Audit raises concerns over New York OTBs’ financial situations

New York lawmakers should examine the statutory requirements imposed on the state’s five offtrack betting corporations with the intent of shoring up their deteriorating financial condition, according to the recommendations of an audit by the New York state comptroller’s office examining the OTBs’ operations over the past five years.

The audit, released on Friday, called the financial viability of the five corporations “questionable,” citing across-the-board declines in handle, operating revenue, and contributions to local governments. It recommended that the state legislature reconsider the formulas contained in state laws requiring payments to the state’s racing industry, particularly to in-state harness tracks.

“Given the significant amount of ‘upfront’ payments the corporations must make to the racing industry and governments in an environment of declining handle, the corporations may have trouble reducing expenses enough to ensure their long-term viability without legislative action,” the report said.

New York’s OTB corporations have long faced financial problems as more handle migrates away from brick-and-mortar locations to Internet and mobile wagering operations. In 2010, the state’s largest OTB corporation, New York City OTB, went bankrupt, and both OTB corporations on Long Island have struggled significantly with their own financial problems.

According to the audit, total handle at the five OTB companies declined 19 percent from 2009 to 2013, and “the downward trend is continuing,” the audit said. Total handle on horse racing in the U.S. declined 11.4 percent during the same period. Operating revenue for the five companies declined at an even greater rate, by 24 percent, over the same period, while operating expenses declined only 9 percent.

Distributions to local governments declined 42 percent over the same period, according to the audit, to $10.2 million from $17.6 million. All five OTB corporations are owned by the counties in which they operate, and all net profits are distributed to the localities.

The audit raised specific concerns about payments made to in-state harness tracks under a “hold harmless” clause in a state law passed in 2003 that allowed the OTBs to take nighttime simulcast signals from other tracks. The audit said that officials from one of the corporations, Capital OTB, stated that it paid the Saratoga harness track $2.5 million annually under the law from wagers that generated net revenue of $300,000 for the OTB.

“The costs the corporations have to bear under this law significantly outweigh the benefits received,” the audit said.

The audit also points out that the OTBs have been paying far higher rates for some simulcast signals over the past five years. During that time frame, many racetracks have pressed simulcast sites to pay higher rates as leverage in the market has shifted to tracks that have highly attractive simulcast products and to collectives of tracks that have banded together to increase their market power during simulcast negotiations.