This is what happens to private enterprise when taken over the government. In this case, state government:
December 4, 2009 12:22 PM
Cravath On OTB Bankruptcy in First-Ever Case as Debtor Counsel
Posted by Julie Triedman
In a rare Chapter 9 filing, New York City Off-Track Betting Corp. filed for bankruptcy Thursday in federal bankruptcy court in New York City.
NYC OTB, created in 1971 as the first horse-race off-track public benefit corporation created under state auspices, listed $500 million in debts and $50 million in assets in its petition. A Chapter 9 filing permits public agencies and municipalities, as opposed to private companies, to reorganize rather than liquidate.
OTB qualifies because it's a public benefit corporation created by the state. Chapter 9 filings, however, differ from Chapter 11 cases. The bankruptcy judge can't interfere with a debtor agency's assets, and the normal fee approval process doesn't apply. The court's role is mainly to approve a debt adjustment plan.
It's not that this is a new story; negotiations over the shape of a reorganization have been going on for several months.
It should give pause, however, to any legislator now considering putting the entire health care system under government control.
That's because although margins have been difficult in healthcare markets for some time, historically it has been easier to make money in gambling operations.
This from a Reuters piece September 1:
The OTB was set up as a public benefit corporation in 1970 to raise money from pari-mutuel betting for New York City, the state and the horse-racing industry. In pari-mutuel betting, all bets of a specific type are pooled, with the house subtracting its "take" before paying the winners.
Despite taking more than $1 billion in bets every year, the OTB has been unable to cover its operating costs for years and has accrued liabilities of $220 million.
Adding to the gloom are unfunded liabilities of more than $500 million, most of it related to employee retirement, health and other benefits.
Perhaps the best comment on this state of affairs came from a reader of the NY Post, reacting to the paper's publication Dec. 4th of a Bloomberg article on the filing.
How can a bookie go broke.........let the government run the operation. The first time in the history of the world this has happened!!!!!
1. A quasi governmental agency takes over formerly private operations. What could have been profitable runs at a loss.
2. Officials of the quasi governmental agency bleed it for agency cars, perks, etc.
3. Unfunded liabilities to labor and other 'stake holders' grow quietly to half a billion dollars.
Anyone care to guess how healthcare operations might compare?