05/23/2008 11:00PM

OTB's false crisis may prove costly


NEW YORK - New York's horsemen and horseplayers are about to have their purses and payoffs slashed under an outrageous scheme to swell the profits of the New York City Off-Track Betting Corporation.

Under any of several draft bills circulating in Albany, payments to purses, tracks, and breeders will be cut by around $15 million a year, and payoffs to bettors will be cut at least that much more, with the money simply redirected to New York City OTB coffers. It would be bad enough if that was government's regressive solution to fixing a legitimate financial crisis, but what's really appalling is that the crisis is nonexistent and the rationale for the new plan is based on two frequently repeated untruths: OTB loses money, and New York's parimutuel takeout is low compared with that of other jurisdictions.

No one has ever accused the so-called "public benefit" corporation of being operated efficiently, a virtual impossibility since its raison d'etre is to provide as many union and patronage jobs as possible. There are six separate regional offtrack betting companies performing entirely redundant and wasteful functions when there obviously should be a single merged entity. Yet even under this make-work system, New York City OTB is simply not losing money or burdening the city's taxpayers, as Mayor Michael Bloomberg has repeatedly claimed.

Its case for unprofitability stems from a cynical accounting trick that classifies about $15 million the city receives from New York City OTB's already usurious "surcharge" on winning bets made at its lower-end storefront "parlors" as an expense rather than revenue. This of course distorts the company's actual revenue, expenses, and profitability and allows the company to demand a bailout it doesn't need or deserve.

The argument that New York's takeout is comparatively low is similarly disingenuous. Lawmakers are considering raising the take from 15 to 16.5 percent on one-horse bets and from 17.5 to 19 percent on two-horse bets, and are being told that this would bring New York in line with states such as California and Kentucky, where the rates are right around 16 and 19 percent for those wagers.

This ignores the fact that the takeout in New York on bets involving three or more horses is a whopping 25 percent, while it stays at 19 percent in for those wagers in Kentucky and 20.68 percent in California. If you blend the rates to account for the actual handle and effective takeout on these different types of wagers, New York already has a higher overall takeout rate than those other states.

Just in case you thought this takeout increase might apply only to people who bet with New York City OTB, that is of course not the case. The increase would apply to payouts on all races run in the state regardless of whether you bet them at the track, New York City OTB, or any of the five other offtrack betting companies, or at an out-of-state simulcast location. So everyone must suffer because of how a single reseller chooses to mischaracterize its own finances and the current takeout rates.

New York City OTB officials have repeatedly said that their customers don't care about takeout and would not even notice an increase. Why not let them prove it? Let them raise only their own customers' takeout rate to 30 percent across the board, and if the officials are right, they will retain their current market share and their profits will soar. If it doesn't work out exactly that way, perhaps then they could think about merging with the tracks and other OTBs to produce the kind of financial results they would without all of the current waste.

There probably isn't time to try that, given that Bloomberg has set the machinery in motion to start firing employees and closing down shops next month unless the state starts giving him more of racing's and the public's money. This petulant and irresponsible threat to shutter the company was endorsed by all the city's four major daily newspapers, whose editorialists have taken the issue as an opportunity to voice their disapproval of racing and its participants rather than to challenge the mayor's characterization of OTB's finances.

New York City OTB may deserve some small legislative relief from its current expense structure, if only to correct a bad deal it willingly made a few years ago when it agreed to higher fees in exchange for nighttime Thoroughbred simulcasts that have not turned out to be as lucrative as expected. Such a readjustment, however, does not even come close to the tens of millions of dollars that would be stolen from bettors and racing under the current proposals, cuts that could prompt a real financial crisis in the state's racing rather than the fanciful one being claimed by the city.