Kentucky: Horse Racing in a Digital World
- Feb 26, 2014 | Gail Cole
Does the Kentucky Horse Racing Commission have the statutory authority to license the operation of mechanical and electronic devices for wagering on previously run horse races, known as historical horse racing? Does the Kentucky Department of Revenue have statutory authority to tax that wagering? Does betting on historic races violate the gambling provision of the Kentucky Penal Code?
These three questions were brought before the Kentucky Supreme Court, which issued a ruling last week. It determined that the Kentucky Horse Racing Commission does have the right to “license and regulate pari-mutuel wagering on historic horse racing.” However, the Department of Revenue does not “have the authority to collect the statutory excise tax on the wagering on historic horse races.”
The court determined that it could not issue a ruling on whether or not wagering on historic horse racing violates the gambling provisions of the Kentucky Penal Code. As a result, that question was kicked back to circuit court.
Betting on a horse race that already took place may seem counterintuitive, but it’s become a big business in Kentucky. It was born of a need for additional revenue, as Kentucky’s horse racing industry has been facing “serious financial challenges.”
How it works
Historical horse races are races that took place and were recorded at some point in the past. A video of the race is then displayed “on an electronic device, or terminal, at which individual wagerers may place bets.” At least one of these devices, called “Instant Racing,” resembles a slot machine.
Bettors may either watch the recording of the race or skip the race and go directly to the results (thus the name of the machine, Instant Racing). A certain amount of statistical data regarding the horses is provided; however, no information that could be used to identify the actual race or horses is given to the bettor.
Is a historic horse race a legitimate horse race?
The horse racing industry promoted legislation in 2010 that, had it become law, would have “explicitly authorized the licensed operation of such non-traditional forms of horse racing and horse race wagering.” When it did not become law, the Commission accommodated the industry’s request by promulgating “a series of regulatory changes.”
Under Kentucky law, legitimate horse racing is:
“conducted in the Commonwealth so as to encourage the improvement of the breeds of horses in the Commonwealth, to regulate and maintain horse racing at horse race meetings in the Commonwealth of the highest quality and free of any corrupt, incompetent, dishonest, or unprincipled horse racing practices, and to regulate and maintain horse racing at race meetings in the Commonwealth so as to dissipate any cloud of association with the undesirable and maintain the appearance as well as the fact of complete honesty and integrity of horse racing in the Commonwealth.” (KRS 230.215)
The court determined that the legitimacy of the race is not impacted by the “medium through which a horse race is viewed, or recorded for future viewing.”
The court determined that “watching a video-taped (or digitally-recorded) image of a horse race” does not make the event “any less of a horse race,” in the same way that “watching a re-run of a basketball game makes it something other than a basketball game.” Historic horse races are not somehow less legitimate simply because they are “recordings of races run at a different time and place.” In other words, a digitally-recorded horse race is still a horse race.
Taxing historic race wage winnings
The Department of Revenue amended its regulations and applicable tax forms “so that wagering on historic horse racing, like other forms of horse racing in Kentucky, would be subject to” excise tax. It based its right to collect excise tax on historic horse racing on KRS 138.510(1), which reads, “an excise tax is imposed on all tracks conducting pari-mutuel wagering on live racing under the jurisdiction of the [Kentucky Horse Racing] commission” (emphasis added by the court). Historic horse racing is not, by common definition, “live racing,” but the department argued the law could be inferred to also cover historic horse racing.
The Supreme Court disagreed and determined the department did not have the right to collect excise tax on historic horse racing wagers. The decision reads, “We simply cannot bend and stretch the English language far enough to refer to a machine that displays video recordings of thoroughbred horse races that occurred in the distant past as live racing.”
Only the Kentucky Legislature has the power to impose a tax, said the court, and “taxing laws should be plain and precise.” The role of the Department of Revenue “is to collect the tax imposed by the legislature. It is, therefore, fundamental that the Department cannot within the bounds of constitutional limits establish a tax by its own accord.”
Real, if not live
Historic horse racing may not be “live,” but it is certainly real enough to be profitable. According to Bloodhorse.com, total wagering in Kentucky could top $600 million by the end of February. “The total net track commission since the inception of Instant Racing in the state was $36,670,281. Purses received $5,133,839, and the Kentucky Breeders’ Incentive Fund got 1%, or $366,670.” Revenue generated by historical horse racing also went to the Kentucky Thoroughbred Development Fund, the Equine Industry Program, equine drug research, the Higher Education Fund, and the state general fund.
The new face of horse racing?
Kentucky horse racing currently conjures images of hooves thundering around racetracks and spectators cheering in excitement. It brings to mind the wagers—the winners who shout out in joy and the losers who hang their heads in despair.
Maybe one day Kentucky horse racing will also conjure images of slot machines—of wagerers watching digital races. Or skipping the races—the cheers, the thundering hooves, the excitement--and going to straight to the results.
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