New York City Off-Track Betting Corporation

views updated

New York City Off-Track Betting Corporation

1501 Broadway
New York, New York 10036
U.S.A.
Telephone: (212) 221-5200
Web site: http://www.nycotb.net

Government-Owned Corporation
Incorporated: 1971
Employees: 1,500 (est.)
Operating Revenues: $1 billion (2000)
NAIC: 713290 Other Gambling Industries

The New York City Off-Track Betting Corporation is a quasi-government operation run for the benefit of the city. Each year more than $1 billion is wagered on horse races at 68 OTB parlors, three teletheaters, restaurant locations, as well as via telephone accounts, which have become more popular with the introduction of OTB telecasts on a local public access cable television channel. In addition to races run at area tracks, both thoroughbred and harness, OTB also provides wagering on out-of-town locations. Long criticized as a bloated, wasteful bureaucracy, OTB has come close to being sold off in recent years. Improvements to the operations, however, have helped to stave off the transfer to private interests.

Calls for Off-Track Betting in the 1950s

While horse racing takes place at numerous facilities throughout the United States, New York City has long been the wagering capital of the sport, as well as the place where the business of off-track betting has been the center of much political debate. Early in the twentieth century, the horse racing was briefly banned in New York state, but this prohibition did little to suppress gambling. While some began advocating for the legalization of off-track betting, arguing that people would always feel compelled to wager, before the 1950s it remained a challenging position to hold for politicians. In 1944, for instance, New York City Mayor Fiorello LaGuardia denounced the idea in one of his weekly radio addresses, maintaining that off-track betting would pave the way for legalized roulette, faro, dice, and other gambling. Moreover, he stated that the city could balance its budget without “one cent of this dirty or blood money.” The truth was that the state of New York was already very much dependent on its share of gambling at the local tracks, taking 5 percent of the handle (the amount bet on a race). Race tracks themselves accounted for another 5 percent of the “takeout.” LaGuardia’s successor, Mayor William O’Dwyer, was able to get an extra 5 percent share for the New York City in 1946, the “O’Dwyer bite,” which raised the total takeout to 15 percent. Over the next several years, however, the city was unable to fend off politicians at the state level who managed to wrest away the 5 percent, thereby doubling the state’s share to 10 percent. Starting in the 1950s, New York City mayors began to actively lobby for an off-track betting operation that could benefit the city coffers, which were beginning to increasingly feel a financial strain. Not only would the city not have to ask for more state funding, they argued, off-track betting would drive out illegal bookmakers and decrease the burden on the police.

The battle lines for off-track betting were essentially drawn between city Democrats and upstate Republicans. Also involved were a pair of unlikely allies: church groups opposed to gambling and the race tracks opposed to giving up a share of the takeout. The tracks simply did not believe that off-track betting would increase the betting market, as advocates argued. In 1963, Mayor Robert Wagner placed an off-track betting referendum question on the ballot for city voters. Although it held no legal effect, its support by a three-to-one-margin exerted pressure on upstate politicians, especially after Senator Jacob Javits, a leading Republican and the state’s senior senator in the U.S. Congress, called for the legislature to accede to the voters’ wishes. Nevertheless, over the next several years off-track betting bills died in committee or were defeated by the legislature. All the while, city officials prepared to create a corporation to run the off-track betting operations and as early as 1964 were envisioning a computerized wagering system. They also dreamed of realizing $200 million a year from the enterprise.

The breakthrough came suddenly, at the end of the 1970 legislative session, when the city projected a $630 million budget shortfall. City-backed legislation was passed permitting the creation of the New York City Off-Track Betting Corporation, a public-benefit corporation to be run by a board of directors to be appointed by the mayor. The OTB takeout would be 17 percent, with .5 percent of the handle going to the state, 1.5 percent to the tracks and horsemen, and the remaining 15 percent retained by the corporation to cover costs and generate a profit, which would then be split between the city and the state. In an attempt to lessen the impact on the tracks, OTB facilities were mandated to be uncomfortable: no food, no drink, no chairs, no bathrooms. The racing industry, taking no solace in the knowledge that OTB patrons would be made to suffer, was still outraged by the development and turned to the courts to have OTB declared unconstitutional, an effort that ultimately failed. A long-term conflict between OTB and the industry ensued, resulting, at the best of times, in an uneasy coexistence. Labor unions representing track employees were also hostile to the new venture, afraid that a long-term slide in track attendance would only be aggravated by OTB and cost them jobs.

OTB Begins Operations in 1971

To establish OTB, Mayor John Lindsay chose Howard Samuels, a former state senator who fell short in his 1970 bid for the Democratic nomination for governor. Samuels had considerable business experience, having co-founded Kordite Company, best known for the creation of Baggies. Samuels made several million dollars when the company was sold to Mobil Oil. Billed as the “New Game in Town,” OTB began operations on April 8, 1971, less than a year after the passage of off-track betting legislation, becoming the first legalized off-track betting operation in the United States. The start was modest, with only two betting facilities available to take wagers on that night’s harness races at Roosevelt Raceway: several windows at Grand Central Terminal and an OTB shop in Forest Hills, Queens. Mayor Lindsay held the honor of placing the first off-track bet, $2 on a pacer by the name of Moneywise at four-to-one odds. Other patrons, lacking the privileges of rank, waited in line as long as two hours to place their bets. Because OTB’s computer system was not yet deemed reliable, they used three-part betting slips that took time to fill out and were then manually checked. Moveover, it was evident that the slips could easily be altered to create winning tickets.

After the first day’s handle of $66,091, OTB began to ramp up its operations. By the end of its first year in operation, OTB boasted more than 50 parlors located in all five boroughs, with a daily handle of $1.2 million. It remained a controversial venture, however, with its computer system proving to be slow and unreliable and attendance at local tracks falling, thereby cutting into the takeout of both the state and tracks. Parimutuel clerks went on strike at Aqueduct to protest job cuts that the tracks attributed to the loss of patrons cause by OTB. Critics also contended that OTB was trying to dress the books. According to a March 1972 New York Times article, “By scrimping on services (no security guards or cleaners in the shops), hiring part-timers for four-hour shifts and deferring payments on such obligations as a $5 million fee for computer installation, OTB has sought to make itself appear more profitable at an earlier date than it really is.”

OTB also faced a continue challenge from the New York Racing Authority (NYRA), a non-profit corporation which represented the interests of the three state thoroughbred tracks: Aqueduct, Belmont, and Saratoga. Samuels attempted to negotiate with NYRA and the harness tracks about a more equitable split in the OTB takeout, and it appeared that the two sides were on the verge of an agreement. However, relations quickly deteriorated when a racing industry-supported bill was presented in the New York legislature calling for the creation of a board, dominated by racing officials, which would consolidate all of the state’s track and off-track betting commissions. Samuels vowed to fight the obvious attempt to take over OTB, suggesting that the tracks would be better served by cooperating with OTB in order to stimulate bettor interest, especially by permitting televised races.

During his tenure as the head of OTB, Samuels was able to fend off attempts to gain control of the organization. He was unsuccessful, however, in expanding the scope of the corporation to include the taking of bets on other sporting events, such as football, baseball, basketball, and hockey. His successor at OTB, Paul Scevane, who took over in March 1974, floated the idea of a betting card format, in which bettors attempted to pick the highest number of winners on a slate of games, but this concept failed to gain backing, and OTB’s quest to become an all-purpose bookie gradually faded. The corporation was having enough trouble fulfilling its stated mission of generating large revenues for the city’s coffers. The dream of gaining $200 million a year from OTB was dismissed from the outset of operations. In fact, annual profits peaked in 1974 when $43 million was turned over to the city. Despite the disappointment of declining profits, the city continued to collect its 5 percent share of the takeout. Even that amount would begin to fall off as OTB’s annual handle peaked in fiscal 1988, totaling $1.03 billion, then began a steady slide.

Company Perspectives:

Our goal at NYC OTB is to provide a clean, comfortable environment to enjoy all the action and sport of horse racing.

OTB received mounting criticism over the years: its parlors were shabby, technology antiquated, management inept, and work force inefficient. Like so many city institutions, it had become a source for political patronage, providing high-paying, high-sounding, do-little jobs to supporters. In the early 1980s, the comptroller’s office began urging OTB to cut costs, including the consolidation of branch offices, but little progress was made. OTB attempted to improve its finances by upgrading its product to spur revenues. Live calls from the race tracks were piped into OTB parlors. In 1986, OTB opened its first Teletheater, the Inside Track, in Manhattan. These changes did little to offset increased competition over gaming dollars from the state lottery and casinos in Atlantic City and on the lands of Native Americans. Illegal bookmaking operations, featuring satellite-televised races and comfortable accommodations, as well as credit, were also flourishing in the city. Moreover, the demographics of the typical OTB bettor were troubling. A survey conducted in 1991 indicated that almost 70 percent of patrons were over 45 years old. An OTB spokesman was quoted in a 1994 Forbes article as saying: “The average bettor is a 55-year-old white man who’s overweight and a chain smoker. How long will that customer base be around before you don’t have any customers at all?”

OTB Becomes A Political Issue in 1993 Mayoral Race

By cutting the number of OTB shops from 157 to 90, it came as no surprise that OTB’s annual handle slipped from $959.2 million in 1990 to $742 million in fiscal 1994, and despite cost-savings measures, the corporation actually lost over $7.4 million that year. During Rudolph Guiliani’s run for mayor in 1993, the state of OTB became a salient campaign issue when he questioned how a bookie operation could possibly lose money. In addition, Guiliani’s opponent, David Dinkins, the city’s first minority mayor, was troubled by his appointment to head OTB, Hazel Dukes. According to a 1994 Forbes profile of OTB, “She might have cost the mayor the election, as OTB became a symbol of ineptitude. She clearly regarded OTB as a candy jar: She fired older white managers and replaced them with nonwhites, saddling OTB with big lawsuits from the fired whites and thus adding to OTB’s deficit.”

Although mayoral candidate Guiliani vowed to sell OTB to private interests, after his election he allowed the corporation a chance to redeem itself. Under the leadership of Robert Palumbo, who was soon succeeded by former New York Giants football coach Allie Sherman, OTB began to show improvement. A first step was to simply clean the OTB parlors, which were notoriously dingy and marred by graffiti. Sherman also lowered OTB’s overhead by closing twelve poorly performing parlors, cutting back on the number of parlors opened on Sunday to reduce double overtime for labor and eliminating staff through buy-out packages. More important to revitalizing the fortunes of OTB was a new law that allowed OTB to simulcast out-of-state races in its parlors and the March 1995 introduction of experimental in-home simulcasting of races on the city’s public access cable channel, which spurred growth in new telephone accounts for both OTB and NYRA. As a result of these developments, OTB posted a $4.6 million profit for fiscal 1995 while improving the handle to $821 million.

OTB outlets featuring simulcasts were added to several restaurant locations in 1997. Although it appeared that the simulcasts mutually benefited OTB and NYRA, especially in light of the rise of Internet wagering on horse races, the two sides soon fell out over the arrangement. NYRA blamed in-home signals for a significant drop in track attendance, which OTB officials pointed out was a nationwide trend unconnected to the telecasts. After an agreement covering the pricing of track signals expired in July 1997, OTB and NYRA engaged in protracted and sometimes heated negotiations. In July 1998, NYRA pulled the plug on the home telecasts, followed in October by cutting off the feed to OTB parlors and teletheaters as well as affiliated bars and restaurants. The impasse was not settled until November 1998 when the parties finally agreed on a four-year contract.

For fiscal 2000, OTB’s annual handle topped the $1 billion mark, and the corporation contributed $39.2 million to New York City. As he entered the final year of his administration, unable to run again because of imposed term limits, Mayor Guiliani sought to fulfill a long-term pledge to sell the enterprise to commercial interests, while retaining a minority interest for the city. With a minimum offer of $250 million, two bidders ultimately emerged: Magna Entertainment Corporation of Ontario, Canada, and Churchill Downs Inc. of Louisville, Kentucky, in partnership with NYRA. The sale faced several obstacles, including a lawsuit from labor unions representing 1,700 OTB employees, which maintained that the city had not properly evaluated the impact of the sale on city employees as required by law. Any deal would also require approval from the state legislature, which was far from certain. In addition, both suitors for OTB were under somewhat of an ethical cloud. NYRA was under investigation by the state attorney general’s office as well as federal authorities for possible tax evasion and money laundering at its three thoroughbred tracks. One of Magna’s partners, Robert W, Green, a British bookmaker and track owner, was tainted by his close association with a New Jersey businessman who had just been convicted of money laundering and bank fraud.

A deal to sell OTB to Magna twice fell apart before Mayor Guiliani was able to announce in August 2001 that a $262 million deal had been struck. Critics claimed that the sale was shortsighted, and opponents, which included NYRA and the OTB union, vowed to stop the transaction in the state legislature. The matter would be put on hold following the September 11, 2002, terrorists attacks that destroyed Manhattan’s World Trade Center. It was still pending when Michael Bloomberg took over as New York’s mayor in 2002. He floated the novel alternative idea of selling OTB’s future revenues for a single, up-front payment, but in the end decided to delay the sale for at least a year, saying that it was uncertain whether OTB would be sold or not. In the meantime, OTB continued to conduct its wagering business and implemented measures to broaden its appeal to a wider and younger audience.

Principal Subsidiaries

NYC OTB Racing Network.

Key Dates:

1963:: New York City voters support an off-track betting (OTB) referendum.
1970:: New York State Legislature passes legislation leading to the creation of OTB.
1971:: New York City Off-Track Betting Corporation begins operations.
1986:: The first OTB Teletheater opens.
1995:: Home simulcasting of races is initiated.
1997:: The first OTB restaurant outlet opened.
2001:: Agreement to sell OTB is reached but not executed.