Report calls for massive streamlining of New York racing industry and regulation

A report commissioned by the New York Gaming Commission said the New York racing industry is beset by a maze of outdated regulations, especially on revenue splits from wagering, and legislators should eliminate those impediments in order to allow racing companies in the state to make changes to their business models based on market dynamics.

The report, conducted by Spectrum Gaming Group, a consulting group, is likely to play a role in the upcoming months as the New York legislature and Gov. Andrew Cuomo hash out a budget and legislative priorities. The report analyzed all of New York’s gambling markets, including recommendations on casino expansion and sports wagering.

The report’s recommendations for pari-mutuel wagering comprised the last quarter of the 400-page report, including calls for the state to remove regulations that it said created “1,024 possible distribution scenarios” for the allocation of revenues from pari-mutuel bets. The permutations arise from byzantine statutes that divide up money from horse racing wagers based on formulas derived at the outset of offtrack betting in the 1970s. Those statutes have been further modified multiple times over the past 50 years so as to create a “dense collection of rules, formulas, and sunset provisions” that it likened to “Rube Goldberg contraptions – complex mechanisms that perform simple tasks.”

“Streamlining the statutes to more simplified formulas will lead the distributors of the racing product to maximize their handle and revenues, which in turn helps maximize the pari-mutuel tax to the state,” the report stated.

The Spectrum report is not the first call for the regulations to be simplified. The report’s authors noted that the regulations have been targeted for simplification multiple times over the past 20 years, and it blamed legislative inertia for the failure to modify the statute due to in-fighting among racing constituencies seeking to preserve or increase their shares of the bets at the expense of other entities.

“Given the downward trends for the racing industry, instead of looking at capturing other industry participants’ market share to keep margins up, or discussion of why things can’t be done, the New York racing industry needs to collectively examine change in light of what can be done to benefit the state and the stakeholders,” the report stated.

The report also called for Thoroughbred racing dates to be reduced due to declines in the foal size and costly declines in the average field size. But it noted that those reductions are also a heavy lift due to horsemen’s desire to maintain as many racing opportunities as possible for their horses and the incentives for those trainers to enter races with as little competition as possible.

As a recommendation, the report said that NYRA should take a one-month break in the winter at Aqueduct Racetrack, noting that races at that time draw the least amount of betting. To compensate for the loss of race dates, NYRA should card more races per day in the week going into the break and increase the number of races coming out of the break as well.

The report details the large declines in wagering in New York that occurred after New York City Off-Track Betting Corporation closed in 2010, and it called on the state to encourage the re-opening of the metropolitan market. Its “conservative estimate” for the amount of betting that could be re-gained by a “well-run, modern OTB operation” in the NYC area was $130 million annually.

Following the shuttering of NYC OTB Corporation, NYRA explored the possibility of opening its own OTBs in the NYC area, but those efforts ran into roadblocks. The report recommended that NYRA be allowed to revisit that possibility, among other options to re-open the market for bricks-and-mortar locations in New York’s densely populated five boroughs. It also said that OTB operations would be far more efficient if the state’s five OTB corporations merged with NYRA or into one statewide company, a recommendation that has been ignored for 20 years.

“Both alternatives keep as much handle in the state as possible while making more efficient operations and minimizing any handle, tax, and municipality loss,” the report said.

As part of numerous recommendations regarding the elimination of redundancies, the report also said that NYRA should act as the “lead agent” among all statewide racing constituents, including Standardbred interests, for the importation of simulcast signals to the state, leveraging NYRA’s “tier-one” racing product. The consolidation of negotiating efforts on simulcast signals would lead to greater efficiencies and higher revenues, the report said. It also advocated for an increase in the state’s source-market fee for account-wagering companies not based in the state, a call made by nearly all representatives of the racing industry who participated in a hearing two weeks ago on legislative priorities.

On the subject of sports wagering, the report noted that the business is “low-margin,” but it supported giving racetracks and OTBs the ability to offer sports betting products, either at their bricks-and-mortar locations or through account-wagering systems. NYRA has been advocating for the ability for several years, but its efforts have not yet found traction in the legislature.

Alternately, the report said, NYRA and other racing operators should be given the option to allow pari-mutuel betting on events other than horse racing. The report gave as an example the ability to create a superfecta pool based on the total points scored in each of the four quarters of a football game.

“The options for different exotic-type wagers are unlimited and could be designed to the players’ needs and wants but still fit within current pari-mutuel wagering rules,” the report said.

On a macro scale, the report said that efforts to restore the racing industry in the state should focus on the sport’s overall economic impact of $3.08 billion a year.

“[This is] a benefit so large that it eclipses all other rationales for racing, including the benefit to the state from the pari-mutuel tax on wagering handle,” the report noted several times.

But it also said that the racing industry and the state legislature need to focus on actual business returns tied to racing, rather than the generous subsidies already flowing to racing from casinos activities. Not including NYRA, the report stated that New York’s seven Standardbred tracks and Finger Lakes derive “78 to 84 percent” of their purse money from the subsidies.

“While the industry contributes significant economic impact to New York, Spectrum believes it is imperative that serious efforts must be made to increase wagering and to make sure wagering dollars make proper contributions to racing,” the report said. “As market fundamentals evolve, if the revenue [purses, breeders awards, etc.] becomes less tied to racing, in the long term New York will end up with much less racing and thus fewer economic benefits from racing.”