Establishes the New York Racing Network, Inc.

Summary of provisions

Section 1 of the bill would set forth legislative findings and intent.

Section 2 of the bill would amend Racing, Pari-Mutuel Wagering and Breeding Law ("RPWBL") § 307(5-a) to allow Monticello Raceway, for the purpose of qualifying for a track license, to reduce the minimum number of races it runs to the greater of either 60% of the races run in 1986 or 80% of the races run in 2000.

Section 3 of the bill would amend RPWBL § 318(5)(a) to allow Monticello Raceway, for the purpose of calculating its reduced tax rate, to reduce the minimum number of races it runs to a number equal to or greater than 70% of the races run in 1985 or 1986, whichever is less.

Section 4 of the bill would amend RPWBL § 529(2) to allow NYC OTB to retain and use for its operating purposes funds unclaimed by the holders of winning tickets.

Section 5 of the bill would amend RPWBL § 603(1), (3), (6), &) and (11) to reconstitute the Board of Directors of the NYC OTB to include five voting directors and three non-voting directors. All Board members would be appointed by the Governor. Of the voting directors, one each would be appointed on the recommendation of the Temporary President of the Senate and the Speaker of the Assembly. Of the non-voting directors, one each would be appointed on the recommendation of the New York Racing Association (NYRA), the union representing the majority of NYC OTB employees - currently DC37 - and, jointly by the operators of Yonkers Raceway and Monticello Raceway. This section would also make technical changes to the law necessary to reflect the specific powers and fiduciary obligations of the voting and of the non-voting directors.

Section 6 of the bill would amend RPWBL § 604 (8) and (11) to grant NYRA and Yonkers a right of first refusal to enter into a joint venture for the purposes of financing, constructing and operating a simulcast facility or simulcast theatre within 30 miles of Yonkers Raceway, or Aqueduct or Belmont Race Tracks. In the case of a joint venture in which the tracks opt not to participate, those proposed facilities beyond ten miles from the tracks; or anywhere in Manhattan, for which consent is otherwise necessary, is deemed granted by this

section. This section also would prevent NYC OTB from operating account deposit wagering (ADW) services, except as part of a joint venture with the New York Racing Network, Inc.

Section 7 of the bill would amend the RPWBL to add a new § 604-a to transfer NYC OTB's title and ownership of its ADW accounts to the New York Racing Network, Inc., and would remove any requirement to obtain NYC OTB's consent in order to conduct in-home simulcasting.

Section 8 of the bill would amend the RPWBL to add a new § 604-b to require NYC OTB to service ADW accounts maintained by the New York Racing Network, Inc., by facilitating deposits and withdrawals from such accounts at NYC OTB wagering facilities for a transaction fee of 0.25%, up to $10 per transaction. In addition, this section would, provided appropriate betting technology is in place, require NYC OTB to process ADW wagering at its facilities on ADW accounts maintained by New York Racing Network, Inc., subject to a transaction fee of 2%, up to $10 per transaction. Such wagering transactions would be exempt from the NYC OTB surcharge. This section also would obligate New York Racing Network, Inc. to pay required transaction fees to NYC OTB within 30 days of the end of each month, and would make late payment of these fees a cause for the suspension of the enforceability of a default by NYC OTB.

Section 9 of the bill would amend RPWBL § 606(2) to eliminate the requirement that NYC OTB utilize the classification and compensation schedules of the New York State Department of Civil Service.

Section 10 of the bill would amend the RPWBL to add a new § 607 to require that NYC OTB prominently display races run at New York State tracks on the largest screens in their facilities.

Section 11 of the bill would amend RPWBL § 610 to require a balanced annual operating budget for NYC OTB to be approved by the NYC OTB Board of Directors, and be determined to be balanced by the Director of the New York State Division of the Budget (DOB) before implementation.

Section 12 of the bill would amend the RPWBL to add a new section 610-a to allow NYC OTB to reduce payments to in-state racetracks on account of wagers accepted on races run at out-of-state tracks; and would prescribe a schedule of the reduction of such payments in outgoing fiscal years, which is linked to handle levels achieved by NYC OTB. In addition, this section would create parity in payments by NYC OTB to the Thoroughbred and Harness Breeding Funds.

Section 13 of the bill would make a technical amendment to RPWBL § 613 to allow New York Racing Network, inc. to assume and operate the ADW being transferred by NYC OTB.

Section 14 of the bill would amend the RPWBL to add a new section 615 to allow NYC OTB to negotiate out-of-state and out-of-country simulcast agreements on behalf of all tracks in New York.

Section 15 of the bill would amend the RPWBL to add a new section 617-a to create a schedule for the reduction in pari-mutuel tax payments made by NYC OTB to the State.

Section 16 of the bill would amend the RPWBL to add a new section 623-a to prohibit NYC OTB from filing for municipal bankruptcy protection in the future.

Section 17 of the bill would amend RPWBL § 624 to allow New York Racing Network, Inc., the option of assuming management and operational control of NYC OTB, should NYC OTB default by either: failing to pay any commission due to instate tracks within 60 days of the end of the month they are accrued (with a 30-day cure period); failing to achieve positive earnings before interest, depreciation and taxes (EBITDA) in any two consecutive fiscal years; or, failing to have a balanced budget as determined by the Director of DOB in any fiscal year.

Section 18 of the bill would create a new Article 6-A of the Racing Law. Article 6-A would provide for the creation of the New York Racing Network, Inc., which will be incorporated by the New York Racing Association (NYRA) and one or more harness racing corporations that were members of the Official Committee of Creditors in Chapter 9 Bankruptcy proceedings for NYC OTB. Shares in the New York Racing Network, Inc. would be determined according to a pro-rata calculation of their share of the pre- and post-petition debt accrued by NYC OTB. This section also would allow for bets placed through New York Racing Network, inc. on races run at in-state tracks to be treated as if the bets were made at the track for the purposes of the distribution of wagering revenues.

Section 19 of the bill would amend RPWBL § 1012(4-a) and (5) to provide for internet streaming of simulcast signals and would require that the display of those signals be conditioned upon the consent of the tracks at which the race is held.

Section 20 of the bill would amend the RPWBL to add a new § 1013-a to require NYRA to provide its simulcast signal of all races run at NYRA tracks to NYC OTB at no cost.

Section 21 of the bill would amend RPWBL § 1014(1)(h) to eliminate the requirement that NYC OTB make payments to licensed harness tracks in New York State based on wagers collected on races held at an in-state thoroughbred racing corporation or at out-of-state and out-of-country race track on days in which a franchised corporation is not conducting a race meeting (i.e., on a Dark Day specifically during the Saratoga season).

Section 22 of the bill would amend RPWBL § 1016(1)(b)(5)(E) and 1016(1)(b)(6)(F) to eliminate the requirement that NYC OTB pay all other Dark Day payments to licensed regional harness tracks in New York State.

Section 23 of the bill would amend RPWBL § 1017(2) to eliminate the requirement that NYC OTB pay Maintenance of Effort and hold harmless payments to licensed regional harness tracks in New York State.

Section 24 of the bill would amend Tax Law § 1612(b)(1)(ii)(H) to eliminate the requirement for tracks with 1,100 or more gaming machines to make matching capital expenditures in order to receive reimbursements for capital awards accrued after October 1, 2010. This

section would also provide that, beginning May 1, 2012, Monticello Gaming and Raceway would be eligible to receive a capital award for approved capital expenditures equal to an amount not to exceed one and one-half percent of net machine income.

Section 25 of this bill would amend Tax Law § 1612(b)(1)(ii) to add a new subclause (I) to provide that qualifying subsidized free-play amounts would be excluded from net machine income, and therefore would not be included in the calculation of any distributions of net machine income.

Section 26 of this bill would amend Tax Law § 1617-a to add a new subdivision (f) to establish a State-wide subsidized free-play program by: allowing the Lottery Division to promulgate rules and regulations or issue instructions on the administration of the program; providing that free-play promotional plans designed to increase revenue earned to support education must be approved by the Division; specifying that the, value of the subsidized free-play will not exceed 10% of the annual total amount wagered on video lottery games after prize payouts for gaming facilities meeting certain size arid geographic criteria, and 7.5% for all other facilities; providing the Lottery Director and Budget Director joint authority to suspend subsidized free-play credits if they are ineffective at raising education revenue or if any regulations or instructions are violated, while allowing for resumption following approval of a new promotional plan and reinstatement for violations; specifying that an operator of a video lottery facility has no limitations imposed on non-subsidized free-play credits as long as the value of such credits are properly accounted for; and clarifying that the Lottery Division may amend the contract for the central computer system that controls the video lottery network in order to provide compensation for processing additional transactions due to the subsidized free-play program or to make other system updates and modifications.

Section 27 of the bill would provide for a severability clause.

Section 28 of the bill would provide an immediate effective date for this legislation.

Budget implications

This bill would result in a net receipts increase of $22 million in SFY 2010-11 as $5.8 million in additional revenues from Video Lottery Gaming facilities resulting from subsidized free-play would be partially offset by a reduction in revenues of $0.6 million from reduced Pari-Mutuel Tax receipts and of $3.0 million from foregone unclaimed winning tickets. When fully implemented, this bill would increase net receipts by $18 million annually, as $23 million in additional receipts from subsidized free-play would be partially offset by revenue reductions of $2.5 million each from unclaimed winning tickets and reduced Pad-Mutual Tax receipts.

Statement in support

Since the State's takeover in June 2008, NYC OTB has remained insolvent and gone even deeper into debt due to a number of factors, including the severely weakened national economy, the corporation's lack of reinvestment capital, and the size and cost of its workforce and branch network. NYC OTB would have ceased operations altogether

but for its filing for debt adjustment relief under chapter 9 of the Bankruptcy Code, which: a) has temporarily protected it from its pre-petition creditors, b) has allowed it to reject unprofitable leases, and c) has given it time to downsize its management staff, while working with its major creditors to arrive at a confirmable plan to pay down or otherwise adjust its pre-petition debts and to reorganize its operations for the future. However, there is no chance of confirming a plan or carrying out a successful reorganization without the enactment of the proposed legislation. The alternative would be a complete shutdown of NYC OTB's operations with the concomitant serious damage to New York's racing industry and the already ailing New York economy.

In order to stabilize NYC OTB and allow it to reorganize successfully, this bill would authorize the transfer of NYC OTB's account wagering operations to an entity newly created by this legislation, New York Racing Network, Inc., the equity in which is held by the tracks who are members of the chapter 9 committee of unsecured creditors, i.e., the tracks which are owed the largest amounts of money by NYC OTB. The majority of NYC OTB's pre-petition debt will be allayed by this transfer.

This bill also frees NYC OTB from certain economic requirements that have been significantly increased or been freshly placed on it in the past seven years and which have been major contributing factors to its financial distress.

The unions that represent the majority of NYC OTB's employees have also agreed to make substantial sacrifices to save a significant number of jobs for their membership, all of which would be lost if this bill is not passed.

Finally, a benefit that comes with the enactment of this bill - the importance of which cannot be overstated - is that NYC OTB will continue to be able to pay its pension and Other Post Employment Benefit (OPEB) obligations, which on an annual basis run to approximately $12 million, and on a long-term basis total more than $500 million. The long-term pension obligation of more than $200 million would otherwise have to be made up by the remaining entities that pay into the New York City Employees Retirement System (NYCERS), while the question of whose obligation it would be to pay the rest of the more than $500 million in OPEB liabilities would undoubtedly become an issue that would cause tremendous friction between the City of New York and the State of New York.

It has taken years to get all of the major constituents of the racing industry, including NYC OTB's own union membership, to agree to make the sacrifices necessary to successfully save NYC OTB, and with it the State's racing industry. Those stakeholders, along with NYC OTB, itself, are finally willing to make those sacrifices so long as the proposed bill is passed. The opportunity to achieve this success will be lost if action is not immediately taken.

Effective date

This act would take effect immediately; provided however.