from the SOA of New York

Editor’s Note: The following memorandum was sent today to members of the New York State legislature by the Standardbred Owners Association of New York.

As recently reported in the horse racing industry publication “Bloodhorse,” the “Official Creditors’ Committee of New York City Off-Track Betting Corporation” last month circulated a draft memo containing numerous proposals for the reorganization of New York City OTB (NYCOTB) and changes to the state’s racing and lottery regulations. This Committee was appointed pursuant to the US Bankruptcy code, which requires them to provide creditors with access to information and then to solicit and receive comments and make recommendations (including possible legislative changes).

While it appears from recent news accounts that the current status of many of these recommendations is unknown within the context of NYCOTB’s newly hired President, the fact is that many of the Committee’s draft proposals are so potentially detrimental to the future of the New York State harness racing industry that we felt it was important for you to hear from us immediately with our concerns. New York’s harness horsemen want to make sure that the members of the NYS Assembly and Senate are fully aware that these recommendations — if adopted by the Legislature — would assuredly have a devastating effect on an industry that currently employs more than 40,000 New Yorkers, protects green space across the state, and generates billions of dollars in associated economic impacts. Among our key concerns are:

• Creditors’ committee does not reflect actual stakeholders owed money by NYCOTB

The most glaring and consequential basic issue with this committee is the fact that it is comprised solely of racetrack operators, labor unions and OTB’s landlords, which is not at all representative of the actual stakeholders owed money by NYCOTB. For example, while it may be technically accurate that Yonkers Raceway is owed $18 million from NYCOTB, fully over 50 percent of those funds — more than $9 million — are actually statutorily owed to the Yonkers’ harness horsemen’s purse account by statute and contract! And while horsemen and breeders across the state are owed millions by NYCOTB, they have absolutely no representation on this committee. It is not surprising, then, that they are the very groups who stand to be hurt the most by the Committee’s draft recommendations.

• NYCOTB let “off the hook” completely for past due payments to horsemen, breeders and racing industry

It is simply outrageous that this Committee would make numerous recommendations for bailing out NYCOTB and providing new benefits for the racetracks, while at the same time remaining completely silent on the issue of the millions owed to the horse industry. NYCOTB must be required to pay the millions they owe in statutorily required payments to the industry (which in the case of the Yonkers horsemen is more than $9 million in legally mandated payments) and absolutely no legislative relief should be provided to NYCOTB until they do. As the highly respected Executive Director of the Albany Law School Government Law Center was recently quoted on the Empire Page: “The State would seem to have at least a moral obligation to make sure that a public authority that it controls pays its obligations.”

• Elimination of dark day and maintenance of effort funding and reduction in commissions essentially rewards NYCOTB for competing with — and damaging — NY’s own home-grown racing industry

These statutory payments were determined necessary by the New York State Legislature in response to NYCOTB’s own bad business decision to import low-quality, out-of-state racing to compete with New York’s racing product. Without real reforms to change the types of business practices that drove them to bankruptcy in the first place, it is extremely likely that we will find ourselves right here again in a matter of months. The only difference is that the state’s harness and thoroughbred industries — not to mention agriculture — will be much, much weaker by that point because of the damage these proposals will cause.

• Committee’s proposal to “support the New York State racing product” is actually a cynical sham

NY’s harness horsemen have long suggested that any potential discussions about the reduction in statutory payments need to be accompanied by a detailed, legally binding commitment on the part of NY OTBs to the New York State racing product. The SOA of NY has proposed a conceptual framework for such a program — called “New York First” — that would benefit the state’s racing and agricultural industries by allowing OTBs to carry out-of-state racing signals only after all potential New York State races were offered.

While the Committee suggests some limited (and functionally vague) language to this effect in their proposal, one need only turn the page to discover that a subsequent proposed provision would effectively negate any and all potential benefits to the New York racing industry. In “exchange for distribution and display priority” for New York races, the harness industry would have to agree to capping the total commissions from these future races at 2009 payment levels. This means, for example, that regardless of how many more New York races are shown and wagered on in 2011 with this new “priority” system, NYCOTB would never have to pay the industry more than what they paid on New York races in 2009 — when they showed as few New York races as possible! In practice, then, this will function as a perverse “reverse maintenance of effort” initiative.

This cynical, “give with one hand, take away with the other” proposal should be dismissed by Legislators outright, as NYCOTB is essentially saying, “Sure we’ll show more New York State races, we just won’t pay for them.” Sadly, this is totally consistent with OTB’s long-held attitude that they should pay only what they feel like paying for the New York racing product.

Moreover, why isn’t NYCOTB voluntarily implementing New York First now? The answer is simple and what we have repeatedly shared with the Legislature. None of its concerns involve fostering the health, well-being and vitality of the New York racing and breeding product. NYCOTB is in survival mode; survival for its own sake at the expense of a multi-billion dollar industry. Neither the racing industry nor New York taxpayers signed up for this scenario in 1970.

• Is this NYCOTB bankruptcy proceeding really the appropriate vehicle for racinos to secure their list of desired lottery law changes?

It is striking that while this proposal is completely silent on the millions of dollars legally owed by NYCOTB to New York’s horsemen, it contains an entire section devoted to changes to the NY Lottery Law that will benefit only the state’s VLT operators. From extending hours of operations to removing the requirement for VLT operators to match state capital improvement funds with their own co-investment(!), these proposals will put millions of dollars into the pockets of New York’s VLT operators, while trading away direct or tangible benefits legally owed to the horse racing industry.

While there are a number of other proposals within this draft document that are also of concern to New York’s horsemen, the above issues are the most glaringly problematic for the racing industry. Therefore, as these and other proposals are considered, we must keep in mind that NYCOTB was originally formed to benefit both the racing industry and the State of New York, yet it continues to actually hurt both racing and the state in general.

Earlier this year, OTB’s parasitic relationship with New York racing and their ultimately hollow threat of a shutdown put the New York State Legislature in an incredibly unfortunate and untenable situation. Now, as you once again take up this very challenging issue, we urge you to work with the entire racing industry to create a new model that can be a win-win for ALL stakeholders. As always, should you have any questions or concerns, please contact me at 718-544-6800 or our lobbyist, Joni Yoswein, at 212-233-5700. Thank you for your consideration.