THE OTB S AND LOCAL GOVERNMENT REVENUE REMARKS TO THE NEW YORK STATE ASSOCIATION OF COUNTIES 2006 ANNUAL FALL SEMINAR

Transcription

1 THE OTB S AND LOCAL GOVERNMENT REVENUE REMARKS TO THE NEW YORK STATE ASSOCIATION OF COUNTIES 2006 ANNUAL FALL SEMINAR THANK YOU FOR THE KIND INTRODUCTION. I NEED TO MAKE TWO CAUTIONARY STATEMENTS BEFORE I START OUT. ONE, MY OPINIONS ARE NOT THE OPINIONS OF ALBANY LAW SCHOOL. I ALONE AM RESPONSIBLE FOR THEM. TWO, I M GOING TO THROW OUT A LOT OF STATISTICS. IF YOU ARE ALLERGIC TO STATISTICS, LEAVE THE ROOM NOW. GO TO THE PANEL ON BUILDING CONSENSUS IN A POLITICAL ENVIRONMENT WHICH PROBABLY SHOULD BE MANDATORY FOR ANYONE CONNECTED TO NEW YORK S RACING INDUSTRY. NEARLY ALL THE STATISTICS I M TOSSING OUT COME FROM THE ANNUAL REPORTS OF THE RACING AND WAGERING BOARD. MY GOAL IN THESE REMARKS IS TO GIVE YOU A BRIEF HISTORY OF OTB IN NEW YORK, REVIEW THE REVENUE 1

2 RAISING ASPECTS OF OTB FOR LOCAL GOVERNMENTS, AND GIVE YOU AN ASSESSMENT OF HOW THE SYSTEM HAS WORKED OUT IN PRACTICE FOR LOCAL GOVERNMENTS. I CAN ANSWER THE LAST QUESTION FIRST. OTB HAS NEVER PROVIDED THE REVENUE FOR LOCAL GOVERNMENTS THAT IT WAS SUPPOSED TO PROVIDE, AND THERE IS LITTLE REASON TO BELIEVE THAT THINGS WILL CHANGE MUCH IN THE FUTURE. THE OTB LOCAL GOVERNMENT REVENUE TRAIN JUST LIKE ELVIS LEFT THE BUILDING LONG AGO. DON T BLAME THE OTB S FOR THIS OVERALL PROBLEM. THEY DIDN T CREATE THE SYSTEM. THEY JUST TRY TO MAKE IT WORK. IN ORDER TO SHOW YOU HOW I REACH THIS ASSESSMENT, I NEED TO ADDRESS THE FIRST TWO TOPICS I MENTIONED: A BRIEF HISTORY OF OTB AND THE REVENUE RAISING ASPECT OF OTB. ALMOST AS SOON AS NEW YORK STATE STARTED PARI- MUTUEL RACING IN 1940, THERE WAS TALK OF ADDING 2

3 OFF-TRACK BETTING PARLORS. AFTER ALL, THIS SEEMED TO MAKE A TON OF SENSE. HORSE RACING WAS HUGELY POPULAR. THERE WERE TONS OF ILLEGAL BOOKIES, AND HORSE RACE GAMBLING CONSTITUTED A GOOD PART OF THE PROFITS OF ORGANIZED CRIME. WHY NOT TAKE A SHOT AT ORGANIZED CRIME AND MAKE SOME MONEY FOR THE CITY OF NEW YORK AT THE SAME TIME? IN 1944, HERBERT BAYARD SWOPE WHO WAS THE CHAIR OF THE STATE RACING COMMISSION SUGGESTED OTB AND STATED THAT IT WOULD RAISE $72 MILLION FOR NYC. THAT S $769.2 MILLION TODAY WHEN YOU ADJUST FOR INFLATION. IN 1952, SWOPE AS A LOBBYIST AGAIN ARGUED FOR OTB IN NEW YORK CITY AND SAID THAT IT WOULD EARN $90 MILLION FOR THE CITY. THAT S $640 MILLION ADJUSTED FOR INFLATION. IN 1959, AND FOR MANY YEARS THEREAFTER, THE CITY OF NEW YORK USED THE FIGURE OF $100 MILLION AS ITS POTENTIAL REVENUE FROM OTB. $100 MILLION IN 3

4 1959 WOULD MEAN $638 MILLION IN TODAY S DOLLARS. WITH THAT KIND OF REVENUE, IT S NO SURPRISE THAT IN 1963 IN AN ADVISORY REFERENDUM NEW YORK CITY VOTED BY MORE THAN 3-1 IN FAVOR OF OTB. SOMETIMES THE REVENUE ESTIMATE FIGURE WOULD INCREASE. IN 1969, NEW YORK CITY MAYOR JOHN LINDSAY S PROPOSAL STATED THAT OTB IN NYC WOULD RAISE $160 MILLION FOR THE CITY AND $40 MILLION FOR THE STATE. 200 MILLION IN 1969 IS $1.061 BILLION TODAY. NOW OTB ACTUALLY PASSES THE LEGISLATURE IN THERE IS AS PER USUAL A FISCAL CRISIS IN NEW YORK CITY. THE ROCKEFELLER ADMINISTRATION WHICH HAD LONG OPPOSED OTB DOES A 180 IN ORDER TO GET THE CITY THEN MAYOR LINDSAY - OFF ITS BACK AND NOT RAISE TAXES. AND IT RAMS THE BILL THROUGH THE LEGISLATURE. CITY OTB GETS STARTED IN APRIL OF 1971, AND THE ONLY OTHER OPERATION THAT STARTS SOON AFTER THAT IS IN THE CITY OF SCHENECTADY. THE OTB S ARE 4

5 MUNICIPAL CORPORATIONS, AND THEIR LOCAL GOVERNMENTS (THE CITY OF NEW YORK AND THE CITY OF SCHENECTADY) WERE GOING TO BE THE RECIPIENT OF THE ENTIRE BOTTOM LINES OF THE OTB S. IN 1972, HOWARD (REMEMBER HOWIE THE HORSE? I REMEMBER HE WAS ELECTED GOVERNOR IN 1974) SAMUELS WHO RUNS OTB IS STILL SAYING THAT OTB WILL BRING IN $100 MILLION FOR THE CITY IN WELL, IT DOESN T. IT BRINGS IN $34.5 MILLION. THE INTRODUCTION OF OTB DID NOT PRODUCE THE DESIRED REVENUE, AND IT HURT THE TRACKS. THAT S WHEN WE START TO SEE THE LAWS CHANGING SIGNIFICANTLY ON OTB S IN 1973 AND THE GOVERNOR APPOINTS A COMMISSION, AND THE COMMISSION SAYS THAT OTB CAN T STAY THE WAY IT IS. IT RECOMMENDS ONE STATEWIDE OTB. THE LEGISLATURE COMPROMISES. INSTEAD OF ALLOWING EACH MUNICIPALITY TO OPEN UP ITS OWN OTB, THE LEGISLATURE DIVIDES UP THE STATE INTO REGIONS OF COUNTIES FOR OTB S SO THAT THERE ARE NOW SIX REGIONAL OTB S. THERE S, NYC, NASSAU, SUFFOLK, 5

6 CAPITAL WHICH GREW FROM THE ORIGINAL SCHENECTADY OTB, WESTERN AND CATSKILL. THERE WAS SUPPOSED TO BE A CENTRAL REGION CENTERED AROUND ONONDAGA COUNTY, BUT IT HAS NEVER BEEN FORMED. THERE ARE STILL A NUMBER OF COUNTIES THAT DON T PARTICIPATE IN THE OTB S. THE MOST SIGNIFICANT ARE WESTCHESTER, ONONDAGA, TOMPKINS, SARATOGA AND JEFFERSON COUNTIES. ALSO IN 1974, BECAUSE REVENUE HAS BEEN SO POOR, NEW YORK CITY GETS THE LAW CHANGED TO INCREASE REVENUE FROM OTB. THEY IMPOSE A 5% SURCHARGE ON ALL WINNING WAGERS WHICH IS SPLIT EQUALLY BETWEEN THE OTB REGION WHERE THE BET WAS PLACED AND THE LOCALITY WHERE THE TRACK WHERE THE RACE WAS CONDUCTED IS LOCATED. MOSTLY THAT LOCAL TRACK SURCHARGE MONEY WENT TO INDIVIDUAL COUNTIES OR THE CITY OF NEW YORK, EXCEPT THAT THE CITY OF YONKERS GETS ALL THE MONEY FOR BETS AT YONKERS RACEWAY. THERE IS ALSO A SHARING MECHANISM IN PLACE FOR SARATOGA COUNTY AND THE CITY OF SARATOGA SPRINGS. SO LOCALITIES GET THEIR MONEYS FROM 6

7 THE BOTTOM LINE OF THE OTB S AND FROM A SURCHARGE PLACED ON BETS AT OTB S. WITH THE SURCHARGE ADDED IN 1974, REVENUE DOES GO UP FOR THE CITY OF SCHENECTADY AND NEW YORK CITY IN 1975, THE STATEWIDE REVENUE FROM OTB REACHES $73 MILLION WITH $64 MILLION FOR NEW YORK CITY AND EVEN $850,000 FOR THE CITY OF SCHENECTADY. $73 MILLION IN 1975 IS $273 MILLION TODAY. BY 1979, WITH ALL THE OTB REGIONS IN OPERATION, WE REACHED A PEAK OF OTB REVENUE TO LOCALITIES. IT REACHES A TOTAL OF $113 MILLION. THAT S $320 IN TODAY S DOLLARS. BUT IT DOESN T GET ANY BETTER THAN THIS. OTB REVENUES TO LOCALITIES FORGETTING INFLATION - BASICALLY STAY FLAT AT AROUND $100 MILLION THROUGHOUT THE 1980 S. 20 YEARS AGO, OTB REVENUES WERE $102 MILLION, WITH SLIGHTLY LESS THAN HALF GOING TO NEW YORK CITY. 102 MILLION IN 1986 IS 175 MILLION TODAY. 7

8 BUT STARTING IN THE EARLY 1990 S, THE REVENUE FROM OTB TO LOCALITIES GOES DOWN. THERE S LESS OVERALL INTEREST IN RACING, AND OTB S ARE PAYING MORE TO TRACKS AND TO PURSES IN ORDER TO SIMULCAST AND BROADCAST THEIR RACES. OTB BECOMES FAR LESS PROFITABLE. 10 YEARS AGO IN 1996, THE REVENUE TO LOCALITIES GOES DOWN TO $71 MILLION. LAST YEAR, THE OTB RETURN TO LOCALITIES WAS DOWN TO $49.6 MILLION WITH WESTERN REGION AND NEW YORK CITY LOSING MONEY BEFORE TAKING SURCHARGE INTO ACCOUNT. SO LOCAL REVENUE IN REAL INFLATION ADJUSTED TERMS FROM OTB IS NOW DOWN TO 57% OF WHERE WE WERE IN 1996, 28% OF WHERE WE WERE IN 1986, AND 16.2% OF WHERE WE WERE IN NEW YORK CITY IS THE WORST OF THE LOT IN THESE OVERALL CALCULATIONS. NEW YORK CITY OTB PRODUCED $14.2 MILLION IN TOTO LAST YEAR DUE TO 8

9 SUFFERING A $5.5 MILLION LOSS. AGAIN COUNTING INFLATION, THAT MEANS THAT NEW YORK CITY IS RECEIVING 16.5% OF THE REVENUE IT RECEIVED IN 1986 AND 5.6% OF THE REVENUE IT RECEIVED IN IT S BASICALLY RECEIVING 2% OF THE MONEY THAT PEOPLE ESTIMATED AS REVENUE FROM OTB FOR NEW YORK CITY IN THE 1940 S, 1950 S AND 1960 S. SO NEW YORK CITY HAS FARED VERY BADLY WITH OTB REVENUE OVER THE COURSE OF OTB HISTORY, WHO ALSO LOST? ONE CLEAR LOSER HAS BEEN ONTARIO COUNTY. IT DOES NOT PARTICIPATE IN WESTERN OTB. ONTARIO COUNTY IN THE EARLY 1980 S USED TO DO VERY WELL BY GETTING SURCHARGE REVENUE FROM FINGER LAKES RACE TRACK. BUT A LAW CHANGE IN 1985 SEVERELY REDUCED THE SURCHARGE REVENUE PAID TO ONTARIO COUNTY SO THAT ONTARIO NOW GETS A FRACTION OF WHAT IT RECEIVED IN THE EARLY 1980 S. THE CITY OF YONKERS WAS HURT BY THE DECLINING FORTUNES OF YONKERS RACEWAY. IT USED TO COLLECT $3 MILLION IN SURCHARGE FROM RACING AT 9

10 YONKERS. WITH NO RACING AT YONKERS OVER THE LAST YEAR AND A HALF, IT HAS COLLECTED NOTHING. NASSAU COUNTY WAS HURT BY THE CLOSING OF ROOSEVELT RACEWAY IN EVERYONE ELSE HAS LOST REVENUE WHEN ADJUSTED FOR INFLATION. WESTERN OTB WHICH LOST $1.5 MILLION BEFORE SURCHARGE LAST YEAR HAS BEEN HARDEST HIT AMONG THE NON-NYC OTB S PERHAPS PROVING THAT NO GOOD DEED GOES UNPUNISHED. IT S BEEN HURT BY PURCHASING BATAVIA DOWNS, BUT THE POTENTIAL IS THERE FOR A TURN AROUND FROM THE VLT S THERE. LAST YEAR, WESTERN PRODUCED $2.4 MILLION FOR LOCALITIES. IN 1986, THIS NUMBER WAS $11.1 MILLION, NOT ADJUSTING FOR INFLATION. THE ONE COMPARATIVE WINNER IS ACTUALLY CATSKILL REGIONAL OTB. FOR EXAMPLE NOT ADJUSTING FOR INFLATION CATSKILL PRODUCED $6.2 MILLION IN 1979 THE GOLDEN YEAR AND $8.5 MILLION IN IN 2005, IT PRODUCED $10.1 MILLION. CATSKILL REGION HAS BEEN THE WINNER AT NOT LOSING ADDITIONAL REVENUE FOR ITS COUNTIES. YOU CAN ALSO CERTAINLY FIND THAT CAPITAL OTB IS DOING 10

11 BETTER THAN IT DID IN THE 1990 S. CAPITAL PRODUCED $7.2 MILLION IN IN 1995, IT PRODUCED $5.9 MILLION. IN 1996, IT PRODUCED $5.2 MILLION. THE FUTURE DON T EXPECT THINGS TO CHANGE MUCH. YOU RE GOING TO HAVE SOME COMPETITION FROM RACINOS WHICH WON T HELP YOU UNLESS YOUR COUNTY IS IN THE WESTERN REGION, AND PEOPLE START PLAYING THE VLT S AT BATAVIA. THERE S LESS AND LESS INTEREST IN RACING, AND WE MAY SEE MORE AND MORE INDIAN CASINOS. THE CATSKILL REGION IS GOING TO FACE SLOT MACHINES IN PENNSYLVANIA AND OFFTRACK WAGERING IN NEW JERSEY. THIS IS BALANCED OUT BY: 1. OTB IS THE ONE GROWTH AREA IN NY RACING. 2. MUCH OF THE GROWTH IS IN BETTING ON OUT-OF- STATE TRACKS. 62.3% OF ALL BETS AT OTB S ARE PLACED ON OUNT-OF-STATE TRACKS. THIS MAY NOT WORK OUT FOR NY TRACKS, BUT IT HELPS YOU IF YOU RE A PARTICIPATING COUNTY SINCE YOU GET THE FULL SURCHARGE ON OUT-OF-STATE 11

12 BETS AND DON T SHARE IT WITH THE LOCALITY WHERE THE TRACK IS LOCATED. 3. THE LEGISLATURE PASSED INTERNET BETTING WHICH SHOULD PROVIDE A BOOST FOR ACCOUNT WAGERING AT OTB. THE PROBLEM FOR YOU AS A COUNTY IS THAT ACCOUNT WAGERS AT NEW YORK CITY OTB HAVE NO SURCHARGE, AND WHEN PATRONS HAVE ACCOUNTS AT OTHER OTB S WITH MORE THAN $300, IT S ALSO SURCHARGE FREE. SO ACCOUNT WAGERING AT OTB FIGURES TO INCREASE SOMEWHAT, BUT IT MAY NOT BE A GREAT HIT WITH THE BOTTOM LINE FOR THE PARTICIPATING COUNTIES, SINCE THEY MAY NOT BE RECEIVING MUCH SURCHARGE REVENUE ON THESE WAGERS. BUT IF YOU RE LOOKING FOR ADDED REVENUE FOR LOCALITIES FROM YOUR OTB S, ASK THEM FOR VLT S. BECAUSE WITH RACING NOT BEING ONE OF YOUR GROWTH SPORTS IN NEW YORK STATE, EXPECTING THE OTB S TO PRODUCE MORE REVENUE FOR LOCALITIES IS A DOG THAT WON T HUNT. IT HASN T HUNTED SINCE 12

13 1979. IT DIDN T HUNT PARTICULARLY WELL THEN, AND IT CERTAINLY WON T HUNT NOW. 13