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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. It is
in use at a horse racetrack in Arkansas, and a track in Oregon is building a
facility for an Instant Racing System.
The web site for the track in Arkansas, at which this system has been in
operation since 2000, indicated on May 22, 2007, that more than $17.7 million
is wagered each month through the system, roughly triple the amount of wagering
through the system two years earlier.
If similar levels of betting were realized on installations of the
system at Ohio’s seven commercial racetracks, the total wagered could rise to
more than $1 billion per year.
This program could bring in
additional money to the racing industry, by adding to horse racing purses and
by attracting additional customers.
Larger purses might attract faster horses and more gambling dollars for
live racing programs in Ohio. Some
portion of the wagering on an Instant Racing System might displace bets made on
the tracks' current programs of live and simulcast races.
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, though disposition of this remaining 88% or more is not
explicitly specified in the bill. A tax
equal to 20% of the commission would be payable to the Tax Commissioner. The bill specifies that this tax is to be
distributed as required in R.C. 3769.08.
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% of the net
commission (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% of the net commission 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, except that
part of this balance would be diverted initially each year as described below. 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:
Out of the balance to be
retained by the tracks, 1% of the net commission, equal to up to 0.096% of the
total wagered, is to be diverted to fund an equine marketing program and to
support "Horse Power Ohio," a nonprofit corporation for benefit of
equine related activities. This
diversion would continue until $600,000 had been accumulated for these programs
each year, with 75% paid to the equine marketing program and 25% to "Horse
Power Ohio." The $600,000 ceiling is to grow 2% each year
beginning in 2009 until it reaches $1 million.
Equine marketing program
The bill would provide for
the establishment and funding of an equine marketing program. The Department of Agriculture may incur
expenses, expected to be minimal, due to staff time involved in the
establishment of the program and for travel and incidental expenses for
attendance of members of an operating committee at meetings and for other
duties.
Horse Power Ohio
Horse Power Ohio is a
nonprofit corporation which would use the funding from the instant racing
program to support equine programs in Ohio, including therapeutic riding, the
preservation and expansion of public bridle trails and facilities, and rider
education and public equine awareness programs.
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 and is
to be distributed as specified in R.C. 3769.08, which (in part) governs
taxation of wagering on horse racing in Ohio.
The Passport Fund would receive 25% of this amount or $600,000. The balance would be divided among the
Racing Commission's Standardbred or Thoroughbred Fund, the Ohio Fairs Fund, and
the Racing Commission Operating Fund.
R.C. 3769.08(M) references distributions specified in R.C. 3769.087(A),
pertaining to wagers other than to win, place, or show (so-called exotic
wagers). The distribution of instant
wagering taxes could differ depending on whether the reference in the bill
(R.C. 3769.0813(D)) to distribution of the tax in the manner required
under R.C. 3769.08 is understood to encompass by reference the distribution
specified in R.C. 3769.087(A). In
addition, an administration fee of up to $96,000 (of the assumed $100 million
wagered) 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.
Larger purses and a
resulting more competitive Ohio horseracing program could attract additional
gambling dollars to the state and as a result increase state receipts. Alternatively, some erosion of betting on
live and simulcast horse races, with wagers instead shifted to instant racing,
could result. 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 assessment from
the Racing Commission was 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