How Colorado might handle fixed-odds wagering on horse racing, in respect to taxation as well as the Interstate Horse Racing Act (IHA), became clearer Wednesday in a conversation among industry stakeholders arranged by the Colorado Department of Revenue.
According to draft rules and comments during the meeting from Dan Hartman, director of the Colorado Division of Gaming, the plan for fixed-odds horse racing wagers would be to handle and tax them as sports bets, with a 10% statutory tax rate on net proceeds.
“There may be other things that, down the road, we need to look at, in changing statute, but what we’re looking at is a sports bet,” Hartman said. “We’re hoping the money goes to the horse track and the horsemen in Colorado, and other states, to benefit purses. And I think we’ve got a good sports betting environment here, with nearly a million people that have apps on their phones, to look at and participate in the entertainment that most of us know as racing.”
Horsemen, tracks need to give consent
A key aspect to the draft rules, which were roundly supported by horsemen’s representatives on the call, was that any fixed-odds horse racing would require agreements involving the Colorado Racing Commission, the Colorado Horse Racing Association as the recognized horsemen’s group, and Bally’s Arapahoe Park as the racetrack. That includes use of the betting format in interstate, intrastate, and international racing, which came as a pleasant surprise to the horsemen’s representatives.
Eric Hamelback of the National Horsemen’s Benevolent and Protective Association went so far as to say, after the meeting, that he was “shocked” that essentially IHA provisions, which cover interstate horse racing wagering, were added to potential intrastate and international wagering.
Under the draft rules, sportsbook operators who want to offer fixed-odds wagering would have to negotiate deals with each racing entity in Colorado for all categories (interstate, intrastate, and international), along with any out-of-state racetrack and recognized horsemen’s organization, if they want to offer fixed-odds wagering on races outside of Colorado.
“When I saw the draft rules, I was really pleased the consent rules were in there,” said Jim Mulvihill, interim executive director of the Colorado Horse Racing Association. “I feel fairly confident at this point that whatever the Department of Revenue puts forward is going to include and protect horsemen, which is my No. 1 priority.”
That made the tenor of the discussion quite different from the previous week’s meeting, which saw Mulvihill air concerns about the impact on the horsemen’s livelihoods.
“I had a fear that, semantically, if this were defined as a sports wager, we would be f—-d, that we would be cut out of the equation,” Hamelback said. “But they essentially copied and pasted IHA regulations and put it on this.”
Will the ‘sports bet’ distinction stick?
Most of the other stakeholders on the call, mainly operators (representatives from Caesars, Penn National Gaming, FanDuel, BetMGM, PlayUp, and several racing and content companies were all listening in), were uncharacteristically quiet compared to the two prior gatherings on the topic. That may be an indication of ongoing and future behind-closed-doors dealings, which could also mean the classification as a sports bet, with a 10% tax, may not be as welcome as it seems.
Although it wasn’t voiced during the discussion, there is at least one critic of the draft rules, Bill Pascrell III, a lobbyist who represents BetMakers. Pascrell has has been involved in the fixed-odds wagering push in New Jersey, the only state to approve the practice for U.S. customers. Pascrell feels strongly that, like the New Jersey “hybrid” model, fixed-odds horse racing wagers should be treated as a “horse bet,” which would essentially be untaxed.
“We are pleased with the direction this is going in and understand it’s a methodical, long runway to fruition,” Pascrell said after the discussion. “One thing I think needs more careful thought is that this needs to be a horse bet, because it is a horse bet, and needs to be regulated as one. Making it a sports bet, with the tax [implications], will make it very difficult to attract attention from operators, who are already working with slim margins.”
Another industry representative on the call, Michele Fischer of Sports Information Services (SIS), said fixed-odds horse racing wagers need to be regulated through the entity that handles the wagers, so with the sportsbooks in Colorado they should be treated a sports wager. She said if racetracks or off-track-betting locations offer fixed-odds wagering at those sites, then they should be treated as horse wagers, but that would almost surely require changes in regulations, as horse racing currently only deals in the parimutuel tote system. SIS represents 118 international racetracks, and one in the U.S. (Parx), for content distribution.
“I think Colorado has done the right thing, because that’s how it really works around the world,” Fischer said.
But just how much the tracks and horsemen will get out of the fixed-odds equation remains to be seen. What is clear is they would have significant power in negotiations over that equation, should the draft rules or something similar be adopted.
“They have a lot of opportunity, but they have to be realistic,” Fischer said. “If they price it too high, the operators just won’t do business in the state.”
Cory Amend, who moderated the meeting Wednesday for the Department of Revenue, said at the end of the discussion that next steps in the process include “internal meetings.”
“We’ll take all the feedback and comments we’ve gotten up to this point, and we will talk internally and decide where we’re actually going to go with this,” Amend said. “As we have more rules and language drafted, we will certainly send it out to this group along the way. That’s the plan moving forward, as we know it today.”