09/01/2009 12:00AM

N.Y. governor clears path for OTB bankruptcy


New York Gov. David Paterson signed an executive order Tuesday that will allow the New York City Off-Track Betting Corp. to file for bankruptcy, perhaps within the next 60 days, the governor's office announced.

In signing the executive order, Paterson said that he asked New York City OTB's chairman, Sandy Frucher, and the company's board of directors to prepare a restructuring plan within the next two months after concluding that "NYCOTB requires major restructuring to regain solvency," according to statement from Paterson's office.

The reorganization plan, according to the release, "likely will include a Chapter 9 filing." Chapter 9 of the bankruptcy code is a seldom-used section of the law reserved for municipalities.

The threat to file Chapter 9 bankruptcy is the first major announcement by the state since it purchased New York City OTB from the city last year after Mayor Michael Bloomberg threatened to shutter the operation, citing displeasure with the company's financial performance. According to state officials, the company is currently running a deficit of $600,000 each month and is facing $500 million in unfunded liabilities due to costs associated with employee pensions and health care.

If the OTB company were to file for bankruptcy, officials would almost certainly seek to win concessions from unions representing the vast majority of its employees and also may attempt to convince legislatures to overhaul the byzantine tangle of laws governing offtrack betting in the state.

Five other county-owned OTB corporations operate in New York under the same laws, and many have resisted significant changes to the framework. However, New York City OTB has lately been working to align its interests with the New York Racing Association, which operates the three largest racetracks in the state, in part to gain political leverage should the company need to go to the legislature for help.

NYRA chief executive Charlie Hayward applauded the executive order and pledged to work with the state and New York City OTB.

New York City OTB currently operates more than 60 branches in New York's five boroughs and a telephone and Internet betting operation. During the last fiscal year, handle through the company was just shy of $1 billion, making the company the single largest bet-taker in the United States.

Despite that rank, the company has struggled to meet the demands and expectations of local and state political leaders while running up a $46 million debt. Critics have contended that the company needs to drastically reduce its labor costs by automating more of its betting operations and by revamping its statutory requirements to governments and the racing industry, measures that have been met in the past with resistance from entrenched financial and political interests.

"Our goal is to make NYCOTB a modern wagering operation that can operate lean and maximize revenue for state and local governments as well as the horse racing and breeding industries," Frucher said in a prepared statement. "In this process, we are committed to treating the NYCOTB work force in a fair and equitable manner."