of which of the two should get it," Giuliani said.

Wilbur Ross, which conducted a financial assessment of the bids for the city, said the NYRA partnership made a bid of $250 million in cash and ongoing annual payments equal to 0.11 percent of the handle. Magna's bid includes payments equal to 0.20 percent of the handle for the first $1 billion in bets, with increases based on additional handle, Ross said.

Schwartz was highly critical of the city's calculations.

"I'll bet anybody any amount of money at any odds that Magna never pays $260 million cash for OTB," Schwartz said.

The New York legislature is currently debating the state budget, and many legislative leaders have said they doubted that a bill approving a sale of OTB could be passed this year. Additionally, one lobbyist and a legislative staff member have said that Sen. Joseph Bruno, the Senate majority leader and a strong supporter of NYRA, has told other legislators that he will block any attempt to pass legislation that does not recognize NYRA as the city's offtrack betting agency.

Mark Hansen, a spokesman for Bruno, said on Thursday that the Senator would not comment until he reviews the details of the deal. "Right now, the focus is on the state budget," Hansen said.

Steve Casscles, the chief counsel for Sen. William Larkin, the chairman of the Senate Racing and Wagering Committee, said that the Magna deal would be difficult to approve this year.

"As a practical matter, it takes a long time to do things up here," Casscles said. "If they need that money to plug a hole, then there's a chance, and this is a funny place. I've seen things I never thought would go get passed, and things I thought would get passed never go."

Giuliani, whose term expires on Dec. 31, 2001, has been under pressure to announce a winning bidder for OTB. While campaigning for his first term in 1992, Giuliani promised that he would turn around the corporation and sell it to a private company. At the time, OTB was not contributing a profit to the city, although OTB was making payments to the government from a share of handle.

Along with the legislative concerns, a number of other hurdles stand in the way of completing a deal this year. Local 137, which represents most of OTB's mutuel clerks, has filed a lawsuit to block the sale, and the New York City Council has raised objections to the sale.