KHRC Funding, Staffing Situation Serious

The Kentucky Horse Racing Commission has serious funding problems, officials said.

During a three-hour meeting of the Governor’s Task Force on the Future of Horse Racing Sept. 19, the harsh reality of the lack of funding and staffing for the Kentucky Horse Racing Commission was brought to light.

Ed Martin, president of the Association of Racing Commissioners International, told a nine-member task force subcommittee how the survival of horse racing depends on pari-mutuel wagering, but Kentucky is doing a poor job of properly monitoring betting.

“When I came to Kentucky, I became acutely aware of the resources dedicated to ensuring the integrity of racing,” Martin said. “I was shocked at how low of priority integrity was, especially considering how important the racing industry is to the state’s economy and identity.”

When Martin weighed the state’s resources on a per-race-day basis against other racing jurisdictions, he found that instead of being first, Kentucky is last. In comparison, while Kentucky commits $7,692 per race day, New York commits $10,407, and Florida commits $17,948, he said.

Perhaps Kentucky’s most glaring weakness in its funding, Martin said, is that hardly any money has been dedicated to policing the pari-mutuel system. After doing some research, he found that other racing states have dedicated considerable amounts in terms of staffing, as well as obtaining an independent computerized monitoring system to protect its bettors against cyber crime.

“Some states have up to six people for wagering security, plus dedicating funds toward an independent monitoring system, but Kentucky has yet to commit one,” Martin said.

Martin also noted how backstretch investigators are an essential part of every racing commission to adequately do its job. While Kentucky has only two investigators, New York has 14, California 18, Pennsylvania 15, and Florida 17. Even New Jersey, which is in the midst of a state budget crunch, has twice what Kentucky has.

“I present this information not to be critical, but Kentucky is such a crown jewel in horse racing, it is difficult to see its luster tarnished,” Martin said.

Robert Vance, a subcommittee member, asked Martin how other states fund their racing commissions other than taking money from their general funds. Martin said while there is no set rule, some states take a percentage of all wagering, while others have daily licensing fees at their tracks to supply the extra funds.

While it’s harder to ask for those kinds of fees from smaller tracks in states where horse racing isn’t as prominent, “industry leaders at the highest levels need to talk about this,” Martin said. “We’ve received tons of recommendations…everyone has a great idea, but no one has the funds to pay for it.”

Martin said every commission needs a computer engineer on staff who knows the inner workings of the wagering software to look at the system and find out what’s happening in the event of a technical glitch or a security violation.

When asked by subcommittee member Edward “Ned” Bonnie about steps the commission could take to fix its funding problems, Martin said he believes waging security should be covered by a percentage of the state’s handle, while the cost of drug testing should be funded by the participants of races.

Bonnie wondered if Martin had looked at the possibility of expanding an interstate racing compact as a way to have national uniformity. Martin said for the compact to become reality, total support would be needed from the state.

“You can also address the funding issue through an interstate compact, but the challenge is political,” Martin said. “Everyone has to be on board that this is the way to fix our problem.”

Bonnie also asked if Martin had considered the possibility of the National Thoroughbred Racing Association taking over all security and drug-testing responsibilities from the racetracks.

“I don’t believe the privatization of regulation is desirable,” Martin said. “The attempt to self-regulate might do more harm in public perception than good.”

Martin said a better solution would be to adequately fund the KHRC to do its job more effectively. “The (KHRC) does a remarkable job with the resources it has,” he said.

Keeneland president Nick Nicholson, also a subcommittee member, said it has especially been a problem for racing regulators in Kentucky to find qualified veterinarians to work for the limited salaries, lack of benefits, and irregular schedules at the state’s tracks.

“We have to find a way to fund this regulatory body—the rest of the country is looking at us,” Nicholson said. “We just have to accept the premise that we’re inadequately funded, and the further premise that it’s just unacceptable. Those of us that are in the private sector of the business have to be responsible and be willing to look at all our options, including handle, taxes, fees, and licenses.”

Nicholson said he would like to have a briefing presentation at the next task force meeting to educate members how an interstate racing compact works as another possible source of funding.

KHRC executive director Lisa Underwood gave a report on the organization’s staffing needs. The KHRC has only 23 full-time employees on its payroll, and a total budget of about $2.7 million for fiscal year 2009. On average, the KHRC has a significantly smaller budget allocation than racing commissions in other comparable jurisdictions in total and in terms of resources per day, according to a report.

Underwood said the KHRC has proposed a need for 18 part-time positions and eight more full-time staff positions: two stewards, three investigators, two veterinarians, and one secretary. The most critical vacancies are the investigator positions, as well as a pari-mutuel wagering supervisor. The total additional funding needed to support the new staff would be more than $1 million.

Bonnie criticized Underwood’s conservative projected salaries for the veterinarian positions because they would most likely not attract individuals with the adequate experience to perform the job.

“This is unacceptable to me—we need to hire the people to run this thing at the level we aspire,” Bonnie said. Underwood agreed, saying she didn’t realize the task force would be willing to help the commission obtain the extra funding to raise the salaries.
“You should recommend (the salary numbers) we need,” Bonnie said. “Don’t come in with what you think we should get. Come in with what you think can get the job done correctly. We can’t afford to fund a half-ass organization.”

Underwood said the KHRC, which operates on licensing fees and general funds, is surviving on its reserve funds, and by the end of the year, the organization would be $6,000 over budget. The commission, which is working on cutting costs in every possible area, also plans to raise licensing fees at tracks to obtain more funding.

“The tracks say it’s unfair, but there was also a sense of cooperation to try and figure out how to get the funding to get us through this year until our task force can come up with a solution,” Vance said. “If we have the credibility of this task force and get the industry behind us, we can sell our product to the legislature for the long-term.”

Underwood listed other possible sources of funding for the KHRC as sales taxes on claimed horses; pari-mutuel breakage funds; unclaimed vouchers and refunds; Kentucky Racing Health and Welfare Fund overflow money; making it more attractive for wagering hubs to locate in Kentucky; charging licensing fees for tote companies and tracks; and obtaining a percentage of handle.

At the next task force meeting, more information will be given on how to offer more competitive salaries at the KHRC, as well as administering licensing fees at tracks. The KHRC will also draft out a discussion list of recommendations to the task force.