Taking Up For Bettors: Kentucky Rep. Koenig Seeks To Eliminate ‘Breakage’

Kentucky State Representative Adam Koenig is taking up the banner for the most-neglected component of horse racing: the bettors.

Koenig is co-chair, with Sen. Damon Thayer, of the Pari-Mutuel Wagering Taxation Task Force appointed to review taxation policies on gambling on the Commonwealth's horse-racing products. Koenig said on last Friday's Kentucky Racing Spotlight weekly radio show on Louisville's ESPN 680 that based on the task force's findings, he will introduce legislation for a flat 1.5-percent tax on the gross (before winning bettors are paid off) of pari-mutuel wagers, including the highly successful historical horse racing operations. Such a measure would substantially increase the tax on bets placed on Kentucky racing through online platforms, known as Advance Deposit Wagering (ADW).

Another provision Koenig is championing in the bill he plans to introduce during the current 2022 state legislative session: rounding payoffs down to the penny, rather than down to the dime on a $1 mutuel.

The practice of rounding down is known as breakage. It's a decades-old policy that allows racetracks and any licensed bet-taker, including ADWs, to keep the extra money, to the frustration of horseplayers who believe it should be returned to winning bettors.

“The thing I'm perhaps most excited about is the elimination of breakage on live racing,” Koenig told Kentucky Racing Spotlight hosts Joe Clabes and Jennie Rees on the show. “It's something that happens at every track everywhere. Win, place, show … they (pay off) – at least in Kentucky and most other states – to every 20 cents (on a $2 mutuel). You pay $3.20 or $3.40 or $3.80. But it doesn't work out that way. You might deserve $3.47 or $3.68. We're going to try to make that happen. Because it's your money and it goes back to – I don't know, the 1930 or 40s – when the only place you could gamble legally was the track. There were long, deep lines, and they didn't want to pay everybody to the penny every time they came up.”

If Koenig is successful, Kentucky would be the first state to essentially eliminate breakage. New York, with a sliding breakage calculation, is the only state in the last 30 years to address breakage, but the proposed plan for Kentucky is easily the most player-friendly of any, according to industry expert Pat Cummings of the Thoroughbred Idea Foundation.

“I think not only will it be great for the bettors, but I believe it will be an incentive for people across the country to bet on Kentucky racing,” said Koenig, an Erlanger resident whose district in Boone and Kenton County is adjacent to Turfway Park. “Maybe if you're a bettor like me who bets $5 to win, place on a race, it's not that big a deal. But if you're somebody who doesn't mind betting $200 across the board on a horse, that adds up to real money over time. I think the tracks will get the money back with additional wagering.”

“… I'm not doing it to cost the (tracks) money or even to help their product. I'm doing it because with the passage of this HHR (legislation) and increasing the numbers of HHR machines, we've taken care of the breeders, taken care of the owners; the trainers and jockeys are running for bigger purses,” Koenig continued, referencing legislation passed last February to protect historical horse racing. “The only person we haven't taken care of is the bettor. You can't run the show without all of those people — but you have to have the bettors.”

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The task force was convened in the wake of last year's passage of SB 120 that cleaned up the language to ensure that historical horse racing was legal under the Kentucky constitution. Some lawmakers felt HHR should be taxed at a higher rate, with more money going to the state's General Fund. Subsequent testimony documented that — by being taxed on the gross rather than on net revenue and with a mandated amount going toward purses for live racing — the excise tax on HHR is effectively 32.2 percent.

That places Kentucky's tax rate on the high end of surrounding states with casino gaming, testimony before the task force documented. While standardizing the 1.5-percent excise tax, Koenig's bill would increase the tax on online and phone wagers made in the state from 0.5 percent to 1.5 percent.

“There is a range of tax rates when you make a wager,” said Koenig, who continues to work on the language of the bill before filing. “… When you're at a track and you go to the window, go to a (self-bet) machine, there's a 1 1/2-percent tax on that. But if I am at Keeneland or Churchill Downs and I bet on a simulcast race, say Oaklawn, that's taxed at 3 percent. If I bet on that same race at Oaklawn on my phone, it's taxed at one-half of 1 percent. I'm sure these tax rates made sense when they were created. But now, they don't make so much sense.

“… I believe we're going to generate a fair amount of money, especially with raising the ADW tax from a half of a percent to 1 1/2 percent. It's very complicated because within those tax rates you're funding purses for thoroughbreds, for standardbreds, funding the University of Louisville (equine business) program. Funding pays for improvements at the track. It's more complicated than I ever thought. We're going to make it more even, so that it makes more sense, and we're going to generate some additional revenue for the General Fund.”

Koenig said his bill also will remove any restrictions on how Kentucky Thoroughbred Development Fund (KTDF) supplements can be used as long as recipient horses are foaled in the commonwealth and sired by a Kentucky stallion. The bill would leave it up to the Kentucky Horse Racing Commission's KTDF advisory committee to set the policy but would be expected to allow the Kentucky-bred supplements to be added onto claiming races for the first time.

Among other likely provisions:

Funding for the equine programs at the University of Kentucky and the Bluegrass Community & Technical College.

Requiring that the horse-racing industry pay for the cost of its regulation, with the budget for the racing commission currently coming out of the General Fund.

Creation of a revenue stream to provide help for problem gamblers. HHR facilities would be required to maintain and share self-exclusion lists, where problem gamblers who ask to join the list will be refused admission to such properties.

Kentucky's 2022 legislative session runs through April 14.

Kentucky Racing Spotlight, presented by the Kentucky HBPA, will run Fridays from 6-7 p.m. ET through March 4 on ESPN 680/105.7 with streaming at espnlouisville.com, the ESPN 680 app and the iHeart and TuneIn apps. The shows are archived at davisinnovation.com/kyracing. In addition to the Kentucky HBPA, Kentucky Racing Spotlight is sponsored by Davis Innovation, NKY Tribune and the Louisville Thoroughbred Society.

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KEEP Applauds Work Of Pari-Mutuel Wagering Taxation Task Force

The Kentucky Equine Education Project (KEEP) released the following statement following the final hearing of the Kentucky General Assembly's Pari-Mutuel Wagering Taxation Task Force:

KEEP is grateful to the legislators that served on the Pari-Mutuel Wagering Taxation Task Force for their thorough and fair-minded examination of the many facets of Kentucky's horse industry, the industry's economic ecosystem, how the industry impacts the state, and the potential outcomes of adjusting the current varying tax rates on the different forms of pari-mutuel wagering.

KEEP was honored to be asked to testify during one of the five public hearings held by the Task Force. Elisabeth Jensen, KEEP's Executive Vice President who oversees the daily operations of the organization, provided testimony on the current state of Kentucky's entire horse industry, all breeds and disciplines, and its economic impact on the state including tourism, equine events, educational opportunities, the ripple effects across other sectors throughout the state, and more.

KEEP applauds the Task Force for its work on its final report and is supportive of the final recommendations that will be considered by the General Assembly during the next legislative session. KEEP looks forward to working closely with the legislature as it considers the Task Force's recommendations.

ABOUT KEEP
The Kentucky Equine Education Project, Kentucky's equine economic advocate, is a not-for-profit grassroots organization created in 2004 to preserve, promote and protect Kentucky's signature multi-breed horse industry. KEEP is committed to ensuring Kentucky remains the horse capital of the world, including educating Kentuckians and elected officials of the importance of the horse industry to the state. KEEP was the driving force in the establishment of the Kentucky Breeders Incentive Fund, which has paid out more than $177 million to Kentucky breeders since its inception in 2006, and pari-mutuel wagering on historical horse racing, which has been responsible for more than $50 million to purses and more than $24 million to the Kentucky Thoroughbred Development Fund.

KEEP works to strengthen the horse economy in Kentucky through our statewide network of citizen advocates. To learn more about how you can become a member or support our work, please visit www.horseswork.com.

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Kentucky Committee Lauds Current Pari-Mutuel Tax Rates

The second meeting of the special legislative committee studying pari-mutuel tax rates in the state of Kentucky occurred on Monday, Aug. 9, reports wtvq.com.

Industry representatives praised the current rates on historical horse racing and race wagers in two presentations, one from Elisabeth Jensen, the executive vice president of the Kentucky Equine Education Project (KEEP), and the second from Chauncey Morris, executive director of the Kentucky Thoroughbred Association.

“Kentucky horse racing will remain competitive based on our current tax rates, we believe,” said Morris. “It's taken us 10 years to couple the best horse industry in the world with a more modest form of gaming and the dividends for Kentucky are transformational.”

According to WTVQ, the Pari-Mutuel Wagering Taxation Task Force is scheduled to meet once a month before presenting its findings and recommendations to the Legislation Research Commission (LRC) by Dec. 1, 2021.

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KY Committee Unlikely To Recommend Tax Increase for HHR Machines

A special legislative committee charged with studying the taxes and rates paid by Kentucky racetracks, including the tax rates on profits from Historical Horse Racing (HHR) machines, seems set on recommending the status quo rather than a tax increase. That's good news for the state's racing and breeding industries, which have flourished since HHR machines were introduced in the state some ten years ago.

The Pari-Mutuel Wagering Taxation Task Force met Monday and the meeting turned into something of a cheerleading session for the sport, its economic impact and the advancements it has made since HHR machines were legalized.  A higher tax rate on the HHR machines would no doubt lead to less money being available for racing.

The task force is co-chaired by Senate Majority Floor Leader Damon Thayer, considered one of the more pro-racing lawmakers in the state.

“In this deck, the most important pages are the ones that show the industries that benefit by racing in Kentucky,” Thayer said following a presentation from Elisabeth Jensen, the executive vice president of the Kentucky Equine Education Project (KEEP). “As Elisabeth noted, there are many here, and some you wouldn't think offhand, that are benefitted by the racing industry…One of my favorite graphics is the one that shows how one race horse equals many jobs. We see lots of numbers on a page, paragraphs and power points on a whole host of industries and topics, but this is a pretty compelling page. Look at all the jobs that are provided by one race horse here in Kentucky. That's a very compelling slide.”

The task force was created after the General Assembly passed legislation that formally paved the way for the state's Thoroughbred and harness tracks to offer HHR machines. Senate Bill 120 was needed after the Kentucky Supreme Court voted unanimously that the machines did not represent pari-mutuel wagering and were therefore unconstitutional. After the bill was passed, a coalition led by the Kentucky Center for Economic Policy argued that HHR machines were taxed at a rate that was costing the state an estimated $91 million in annual revenue. The state tax on HHR machines is just 1.5% of total handle, considerably lower than the tax rates on slots and other forms of gaming in other states that have slot machines or slot machine-like games.

HHR machines and the tax rate were mentioned only sparingly by the task force members during the session. Instead, the committee focused on what the money from the machines is used for and how that money has helped not just racing but the state in general. Jensen was one of two individuals to testify. The other was Chauncey Morris, the executive director of the Kentucky Thoroughbred Association (KTA).

“I want to talk to you about the broader impact of the horse industry and its affect on Kentucky's economy and how Historical Horse Racing has already grown that impact and positioned us for even greater growth in the very near future,” Jensen said. “Adopting Senate Bill 120 paved the way for continued significant investment in Kentucky's horse industry, which will lead to new jobs and economic growth in communities all across the commonwealth. Thanks to the success of Historical Horse Racing, Kentucky's horse industry is well positioned to continue strengthening our local communities and their economies through investment in new facilities, increased jobs and the tax revenue to come with it. One of the most important things we have to talk about is the economic impact of Kentucky's horse industry on the entire state.”

Jensen came armed with slides that showed, among other things, that the horse industry in Kentucky is responsible for nearly 80,000 jobs and had an economic impact of $6.5 billion.

Morris painted a similar picture, one where HHR machines had greatly helped the sport, which, in turn, has greatly helped the state.

“Thanks to Kentucky's friendly business environment, we have thrived through major reinvestment in infrastructure for horses and fans,” he said.

This was the second meeting of the task force, which is scheduled to meet once a month before presenting its findings and recommendations to the Kentucky Legislative Research Commission by Dec. 1, 2021.

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