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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Kentucky HHR Bill Passes House Committee, On To House Floor

Senate Bill 120, which would expand Kentucky's definition of parimutuel wagering to include historical horse racing (HHR) machines, unanimously passed the House Committee for Licensing, Occupations and Administration Regulations on Wednesday morning.

The bill passed the state senate Tuesday afternoon on a vote of 22-15.

The house committee heard from a nearly identical group of proponents and opponents to the bill as the Senate Committee on Licensing and Occupations last week. The house committee is chaired by Rep. Adam Koenig (R-District 69), who is also the legislative representative on the Kentucky Equine Drug Research Council, a committee of the Kentucky Horse Racing Commission. The senate committee is chaired by Sen. John Schickel (R-District 11) who is the bill's sponsor and also fielded questions from members of the house committee.

Horseman Tommy Drury provided the committee with his outlook on the way the cash influx from HHR has kept his business afloat, while representatives from The Family Foundation expressed a variety of concerns, framing the bill as a “millionaire's bailout” and citing concerns about the constitutionality of the bill's treatment of parimutuel wagering.

The bill's supporters have repeatedly expressed the reliance of Kentucky's racing industry on the increased purses and breeders' incentives from HHR income, with particular focus on the many jobs supported by that revenue and the secondary industries that rely on racing for business.

There are a few different points of opposition expressed by legislators who spoke against the bill during its senate vote Tuesday; some question the tax structure for HHR income, saying the state does not benefit enough from the income. Others believe a constitutional amendment is the only sure way to make HHR legal because the definition of legal gambling in Kentucky is outlined in the state's constitution. Still others have concerns about the potential for gambling addiction among HHR users, which they say disproportionately impacts poor families.

Early reports have indicated the bill could face more opposition in the house than it did in the senate. The bill may now go to the House floor for a vote, though it's unclear when that will happen. Wednesday begins the thirteenth day of the Kentucky General Assembly regular session, which is limited to 30 days this year.

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Kentucky Legislator Files Bill To Raise Taxes On HHR, ADW, Claims Racing Gets ‘A Sweetheart Deal’

Kentucky State Rep. Kim King (R-Harrodsburg) filed a bill in the state's legislature this week to raise tax rates on advance deposit wagering and historical horse racing handle in Kentucky, according to the Lexington Herald-Leader. After researching the issue, King said the current tax rate on ADW is far less than on live bets.

“I think they've really been getting a sweetheart deal and it needs to be updated,” King said.

King's bill would raise the tax rate on HHR activity from 1.5 percent of average daily handle to 3 percent and the rate on ADW from .5 percent to 3 percent. She believes the proposal could generate as much as $40 million for the state to spend on schools, health care and other projects.

King filed a similar bill last year but it did not get out of committee. Rep. Adam Koenig (R-Erlanger), who is a member of the Kentucky Horse Racing Commission's Equine Drug Research Council, opposes the measure, expressing concern that tax increases would be passed on to the bettor. Koenig is also chair of the House Committee on Licensing, Occupations and Administrative Regulations, where the bill stalled last year.

In 2020, ADW handle in Kentucky was $282 million, of which $1.4 million went to taxes and only $212,093 went to the state's General Fund. HHR handle was $2.2 billion, of which $33.8 million went to taxes and the General Fund received $15.1 million.

Read more at the Lexington Herald-Leader

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Bill Filed In Kentucky To Allow Sports Wagering, Awaits Committee Assignment

Kentucky legislators will get another chance to consider whether they want to permit sports wagering in the state after giving the notion a relatively chilly reception last year. According to The Blood-Horse, Rep. Adam Koenig (R-Erlanger) introduced a bill on Jan. 9 that would permit sports wagering at racetracks and Kentucky Speedway, with regulatory oversight falling under the Kentucky Horse Racing Commission.

Online sports betting and online poker would also become allowed under the legislation.

Sports wagering is currently permitted in Indiana, Illinois, Tennessee, and West Virginia. Kentucky's legislature has been considerably less eager to expand gambling in the state in any way.

Similar legislation last year was discussed at the committee level and approved but was not entertained on the House floor. This year's bill is awaiting assignment to a legislative committee for consideration.

Kentucky's horse racing industry still awaits a legislative fix to legality issues with historic horse racing which has already been in force in the state and provided revenue the sport has relied upon in recent years.

Read more at The Blood-Horse

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