General FAQ

1. Why did NYC OTB have to file for bankruptcy?

   For years, the New York State legislature has required NYC OTB to pay New York State, New York City and the horse racing industry a percentage of the total amount of bets placed (the Handle), no matter how much of the bets NYC OTB was authorized to retain nor how much its operating expenses grew. As a result, NYC OTB fell deeply in debt and has been unable to reinvest in its business. It has not had the resources to build modern racing facilities, nor has it been able to invest in new technologies or product distribution channels that would attract a wider demographic and create operating efficiencies to lower costs substantially. NYC OTB is currently running a significant monthly structural deficit which is no longer sustainable. Furthermore, one creditor has initiated action in the Supreme Court of the State of New York, New York County, to obtain a judgment that could bring NYC OTB’s operations to a halt.

   NYC OTB has determined that filing its chapter 9 case is the only way to obtain the time and protection needed to carry out the vital operational changes required to access capital, invest in its business and to return to profitability.

2. What is chapter 9?

   Chapter 9 is the chapter of the Bankruptcy Code that permits a municipality (which includes public entities such as cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts) to seek adjustment of its debts under the supervision of a United States Bankruptcy Court. As a public benefit corporation created by State statute and regulated by the State, NYC OTB is a municipality permitted to file for relief under Chapter 9. The purpose of chapter 9 is to provide a financially distressed municipality protection from its creditors while it develops, negotiates and obtains court approval of a plan for adjusting its debts.

3. Does this mean NYC OTB is going out of business?

   No, not at all. In fact, this process is actually the way in which NYC OTB can stay in business. By protecting NYC OTB from its creditors, which have already begun legal actions, chapter 9 will provide NYC OTB and Albany with the time each needs to carry out the vital operational and legislative changes required in order to access capital and to return to profitability. During this time, it will continue to operate all elements of its business as usual and without interruption.

4. What is NYC OTB’s going forward business plan?

   The development and implementation of a new business plan for NYC OTB is critical to NYC OTB’s ability to adjust its debts under chapter 9 and to any broader plan to save New York horse racing and help maintain its long-term health. This represents a unique opportunity for the legislature to create an environment where NYC OTB can implement the changes necessary to transform NYC OTB into a successful, cost-effective business operation and position it as a catalyst for revitalization of the entire New York State horse racing industry.

   NYC OTB is in the process of developing a business plan to help revitalize the company. This business plan assumes legislative restructuring of NYC OTB’s mandatory distribution payments. While a number of other aspects of NYC OTB’s business plan are still under consideration, we expect that the business plan, when finalized, will (i) reduce costs and provide for improved operational efficiencies, (ii) lay out a compelling strategy to expand the business by attracting new consumer segments, improving the NYC OTB experience for existing customers, and accessing other new sources of revenue, (iii) address the detrimental features of the distributions under the racing laws and other legislative matters and (iv) contemplate the receipt of approximately $250 million in new debt financing in order to pay its existing obligations and to fund current operations and the plans for growth.

5. Why is this new business plan preferable to simply shutting down NYC OTB?

   NYC OTB has played a central role in the New York State horse racing industry for the past 38 years and has been a financial resource to New York City and New York State during that time. The wagering conducted through NYC OTB provides financial support to the thoroughbred and harness racing industries, which have large presences in the State. According to a recent study, the thoroughbred racing industry alone accounts for 35,000 jobs statewide and adds $1.7 billion to the State’s economy each year, with 400 horse farms occupying 44,000 acres spread over 39 of the State’s 62 counties. Since its inception in 1971, NYC OTB has provided New York City with over $1.4 billion in cumulative revenues, New York State with nearly $600 million, and the New York horse racing industry with nearly $2.2 billion. Roughly 7% of the $13.6 billion handle generated annually in North America is processed by NYC OTB.

   Based on NYC OTB’s analysis, the only legitimate alternative to the implementation of a new business plan, which NYC OTB is currently developing and pursuing in this chapter 9 case, would be a complete shut-down of NYC OTB. A shut-down would be expected to cost the State and the City approximately $600 million for NYC OTB liabilities, such as pension and employee welfare benefits for which the State or the City would ultimately be liable. In addition, the knock-on and multiplier effects throughout the horse racing industry and the State would likely be much larger, as the $600 million estimate includes only existing NYC OTB liabilities and does not take into account the future annual loss of revenue generation from NYC OTB to the State and local governments and horse racing industry participants.

6. Why can’t NYC OTB just cut costs but keep the current model?

   If NYC OTB continues to operate under the current business and statutory models, it projects that its Handle is likely to continue to decline, from approximately $900 million to just over $800 million in 2010, with further declines thereafter, and that NYC OTB would continue to operate at a loss for the foreseeable future, taking into account distributions to the horse racing industry and the State and local governments, making any reinvestment in the growth of the business infeasible. NYC OTB expects that losses would increase from about $24 million in fiscal year 2009 to almost $40 million in fiscal year 2010, growing steadily thereafter. NYC OTB expects to run out of cash by the end of December 2009 if all current obligations are paid when due. Cost cuts, while providing some short-term liquidity benefits, would ultimately result in a decrease in the Handle, and thus not make any meaningful difference to the sustainability of the current operating model. In addition, the associated costs of early retirement incentives and severance payment arrangements made to decrease the workforce voluntarily likely would, in the short run, overwhelm any savings from a reduced payroll, leading to a further depletion of cash.

   Based on NYC OTB’s determination of the impracticability of the above-described options, the only legitimate alternative to the implementation of a new business plan would be a complete shutdown of NYC OTB, which would be expected to cost the State approximately $600 million for associated NYC OTB liabilities. However, the knock-on and multiplier effects throughout the horse racing industry and the State would likely be much larger as this cost only assumes liability estimates of existing NYC OTB liabilities and does not take into account the future annual losses of income or revenue generation from NYC OTB to the State, local governments or the horse racing industry participants.

7. What is NYC OTB asking from the legislature?

   No business plan for NYC OTB can succeed without an overhaul of the current legislative distribution scheme to align NYC OTB’s economic interests with those of the various horse racing industry participants across the State and to help stabilize NYC OTB’s operational and financial results. Without such an overhaul, NYC OTB will likely be unable to invest in the initiatives that will support its future growth and will be forced to cease operations altogether. NYC OTB is asking the State Legislature to act swiftly to overhaul the legislative distribution scheme in order to level the economic playing field, ease the development of new business avenues and address legacy issues in the statute.

   Specifically, NYC OTB is asking that a number of changes to the racing laws be enacted, including a modification of the current legislative distribution scheme, which at present requires NYC OTB to calculate and pay the State, the City and the horse racing industry a percentage of gross wagers placed with NYC OTB. The business plan will propose instead that NYC OTB make calculations and payments to the horse racing industry based on Wagering Commission revenue it actually receives after allowance for costs of NYC OTB’s functions have been met. NYC OTB will not be asking for any changes to the legislation as it relates to payments to the City and State. Without this change, NYC OTB may be forced to cease operations, which would cause the City, the State and horse racing industry to lose all revenues that could be provided by NYC OTB.

8. Why should the horse racing industry agree to the legislative changes NYC OTB is proposing?

   NYC OTB is taking significant steps to restructure itself and put itself in a position to be able to continue to provide significant revenue to the industry. NYC OTB is a critical part of the New York State and national racing industry and its failure could have damaging effects on the industry. NYC OTB represented 38% of the total handle generated in New York State during 2008, including both Thoroughbred and Harness racing. On a national level, NYC OTB represented approximately 7% of the total U.S. pari-mutuel Handle in 2008.

   Because the proposed modification of the legislative distribution scheme represents a significant change, NYC OTB will work closely with the New York State racing industry to make this transition in a responsible manner. NYC OTB appreciates the importance of protecting the viability of its racing industry partners and is focused on implementing changes in a manner that will ultimately serve to protect the economic health of all industry participants.

   The alternative to making these changes is for NYC OTB to cease operations and for the industry and the State to lose all of the revenues earned from NYC OTB.

9. Are taxpayers being asked to bail out NYC OTB?

   No. Unlike the major government-led bailouts that you have seen recently, NYC OTB is not asking for a single dollar of taxpayer money to reorganize its operations. NYC OTB has never taken a single dollar from taxpayers in its history and under the plan that NYC OTB is proposing, NYC OTB does not expect to request a single tax dollar to transform NYC OTB into a powerful, sustainable economic engine.

10. How long will NYC OTB be in chapter 9? What happens next?

    NYC OTB expects the chapter 9 case to proceed expeditiously. However, NYC OTB cannot confirm precisely when it will emerge from chapter 9, because it requires the New York State Legislature to enact an overhaul of racing legislation and it will also require bankruptcy court approval. NYC OTB is committed to working with all stakeholders to create a better and more sustainable business for the benefit of New York City, New York State, the horse racing industry and, most importantly, the customers.

    NYC OTB will provide timely updates throughout the chapter 9 process. All documents filed with the Bankruptcy Court are available for inspection via the PACER system, which may be accessed on a subscription basis at the following internet address: https://ecf.nysb.uscourts.gov/.

    NYC OTB has also created a website dedicated entirely to the chapter 9 case and the reorganization process, www.nycotbfacts.com. The site contains, among other things, copies of key pleadings filed in the NYC OTB chapter 9 case.