12/30/2011 2:29PM

Crist: NYRA's response to takeout fiasco not long-term solution

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The worst part of the New York takeout fiasco revealed last week is not the failure of so many agencies to catch an honest mistake, but that a short-term remedy to the situation may pre-empt a more serious and overdue discussion about takeout reduction.

A routine audit of the state breeding fund in early December turned up the colossal “oops” – that the New York Racing Association had been erroneously paying out 74 percent rather than 75 percent of its “super-exotic” (three or more horses) betting pools for the last 15 months. Every single racing and regulatory body in the state, not to mention those in the dozens of other states and foreign countries that bet into these NYRA pools, flat out forgot that the takeout rate on these bets was supposed to revert from 26 to 25 percent in September 2010. That was when a one-point takeout increase, hurriedly added to the 2008 NYRA franchise-renewal legislation as a sop to the state’s offtrack betting corporations, was supposed to expire.

You would think someone – anyone – would have had the expiration date circled on his calendar, but no one did. NYRA can be blamed for the oversight but no more so than the state Racing and Wagering Board, the Franchise Oversight Board, the state Department of Taxation and Finance, and anyone else charged with enforcing the racing laws of the state, or at least figuring out the current status of those laws. Takeout increases don’t usually have sunset provisions; this one did, but everyone forgot about it until the breeding-fund auditors stumbled on it.

At that point. FOB and SRWB officials angrily wagged their fingers at NYRA while neglecting to address why regulators had been equally negligent in overlooking the statute, and early reaction accused NYRA of knowingly keeping the extra money for itself. Then cooler heads pointed out that the primary beneficiary of the mistake was not NYRA, which only benefits from a higher takeout on the 15 percent of the handle bet directly through it ontrack or through its NYRA Rewards account-wagering system. For the 85 percent of the handle that is bet through OTB’s, simulcast outlets, and national-account wagering companies, NYRA gets the same negotiated percentage of handle regardless of the takeout rate. NYRA itself kept about $1 million more than the correct statutory rate, but over $7 million went straight into the profit margins of other bet-takers .

Few of those outlets have addressed whether they will try to track down and compensate the shortchanged bettors, whereas NYRA at least has agreed to make up the shortfall to NYRA Rewards customers, whose bets can be tracked. It also agreed to make up for the 15 months of overcharging with a remedial 15 months of undercharging – since the rate was applied at 26 rather than 25 percent, it will now be charged at 24 rather than 25 percent for at least an equal period of time.

This is a makeup, however, not the sort of forward-thinking takeout reform NYRA portrayed it as when it first addressed the issue with a press release misleadingly titled “NYRA Announces Takeout Reduction.” This was a little bit like someone being fined and sentenced to perform community service and then announcing that he has decided to take a more active role in community affairs.

NYRA also erred in saying it would not make up the overcharging on pick-six bets, citing an obscure statutory provision that actually allows takeout of as high as 36 percent in that pool. But no one had ever proposed or applied for such a rate, and it seems clear that the increase from 25 to 26 percent in the pick six was supposed to expire in September 2010 along with the increase on other super-exotics.

NYRA subsequently announced it will continue the new 24 percent rate past the 15-month makeup period, a positive gesture but still not enough. A 24 percent super-exotic rate is still higher than in most other major jurisdictions (including 19 percent in Kentucky). NYRA’s position has long been that it supports lower takeout, and it has opposed previous increases, including the 2008 one. After decades of losing that argument, however, NYRA is now positioned as never before to implement real and meaningful takeout reform.

The new Aqueduct racino is providing NYRA with as much as $100 million a year for purses and capital improvements, and some slice of that should be redirected to the public in the form of lower takeout. NYRA can finally afford it, and the crumbling of the state’s OTB system removes a major impediment to enacting it.

A short-term remedy to an error should not be mistaken for long-term reform.