11/01/2005 12:00AM

Friends of New York study finds OTB revenue falling

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Revenues flowing to local governments from the six offtrack betting corporations in New York have fallen 50 percent over the past four years, according to a study conducted by a horse racing group seeking to reform New York's racing laws in advance of bidding for the New York Racing Association's franchise.

Revenues to localities declined from a total of $97 million in 2000 to $45 million in 2004, the study said, due to increases in fees to the horse racing industry and the state government as well as higher operating expenses. The study also said that handle and gross revenues have been flat since 2000.

The study was conducted by Wargo & Company, a New York-based finance and investment firm, and funded by Friends of New York Racing, a group headed by former National Thoroughbred Racing Association chief executive Tim Smith. Friends of New York Racing is conducting multiple studies about the racing industry in an effort to gain support for dramatic legislative and regulatory reforms before the state opens up bidding for the franchise to operate three racetracks - Aqueduct, Belmont Park, and Saratoga Racecourse - and a slot-machine casino at Aqueduct. NYRA's franchise expires at the end of 2007.

"There has been a steady erosion of OTB operating profits, especially in the last few years," Smith said in a release. "It is not just the NYRA or ontrack model that needs fixing, but the entire parimutuel wagering system in New York, including offtrack and account wagering."

New York's six offtrack betting corporations are owned by the counties in which the OTBs are located. Profits from the companies are retained by the counties.

The study said that $42 million of the revenues that went to the counties in 2004 were derived from the OTBs' 5 percent surcharge on most winning bets, a tax that has been heavily criticized by the racing industry. No other racing company in the United States imposes a fee on winning bets.

The study was released five days after Raymond Casey, the president of New York City Off-Track Betting Corp., appeared before the Finance Committee of the New York City Council to argue for a bigger slice of the revenues that NYCOTB must pay out to the Thoroughbred and Standardbred industries and the state of New York. In prepared remarks provided by NYCOTB, the largest bet-taker in the U.S., Casey also argued that takeout rates should be increased to raise more revenues, and that breakage - the amount of money left over after winning payoffs are rounded - should be based on a dime, rather than a nickel, with OTBs keeping the remaining revenue.

Ira Block, the general counsel of NYCOTB, said that Casey's recommendations were "part of a solution" to reverse a trend of declining revenue at OTB. Casey said during his presentation that in the 2005 fiscal year, NYCOTB had revenues of $251 million, and paid out $132 million to the Thoroughbred industry, Standardbred industry, and state and local governments, all by statute.

"You can't keep being required to pay out everything you generate in revenues and miraculously be expected to have leftover money for the city," Block said Tuesday.

Larry Aaronson, the president of Nassau OTB, said that the Friends of New York Racing study illustrated a problem that is hitting all OTB companies in New York: Revenue has declined because of higher statutorily required fees to NYRA and the state, combined with the effects of lower takeout rates on NYRA's races as of 2001. OTBs keep the difference between the takeout and the fees, so any reduction in takeout puts a squeeze on the bottom line.

As an example, Aaronson said that Nassau OTB has increased betting at its parlors from $252 million in 2001 to $310 million in 2004. However, Nassau's revenues have fallen 25 percent in the same time period, Aaronson said, with the company's net retention on any wager falling from an average of 11 percent to 9.4 percent.

"We just keep getting squeezed," Aaronson said.

Aaronson said that Nassau would welcome a chance to be part of a reform effort, and said he favored a "regional" approach that would limit competition between NYRA's tracks and the OTB companies.

"I do think there has to be a formula out there that could work out to all of our benefit, but all this competing with each other for the same fans is not beneficial to anyone," Aaronson said.