Anne M. Eberhardt

KY Racing Aid Bill Called 'Life Preserver'

The bill provides for Instant Racing at tracks, taxes ADWs, and reduces excise tax.

Legislation authorizing Instant Racing, a tax on advance deposit wagering, and a reduction in the pari-mutuel excise tax sailed through the Kentucky Senate Committee on State and Local Government March 11 and heads to the full Senate, where it’s expected to pass.

The bill, offered by Republican Sen. Damon Thayer, who chairs the committee, is a revision of legislation passed by the House of Representatives that dealt only with the ADW tax. Thayer’s bill passed on a vote of 11-1.

If the bill becomes law, it’s unclear how much revenue will be raised for the struggling horse industry in Kentucky. Proceeds won’t be anywhere close to the minimum of $100 million expected for purses from video lottery terminals or slot machines.

“This proposal will be of some help to the racing industry,” said Democratic Sen. Julian Carroll, who voted for the measure. “It will increase purses some, but 5% really won’t do us any good. We need to double purses to compete with Pennsylvania.

“Obviously, this was thrown at me today, but I’m going to support it. If someone is drowning, we need to throw them a life preserver, but (with this legislation) I think we’re still leaving them in the water.”

The committee meeting was called during the regular March 11 Senate session, and took place after the Senate adjourned for the day. During the session, the Senate passed a breed development bill that included provisions for a Breeders' Cup tax exemption should Cup officials announce before Nov. 4 they plan to return in 2011 or 2012.

Instant Racing machines are pari-mutuel in nature because the outcome of the games is based on previously-run races, but they closely resemble VLTs with some of the bells and whistles. An attorney general’s opinion said they could be legalized simply by changing the pari-mutuel law.

Thayer’s bill calls for a minimum of 81.5% of money wagered to be paid to players, and mandates 1.5% would go toward the state’s equine breed development programs. Assuming tracks pay the minimum to players, 17% would be left, but the bill doesn’t say how that money will be spent.

After the vote, Thayer said racetracks and horsemen’s groups would have to negotiate percentages for the tracks, which must purchase the machines and construct facilities, and for regular purses. It appears the amount paid to purses could vary by track, and could range from zero to 17%.

“The bill assumes the tracks, (Kentucky Horsemen’s Benevolent and Protective Association), and (Kentucky Thoroughbred Association) will get together and negotiate,” Thayer said. “The tracks will have some up-front costs.”

The state will get nothing from Instant Racing or the ADW tax, which was increased from 0.5% in Clark’s bill to 1.5% in the new measure. In another change, all revenue from the ADW tax would be funneled to the Kentucky Thoroughbred Development Fund, which pays purse supplements for Kentucky-bred horses, and the Kentucky Standardbred Development Fund.

Thayer said revenue projections are hazy, but if Clark’s plan would have produced $400,000 a year, the 1.5% tax could produce $1.2 million a year.

The excise tax reduction on live on-track handle would set the rate at 1.5% for all tracks rather than 3.5% for some and 1.5% for others.

Democratic Sen. Ed Worley, who voted in favor of the bill, said he expects Democrats will support it. In his comments after the vote, he indicated it’s highly unlikely racetrack VLTs or slots have any chance to pass during the current General Assembly session.

“Sen. Thayer has worked to come up with an alternative and something passable,” Worley said. “I’m supporting the bill so we can help it to happen.”

In other details, the bill states all ADW providers that take bets on Kentucky races must be licensed by the KHRC. In addition, in order to accept wagers on the Kentucky Derby Presented by Yum! Brands (gr. I), Kentucky Oaks (gr. I), and Breeders’ Cup World Championships when they are held in Kentucky, an ADW must accept wagers on all Kentucky races.

Racetracks didn’t oppose the 0.5% tax in Clark’s bill, but their position on a higher tax wasn’t immediately known.

All eight licensed tracks in Kentucky could offer Instant Racing which, according to a summary provided at the committee hearing, generated $190 million in handle at Oaklawn Park in Arkansas in 2009. Oaklawn is fairly isolated and doesn’t have the casino competition faced by most Kentucky tracks.

Instant Racing handle in Kentucky will depend on how well the devices are received in a market with easy access to full-scale casino gambling. It also remains to be seen whether the tracks will be willing to invest in capital improvements to accommodate the machines.

Thayer has authored legislation calling for a constitutional amendment on racetrack VLTs, but he hasn’t yet brought the bill before his committee.