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Detailed Fiscal Analysis
The Instant Racing System
consists of a database of previously run horse races, which are sent
electronically to terminals at which bets can be placed on the races. Under the bill, these terminals could be
installed at the state’s seven commercial horse racetracks. The identities of the races are hidden to
prevent bettors from gaining an advantage using knowledge of the winners of
these previously run races. The races
are replayed at individual terminals whenever players choose to rerun them. Players need not wait for the full race to
be run, but can jump ahead to find out quickly if they won, subject to the
restriction that the system not permit the last ten seconds of a race to be
fast-forwarded. Consequently, action
can be fast and the system could allow bettors to place wagers on many more
races in an afternoon or evening than with a live racing program.
This betting system has the
potential for substantial growth. A web
site for a horse racetrack in Arkansas, at which this system is in operation,
indicated that more than $3.5 million is wagered each month through the
system. If similar levels of betting
were realized on installations of the system at Ohio’s seven commercial
racetracks, the total wagered could rise to around $300 million per year.
Some portion of this
wagering might displace bets made on the tracks’ current programs of live and
simulcast races. Consequently,
implementation of an Instant Racing System could erode current revenue sources
to the Racing Commission. Alternatively,
the program could bring in additional money to the racing industry. Specifically, by adding to horse racing
purses, the system might attract faster horses and more gambling dollars for
live racing programs.
Payout Structure
The bill provides that
proceeds from an instant racing system would be subject to a set of
requirements for distribution separate from those for other racing programs in
Ohio. The commission on instant racing
would be 12% or less of the total wagered through this system. Implicitly, the rest would be returned to
bettors as winnings. A tax equal to 20%
of the commission would be payable to the Tax Commissioner. The bill does not specify what is to be done
with this tax or the fund or funds into which it is to be paid. Revised Code sections 113.08 and 113.09
require that all money received by the state be paid to the Treasurer of State
for credit to the General Revenue Fund, unless otherwise provided by law. In the absence of other provision for the
disposition of these tax receipts, therefore, the funds would be paid to the
GRF.
Out of the commission net of
this tax, which would be at most 9.6% of amounts wagered, 19% (at most 1.824%
of amounts wagered) is to be paid into each participating track’s purse
account, except that horsemen’s groups may designate half or 9.5% (at most
0.912% of amounts wagered) to go to either horsemen’s health and benevolence
programs or to the Ohio Thoroughbred Race Fund, and the other half, or 9.5% to
any of horsemen’s health and benevolence programs, the Ohio Standardbred
Development Fund, or the Ohio Fairs Fund.
An additional 1% of the net commission, or less at the discretion of the
Racing Commission, would be paid into the Racing Commission Operating Fund as
an administrative fee. This fee would
be at most 1% of 9.6%, or 0.096%, of amounts wagered. The balance, 80% to 81% of the net commission, would be retained
by each track under the bill. The fee
charged by the provider of the Instant Racing System presumably would be paid
out of this share of the amounts wagered.
These fees are illustrated
in the following table:
Fiscal Effects on the State
Implementation of an Instant
Racing System would generate additional tax revenues to the Tax Commissioner
plus a much smaller amount of additional receipts to the Racing Commission
Operating Fund. For example, if the
system generated $100 million in wagering and commissions were set at 12% of
total wagers, $2.4 million of tax would be owed to the Tax Commissioner, which
in the absence of provisions specifying the fund or funds into which this tax
is to be paid, would go to the GRF. An
administration fee of up to $96,000 would be payable to the Racing Commission
Operating Fund. Additional amounts, up
to $1.824 million, could be added to purses or, at the discretion of horsemen’s
groups, could be divided among the thoroughbred and standardbred funds
administered by the Racing Commission, the Ohio Fairs Fund, and horsemen’s
health and benevolence programs.
If this new avenue for
gambling eroded the amount of betting on live and simulcast horse races, other
state receipts might be reduced.
Alternatively, larger purses and a resulting more competitive Ohio horse
racing program could attract additional gambling dollars to the state and as a
result increase state receipts.
Implementation of an Instant Racing System might also lead to additional
regulatory responsibilities and expenditures by the Racing Commission. The amount of any such increase in
regulatory oversight costs appears likely to be small. An initial assessment from the Racing
Commission is that existing systems could be used for this purpose, with little
added workload for Commission staff.
Fiscal Effects on Local
Governments
An Instant Racing System
would have no direct fiscal effects on local governments. To the extent that such a system proved very
popular and resulted in significant increases in traffic into and out of
racetracks, it could require additional policing in the vicinity of the
tracks. To the extent that such a
system increased the incidence of problem gambling in the state, it could lead
to increased local outlays for social services.
LSC fiscal staff: Phil Cummins, Economist