Manhattan Institute

Knowing When to Fold ‘em

Legal betting on sports may be on its way to New York City, but let’s keep the state out of it.

Want to lay down two bucks on potential Triple Crown winner Justify in next month’s Belmont Stakes? There’s an app for that. Digital is the future for gambling, and this has implications for New York, a state that has turned to gambling as an economic-development engine more than once, with mixed results. New York now appears poised to enter the big-bucks world of sports betting as well—for better or for worse, depending on how far politicians get mixed up in it.

Earlier this month, the Supreme Court, ruling in a New Jersey case, effectively cleared the way for legal sports betting across the U.S. The decision was anticipated, and while the Garden State likely will be among the first to capitalize on it, New York probably won’t be far behind, the only real question being what venues will be open to bettors. The key word in all this is “legal”—the extra-legal form of betting being a long-established part of American culture. Indeed, illicit offshore Internet betting is a $60-billion-plus annual enterprise, with a well-established, easily accessible infrastructure and a client base so huge that it will inevitably set the terms of competition as state governments move into the market.

Certainly, the days of the corner candy store as the go-to place for the casual gambler are history. That decline began in New York in 1971, after the state authorized off-track pari-mutuel betting—an enterprise still generating modest returns upstate and on Long Island but that otherwise died a slow, agonizing death in the five boroughs. Not for nothing did former mayor Rudy Giuliani call the New York City Off-Track Betting Corporation (OTB) “the only bookie joint in the world ever to go broke.”

There was a reason for that. What had been touted as a convenient mechanism for New Yorkers to lay down a bet in fact emerged as a plump turkey to be plucked for tax dollars—and a patronage dump for politicians. “OTB . . . never had a real business plan,” recalls racing writer Ryan Goldberg. “The first chairman, Howard Samuels, staffed upper management with people who would work on his campaign for governor while thousands of applications from people with racetrack backgrounds went unopened.”

NYC-OTB saw heavy demand for its product. Early on, OTB handled more than 40 percent of New York State’s pari-mutual betting—more than $1 billion annually—while operating more than 150 betting parlors across the five boroughs. But decline quickly set in. Seedy doesn’t begin to describe the condition of OTB venues toward the end; by the mid-2000s, only 50 remained citywide, and they couldn’t generate enough cash to cover operating expenses. Goldman explains: “All of its contractual obligations, to the city and state and the racetracks, came off the top of revenue instead of profits. Then came rent on their many parlors and millions in benefits to their employees and retirees. Unfunded post-employment retirement benefits bulged its deficit.”

The load became too much to bear. The corporation brushed up against bankruptcy several times, and when both Giuliani and his successor Michael Bloomberg refused to subsidize operations, Albany stepped in—taking NYC-OTB to bankruptcy in 2009 and shutting it down for good a year later. It’s hard to imagine anyone feeling nostalgic for such a fiasco, but Assemblyman Gary Pretlow, chairman of his body’s Racing and Wagering Committee, wants to resurrect NYC-OTB to run sports betting in the city. “We need the OTBs to offer sports betting,” insists Pretlow. “Someone from Brooklyn is not going to travel to Monticello to bet on the Yankees. New York City doesn’t have OTBs. They will again,” he promises.

The rush to institute sports betting isn’t driven by sound policy or clear thinking. Apart from the moral issues raised by government-promoted gambling, as an economic-development tool, gambling simply doesn’t deliver. Certainly Governor Andrew Cuomo’s big bet on casinos as an upstate stimulator is falling flat. Upstate communities hoping for windfall income from casinos have been disappointed, and the casinos themselves are asking for government subsidies.

Again, there’s an app for that—or soon will be. New York’s wagering commission already has licensed a dozen digital entrepreneurs—including Xpressbet, Day at the Track, and WatchandWager—to help lighten the wallets of horseplayers 24 hours a day, on all devices. There is no reason to doubt that there will be apps for sports bettors, too, and without resurrecting a high-overhead OTB.

The path to legal sports betting isn’t clear in New York. Current law is confusing and, it seems, sometimes contradictory. Officials aren’t saying much about what happens next, and no agreement exists on betting venues. Whatever is decided on, history suggests that it won’t generate the kind of cash that boosters are promising. The only safe wager: if Albany sticks its nose in, legalized sports betting in New York will turn out to be far less successful than it might otherwise have been.

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