Kentucky Committee Takes More Time on Gaming Bill

Kentucky racetrack operators made their case Feb. 21 for the right to operate electronic gaming devices, but the House Appropriations and Revenue Committee postponed action on the legislation pending review of how the state's share of revenue would be spent.

Legislators appeared intrigued by the offer by racetracks to pay hundreds of millions of dollars in tax revenue in advance in return for the exclusive right to gaming in the state. Rep. Harry Moberly Jr., who chairs the committee, said he appreciates the fact the bill's spending provisions focus on education, human services, and public protection, but legislators need more time to review it.

Track officials went into the committee meeting hoping for a vote. On Feb. 20, companion legislation that deals with licensing, governance, and the role of the Kentucky Lottery Corp. cleared the House Licensing and Occupations Committee on a 9-3 vote. Both bills are sponsored by Rep. Tom Burch.

The revenue measure would require a super-majority vote during the current legislative session, but the licensing bill would not.

Track officials estimate that by the third year of the EGD program, $447 million would be generated for the state. The tracks would recapture no more than 25% of their advance payment each year until the obligation is repaid. The advance amounts to about $1.2 billion over four years.

"It's just a concept," Keeneland president Nick Nicholson said. "There's nothing in writing. I can speak only for Keeneland. We'd have to borrow money, and we'd have to go in debt. If the environment were to would be potentially disastrous for us. This would be the largest investment Keeneland would make in its 60-plus-year history."

All eight racetracks have expressed an interest. Based on numbers provided by the tracks, Thunder Ridge Raceway would pay the lowest amount of $23 million, and Kentucky Downs the highest amount at $108 million. The amount each track would pay up front is based upon projected revenue from EGDs.

Turfway Park president Bob Elliston said the tracks would require exclusivity, licenses to operate the machines, and a court ruling that says the state constitution allows the General Assembly to issue the licenses. He said any other scenario would make for a "house of cards."

"In the absence of these three things, there is no way we can give assurances that it's a reasonable business decision," Elliston said.

The tracks have the support of Rep. Greg Stumbo, who told the committee he believes the state Supreme Court could issue a ruling quickly. It's possible, he said, for the state to have the first payment of $400 million by February 2004. The state still has no budget and is looking at deficit in the hundreds of millions of dollars.

"It's a great public policy issue for our state," Stumbo said. "It's the type of public-policy case I think our court would like to expedite."

Legislators on the committee asked many questions but took no position on the bill. Rep. Mike Cherry said he would prefer to see legislation calling for a constitutional amendment on the racetrack gaming issue, but he also said he is prepared to make the tough decision.

"No legislation is never all good or all bad," Cherry said. "I'm prepared to make that hard vote if the good of a situation outweighs the bad."

Statewide market estimates released by the tracks project annual revenue each facility could generate when EGDs are fully operational. Kentucky Downs, located near the Tennessee border, leads the way at $341 million, followed by Turfway Park in Northern Kentucky at $312 million, Churchill Downs in Louisville ($130 million), The Red Mile in Lexington ($114 million), Keeneland in Lexington ($99 million), Ellis Park in western Kentucky ($99 million), Bluegrass Downs in western Kentucky ($88 million), and Thunder Ridge in eastern Kentucky ($75 million).

When fully operational, the devices are expected to generate $157 million a year for purses in Kentucky.

In order to get EGDs, tracks must apply for no less than the number of dates they were awarded in 2001. The number can be reduced only with the approval of the Kentucky Horsemen's Benevolent and Protective Association or the Kentucky Harness Horsemen's Association.

The appropriations bill sponsored by Burch uses the same revenue scheme as legislation that failed to garner enough support last year. The state, through the Kentucky Lottery Corp., would get from 28% of annual gaming income not over $50 million to 41.44% of an gaming income over $200 million.

Horsemen, in the form of purses, would get from 10% of annual gaming income not over $50 million to 15.28% of annual gaming income over $200 million.

On the Thoroughbred side, 10% to 40% of purse revenue would be used for Kentucky breed development supplements. In addition, 10% to 20% would be used for Kentucky-bred claiming race supplements.

On the Standardbred side, 20% of the purse revenue would go toward races for horses sired by Kentucky stallions, and 5% would support harness racing at county fairs in the state.

The Thoroughbred tracks have a revenue-sharing plan for purses in case one market does exceptionally well and another does not. For instance, purses at Kentucky Downs, which races only seven days a year, would average almost $2 million a day. Some of that revenue could be shifted to other tracks.

Thoroughbred tracks would keep 50% of revenue generated on site, and put the other 50% in a statewide purse pool. Standardbred tracks would each keep their purse revenue, but should it push purses above an average of $150,000 a day, horsemen would have some say in how the money is spent. They could ask for more dates or ask that purse money be shifted to another track in the state.

The racetracks, which would bear the infrastructure costs of installing EGDs and upgrading their facilities, would get from 62% of annual gaming income not over $50 million to 43.28% of any annual gaming income over $200 million. There also are provisions for backstretch improvements (0.25% of annual gaming income) and horsemen's groups (0.1% of annual gaming income).