March 15, 2010
Dear Speaker Silver,
The New York City Off Track Betting Corporation (NYCOTB) was created for a three-fold purpose. It was to close a New York City budget gap, raise revenue for the racing industry and discourage illegal gambling.
Over the past 40 years NYCOTB has deteriorated into a money losing operation. The time has come for hard decisions to be made. In June 2009, the state took over NYCOTB operations after NYC Mayor Bloomberg threatened to shut down the company, citing continuing losses and growing debt. Since then, Mr. Sandy Frucher, the NYCOTB Chairman, has recommended bankruptcy and bonding as solutions to the problems of operating losses and debt accumulation because statutory payment obligations were not met. To accompany the bankruptcy, Mr. Frucher has submitted a plan which he believes will end NYCOTB's insolvency and permit its survival.
In my view, Mr. Frucher's plan is fatally flawed. The recommendation to have the corporation pay statutory expenses to the racing/breeding industry from net revenue remaining after the corporation covers its own expenses simply cannot work. There would be no guarantee of any support for the industry. Besides, the entire pari-mutuel industry is structured to operate on percentages of gross handle, as opposed to net revenue. Closing most branch locations and imposing layoffs is unimaginable. NYCOTB branches are the source of two thirds of all the corporation's betting handle. Replacing branches with kiosks and issuing wagering cards, even if workable and I believe it is not, would take several years to implement.
In light of the current NYCOTB situation, I have examined recent financial data which NYCOTB has provided us, and would like to make several recommendations. However, be advised that because NYCOTB did not provide suitable information for a thorough analysis, the figures used here are largely my own estimates, which I believe to be conservative. My recommendations are as follows.
NYCOTB management is bloated, expending over $12 million per year in payroll. I recommend reducing the annual administrative payroll to $1,300,000, inclusive of fringe benefits, thus resulting in net savings of $8,300,000 in salaries and $1,700,000 in fringe benefits.
Since NYCOTB is no longer the property of New York City, it is my recommendation that the 2% surcharge which currently is paid to New York City be retained by the state. This change will generate an additional $10-$15 million in revenue.
The lease at 1501 Broadway currently serving as headquarters for New York City OTB must be abandoned, to result in a net savings of $2.5 million in rental payments. The Manhattan office currently houses the telephone operations, which should be moved to Aqueduct Racetrack along with the scaled-down management team.
NYCOTB should discontinue its television production to yield a net savings of $2 million. I've spoken with Capital OTB management and they are willing and capable of sending the signal they produce to the city to be shown on channel 71, at virtually no cost.
The city of New York has over 40,000 police officers who do a capable job of patrolling the entire city. I would urge that we eliminate the security forces employed by OTB, with the exception of those necessary for transferring of money. Allowing the city police to do their job would result in a net savings of $2 million.
NYCOTB currently operates 54 branches. It is my recommendation that the three branches on Staten Island be consolidated into one, which would result in the saving of over $1 million. I am also advocating the closure of at least five unprofitable OTB branch locations, including 991 2nd Avenue, which alone loses over $1 million per year and is attached to another OTB with a restaurant. These closings would generate an additional $5 million in savings.
Overtime at NYCOTB has run rampant. In an effort to save on overtime payments it is my recommendation is to work with the unions to achieve work rule changes. Currently individuals receive double time on Sundays if they work a Saturday. My recommendation is to eliminate Saturday-Sunday work assignments and reduce the number of part-timers. I would recommend that branch OTB clerks' work schedules consist of 3 successive 12 hour days, being Sunday- Monday-Tuesday or, Thursday-Friday-Saturday. Wednesday should be staffed by part-timers or per diem workers. The same should hold true for managers at the OTB parlors. This change would save $3 million in OTB clerk's payroll and $2 million for OTB management's payroll, for total saving of $5 million in overtime.
Also recommended is that the State Office of General Services examine all leases with the intention of renegotiation. If a landlord is uncooperative, NYS should consider closing that location. I estimate a savings of at least another $1 million from renegotiated leases.
NYCOTB currently operates a 50,000 square foot warehouse in Queens. Not seeing much need for this warehouse, my recommendation is to close the warehouse and retain five employees which should be assigned to the Aqueduct location. This would generate a $3 million savings.
NYCOTB currently employs approximately 15 individuals per branch, an extremely rich staffing pattern. With the work rule changes I am urging, the numbers can be limited to no more than nine OTB employees per location on average, in order to save several million dollars.
NYCOTB should reduce the usage of out-of-state tracks by at least 50% and show more in-state races. This will mitigate the eliminated payment for hold harmless and generate a net savings of $7 million. New York City OTB currently spends $37 million on simulcasting. Given its financial distress and continued impending closure, the contracts OTB has for receiving telecasts ought to be considered eligible to be renegotiated to generate a saving of approximately $3 million more.
NYCOTB currently has 80 vehicles. It is my recommendation that at least 60 of them be immediately sold at an average of $15,000 per vehicle. This and the annual cost of up keep savings of $6,700 would generate a $1 million cash infusion from the sale and a $400,000 annual savings on maintenance and insurance.
Payroll should be handled by the state comptroller's office or outsourced, creating additional savings of $1 million.
Although it is not part of this proposal, I believe that the six OTB corporations, seven privately owned racetracks and the NYRA should collectively purchase or create a tote company. The cost to each entity would be less than $100,000, but the benefits to be derived are limitless. New York State is losing over $300 million in handle to out-of-state ADW (advance deposit wagering) companies with better coordination of the racing products and control of the tote. We should recoup a large portion of the estimated 300 million of handle going out of state or $51 million takeout that we are not receiving now.
Another recommendation, which would require legislation, would be to institute a statewide OTB channel to provide everyone in the state with the opportunity to view all races and to encourage fans and potential fans to do business with their local regional OTBs. If this were to be undertaken, it is my belief that thousands of new customers will be created and literally, hundreds of thousands of dollars in new revenue generated.
NYCOTB has several large outstanding liabilities. I recommend that the outstanding payments owed to racetracks be extended over a ten-year period, except for what's owed to Monticello, which should be paid in full over a four-year period. Amounts owed to the Thoroughbred and Standardbred Breeding Funds should be spread over three years and payments due to the New York City employee benefits program and New York City employees' retirement system should be spread over five years.
I recognize that in these extremely difficult economic times, some of the measures being proposed here appear harsh, but the reality is that if these are not done and not done expeditiously, New York City OTB will be forced to close its doors, leaving all 1,337 employees unemployed. The cost savings I've identified equate to an annual expense decrease or conversely, a revenue increase exceeding $56 million, which, moves the company from a $12 million annual loss to a $44 million annual profit.
J. Gary Pretlow
Chairman of the Committee on Racing and Wagering.