09/02/2009 12:00AM

N.Y. OTB plans to seek major concessions


New York City Off Track Betting Corporation, the country's largest bet-taker, which announced plans on Tuesday to file for bankruptcy protection, will ask the state legislature to approve a laundry list of changes to racing statutes as part of its reorganization under Chapter 9 of the bankruptcy code, officials of the corporation said.

The changes, which will almost certainly include modifications to the statutes that determine how much of the company's revenue goes to the racing industry, will be presented to the legislature in early 2010, according to Sandy Frucher, the chairman of the corporation. By that time, Frucher said, New York City OTB hopes to have convinced a federal bankruptcy judge that the company will be able to reorganize itself as a viable, solvent organization as long as the legislature votes to approve the package of changes.

"It will be presented as an up or down situation," said Frucher, in reference to the legislature's vote. "If the legislature's rejects it, someone will have to come up with $250 million."

Due to support from Gov. David Paterson and the presumption of the bankruptcy court's approval, the plan to push for modifications in the byzantine tangle of laws governing New York City OTB and its distributions to the racing industry and local governments will represent perhaps the first attempt at significant change in decades to have any reasonable chance to succeed. Over the years, the statutes governing the OTB company have been criticized as archaic, complex, and, in some cases, misguided. But substantive change has been nearly impossible because of a mix of conflicting political interests.

In the most recent fiscal year, New York City OTB paid out $128.6 million of its $244.7 million in revenue through the statutory formulas to the racing industry, state government, and local government, according to a recent audit by the New York City Comptroller's Office. The company derived vast majority of its revenue from the takeout on nearly $1 billion in wagers.

Frucher said that the company will likely press for a change in how its distributions are calculated. Currently, the distributions are calculated from the company's gross revenue, but the company is prepared to push for a distribution based on net revenue, or the amount left after expenses are subtracted from the gross.

Any change to the distribution formulas would almost certainly have a negative impact on Thoroughbred and harness tracks, which could present formidable hurdles to approval. Charles Hayward, the chief executive of the New York Racing Association, said that he believed the formulas could be tweaked to eliminate subsidies to the harness industry, but he also said that he believed NYRA deserved the share it received.

"We need to carefully protect our interests," Hayward said. "As long as we're being fairly compensated, we will support it."

It is unclear, so far, if the changes contemplated by New York City OTB will also apply to the state's five other OTB companies. When asked whether the reorganization of New York City OTB would affect the other OTB companies - which are all politically connected - Frucher said that he was "not going to wade into that minefield" while Paterson said that he was hopeful that some of the changes would serve as a "template" for change at the other companies.

In addition to changes to its distribution formulas, Frucher said that OTB would also seek to close a number of its 60 branches and negotiate new leases on existing facilities. The company will seek to renegotiate labor agreements with the unions representing the majority of its workers, who account for $500 million in unfunded obligations on the OTB's balance sheet.

Frucher stressed that New York City OTB would honor all of its existing obligations to its workers, and he said that the company was seeking only to reorganize while using Chapter 9 as a shield against its creditors. Chapter 9 bankruptcy was created in 1975 by federal law to protect municipalities facing bankruptcy - at the time, New York City was nearly insolvent - and since then, fewer than 200 municipalities or government-owned agencies have used the code.

"This is not a bankruptcy," Frucher said. "There is an insolvency issue. But this is not going to be a liquidation."