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.

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.

Respectfully submitted,
J. Gary Pretlow
Chairman of the Committee on Racing and Wagering.