Anne M. Eberhardt

Kentucky Lawmakers Eye Tax on ADW Bets

The objection is to bolster and expand the Kentucky Thoroughbred Development Fund.

The Kentucky General Assembly probably will consider legislation in 2012 that taxes bets made by Kentucky residents through advance deposit wagering systems for the purpose of bolstering the Kentucky Thoroughbred Development Fund.

ADW took up the better part of a Nov. 16 meeting of the legislature’s Interim Joint Committee on State Government. There also was talk of making use of a statute—passed seven or eight years ago but never acted upon—governing multi-jurisdictional wagering hubs that could bets made through ADW systems.

The renewed push for a tax comes as the KTDF, which provides purse supplements for Kentucky-bred runners in non-claiming races, continues to shrink in conjunction with declines in ontrack pari-mutuel handle at Kentucky racetracks. The fund was created in 1978 and laid the groundwork for supplement purse programs in other states.

The KTDF earns revenue from several sources: 0.75% from each dollar wagered ontrack on live races; 2% from wagers made at a Kentucky track on another Kentucky track’s races; and 2% on simulcast bets made at in-state betting facilities. The fund, however, gets nothing from ADW wagers made by Kentucky residents on Kentucky races.

The ultimate slap, according to some racing stakeholders, is that people at Kentucky racetracks can use mobile devices and computers to bet through ADW systems while at the track and bypass the KTDF.

“There seems to be a push to encourage people to wager through ADWs,” said David Switzer, executive director of the Kentucky Thoroughbred Association, which oversees the KTDF in conjunction with the Kentucky Horse Racing Commission.

Switzer presented legislators with a look at the KTDF since 2005. From 2005 to 2006, the fund dropped 8.58%, but from 2008 to 2009, it lost 14.11%. Things got worse: from 2009-2010 the KTDF dropped 43.15%, and from 2010 to this year, it lost another 36.82% of revenue.

“I think there has been a will in the House and Senate to do something about this,” said Republican Sen. Damon Thayer, who co-chairs the interim committee. “There is bipartisan willingness to do something in the next (legislative) session.”

There has been disagreement over the amount of the tax. A Senate proposal earlier this year called for a 1.5% KTDF tax on ADW bets that would be used to expand the fund to include some claiming races. The money would come from the wagering providers, not the public in the form of a pari-mutuel takeout hike.

The House opted not to act, pending further details on ADW handle, but did pass a bill calling for the licensing of ADW providers that take bets from Kentucky residents.

Two ADW operators that provided testimony at the committee meeting wouldn’t offer their opinions on what the tax rate should be, saying more work needs to be done and more information made available. The KHRC will soon begin licensing ADW providers, and one condition is transparency—they will have to submit quarterly wagering reports.

“We’re extremely supportive of the KTDF,” said Vince Gabbert, chief operating officer at Keeneland, which recently launched an ADW system available to residents in five states. “We want to work with you to determine what the structure and numbers will look like.”

We have to be competitive,” said Nelson Clemmens, a Thoroughbred owner and breeder that operates the Kentucky-based AmWest ADW platform. “I express concern about additional taxes and the value of that to the industry.”

The KHRC reported that from Jan. 1-Nov. 9 of this year, roughly 760 outlets took bets on Kentucky racing., operated by Churchill Downs Inc., and, operated by Betfair, had the third- and fourth-largest handles, respectively, on Kentucky races.

Of the top 10 outlets, five were ADWs, with three more such services in the top 20, according to the KHRC.

CDI representatives were invited by Thayer to testify but didn’t accept. The Louisville Courier-Journal reported earlier than CDI officials were tied up Nov. 16.

“They declined my request that they testify,” Thayer said. “I’m disappointed Churchill Downs chose not to be here today. Their testimony would have been very helpful.”

ADW operators regularly report total handle but never offer information on things such as host fees, source-market fees, other payments, and how much profit they make from bets. The KHRC licensing process is designed to give regulators and lawmakers a better idea of how much money is in play.

As for multi-jurisdictional wagering hubs, Oregon has numerous ADW providers that process bets through the state at a nominal tax of one-quarter of 1%. Members of the Kentucky legislative committee urged the KHRC to enact regulations that could develop a similar system in Kentucky in an effort to raise revenue and create jobs.