02/11/2011 2:36PM

New York offtrack betting system still off the mark

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The shutdown of New York City Off-Track Betting two months ago was painful for its employees and has reduced total betting in New York state, but has also had some silver linings: Ontrack business has increased, and a larger share of the remaining handle is going to the tracks and purses. Perhaps the most promising development to arise from the situation is that legislators are finally taking a serious look at consolidating the state’s five remaining regional OTB’s, an overdue move that would fix a fundamental flaw in New York racing.

The state senate’s Committee on Racing, Wagering and Gaming convened a hearing in Albany last Monday at which OTB consolidation was a recurring theme. Unsurprisingly, the idea was supported by track operators and horsemen’s groups, and was opposed by the OTB’s, If you’re feeling masochistic, you can watch all three hours and two minutes of it on youtube, but I defy anyone to find a single coherent argument against consolidation therein.

Of course the five CEO’s of the OTB’s aren’t going to advocate for their own demise, and none of them can be blamed for a wasteful and destructive system that has been in place for almost four decades. What was stunning about their testimony was that while they all defended their own operations, they didn’t even try to defend the system – for the simple reason that it is indefensible.

When OTB came to New York nearly 40 years ago, politicians saw it as an opportunity to create a massive new bureaucracy, and then took that cynical impulse five steps further – by creating six new public benefit corporations to do the work of what should have been a single statewide entity. Amid some weak justification blather about regional and cultural differences among various parts of the state, this was nothing but a jobs program, one with a strong tilt towards rewarding political supporters with patronage posts.

Literally hundreds of millions of dollars that could have been used to improve facilities, raise purses, reward customers, and protect horses were instead squandered on staffing positions that were not merely duplicative but sextuplicative: Six presidents, six legal departments, six marketing departments, six tote systems, and eventually six telephone-wagering and then six Internet-wagering platforms.

New York’s was the nation’s first statewide OTB system but such an obviously inefficient one that none of the 30 states that subsequently permitted some form of offtrack betting has copied it. New York almost immediately became the model for what to avoid. Instead, other states either created single statewide systems or, as should have been done from the start in New York, authorized the tracks to run the OTB’s as distribution arms for their product.

The conventional political wisdom has long been that the six-headed OTB system was too entrenched and too valuable to local politicians to be changed, and until recently that proved true. One blue-ribbon panel and commission after another called for consolidation and their recommendations were consistently ignored. Then two things changed.

First, the growth of telephone and Internet wagering, at the expense of parlors that began to be shut down, made the case for consolidation all the more compelling. Whereas the regional OTB’s had been able to obfuscate their overlapping functions with talk of a strong need for local supervision of birck-and-mortar operations, a shift to betting from home made the whole idea of carving up the state into six companies seem entirely redundant. Then the closure of NYC OTB, which handled roughly half the statewide business, sharply reduced the collective power of the remaining companies.

Going from six to five OTB’s still leaves a long way to go to get down to one (or none if the operations are given to the racetracks), because the others are not going to go quietly.

The OTB’s have some valid points about onerous dark-day and hold-harmless payments they continue to make to racino tracks that are rolling around in slots money, but they go way beyond any issues of fairness by continuing to insist that the only thing wrong with the status quo is that they give too much money back to racing instead of keeping it for themselves. This is an outrageous position but one that plays well in New York’s class-warfare politics and one that has found a surprising amount of sympathy from the editorial boards of the state’s largest newspapers.

The racing industry needs to do a better job of explaining the economics of the game, and how it ultimately is a greater benefit to the state and its citizens to have a healthy and vibrant racing industry than to continue funding the staffing of state agencies whose time has passed.