Razzle Dazzle
OTB's Customer Disservice

By RICHARD STEIER

A couple of days before Mayor Bloomberg warned that it might be time to sell the Off-Track Betting Corporation to private interests, a visit to a parlor just west of City Hall offered some insight into why the city's bookmaking operation is in trouble.

I asked a Betting Clerk for $6 worth of exactas at Delaware Park, but rather than punching in the numbers, he tapped on the plexiglass and made a gesture indicating he wanted me to put my money through the window.

This went so blatantly against established etiquette for the horse-betting business - you call out your numbers, the clerk punches out the tickets, then gives you a total and you pay it - that I gave him a look of disbelief and asked, "Why?"

He responded that he wasn't going to risk punching in the tickets and then having me refuse them or walk away from the window, possibly with too little time before the race for him to cancel the bets, leaving him personally responsible for their cost.

An Implicit Trust

I'd never really thought about the normal way of doing business before, and the fact that clerks on numerous occasions punch out hundreds or even thousands of dollars worth of tickets before the customers actually put their money through the betting window. Perhaps that's why the thought never occurred to me that I could get more enjoyment out of sticking a clerk with $6 worth of tickets than by paying for them so as to watch my investment run.

UP THE TRACK: Union leader Lenny Allen (left) says the Off-Track Betting Corporation is struggling because of legislation that forces it to relinquish too big a share of its revenues to the racetracks, but others contend that OTB President Ray Casey has not managed the operation well while getting insufficient support or prodding from City Hall.

Having gotten the opportunity to consider those matters, I told this Bright Boy thanks anyway and moved over to another window, where the clerk exercised the implicit trust that keeps the pari-mutuel machines humming.

The suspicious clerk, who was filling in for one of the regulars, was not seen on several subsequent visits, and he is an aberration among a work force that is almost uniformly courteous and professional. His attitude, however, is very much in line with how the people who run OTB have treated their customers for years.

"You know why they're losing business?" a guy I'll call Marty said the following Saturday at Belmont Park. "Because people have figured out they can make bets without getting bleeped."

Marty is what might be called a True Racing Fan. Anyone with time on their hands, enough betting capital and a love of the game could spend six weeks up at Saratoga when the racing is indisputably the best in the country; Marty is among the few who would qualify on all those counts who can unfailingly and cheerfully be found day in and day out at Aqueduct in the middle of winter, on days when the seagulls outnumber the patrons.

He was referring to the disparity between what OTB offers its customers financially and what they get from the New York Racing Association, which operates Aqueduct, Belmont and Saratoga.

Someone who makes a winning bet at an OTB parlor is subjected to a 5-percent surcharge, which rises to 6 percent for exacta and triple bets.

There are those who call horse-racing the most intellectually challenging form of gambling; it sometimes seems that the biggest challenge is justifying betting the horses when the odds are so much higher against success than they are for casino games.

A Steep Tariff

Casinos thrive with as small as a 2-percent advantage over those playing blackjack or roulette. Racetrack bettors are playing against each other rather than a "house," but the track takeouts - the amounts deducted from winning bets - are significantly higher than that. The NYRA tracks, which treat customers better than most in this regard, have a takeout of 15 percent on successful win bets, 17.5 percent on daily doubles and exactas, and 25 percent on triples and wagers involving three or more races.

Those takeouts pose a steep-enough mountain for those seeking to make a profit betting horses; put the OTB surcharges on to make the deductions 20, 23.5 and 31 percent and the climb becomes nearly impossible.

There was a time when OTB could force bettors to strap on their hiking boots and make the attempt, because it was the most practical alternative. The betting corporation's success was predicated on giving people - particularly those who worked during normal racing hours or had family obligations - a neighborhood place other than the elusive corner bookie where they could bet a horse without making a trip to the track. The surcharge seemed a small price to pay for that convenience, even if it undercut one of the original rationales for betting at OTB: that unlike bookies who limited their payouts on long-shot winners, it would offer full track odds to its customers.

Several changes in circumstance have diminished the convenience value of OTB over the past two decades, however, and the corporation has made no attempt to adapt, apparently believing that its customers were either too stupid or too much creatures of habit for it to make a difference.

One was the development of phone-betting operations during the 1990s, which along with the televising of races on OTB's own cable channel made it possible to get the racetrack essentials without leaving home. Another was NYRA's selling of its signal to other entities, some of them off-shore and in casinos in Las Vegas and Atlantic City or on Indian reservations, creating a multitude of other competitors for OTB - and all of them offering better financial terms. There are establishments that give their customers rebates of up to 12 percent on their betting action.

Even Losers Can Profit

The difference this makes is substantial, particularly for bigger bettors of the sort that any gambling operation is seeking: a rebate of that amount could turn a bettor who wagered a million dollars in a year and showed a net loss of $100,000 into someone who wound up with a $20,000 profit.

OTB's response three years ago when asked how it could expect to stay competitive with such establishments while maintaining the surcharge was that the extra takeout was necessary for the corporation to show a profit, and that those wishing to avoid it could do so by opening a phone-betting account.

But NYRA offers such accounts as well, and for years has provided phone bettors with incentives ranging from season passes to seating preference for Saratoga and for the association's biggest event, the Belmont Stakes. Earlier this year, it began granting rebates as well, based on the amounts wagered by account-holders. They are not at the levels offered by a certain Idaho-based betting hub, but they still amount to what most customers would regard as free betting money. Perhaps worst of all for OTB is that it becomes an even greater inducement for those not going to the track to use the NYRA accounts and then watch the races on the OTB channel piped into their homes.

Costs Up, Betting Isn't

Only about 20 percent of OTB's business comes from its phone accounts; the remainder stems from its betting parlors, where with few exceptions the winners are subjected to the surcharges. The net result has been that revenue is flat, even as costs - notably in the area of labor contracts - continue rising.

Casting about for solutions to its problem, OTB commissioned a $1 million study by the Boston Consulting Group, but whatever the recommendations, there have been no obvious results. The corporation miscalculated a few years ago when it agreed to give a larger percentage of its revenues to NYRA under a deal that produced legislation allowing OTB to take wagers on thoroughbred racing at night. The windfall it expected from betting on the races at the major California tracks didn't materialize.

It probably also didn't help that whoever is in charge of the home-betting broadcasts on the OTB channel seems to have little knowledge of horse-racing and the fact that some events are more important than others. A few years ago, viewers tuning in to watch the Meadowlands Cup, a $500,000 stakes race that has produced past winners of the Breeders Cup Classic, missed almost the entire race because someone gave greater priority to showing a nondescript event from Yonkers Raceway with a $5,000 purse that was run at the same time.

'Night Racing a Disaster'

The misjudgment on the revenue that would result from night thoroughbred telecasts has left OTB losing money because of the greater share of the pie that went to the racing industry under the legislation, and it seems unlikely that the law will be changed now.

"The night racing is a disaster," said one insider, "but people in Albany don't believe [OTB officials] can fix it."

That belief, he said, stems from both a lack of confidence in the managerial skills of OTB President Ray Casey and the perception that the Mayor was not committed to making OTB a successful business even before his comments two weeks ago that it might be time to sell it.

A call to Mr. Casey about the current state of affairs and Mr. Bloomberg's threat to hang out a for-sale sign brought nothing more in response than a statement from the OTB President's Chief of Staff, Denise DePrima: "We are not commenting on the Mayor's comments."

It sometimes seems hard to believe that Mr. Bloomberg is familiar with the competitive disadvantages OTB faces: at the betting windows, a bite of at least 5 percent more than at the NYRA tracks, and no incentives on the phone compared to the rebates the track phone operation now provides.

'Not City's Forte'

One of his appointees to the OTB board, John Crotty, said, "Government is probably not best-suited to run a commercial enterprise. I don't think that's government's forte. Of course, if you get the legislative change, then you could put the profitability back into OTB."

That is also the decidedly rosy view of Lenny Allen, the president of OTB Local 2021 of DC 37.

"OTB is probably the most-successful racing entity in the country," he said in an Oct. 24 phone interview. "The problem is the way the law is written in Albany: they have to give away more than their profit. I think they have to allow OTB to keep a little bit more of their money."

He argued that the Legislature has created problems that go beyond the shortfall from the betting on thoroughbred racing at night. "They had to pay Yonkers Racetrack $400,000 a year even when it was closed," Mr. Allen said, referring to the period when the harness track was undergoing renovations as it installed video-lottery terminals, which have generated enough revenue to revive the track from a death wheeze to the point where it now stages some of the big events that helped make it a major racing venue during the 1950s and 1960s. (Its decline, ironically, coincided with the rise of OTB, although other factors ranging from suspicions of race-fixing to legalized casino gambling in Atlantic City and competition from the Meadowlands Racetrack arguably were bigger reasons.)

'Haven't Had Layoffs'

Mr. Allen also pointed out that OTB - which has not closed branches in recent years and has kept the workforce he represents stable at about 1,400 - is saddled with higher rents at many of its locations than the state's other OTB operations.

"Given the circumstances, they're not doing a bad job," he said of Mr. Casey and his management team. "I haven't suffered any layoffs."

That may be Mr. Allen's bottom line in assessing OTB, but Mr. Bloomberg clearly is reading the balance sheet differently, and the union leader does not believe the Mayor's statements about selling it are just a ploy to get relief from the Legislature.

"I think the city is very serious," he said. "Quite frankly, I'm very worried. A lot of people, many with children, could wind up in an uncertain situation," particularly if the city sold OTB without a commitment to cover the health-care costs of its workers.

But referring to the legislation governing how much of its betting handle OTB has to pay to the state, city and the tracks, Mr. Allen asked, "Why should somebody buy OTB under this formula?"

A NYRA Takeover?

It is widely believed that NYRA - which hurt itself financially early on by resisting an OTB operation rather than seeking to run it - would be interested, provided the Legislature approves Governor Spitzer's plan to allow the non-profit corporation to continue operating the state's three premier tracks.

"It'd be worth considering," said Mr. Crotty, but then he noted that NYRA was not that far removed from a series of questionable practices that produced a Federal indictment and harsh words about its operations by then-State Attorney General Spitzer.

He contended that NYRA sold its simulcasting signal too cheaply to many operators outside the state, given the popularity of its races among bettors across the country. "The tracks gave away this gold before they knew what they had."

Mr. Crotty also asserted, "I actually think they were engaged in a course of action to ruin the OTBs because they were never held accountable for the losses they were accumulating." He was referring to NYRA's success in several times persuading the State Legislature to reduce the takeout on winning bets, a move predicated on the belief that the more money bettors got back, the more they would then churn through the windows.

Taxing Questions

Past reductions in takeout have had that effect, but the Legislature eventually raised takeout again, either to cover fiscal shortages statewide or because the additional betting was not enough to compensate for the revenue lost when takeout was reduced.

But the willingness of many out-of-state establishments to provide sizable rebates indicates that they believe that the racetrack equivalent of tax relief is good for business, and NYRA, while on a smaller level, has embraced that concept as well.

Mr. Crotty may be right about government not being well-suited to running a business, in part because it is averse to taking large risks in the hope of generating profits.

On the other hand, Mr. Bloomberg's success in being elected Mayor and then restoring prosperity to the city was the product of a series of well-calculated risks that paid off. Before he puts OTB on the auction block, it might be worth gambling on management principles that place some value on its customers rather than insulting them.