12/03/2009 1:00AM

New York OTB seeks fix

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New York City Off-Track Betting Corporation filed for Chapter 9 bankruptcy protection on Thursday afternoon and will seek a massive reorganization through the New York State legislature that would fundamentally change the way offtrack betting corporations operate in the state.

The filing - under a little-used section of the bankruptcy code reserved for municipalities - comes one year after the state took over the financially troubled organization from the city of New York. Sandy Frucher, who was appointed chairman of the company in June, said that the organization is facing a $40 million deficit, will run out of cash in March, and has $600 million in liabilities arising from unfunded obligations to its pension and health-insurance plans.

New York City OTB officials plan to submit a plan for reorganization to the bankruptcy court within 60 days. The plan will likely include a 50 percent reduction in the company's $130 million in annual expenses, wide layoffs among its 1,400 employees, and the shuttering of a vast majority of its more than 60 parlors in New York City's five boroughs, according to officials.

In addition, OTB will ask the state legislature to throw out the complex tangle of statutes that currently mandate how the company distributes proceeds from its wagering revenue, Frucher said. Although he would not provide specifics about how the company seeks to replace the statute, Frucher said that he expected to ask the legislature to scuttle provisions that require OTB to pay distributions to the racing industry and state and local governments off its gross revenue. Frucher also indicated that the company would seek to change its relationships with state racetracks by negotiating with the tracks for the rights to their signals, instead of having statutes determine how much the tracks get paid.

"We want to pay for the services racetracks provide," Frucher said. "The industry says, legitimately, that there is no OTB without the tracks. We agree. So they can provide us with signals, we can pay for them, and everyone can start acting like businesspeople."

In its last fiscal year, OTB provided the racing industry with $93 million in mandatory payments from its $1 billion in handle. Another $35 million went to state and local governments.

Any effort to reduce the amount of money that the racing industry receives from OTB will be met with sharp resistance from racetracks in the state, especially from the New York Racing Association, which is struggling financially because of delays in the approval of a casino at its Aqueduct racetrack. Lobbyists for NYRA - which emerged from its own bankruptcy two years ago - are telling legislators that the association will run out of cash by next summer, in large part because NYRA included revenue from the casino in its 2010 budget. The casino was legalized late in 2001, but myriad political and legal issues have held up approval of an operator.

Charles Hayward, NYRA's chief executive officer, would not comment on the bankruptcy. In a statement, NYRA said that it expects to be one of the OTB company's largest creditors, so "it would not be prudent for NYRA to comment on the filing outside of court proceedings."

Frucher would not provide an answer when asked how much money OTB expects to pay the racing industry annually as a result of its restructuring. He said that over the long run, the racing industry could receive more money from OTB if the company is successful in cutting its expenses and increasing its annual handle by targeting younger demographics.

"It's our intent to enhance the industry, not hurt it," Frucher said.

Frucher stressed that funds deposited by customers in New York City OTB accounts will be fully protected during the bankruptcy reorganization. The funds are segregated from OTB's operating accounts, Frucher said.

New York City OTB already has agreements with its two largest unions over the number of layoffs and severance packages. Frucher said the company would not release details of those agreements until the reorganization plan is submitted to the court.

As for whether the legislature will embrace OTB's plan to change the statutes governing the company, Frucher said that the state or New York City will face a $600 million charge to completely fund the company's liabilities if they do not agree to a plan that will restore the company to financial solvency. With New York facing an estimated $9 billion budget deficit next year, it's likely that the legislature will agree to most of OTB's demands.