06/19/2008 11:00PM

Two initiatives: Bad and worse

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NEW YORK - While all takeout increases are punitive and ultimately counterproductive, some are even worse than others. Just look at the two that the New York State legislature approved last Monday: They are both scheduled to take effect Sept. 14, but one of them was so hastily and thoughtlessly conceived that it might take until then just to figure out how it is supposed to work and what it is supposed to accomplish.

It was bad enough that the legislators voted in a two-year, 1 percent across-the-board takeout hike on races run in New York, especially since the fake crisis that prompted it had disappeared: the supposed unprofitability of New York City OTB, which had led Mayor Michael Bloomberg to order it shut down last Sunday unless he got some tax breaks. When the state called Bloomberg's bluff last week, and offered to take what it considers a profitable operation off his hands, he agreed (after first attempting to retain the profits he claimed hadn't existed) and there was no longer any need for a bailout takeout increase.

The legislature went ahead and passed one anyway, jacking up New York's rates to 16, 18.5, and 26 percent respectively for straight, multiple, and exotic bets. Not one elected official will take "credit" for the idea, and most of them probably had no idea what they were voting for and why, but the real permanent government - the staffers and aides who seem to survive one administration after another - said privately that the state's other OTBs (none of which claims unprofitability) just sort of felt like they could use some more money. (The New York Racing Association, which stages the races, opposed the increase and has admirably said it will try to make its own customers whole by increasing rebates to its NYRA Rewards customers.)

Then one of those bureaucratic gnomes decided to take things a step further, and wrote in a nearly incomprehensible additional takeout increase that applies to bets made within New York on out-of-state simulcasts:

". . . [T]he retention rates and breaks shall be as prescribed by another state or country if such wagers are combined with those in the other state or country, plus an additional one per centum to be retained by such facility authorized to accept wagers on out-of-state tracks."

In other words, if you bet on a race run at Churchill Downs or anywhere else in the world, you get paid off at track prices, but if you bet that race in New York, your payoff will be lower because the takeout will be calculated at 17 (straight) or 20 (all multiples) percent instead of Kentucky's 16 or 19 percent. If Big Brown pays $6.80 to win the Kentucky Derby to everyone else on the globe who bets into the Churchill pool, he could pay only $6.60 in New York, with the extra skim supposedly going straight to whichever New York entity took the bet. The so-called 1 percent increase could in fact run as high as 50 percent if a $2.40 payoff is knocked down to $2.20.

Let's put aside the simple unfairness of this, and the fact that it makes New York a national laughingstock, and will confuse customers dealing with two sets of payoffs on every race, and that it will probably lose the state money because some price-sensitive New Yorkers will simply open out-of-state wagering accounts in order to to get paid off at square prices. This mandate also will require NYRA and the six OTB companies to renegotiate literally hundreds of existing simulcast contracts with tracks that are simply not going to agree to let New York retain the entire increase. Changes in takeout rates are customarily absorbed or retained proportionately by both the sender and the receiver.

"The concept of applying the takeout increase to non-NYRA signals was discussed briefly and only in theory when the focus was on subsidizing NYC OTB in its current form," said Patrick Kehoe, NYRA's senior vice president and general counsel. "At that time we told the state this would require us to net-pool-price the non-NYRA wagers, which would be cumbersome from a tote standpoint, would require us to amend our simulcast agreements, attain approval from the sending jurisdictions, and, most likely, the sending tracks would demand an increase in their price of some or all of the increase - resulting in a wash for revenue purposes, not to mention the migration of our customers to cheaper signals. So, we have 90 days to figure it out before the bill becomes effective."

That also means the legislature has 90 days to amend this sloppy and ill-conceived provision, which will only alienate customers and hurt racing without generating any benefit to the state.