Background: New York's horse racing industry got hit with a double whammy recently when the State Comptroller announced May 20 that the state's five OTBs were experiencing rapidly declining revenue and threatening their viability. The same day the New York Racing Association (NYRA) announced that it would have to lay off 1,400 employees on June 9 if the State did not loan it $25 million. To get a perspective on these developments, the Empire Page talked to Bennett Liebman, Executive Director of the Government Law Center of Albany Law School, who has served as the Coordinator of the Government Law Center’s Program on Racing and Gaming Law since the program was established in February of 2002. Mr. Liebman serves as a public appointee on the board of directors of the New York Racing Association.
Empire Page: This past week NYRA notified some 1400 track employees that they will be out of a job and the Saratoga track meet will not be held unless NYS loans it approximately $25 million. Didn't NYS just rescue NYRA a few years ago? How did they get into this situation?
Liebman: Much of what NYRA received from the State as the settlement of ownership the track properties and the grant of the racing franchise went to pay NYRA’s preexisting indebtedness. It was assumed by all parties that NYRA – in the absence of a racino at Aqueduct – would need support funding to keep racing viable in New York State. In fact, the franchise agreement between the State and NYRA requires the State to support NYRA’s ongoing operating and capital expenses, if a racino at Aqueduct was not in operation by April 1, 2009.
Not only is there no Aqueduct racino, there have been extensive delays in NYRA receiving the proper level of payments from the bankrupt New York City OTB, and the thoroughbred racing business has been in terrible condition over the past year and a half. National racing handle in the United States declined by 9.8% in 2009, and has declined by 8.4% for the first four months of 2010.
Empire Page: Many people blame the existence of New York's Off-Track Betting system for the decline of the state's racing industry. Yet the OTB system was created nearly 40 years ago. If NYRA hasn't solved the problem of OTB in the past 40 years why should we have any confidence that they will in the future? Are taxpayers just sending good money after bad by rescuing NYRA once again?
Liebman: While initially, the State’s OTB’s were
destructive of the horse racing industry, by now, the OTB funding system is not
the major problem. The problem with OTB now, most especially New York City OTB,
is that it is not making timely payment s to NYRA. New York City OTB is now
controlled by New York State, (See Chapter 115, L. 2008) and the State would
seem to have at least a moral obligation to make sure that a public authority
that it controls pays its obligations. (These
NYCOTB obligations now apparently total $17 million.) With an
operating racino at Aqueduct, and
an OTB system that paid its debts and obligation to the racing industry, there
would seem to be little reason for the State to support NYRA.
Empire Page: NYRA claims that when a Racino (video slot-machine parlor) is finally in place at Aqueduct it will solve all their problems. But it's not as if the betting public has no other options. They can bet at the OTBs, at the Racino at Yonkers or they can drive up to Foxwoods or Mohegan Sun. Is NYRA whistling in the dark when it projects $1 million a day from Aqueduct?
Liebman: There are two separate questions here. One is will a racino solve all of NYRA’s problems? The answer would seem to be yes, but that response is predicated on NYRA receiving the same basic level of support from the OTB system. If the racino payments to NYRA are simply a substitute for the OTB’s paying NYRA, then we will have only borrowed from Peter to pay Paul. NYRA needs both an Aqueduct racino and a responsible OTB system to be viable.
The second question is how much money are we actually talking about? Yonkers Raceway in 2010 has been averaging revenue per terminal of $305 per day. Yonkers has 5,300 machines, Aqueduct will have 4,500. It has generally been assumed that Aqueduct will produce somewhat more revenue per machine than Yonkers. That has been due to the smaller number of machines at Aqueduct and better mass transportation to Aqueduct than to Yonkers. If Aqueduct produces $350 in revenue per machine per day, that is gross terminal revenue of $1.575 million per day. With a tax rate of with a tax rate of 44%, that equals $693,000 per day to the State. (In addition to this tax figure, the Lottery receives 10% of machine revenue for administrative costs. At $350 per machine per day, this is $157,500 per day.)
There is some potential for a greater upside here. With a
skilled gaming operator (and some of the bidders for the Aqueduct racino are
certainly skilled operators) and improvements in the games themselves that serve as the basis
for the VLT’s, we could envision per machine revenue of $400 or $450 per
machine per day at Aqueduct. At $400 per machine, per diem revenue, the State
receives $792,000 per day in tax revenue. At $450 per machine per day, the
daily revenue to the State reaches $891,000 per day. In short, a million
dollars per day to the State might be a stretch, but not by much.
Empire Page: What do you think should be done with regard to NYRA and the flat track industry in New York which I believe is fairly vital to the state's economy?
Liebman: Quite frankly, everything is dependent on some continued
public interest in horse racing. If people don’t bet on racing, there is little
we can do to make the industry work. To paraphrase Yogi Berra, “If the fans don't come out to the racetrack
or the OTB, you can't stop them." The racing industry is certainly vitally important to the Saratoga area
and to those counties with major breeding operations. We shouldn’t let them fail. To help NYRA and to help these
regions, I think NYRA needs somewhat added flexibility in its choice of dates.
And it needs to be able to develop a fully operative capacity to work with the
entire industry in New York to create a single site to take Internet and
account wagers. We still need to make it simpler for people to place bets on
Empire Page: New York's OTBs are not producing the kind of revenues for the public till that they were a few years ago and NYC's OTB is bankrupt. Is this a result of the country's recent economic problems or are there some deep-seated problems with OTB system that need to be fixed? If so, what do you think needs to be done.
Liebman: It would be nice, and it would be certainly helpful if we could coordinate and reorganize the OTB system. Nonetheless, the central problem isn’t who runs the OTB’s or how they make their payments to the racing industry and government. The issue is whether we can maintain any fan interest in horse racing. The national economy certainly hasn’t helped horse racing, but the sad fact is that unless we increase public support of horse racing, there is little that can be done by the government (short of giving them VLT’s) for the OTB’s.
Public interest in horse racing in New York has been declining steadily for more than a third of a century, if not longer. Adjusting for inflation, total New York State handle on horse racing in 2008 was 26.8% of what it was in 1978. When you adjust for inflation, New York handle on horse racing hasn’t been this low since 1942.If it continues to decline, then the laws of economics will eventually have their way with the OTB’s. If you care about horse racing, patronize a racetrack or an OTB. Don’t simply complain about the government.