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Off-track betting looks like a loser in state audit

ALBANY – When then-Gov. Nelson Rockefeller in 1970 OK’d legislation allowing gambling on horses at sites away from racetracks, the idea was hailed as a way to steer money to localities and away from the illegal bookmaking market.

But a long, gradual slide in horse-race gambling along with an ever-increasing array of ways to make a bet in New York – from lottery games and online fantasy sports leagues to Indian-owned casinos across upstate – has bruised the off-track betting system to the point where its long-term survival is increasingly in doubt.

State Comptroller Thomas DiNapoli on Friday is expected to release an audit showing the amount bet at New York’s five OTB corporations has dropped 24 percent, or $1.2 billion. The comptroller compared the two most recent five-year intervals ending in 2013.

“The viability of the OTBs is in financial jeopardy,” DiNapoli said.

Since the OTBs are owned by local governments, the reduced total made in wagers, known as the handle, is translating into declining proceeds that the off-track corporations distribute to counties and other localities across the state.

At Western Regional Off-Track Betting – the public benefit corporation based in Batavia that is owned by 15 counties in the western region of the state, as well as the cities of Buffalo and Rochester – the amount of revenue-sharing proceeds from the OTB to those localities dropped 31 percent between 2009 and 2013, to $2.6 million. Statewide, the five OTBs have seen proceeds going to local governments drop from $17.6 million in 2009 to $10.1 million in 2013.

Long criticized as political patronage hiring outlets that did not control their expenses, the OTBs in the new audit, however, were not singled out as causing the fiscal problems that are putting their future into question. Instead, DiNapoli said, the five remaining OTBs in New York “have worked to control costs” but can’t continue operating in an outdated, state-created business model that came to life when racing was still in a go-go period in America.

Moreover, the OTBs are unable to keep up, DiNapoli said, with mandated payments and fees imposed on them by the state, especially at a time with ever-growing gambling opportunities in the state.

The OTBs did not argue with DiNapoli’s audit, a copy of which was obtained on Thursday by The Buffalo News.

“Until statutory changes are made, it’s going to be a losing battle,” said Michael Kane, president of the Western Regional OTB.

Besides coping with a declining fan base in horse racing, the Western Regional OTB has had to compete with Seneca Nation casinos in Buffalo, Niagara Falls and Salamanca.

“There’s only so much (gambling) money and a lot of it is going to other places,” Kane said.

Unrelated to the audit, Kane told his board he will move back his retirement date, originally scheduled for this fall, until at least April of next year, in part to help push in Albany for statutory changes to the state’s OTB laws.

The Western Regional OTB, compared with the state’s four other OTB corporations, has a unique, additional revenue source: it is the only OTB that owns its own racetrack, Batavia Downs, with an attached casino home to nearly 800 slot-like betting machines.

The corporation’s OTB side of the business operation, which includes 27 betting branches scattered around the region, saw its operating revenue slide from $19.5 million in 2009 to $15 million in 2013, the DiNapoli audit reported. But the revenues from its casino operations totaled $20 million in 2013, corporation officials said.

Indeed, an appendix to the audit illustrates just how important the casino at the Batavia harness track has been to Western Regional OTB: the total amount bet on horse racing at the OTB amounted to $94 million in 2013, compared with $567 million on the casino’s video gambling machines. The vast majority of betting handle goes to paying off wagers.

The OTBs, by law, must make an array of payments to other entities, whether tracks or the state, before being able to send annual distributions to localities. The audit noted how various Band-Aid solutions tried over the years have not worked. For instance, the OTBs received approval more than a decade ago to offer wagering on nighttime races in return for additional payments to tracks on the theory that the additional betting would offset the new mandated payments. Since 2002, when those fees were imposed, the total betting handle has dropped 67 percent at the state’s OTBs. The audit also blames some of the OTBs’ fiscal problems on high fees imposed by out-of-state tracks for the rights to broadcast and accept wagers on their races.

The declining horse-racing industry is not a New York-only phenomenon. The audit notes that in the five-year period ending in 2013, the amount wagered on horse racing in the United States dropped 11.4 percent. In New York, though, the level of state-sanctioned gambling has been sharply rising – especially over the past 15 years, which has seen new state lottery wagering, Indian casino openings and offshore wagering outlets.

The state Gaming Commission on Thursday announced it is on track to decide before the end of the year about the fate of licenses for three new commercial casinos, the first round of what eventually will be a total of seven Las Vegas-style casinos approved by voters statewide in a 2013 referendum.

“Continuation of these trends will affect not only the (OTB) corporations, but also the local governments that receive related distributions,” according to the DiNapoli audit.

At Western Regional OTB, six branches have closed in recent years, Kane said. Statewide, the number of OTB branches has dropped from 124 in 2009 to 89 last year.