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May 20, 2010

DiNapoli: Regional OTB Corporations in Steep Decline

Chief Causes: Weak Economy, Competition & Outdated Regulations

The financial condition of the state’s five regional Off Track Betting Corporations outside of New York City has substantially deteriorated over the last five years, with the total handle declining by almost $103 million, or 10 percent, according to an audit released by State Comptroller Thomas P. DiNapoli. In the first five months of 2009, the handle fell by 10 percent compared to the same period in 2008, auditors found. The decline was caused mainly by the deteriorating economy and competition with other gambling entities.

“OTB is hitting the home stretch, and it’s coming in last,” said DiNapoli. “If OTBs are going to remain viable, New York will have to take action to bring back the bettors and fix OTB. The current business model just doesn’t work.”

Auditors examined the Capital, Catskill, Nassau, Suffolk, and Western regional OTB corporations, covering the period January 2004 to June 2009.

Among the findings of DiNapoli’s audit:

  • Between 2004 and 2008, the corporations were required to pay 56 percent of their remaining handle (total after paying bettors) to the racing industry, and state and local governments before paying operating expenses. Although most of the corporations reduced these expenses, their net operating revenues - their collective bottom line – declined by 67 percent due to the combination of the declining handle and “up front” payments made to the racing industry and governments;
  • The corporations are facing stiffer competition for declining gaming dollars from casinos and a new force: out-of-state advance deposit wagering (ADW) companies that aren’t regulated by and don’t pay taxes to, the state;
  • State law permits the corporations to take nighttime races only if they pay harness tracks compensation at rates that are outdated and too high;
  • Harness tracks can veto proposed new OTB remote locations that would cost less to operate; and
  • As of the auditing period, only the Capital and Nassau corporations offered on-line wagering as a means to bring in more revenue.

DiNapoli recommends that the state review:

  • The formula used to calculate the corporations’ payments to harness tracks;
  • The corporations' authority to site remote wagering locations;
  • Whether ADWs should be subject to state Racing Law and regulatory requirements; and
  • The formulas used to calculate the corporations’ up-front statutory and surcharge payments to NYS.

In addition, DiNapoli’s audit recommends the OTB regional corporations:

  • Continue to increase revenues through innovative marketing ideas (e.g., cash rewards) and more cost-effective telephone betting, internet betting and remote wagering location operations;
  • Continue to analyze the cost of branch operations and identify cost savings opportunities; and
  • Explore opportunities to implement internet-wagering capabilities in the Catskill, Suffolk and Western corporations.

In August 2009, DiNapoli released an audit of the New York City Off-Track Betting Corporation (NYC OTB) that found it was also facing financial insolvency if current financial trends continue. The NYC OTB’s operating expenses and accumulated losses had increased steadily in the previous four years, resulting in an operating deficit of approximately $38 million. In total, the organization had an outstanding deficit of more than $228 million.

DiNapoli’s office is currently conducting an audit of the New York Racing Association (NYRA). That audit is expected to be completed later this summer.

The OTB Corporations generally agreed with DiNapoli’s recommendations, and found that the report provided a comprehensive and thorough analysis of the situation facing OTB facilities in New York State. They particularly supported the report’s conclusion that they will be unable to cut expenses fast enough to continue as financially viable entities if no action is taken to reduce their required up-front payments.

A copy of the audit report can be found here:

The individual corporation audits can be found below:


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