Kentucky Senate overwhelmingly passes racing bill

FRANKFORT, Ky. (Wednesday, March 30, 2022) — Legislation standardizing excise tax on all pari-mutuel wagers placed in Kentucky, including harness racing, makes claimed races eligible for Kentucky-raised purse supplements and benefits jockeys by requiring that pari-mutuel payouts be pay to the nearest penny now awaits Governor Andy Beshear’s signature.

Red Mile Racing

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

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

The Kentucky Senate passed HB 607 on Tuesday afternoon with a one-step, 33-1 vote after the Senate Committee on Licensing and Occupations and Administrative Regulations approved it 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 returned to the House for approval later Tuesday, with the lower house of the General Assembly agreeing to the Senate changes by a vote of 67-26 to give the bill final approval. The most notable change in the House bill was the Senate amendment allowing local municipalities to assess an occupational license fee at satellite HHR facilities at racetracks. The racetracks themselves are exempt from the fee due to the amount of tax they already pay that does not apply to 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 encouraging investment in capital projects that create jobs and solidify Kentucky’s place as a national leader. It’s a delicate balance to navigate, and HB 607 nails it.

“We certainly appreciate the commitment of Senator Thayer, Representative Koenig and other legislators to ensure that average jockeys, who don’t have what we call ‘Saturday horses’ running in the big races, can benefit from increased claim bags, making our year-round circuit truly the strongest in America for all owners and trainers.”

The key provisions of the legislation:

It taxes all pari-mutuel bets at 1.5 percent (or 3 cents of every $2 bet).

That is the rate currently assessed for live racing and HHR games, while it increases from 0.5 per cent to 1.5 per cent tax on bets placed via online platforms (or early deposit bets, commonly known as ADW) by Kentucky residents. The tax rate on simulcast bets placed on a Kentucky track in an out-of-state race drops to 3 percent. Most betting is now done via ADW, while simulcasting has been greatly reduced as horse players opt for the convenience of betting online.

Thayer emphasized that the tax rate applies to gross receipts, not net, “and with the mandatory requirements of the horse racing industry, it really equates to a 33 percent tax on net receipts,” he said.

It opens the door for Kentucky-bred stock supplements to be used in claim racing.

Kentucky’s HBPA had lobbied hard for the policy change to raise funds for lower-tier races in which most jockeys compete. Currently, money from the Kentucky Thoroughbred Development Fund (KTDF) is restricted to unclaimed racing. The Kentucky Horse Racing Commission and its KTDF advisory committee now have the flexibility to set parameters on Kentucky bred stock supplements to claim races, such as setting a minimum claim price that is eligible for KTDF additions.

Thayer called this provision his “favorite part of the bill.” And Senate L&O Committee Chairman John Schickel of Union said, “I also appreciate the fact that you have made a concerted effort to get some of this (race) development money to ‘poor people.’ , not expensive horses. I think it’s a really good way to do it, a great way to spread interest in horse racing.”

Virtually eliminates breakage when returning it to players.

Breakage is the policy by which you track winning payouts rounded up to the nearest dime based on a $1 wager. HB 607 requires clues to pay to the nearest penny. Historic horse racing operators have the option to pay out every penny or hold the money in the betting pots. Koenig has defended the breakage provision, with Thayer telling fellow senators, “This will make Kentucky an industry leader on this and allow those who bet on Kentucky races to keep more of their winnings, all of their winnings. earnings, actually. in fact.”

It 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, former president of the racetrack at Turfway Park, for suggesting that provision, given the rise in revenue from historic horse racing tracks.

Caps the amount of 1.5 percent excise tax money going to the Kentucky Thoroughbred Development Fund to $45 million before the funding rate decreases. Once $45 million is reached, the KTDF percentage is cut in about half, and the General Fund collects the difference. The Kentucky Standardbred Development Fund will be capped at $20 million before the rate changes.

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

Eliminates the 15-cent-per-person admission tax that race tracks currently pay, even if they don’t charge admission (which is at all tracks except Churchill Downs and Keeneland).

Requires tracks to maintain a “self-exclusion” list, where problem players can say they don’t want to be allowed into a track or HHR facility for a set period of time, to share with the racing commission and others 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 will take effect on August 1, 2022. Other provisions, however, will require the racing commission to enact regulations or craft policy changes prior to implementation.

That 1.5 percent tax explained: Where does it go?

For ease of understanding, let’s base it on a $2 bet on live races, so the 1.5 percent pari-mutuel tax amounts to 3 cents. This is included as part of the “cash out”, the amount of money that is withdrawn from the top of each dollar wagered that goes to the racetracks, jockeys’ purses and the state. While takeout varies by track and bet type, a general guideline for Kentucky is that combined takeout comes in at about 19.5 percent, or 39 cents on a $2 bet. The excise tax remains the same, regardless of takeout in general.

Getting the lion’s share of those 3 cents are the breed development funds and the state General Fund. The remainder is divided among various equine industry funds, such as the 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, simulcast, online betting or historic horse racing. HB 607 makes the 1.5 percent excise tax splits the same no matter where or how the bet is placed in Kentucky.

Approximately $1.61 is returned to winning players (a number that varies depending on the type of bet placed).

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

Accounting for the remaining two cents of the $2 bet is the penny on top that goes into the back-of-the-courts and “breaks” improvement fund, which will now be returned to the players.

From the Kentucky HBPA