Taxman Cometh for ADW Companies?

Regulators who believe advance deposit wagering companies are not paying their fair share to the industry squared off against ADW representatives who noted that added taxation could slow the success of a growing portion of the pari-mutuel industry during a lively debate Oct. 8 at the International Simulcast Conference in Lexington.

The basis for the debate is the move by Kentucky legislators to consider added taxation on ADW companies that accept wagers from players in the state. Kentucky Horse Racing Commission executive director John Ward said in the past year Kentuckians have bet $167.8 million through ADW operators.

Ward said those wagers do not face the pari-mutuel taxes paid by tracks when on-site wagers are made in Kentucky. Ward said currently the state is working to define what an ADW wager is and it then will work to determine the proper tax, noting technology has passed by the state's regulations. He said that plan would leave ADW companies to make their case with legislators in the state. 

"On the plus side, ADW companies have made it easier for people to bet on horse racing," Ward said. "On the negative side they have cannibalized the on-track wagering. The numbers are clear: As ADW increases, the on-track wagering is reduced. But you have to look at our society. It's become more mobile. So ADWs are providing a valuable service."

Brad Blackwell of Churchill Downs Inc., which owns and operates the large ADW provider TwinSpires.com, said more states have added taxes on ADW wagers or are considering such taxes. He noted that TwinSpires already pays a tax to Oregon, which oversees the site's wagering, and that if a multitude of states continue to increase taxes, that trend could hinder the fast-growing popularity of ADW wagering.

Last year the Kentucky House of Representatives approved a bill that would impose a 0.5% tax on such ADW wagers with 85% of that tax money going to purses and the industry and 15% going to the state to carry out regulation. Blackwell expressed concerns about such taxes, noting that TwinSpires already contributes takeout money to purses.

"I see a difference between taxing for regulation and taxing us for our success," Blackwell said.

But Ward, a former trainer, said that success is occurring because ADWs are cannibalizing former on-track and simulcast outlet players. He believes regulators should ensure that the sport's funding sources are protected as wagering preferences shift. 

"In Kentucky ADWs pay no pari-mutuel tax. They might pay a corporate tax but they don't pay a pari-mutuel tax on any bet as far as the state of Kentucky is concerned," Ward said. "Anytime we have a pari-mutuel entity that is not paying taxes, the owners and participants of the sport are losing out."

While panelists with ADW ties disputed whether they are cannibalizing players, California Horse Racing Information Management System chief executive officer Mark Thurman said simply looking at the numbers that show ADW wagering going up at a time that overall pari-mutuel wagering continues to decline back up that assessment.

John Ford, chief executive officer of BAM Sofware and Services which works with the ADW company BetAmerica, said ADWs have had some success bringing big bettors who had moved to offshore locations back into the regulated North American pools. Added taxation could threaten the ability of ADW sites to offer rebates that attract such players.

"Any tax at the state level has to be measured so as we do not punish the one segment of pari-mutuel wagering that is growing," Ford said.

Addressing the panel, Todd Bowker of the ADW Premier Turf Club, said increased taxes on ADW handle would force the companies to reduce those rebates. He said that trend would drive those players back off shore or possibly to other lower-takeout gambling.

"I'm operating on a very small margin," Bowker said. "I've had players tell me that if I were to reduce their rebates by a quarter of a percentage point, they would leave my site for another."

Blackwell and Ford noted that ADW companies are having the most success bringing in new players and added taxation would hinder those efforts.