06/03/2008 11:00PM

Little progress in New York OTB talks


Negotiations on a plan to keep New York City Off-Track Betting Company operating after a city-imposed deadline of June 15 are stalled due to a lack of consensus among state, city, and racing officials, the people involved in the negotiations said this week.

No official would comment on any specifics of the discussions, other than to acknowledge that talks were ongoing. The administration of New York City Mayor Michael Bloomberg has said that the OTB company will shutter its 60-plus parlors and account-wagering platform as of June 15 if the company is not allowed to retain a larger share of its revenues, which exceed $250 million a year.

OTB employs 1,500 unionized workers, who were all sent layoff notices on May 30. The union has been uncharacteristically silent on the issue, other than a demonstration on March 18 in Albany urging legislators to craft a solution.

On Wednesday, a spokesman for Bloomberg, John Gallagher, reiterated that Bloomberg was serious about the closing.

"This is not a bluff," he said.

The high-stakes discussions could have significant repercussions on the racing industry. New York City OTB is the single largest bet-taker in the United States, with $1 billion in annual handle. Its largest racing-industry constituent is the New York Racing Association, the bankrupt operator of Aqueduct, Belmont, and Saratoga, which received $52.8 million from OTB in the previous fiscal year for purses and operating funds. Shares of OTB's revenues are determined by statute.

City officials have pressed legislators to accept a plan that would allow OTB to make its distributions on net revenue rather than gross revenue. The city has maintained that OTB will begin operating on a negative net-cash basis as of June 15, and that the city will not subsidize the operations after that point.

The racing industry has balked at the city's plan, contending that any decrease in funding from the OTB companies would jeopardize its financial health. NYRA, especially, has contended that the proposal backed by the city would threaten the association's reorganization plan, which was recently approved by a bankruptcy court and is scheduled for final approval on June 30. The city's proposal would cost NYRA approximately $7 million in purses and $5 million in operating funds annually, according to NYRA officials.

"If this plan for reorganization blows up, the biggest problem is not going to be the OTB problem, it's going to be that NYRA is going to have to shut down," said Charles Hayward, the chief executive officer of NYRA, on Tuesday.

The city's push for the net-revenue proposal has engendered accusations of mismanagement by OTB's opponents, along with criticisms that the city is not properly accounting for the revenue it receives from the company.

The criticism is based on OTB's surcharge on winning wagers. The city collects the surcharge directly without the revenue being counted on OTB's financial documents. In the 2006 fiscal year, the city collected $17.4 million in surcharge revenue, while the OTB had a cash deficit of $6 million. On balance, then, the city made $11 million on OTB's operations, even though Bloomberg has contended that taxpayers are subsidizing the company.

Robert Lieber, the deputy mayor for the city's economic development program, said that the city's analysis of OTB's financial impact on the budget was correct because the surcharge revenue would be exceeded by the cash shortfall beginning in 2008. Lieber said that "eventually" the shortfall would exceed the surcharge revenue.

Paradoxically, NYRA officials said that they were more worried about losing a share of the revenue from OTB's current handle than OTB completely shutting down. Hayward said that NYRA would need to capture one-quarter of the OTB's handle - approximately $250 million - for the shutdown to be revenue neutral to the association, based on the higher share of revenue NYRA would receive if those bets were placed either at its tracks or through its own account-wagering platform.

"We don't think that's unrealistic," Hayward said, contending that the association would step up its marketing of its account-wagering operation and run buses from the city to its live racetracks.

Any plan to reconstitute OTB's share of its revenues would need to be approved by the state's two legislative bodies and Gov. David Paterson. Negotiations this week have taken place between representatives of senate majority leader Joseph Bruno, speaker of the assembly Sheldon Silver, and Paterson, according to representatives of the officials, but no solution has emerged.

"The administration is still hopeful that something will be done and soon," said Morgan Hook, a spokesman for Paterson. "We expect a resolution" prior to June 15.

The New York legislature is scheduled to be in session until Friday, and Gov. Paterson is expected to attend the Belmont Stakes on Saturday. Negotiations may gain momentum on Thursday and Friday in the hopes that the situation is resolved prior to the Belmont, the third leg of the Triple Crown.