06/07/2001 11:00PM

Non-sale of N.Y. City OTB is a shame


A few months ago, it looked like there would be two things to celebrate in New York racing this weekend: The winner of the Belmont Stakes and the imminent sale of the New York City Offtrack Betting Corporation.

Now there's only going to be the first celebration, which is truly a shame. No matter how glorious this year's Belmont, even if it had completed the sport's first Triple Crown in 23 years, the OTB development would have been of more lasting value and importance to the industry.

New York City OTB may seem like a purely local political issue, but it has national implications. It handles over $1 billion a year in wagers, more than any track in the country, and probably wastes something in the neighborhood of $50 million a year in proceeds from that handle that could be used to improve the sport in its largest market. Under different ownership and management, that money (and plenty more from improved sales) could be used not only for massive marketing efforts to promote the sport but also for spectacular purse increases that would spur new investment from owners and breeders nationally.

Alas, such prospects grow bleaker by the day. Earlier this week, New York Racing Association chairman Barry Schwartz said that the deal was probably dead. The city is already six weeks behind on its timetable to announce a winning bidder for NYCOTB, and that's only the first step in a complex process. Both consortiums bidding for the property - the one led by the NYRA and the one led by Magna Entertainment and Greenwood Racing - need an entirely new package of racing legislation to complete any transaction, and the state legislature is set to adjourn before the end of the month.

A bigger clock also is running down. It was eight years ago that Rudy Giuliani, campaigning for election to his first term as the mayor, called OTB the only bookmaker in history to lose money and vowed to clean up and then sell the public benefit corporation. Giuliani was wrong about OTB's losing money, and the improvement in OTB's performance he has trumpeted is mostly an accounting sleight-of-hand. Still, he has succeeded in creating a perception that OTB is worth over $250 million and attracted two bids in that range.

Giuliani's second term runs out this year, however, and his successor is odds-on to be one of the four Democrats lobbying for the job. Whatever their other virtues may be, Democrats are not renowned for dismantling wasteful quasi-governmental organizations and alienating municipal labor unions by eliminating jobs. None of the candidates has addressed the issue, but it's unlikely that any of them would argue with the opposition to the sale that has been voiced by the heavily Democratic City Council or the unions.

"No sale" would be the worst result for the industry as a whole, but only the second-worst result for the two bidders. NYRA is better off with the bloated offtrack bureaucratic devil it knows than with Magna/Greenwood, for whom NYCOTB would provide a ready-made national phone-betting system and a vehicle to promote betting on out-of-state Magna tracks. Magna would also prefer to see no winner than a NYRA victory. While a sale to the NYRA group would have given it long-term control of ontrack and offtrack betting in the state, failure to complete a transaction raises the possibility of a Magna/Greenwood bid for the entire NYRA franchise in 2006.

If a sale this year is indeed doomed, it may have been the auction process and the presence of two imperfect and competing bidders that doomed it. Of course it makes sense for the people producing the racing to have some involvement in offtrack sales and marketing, but because NYRA is not allowed to accumulate profits, it had to take on out-of-state partners to finance a bid. This seriously weakened NYRA's argument that it was acting solely for the good of the game and for New York, and that it was the only logical bidder. What is the public-policy argument that NYRA's partners, Television Games Network and Churchill Downs Inc., have a greater right to profit from New York betting than Magna and Greenwood?

There is another and better way to fix the OTB problem than to conduct an overpriced auction between out-of-state companies: Put together a single group that includes whoever is operating the tracks, build broad-based political and public support for the idea (including public hearings), and pay the city an ongoing revenue stream instead of a one-time sales bonanza it doesn't even particularly need. That, however, would require that the politicians voluntarily dismantle a corrupt vehicle they use to reward and employ their friends and contributors. Good luck.