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Marketplace Scratch Pad

The government as bookie

Scott Jagow Sep 2, 2009

It seems that examples of poorly-run government businesses are oozing out of the woodwork. The latest case is New York’s Off Track Betting operation. Holy smokes, what a den of inefficiency.

For the uninitiated, OTBs are the famously dark, smoky betting parlors in which you can gamble on horse racing away from the track. OTBs now seem like the vestige of a day gone by, since online betting on horses has taken over and is more popular than ever. But for some reason, New York and a few other states cling to OTBs.

New York’s OTB has lost $38 million the past four years. Get this: the state actually bought OTB from NYC last year, apparently thinking it could do better. NYC mayor Michael Bloomberg was glad to get rid of it. He was planning to shut it down.

A year after taking over, the state has now ordered OTB into bankruptcy.

The problem is not that OTB can’t make money. It could be doing just fine. It collected $1 billion in wagers last year, making it the single largest bet-taker in the United States.

From that, it lost almost $18 million. Seriously? How is that possible?

Well, OTB does have to pay a nice chunk of change to the New York racetracks that put on the product. And it should. But again, that’s not the problem. From the New York Times:

Part of OTB’s payroll reads more Nascar than Triple Crown. It has employed three automotive mechanics, seven drivers and a motor vehicle supervisor, who, combined, earned $500,000 a year. In addition to those salaries, the state comptroller found that gas, insurance and outside repairs cost $585,000 a year…

While some of OTB’s problems are beyond its control, a recent audit by the state comptroller, Thomas P. DiNapoli, questioned whether the expense of so many vehicles was necessary to care for 68 slumping betting parlors…

The New York OTB is riddled with inefficiencies, not to mention saddled with unfunded payments to workers’ pensions and health plans. The plan is to reorganize OTB in bankruptcy (sound familiar?) and keep it going as a new and improved Off Track Betting company.

Marketplace reporter Alisa Roth is working on a story about this, and she tells me two things: one is that New York is spitballing the idea that it could merge OTB with its other gambling entities somehow. Heaven help us. Number two, that OTB can’t shut down because those unfunded pensions would get dumped on the state.

In the meantime, OTB has lofty new goals, according to the government’s choice for developing a plan to increase OTB’s presence on the web or create a TV network:

With updated technology, “We could go head to head with pornography and win,” (Meyer) Frucher said…

Head to head with pornography? Stop. Please stop. Government has no business trying to run an operation like OTB.

Just ask any horse handicapper. The Times dropped by one of the 68 OTBs in NYC:

“I tell you what,” said a man with a long gray ponytail who would identify himself only as George, “my bookie in the Bronx don’t have this problem. He always has money. Nowhere else in the world does a bookie lose money.”

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