KY House Approves HHR, Gives Industry Solid Footing

Going into this year's legislative session, Kentucky lawmakers promised to make historical horse racing a priority. They delivered on that promise Feb. 11. 

Just a week after legislation protecting HHR games was passed by a Senate committee and six days after it passed the full Senate, the Kentucky House of Representatives also approved the legislation in a floor session that wrapped up after 8 p.m. ET Thursday. Gov. Andy Beshear, a Democrat, has supported the legislation and is expected to sign it.

The measure (Senate Bill 120) passed by a 55-38 margin, and based on comments by several Representatives who were on the fence but voted in favor of HHR, they'll push for an increased tax on HHR.

The swift action returns Kentucky's signature industry back to solid footing for the first time since September when a state Supreme Court decision determined that at least one brand of HHR was not pari-mutuel. That finding was critical because the machines were approved by the Kentucky Horse Racing Commission and are supposed to feature pari-mutuel payouts based on previously run horse races.

HHR has helped Kentucky racing and breeding thrive in the decade it's been in place, as purses have improved and significant investments have been made, or are planned, for tracks throughout the state.

In its September decision, the state Supreme Court encouraged lawmakers to update the state's definition of pari-mutuel wagering to specifically include HHR games if the legislators intended for HHR to continue in Kentucky. The legislation does just that.

While additional litigation could still follow, the Kentucky industry appears to be on as solid footing as possible. That should give Churchill Downs Inc. confidence to build a new grandstand and HHR facility at its Turfway Park and the owners of Ellis Park, a subsidiary of the Laguna Development Corporation, conviction in moving forward with renovation plans. The future of those two tracks were most assuredly uncertain without HHR moving forward—a situation that threatened year-round racing in the state.

With HHR in again firmly in place, Churchill Downs, Keeneland, and Kentucky Downs figure to continue to offer top purses and commit to even more facility upgrades as they try to compete with other states that fuel purses with money from added gaming.

In bringing the bill to the House Floor Thursday, Rep. Adam Koenig, a Republican from Erlanger, outlined the history of historical horse racing and how the bill had come before lawmakers. He noted that there is no statutory definition of pari-mutuel wagering in the state and the state Supreme Court asked for lawmakers to put that in place. He said this legislation addresses that.

Koenig called HHR an evolution of pari-mutuel wagering, just as wagering has gone from win, place, and show to include bets like exactas, trifectas, and Pick 4s.

"There's a lot at stake here," Koenig said, noting that a task force would be formed to determine if an increase in the tax on HHR is needed, but urged that the House approve the bill to begin with to avoid, "having nothing left to tax at all."

Rep. Matt Koch (Paris, Republican), who owns Shawhan Place farm, outlined the many jobs and economic impact—including tourism—tied to racing and breeding. He said the bill is about fighting for Kentucky jobs and the state could not afford to lose additional jobs after losses already suffered because of COVID-19.

"While Kentucky is the best place to raise a horse, it's not the only place to raise a horse," Koch said. "We have to fight to keep that here."

Representatives voting against the bill were passionate in their arguments, largely based on opposition to gambling.

An amendment that would have increased the tax rate on HHR from 1.5% on all money wagered to 3.5% was determined to be out of order and was not considered. But it was clear that Koenig's offer to form a task force to examine the tax rate on HHR helped sway some votes. The 1.5% rate was put in place in April 2014.

Rep. Mary Lou Marzian, who later voted for the bill, said she had issues with the legislation and expressed concerns that the task force would actually result in increased taxes. She said a letter from the tracks and industry expressing a willingness in discussing a gradual increase to the tax rate needs to be carried through. She said lawmakers have to hold the industry's feet to the fire on the rate. 

"We need an infusion of money in this commonwealth," Marzian said. "There are so many issues we could resolve with this legislation and a fair tax rate."

Churchill Downs Inc. CEO Bill Carstanjen said the company looks forward to working with state leaders on the tax rate.

"I reiterate our commitment to working constructively to revise and raise the tax structure on historical racing machines, including consideration of a fair and equitable graduated tax structure," Carstanjen said. "Additionally, I reaffirm our commitment, upon SB 120 becoming law, to immediately reengage on our capital investment project planning in Kentucky which, in turn, when implemented will create millions of dollars in economic impact and hundreds of construction and permanent jobs in the commonwealth."

While that rate may be debated, the big news is that HHR will continue to benefit the state's signature industry.

"Thank you to our representatives in the House for acting in Kentuckians' best interests and passing critical legislation to keep historical horse racing in the commonwealth," said the Kentucky Equine Education Project, which advocates for the industry. "This is great news for the 1,400 people employed directly by historical horse racing and the tens of thousands more who rely on the horse industry to provide for their families.

"The Supreme Court's ruling on HHR last year brought major uncertainty to our employees, local businesses, communities, and our industry as a whole. We applaud the General Assembly for acting swiftly to maintain the status quo of historical horse racing that Kentucky has known for the last 10 years. With the passage of SB 120, we are confident about the future of Kentucky racing and our ability to continue bringing new jobs and economic growth to our communities across the commonwealth.

"Gov. Beshear has been vocal in his support of historical horse racing and its positive impacts on our state, and we look forward to seeing SB 120 signed into law."

Hours before the vote, Churchill Downs racetrack president Mike Anderson encouraged representatives to vote in favor of retaining HHR.

"As the House prepares to vote as early as this afternoon on Senate Bill 120, we are asking our Louisville-area legislators to please pass this critical legislation and save local jobs," Anderson said in a release. "We are incredibly proud to be a part of this community and are grateful to call Louisville home. Senate Bill 120 is about protecting jobs right here in our city that are held by our parents, siblings, friends, and neighbors. That's why we're asking you to move this legislation forward.

"Horse racing and the equine industry are such an important part of Louisville's history, and historical horse racing will allow that tradition to continue. We encourage you to vote yes on Senate Bill 120 and save the jobs and economic development that will help our city grow and flourish."

An amendment was considered that would have opened communication between the racing commission and licensees that currently is considered confidential. That amendment failed to be added by a 49-36 vote.

In other industry-related actions during Thursday's House session, an amendment to House Bill 226, an act related to charitable gaming, would increase the tax rate paid on handle from Kentucky residents wagered through advance-deposit wagering companies from 0.5% to 1.5%. It was approved.

FURTHER INDUSTRY REACTION

Kentucky Horsemen's Benevolent and Protective Association

"Horsemen across Kentucky, and those across the nation who race in the Commonwealth, should be so proud of the Republican and Democratic leadership in the Kentucky House for shepherding passage of SB 120. As Rep. Adam Koenig and others so eloquently expressed, Sen. John Schickel's bill is imperative to securing the future for a signature Kentucky industry and the tens of thousands of jobs and billions of dollars it preserves and creates in economic development, agribusiness, and tourism for our state. With this clarification of what constitutes pari-mutuel wagering and resulting protection for Historical Horse Racing, Kentucky racing can continue its upward trajectory as America's premier racing circuit—and thanks to SB 120 we will have a strong year-round circuit. Passage of this bill not only protects the livelihoods of countless Kentuckians, but also avoids what would be a devastating loss in business to the thousands of small business owners and vendors who directly and indirectly benefit from the horse and racing industries."

Churchill Downs Inc. CEO Bill Carstanjen

"I commend the House for their action today that keeps historical horse racing in Kentucky, preserves the strength of our state's signature industry, and protects thousands of jobs that are dependent upon it. With the passage of Senate Bill 120 in the Senate and now the House, our legislators have made clear their support of historical horse racing in the Commonwealth.

"I wish to personally thank Gov. Beshear for his unwavering support of the horse industry and the leadership of bill sponsor Senator Schickel, President Stivers, Majority Leader Thayer, and Minority Leader McGarvey, of the Kentucky Senate as well as Speaker Osbourne and Minority Leader Jenkins of the Kentucky House of Representatives in securing SB 120's passage in the General Assembly today. We, of course, look forward to Gov. Beshear's signage of SB 120, which he has stated publicly he will do.

"Tens of thousands of Kentuckians have contributed to the growth and success of our racing circuit and equine industry. I am thankful not only for the important work they do each day to keep our industry moving forward, but for taking the time to reach out to their legislators on this critical issue. Your voices truly made a difference in the effort to keep HHR in Kentucky. 

"Following discussions today with Gov. Beshear, Minority Leader McGarvey and Minority Leader Jenkins, I reiterate our commitment to working constructively to revise and raise the tax structure on historical racing machines, including consideration of a fair and equitable graduated tax structure. Additionally, I reaffirm our commitment, upon SB 120 becoming law, to immediately reengage on our capital investment project planning in Kentucky which, in turn, when implemented will create millions of dollars in economic impact and hundreds of construction and permanent jobs in the Commonwealth.

"I look forward to moving on from the uncertainty our industry has faced over the past several months and to our continued investment in the Commonwealth of Kentucky." 

Churchill Downs Inc., Keeneland, Ellis Park, and Kentucky Downs

“On behalf of our team members, our horsemen, and all of the citizens of the Commonwealth who earn their pay checks directly or indirectly from the horse industry, we applaud the Kentucky House of Representatives for the passage today of SB 120. The future of the Commonwealth's signature industry and those who support it is secure.

“We had extensive discussions with Gov. Beshear and given his longstanding and unwavering support of the horse industry, we anticipate that he will sign SB 120 into law.

“We express our profound gratitude to bill sponsor Senator Schickel, President Stivers, and Minority Leader McGarvey of the Kentucky Senate and Speaker Osborne and Minority Leader Jenkins of the Kentucky House of Representatives for their leadership in securing SB 120's passage in the General Assembly.

“On behalf of the Commonwealth's racetracks, we also confirm and reiterate our discussions with Gov. Beshear, Minority Leader McGarvey, and Minority Leader Jenkins that we will work constructively to revise and raise the tax structure on historical racing machines, including consideration of a fair and equitable graduated tax structure. We look forward to those discussions in the near term and confirm our commitment to the Commonwealth to build on our tax and job base through sound capital investments and good corporate citizenship."