NTRA, The Alpine Group offer insights, updates on legislation

By: NTRA

Posted: Aug. 13, 2018

The National Thoroughbred Racing Association Aug. 9 in Saratoga Springs, N.Y., outlined the status of federal legislation that impacts the horseracing industry.

NTRA President and Chief Executive Officer Alex Waldrop was joined by Greg Means, principal and Chief Financial Officer of Washington, D.C.-based The Alpine Group, at the Fasig-Tipton sale grounds to provide the update. The following is a rundown on the discussion.

Federal Withholding and Reporting

Long-sought United States Treasury Department and Internal Revenue Service regulations that modernize federal withholding and reporting of pari-mutuel winnings have resulted in a 90%-95% reduction in the filing of IRS Form W-2Gs. The changes have led to a drastic reduction in the reporting and withholding of winning wagers, which in turn has helped fuel pari-mutuel handle increases.

During the first six months of 2018, overall handle increased 5.5%. Average handle per race day in 2018 increased 8.7% through June compared with a 3.7% gain in all of 2017. Overall, U.S. wagering in 2018 is on course to exceed $11 billion for the first time since 2010.

Tax Reform

The Tax Cuts and Jobs Act that became law in December 2017 contains a number of incentives that promote investment in Thoroughbred breeding and racing. Among the many positive changes included in the bill were:

An increase in immediate expensing to 100% and expansion of the definition of “new property.” Buyers would be able to write off 100% of all horses purchased, including breeding stock, as long as the asset purchased has not been previously owned by the purchaser.

An increase in the Section 179 limit to $1 million from $500,000, and an increase in the cost of property subject to the phase-out to $2.5 million from $2 million, which would be beneficial to industry participants that generate net taxable income.

Inclusion of a new 20% deduction for certain pass-through business income. Owners of businesses such as sole proprietorships, partnerships, trusts and S corporations now may be able to deduct 20% of their qualified business income when filing their tax returns. Qualified business income includes domestic income from a trade or business but does not include employee income, capital gains, interest and dividend income. Additionally, business owners can combine their businesses into a single unit to claim the benefit, thereby making the process of filing more efficient and less costly.

Waldrop said it’s important for each taxpayer consulting with his or her tax advisers to assess how the bill will specifically affect their operations.

Sports Betting

The U.S. Supreme Court victory by Monmouth Park and the New Jersey Thoroughbred Horsemen’s Association opened up sports betting to states that wish to authorize it. It also extends the industry’s reach from online wagering under the Interstate Horseracing Act—space it has occupied since 2000—into a vast new area of the American gaming market.

While the primary activity since the Supreme Court decision has been at the state level, Means noted that the major sports leagues, in particular, are already advocating on Capitol Hill for a uniform federal bill aimed at consumer protections, among other issues. Means projected that it is unlikely Congress will consider any legislation on this topic this year. However, the issue will likely arise in more force in 2019, he said.

Means and Waldrop noted that Thoroughbred racing must be aggressive in defending its interests relating to sports betting and be ready to take advantage of new opportunities on Capitol Hill should they arise.

Credit Card Transactions Involving Advance Deposit Wagering and, Potentially, Sports Betting

While many banks permit Visa and MasterCard credit cards to be used in funding an ADW account, up until this year four of the largest banks that are significant card-issuers have refused to allow it. In January, JP Morgan Chase, the nation’s largest issuer of credit cards, began allowing the activity, and the NTRA continues to work with the three other large banks to secure a reversal of their exclusions.

The same challenges to ADW wagering may affect those who seek to fund sports betting accounts via credit card, meaning that entities that offer ADW and sports betting will have multiple banking issues. On the same front, ADW wagering is being blocked by search engines such as Google that do not readily turn up direct links to horseracing betting sites, but simply link to informational stories about wagering or horse races. The advent of sports betting will change this landscape rapidly, again posing potential threats—and opportunities—for the Thoroughbred industry.

Immigration

There is strong disagreement on Capitol Hill over immigration policy. Efforts earlier this summer to pass immigration bills failed, and it is unlikely that Congress will take any major action on immigration prior to the November elections.

Thoroughbred trainers continue to face major labor shortages due to a lack of H-2B visas available to backstretch employees. While comprehensive immigration reform will be necessary if Thoroughbred racing is to receive the relief it needs from the current guest-worker program, Waldrop and Means acknowledged that such reform is not likely to occur in the near term due to the current political environment in Washington, D.C.