11/15/2010 4:56PM

New York City OTB looks to reduce payments to industry


New York City Off-Track Betting Corporation is seeking to cut the percentage of its handle that it pays to the racing industry over the next two years by 50 percent, according to a reorganization plan the company filed in U.S. bankruptcy court last week.

The cuts, which must be approved by legislators, would reduce the offtrack betting company’s annual distributions to the state’s Thoroughbred tracks and horsemen by approximately $30 million in each of the two years following the approval of its bankruptcy reorganization. Some of the cuts would be phased out over the next two years provided annual handle through the OTB company hits $610 million, a mark that could be difficult to achieve under the industry’s current struggles.

Officials for New York City OTB had previously cited the $30 million figure in discussions regarding the reorganization plan. They would not, however, provide details about how the cuts would be enacted. The exact mechanisms for reducing the rates was included in a summary of the reorganization plan outlining the legislative changes that are necessary to enact the plan because of existing statutes governing the distribution of the company’s revenues.

New York City OTB was taken over by the state in 2009. Shortly after the takeover, the company declared Chapter 9 bankruptcy.

In October, Gov. David Paterson had asked the legislature to call a special session for Monday to discuss the company’s reorganization plan, but the call was not taken up, according to Jessica Bassett, a spokesperson for Paterson.

“The governor does plan to call a special session before the end of the year to address this and other issues,” Bassett wrote in an e-mailed response.

Officials for Thoroughbred horsemen have said that they have grudgingly accepted the proposed cuts, in part because the plan also would transfer a large stake in New York City OTB’s account-wagering operation to the New York Racing Association. But representatives of harness horsemen have raised objections to the cuts, as well as to clauses within the proposed legislation that would reduce the minimum live-racing requirements at Monticello racetrack.

Under the plan, parimutuel tax rates – which provide the largest amount of funding to the state’s racing industries – will be reduced to 50 percent of its current rate for the first two years. After the second year, the rate will remain at 50 percent of its current level if handle is below $610 million in one year, but will gradually rise to 100 percent of the current rate once handle reaches $641 million.

Also under the plan, the “indirect commissions” that are paid to New York tracks under complex statutes will be reduced 50 percent in the first year after the reorganization plan is adopted; 40 percent the next year; 30 percent the next year; and 20 percent in the fourth year, according to the plan. After the fourth year, the indirect commissions will continue to be paid at a reduction of 20 percent of the current rate if OTB handle is below $600 million. If handle is between $600 million and $620 million, the rates will be reduced 10 percent. The reduction drops to zero if handle reaches $620 million.

Handle through New York City OTB is currently approximately $850 million a year, according to projections. But a sizeable portion of that handle, perhaps as much as 25 percent, is betting through the account-wagering operation.

Also under the proposal, all dark-day and “maintenance of effort” payments from OTB to the racing industry will be eliminated. Dark-day payments are made to tracks on days that they are not racing live, while “maintenance of effort” payments began to be provided to harness tracks in 2003 to make up for an anticipated shortfall in revenue after the state gave OTB companies the ability to offer Thoroughbred simulcasts at night.