OTBs Fight Subsidy to Racetracks

SCHENECTADY, N.Y. (CN) - New York's five off-track betting corporations want to stop paying state harness tracks a subsidy to protect their traditional nighttime horse-racing revenue against simulcast competition, now that most races are run in the afternoon.

In an Article 78 petition in Schenectady County Court, the OTBs ask that the decade-old subsidy, known as a maintenance of effort or MOE payment, be ended for the days the harness tracks run races outside the "protected nighttime hours," which begin at 6 p.m.

The petitioners are Capital District Regional Off-Track Betting Corp. in Schenectady, Catskill Regional Off-Track Betting Corp. in Pomona and Western Regional Off-Track Betting Corp. in Batavia - all of which operate in upstate cities and counties - and their Long Island counterparts, Nassau Regional Off-Track Betting Corp. in Hempstead and Suffolk Regional Off-Track Betting Corp. in Hauppauge.

Their complaint against the New York State Racing and Wagering Board and six harness tracks claims that despite a letter from the OTBs pointing out that MOE payments "are not due to regional harness tracks ... for those days that they conducted races outside of the protected nighttime hours," the subsidies were kept in place and the board "gave no rationale or explanation for its determination in this regard."

The OTBs sent the letter before the board set the 2010 MOE payments, on Sept. 1 this year, according to the complaint. And because the harness tracks have to file an annual race schedule, the Racing and Wagering Board had firsthand evidence of afternoon versus evening racing, the complaint states.

Six harness track operators were named as respondents. Five of the tracks - Saratoga Raceway, Buffalo Raceway, Tioga Downs, Vernon Downs and Monticello Raceway - "held substantial numbers of their races outside the protected nighttime hours," according to the complaint. The sixth respondent operates Yonkers Raceway.

All six tracks are within one or more OTB regions. Monticello Raceway, for instance, operates in the Catskill OTB, Nassau OTB and Suffolk OTB regions.

The OTBs, public benefit corporations that date to the 1970s, were set up to channel money from illegal betting parlors to the government. They offer pari-mutuel wagering on harness and thoroughbred horse races to bettors who can't make it to a track. The races may be in New York, in other states and in foreign countries.

Money wagered on a race at a track is combined with the bets made at the OTBs to create a pari-mutuel pool. From that, payouts are made for winning tickets - less percentages specified by state racing law for "retained commissions," according to the Article 78 complaint.

Those commissions are distributed according to a complex formula set by statute that includes New York tracks (for use in operations and to fund horsemen's purses); the state (in taxes and fees); and state-chartered funds for the benefit of horse breeders.

Finally, the complaint states: "The balance remaining after such statutorily mandated distributions and taxes, and after payment of the OTBs' operating expenses and debt service, is required to be paid to local governments within the regions of each of the OTBs."

New York's OTBs are allowed to display simulcasts of races - televised live broadcasts - and to accept bets on them. As with the on-track wagers, money bet on simulcast races becomes part of the retained commissions to be distributed to industry and government.

Only since 2003 have the OTBs been allowed to conduct simulcasts of nighttime thoroughbred races. That was also when "the harness racing industry was able to secure the passage of the 'maintenance of effort' provision ... designed to protect regional harness tracks from competition and potential loss of market share due to the simulcasting of thoroughbred racing during the protected nighttime hours by preserving the then-existing levels of certain commissions received by regional harness tracks from the OTBs," according to the complaint.

The Racing and Wagering Board, which regulates horse-racing and wagering in the state, sets the harness tracks' MOE payments, which the complaint states must be "at least as much as they received in 2002 (the year before the statute was enacted) from the OTBs for nighttime harness racing." (Parentheses in complaint.)

But also since 2003, according to the complaint, the Saratoga, Buffalo and Monticello raceways "made the business decision to conduct races during the afternoon hours and not during the protected nighttime hours."

Last year, those tracks, plus Tioga Downs and Vernon Downs "held substantial numbers" of their races in the afternoon.

The petition comes as New York's tracks and OTBs are struggling.

Last year, the total bet at the state's OTBs and harness and thoroughbred tracks was $2.04 billion, down from $2.61 billion in 2007, according to a July report from the Racing and Wagering Board.

Vernon Downs filed for bankruptcy in 2004 and closed for 2 years before reopening under new owners. And late last year, the New York City OTB filed for bankruptcy and closed abruptly; state lawmakers have held hearings this year about whether to consolidate the remaining OTB operations.

The Article 78 complaint also claims that the MOE payments run contrary to a 2009 governor's executive order that tried to dial back on state mandates. No state agency is supposed to attempt any action that could become a burden on local governments "without an accounting of the impact," according to the complaint.

MOE payments made to harness tracks that race in the afternoon are tantamount to mandates, the complaint states, because local governments get a share of the OTBs' retained commissions.

"The MOE payments reduce, dollar for dollar, payments made by the OTBs to local governments and, thus, increase property taxes of the local governments," according to the complaint.

The OTBs seek declaratory judgment that the MOE program violates the executive order, and ending the MOE payments to the tracks for day races.

The OTBs are represented by Francis Smith with McNamee, Lochner, Titus & Williams, of Albany.

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