Odds On Racing - Harness Racing

Eulogy to New York Racing?

January 13, 2010

Richard Nixon was in residence at the White House and Secretariat was a yearling when the New York City Off-Track Betting Corporation and five other similar public benefit operations opened for business and forever changed the character and structure of racing.

Almost four decades later, with the world's largest legal bookmaker $228 million in debt, $42 million of which is owed to the state's racetracks, New York Thoroughbred Breeders Executive Director Jeff Cannizzo carried a four-foot tall mock headstone representing the state's Thoroughbred breeding and racing industries into a Manhattan hearing last week, the point of which was to underscore his testimony during a hearing at which the corporation's leader proposed to reduce -- or perhaps eliminate -- payments to racetracks and breeders, a move that would sound the death knell for racing in New York.

Not insignificantly, New York City OTB is the largest of "public benefit" corporations operating in the state and despite its situation -- an off-site pari-mutuel wagering monopoly in one of the world's most densely populated metropolises -- is the only one that is bankrupt. The others, none of which is particularly beneficial to the host industry to which they are parasitically attached at the jugular, seem to operate profitably.

But NYC OTB has never been more than a bloated jobs program benefitting friends, relatives and others connected to whatever political party is in power, a study in patronage and redundancy if not outright corruption. Michael Bloomberg, now in his third mayoral term, served most of two before unloading the albatross on a bankrupt, gridlocked state government, which rushed recklessly to the rescue under the guise of saving jobs.

The political appointee currently at the helm of the state-owned NYC OTB, Meyer Frucher, proposes that the state legislature change the system of statutory payments to racetracks and breeders as well as state and local government and claims that distributions should be based on net income instead of gross income. This ignores the fact that there is no net income and no guarantee that there ever will be. Frucher's argument is tantamount to the owner of any failing business -- an automobile dealer, for instance -- claiming that there would surely be profit if not for the requirement that he pay for the cars.

Frucher, whose friends call him Sandy, told members of the State Assembly Committee of Racing, Wagering and Gaming: "The most critical legislative changes required to secure NYC OTB's viability is the modification to the legislative distribution scheme. NYC OTB will pay for the product and services it receives, at fair market value, as part of its operating structure. All other payments to the industry will be from the residual."

NYC OTB did not find its way to this sorry period in its generously besmirched history without much of this sort of logic. Frucher's proposal has long been a point belabored by his predecessors appointed by a succession of New York City mayors. They, like Frucher, unsullied by reality, cling grudgingly to an ignorance of the racing's industry's structure and business model. Were this concept actually adopted, there would be, in fact, no racing and therefore no product and no OTB.

"This accounting trick will dramatically reduce revenues to those who are at the heart and soul of thoroughbred racing, remove OTB accountability, and create a death spiral for an industry that employs tens of thousands of New Yorkers," the tombstone-carrying Cannizzo told the assembled politicians. "If OTB distributions to thoroughbred breeders disappear, on top of the current financial distress breeders are suffering, the breeding industry will be decimated, putting the racing industry in New York out of business. Without the product -- the horses -- there will be no race to hold, no ticket to wager, and no handle to disburse."

With NYC OTB having paid no one in recent times at the expense of both breeders and racetracks and exacerbating the current overall economic malaise, three of New York's largest commercial breeding farms have closed in the past year, according to Cannizzo, reducing by 400 the population of broodmares. Many of the state's breeders are sending mares to Pennsylvania, where the awards program, boosted by gaming revenues, is more than 36 percent higher than New York's, once the nation's most lucrative.

"Most important," Cannizzo said, "the 2009 foal crop in New York was down 15 percent from the previous year and 21 percent from just five years ago," Cannizzo said. "This will have a proportionately and significantly negative impact not just on Thoroughbred racing, but on the economy of the State of New York."

The importance of NYC OTB's fate and that of the racing and breeding businesses here goes far beyond the state's borders. Imagine the sport without Belmont Park and Saratoga, arguably the two most important racing venues in the United States. What Wall Street is to finance and Broadway to theater, New York is to American racing.

Since its establishment, the model of off-track wagering in New York has endured as a blueprint for failure, replicated or imitated nowhere. It has successfully carries out its mandate to generate revenue for local government, most from a surcharge on winning wagers. It has slowly, almost blithely, bled the state's racetracks beyond the point of anemia and now serves notice that it thirsts for the last drop of blood.

The New York Racing Association, which is owed $14.7 million by NYC OTB, has filed an objection to its bankruptcy petition, charging that it was not filed in good faith, and is expected to propose a takeover. In what amounts to a race between the lesser of evils, NYRA wins by a pole. A takeover by a consortium of creditors merits consideration. Another form of privatization might be considered. Necessity is the mother of invention and it has become necessary to allow NYC OTB to die so that it can be reborn in another form.

But, while hope is persistent, there is also the realization that the ultimate decision rests with the lawmakers of New York, a group typically incapable of reaching consensus on any issue beyond adjourning for lunch.