Kentucky senate overwhelmingly passes racing bill

FRANKFORT, Ky. (Wednesday, March 30, 2022) — The legislation that standardizes the excise tax on every pari-mutuel wager placed in Kentucky, including harness racing, makes claiming races eligible for Kentucky-bred purse supplements and benefits horseplayers by requiring mutuel payoffs be paid off to the nearest penny now awaits the signature of governor Andy Beshear.

“So much goodness, I’m not sure we can stand it all,” bill sponsor Rep. Adam Koenig of Erlanger cheerfully tweeted late Tuesday. “But let’s find out!”

Sen. Damon Thayer of Georgetown, who with Koenig co-chaired the task force whose research and hearings led to the creation of HB 607, told his Senate colleagues Tuesday that the legislation will raise more money for the state’s General Fund and “should position us to continue our industry-leading year-round purse schedule, which I believe has us on track to be the most lucrative year-round racing circuit in North America within the next 18 to 24 months.”

The Kentucky Senate on Tuesday afternoon approved HB 607 by a 33-1 vote, with one pass, after it cleared the Senate Licensing & Occupations and Administrative Regulations committee 8-0 in the morning. HB 607, which was co-sponsored by Rep. Al Gentry of Louisville, passed the Kentucky House of Representatives 66-29 on March 21.

The bill went back to the House for concurrence later Tuesday, with the General Assembly’s lower chamber agreeing to the Senate changes by a 67-26 vote to give the bill final passage. The most notable change from the House bill was the Senate amendment that allows local municipalities to assess an occupational license fee on racetracks’ satellite HHR facilities. Racetracks proper are exempt from the fee because of the layer of taxes they already pay that aren’t assessed on other businesses.

“We applaud the Senate for overwhelmingly passing a bipartisan bill whose authors took the time to understand the complexities of horse racing,” said Kentucky HBPA president Rick Hiles. “This legislation raises additional money for the state while still encouraging tracks to invest in capital projects that create jobs and solidify Kentucky’s spot as the national leader. It’s a delicate balance to navigate, and HB 607 nails it.

“We certainly appreciate Sen. Thayer, Rep. Koenig and other legislators’ commitment to ensuring that the average horsemen, who do not have what we call ‘Saturday horses’ running in the big races, can benefit from increased claiming purses, making our year-round circuit truly the strongest in America for all owners and trainers.”

The legislation’s key provisions:

Taxes all pari-mutuel wagers off the top at 1.5 percent (or 3 cents of every $2 wager).

That is the rate currently assessed for live racing and HHR gaming while increasing to 1.5 percent from 0.5 percent the tax on bets placed through online platforms (or Advance Deposit Wagering, commonly referred to as ADWs) by Kentucky residents. The tax rate on simulcast wagers placed at a Kentucky track on an out-of-state race drops from 3 percent. The majority of bets are now placed through ADWs, while simulcasting has shrunk considerably as horseplayers opt for the convenience of wagering online.

Thayer emphasized that the tax rate is on gross, not net revenue, “and with the mandatory requirements of the horse-racing industry it really works out to about a 33-percent tax on net,” he said.

Opens the door for Kentucky-bred purse supplements to be used on claiming races.

The Kentucky HBPA had strongly pushed for the policy change in order to raise purses for the lower-level races in which the majority of horsemen compete. Currently, money from the Kentucky Thoroughbred Development Fund (KTDF) is restricted to non-claiming races. The Kentucky Horse Racing Commission and its KTDF advisory committee now have the flexibility to set parameters on Kentucky-bred purse supplements for claiming races, such as setting a minimum claiming price that is eligible for KTDF additions.

Thayer called this provision his “favorite part of the bill.” And Senate L & O committee chair John Schickel of Union said: “I too appreciate the fact that you have made a concerted effort to get some of this (breed) development money down to the ‘poor folks’ — not the expensive horses. I think that is a very good way to go, a great way to expand the interest in horse racing.”

Virtually eliminates breakage by returning it to the players.

Breakage is the policy by which tracks round down winning payoffs to the nearest dime based on a $1 bet. HB 607 requires tracks to pay off to the nearest penny. Historical horse racing operators have the option of paying out to the penny or retaining the money in the betting pools. The breakage provision has been championed by Koenig, with Thayer telling his fellow senators: “This will make Kentucky an industry leader in this and will allow those who bet on Kentucky races to keep more of their winnings — all of their winnings, as a matter of fact.”

Requires the Kentucky Horse Racing Commission to be self-funded, which Thayer said would add an additional $3.8 million a year to the state’s bottom line. Thayer credited KHRC member Mark Simendinger, a former racetrack president at Turfway Park, for suggesting that provision, given the tracks’ increased revenue from historical horse racing.

Caps at $45 million how much money from the 1.5-percent excise tax goes to the Kentucky Thoroughbred Development Fund before the rate of funding decreases. After $45 million is attained, the percentage to the KTDF decreases by about half, with the General Fund collecting the difference. The Kentucky Standardbred Development Fund will have $20 million cap before the rate changes.

Provides annual funding to the equine programs at the University of Kentucky ($400,000) and Bluegrass Community and Technical College ($250,000). The University of Louisville College of Business’ Equine Industry Program, which already receives funding from the pari-mutuel tax, received an annual cap increase from $650,000 to $850,000.

Eliminates the 15-cent per person admission tax racetracks currently pay even if they don’t charge admission (which is every track except Churchill Downs and Keeneland).

Requires tracks to maintain a “self-exclusion” list – where problem gamblers can say they don’t want to be allowed into a track or HHR facility for a given period of time — to be shared with the racing commission and the other tracks and HHR properties.

So when does this become law?

HB 607 becomes law once signed by the governor. Under the legislation, the tax changes go into effect Aug. 1, 2022. Other provisions, however, will require the racing commission to promulgate regulations or craft policy changes before implementation.

That 1.5-percent tax explained: Where does it go?

For ease of understanding, let’s base it on a $2 wager on live racing, so the 1.5-percent pari-mutuel tax amounts to 3 cents. This is included as part of the “takeout,” the amount of money taken off the top of every dollar bet that goes toward the racetracks, horsemen’s purses and the state. While takeout varies according to the track and the type of wager, a general guideline for Kentucky is that the blended takeout comes to about 19.5 percent, or 39 cents on a $2 wager. The excise tax stays the same, regardless of the overall takeout.

Getting the lion’s share of those 3 cents are breed development funds and the state’s General Fund. The remainder is split among several equine industry funds such as drug-testing research and equine programs at the University of Louisville and now the University of Kentucky and Bluegrass Community and Technical College. Previously the actual splits depended on whether the bet was placed on live racing, simulcasting, wagered online or on historical horse racing. HB 607 makes the splits on the 1.5-percent excise tax the same no matter where or how the bet is placed in Kentucky.

Approximately $1.61 is returned to the winning players (a number that varies on the kind of wager placed).

About 34 cents goes to the racetrack and the horsemen’s purse account, the percent of which is determined by contract with the horsemen’s association, which is the Kentucky HBPA at the state’s five Thoroughbred tracks. The Kentucky Thoroughbred Association also is a party to the contracts with Churchill Downs and Keeneland.

Accounting for the remaining two cents of the $2 bet is the penny off the top that goes to tracks’ backside improvement fund and “breakage,” which now will be returned to the players.

From the Kentucky HBPA