Posted: Sept. 28, 2017
A strategic decision made about three years ago and strong consensus within the pari-mutuel racing industry combined to give the National Thoroughbred Racing Association a major victory on the federal lobbying front.
The recent announcement from the United States Department of Treasury and the Internal Revenue Service that changes in the reporting and withholding for pari-mutuel winnings will take effect beginning Sept. 28—the language was published in the Federal Register Sept. 27—didn’t come easily. More than a decade of lobbying in Washington, D.C., was required.
“It’s the kind of good news that doesn’t come around very often,” NTRA President and Chief Executive Officer Alex Waldrop said. “This type of thing takes time. The NTRA board stayed the course with a financial commitment. The effort cost millions of dollars but we believe it was worth every penny.”
The new language in the Revenue Code simply states that a bettor’s entire investment in a single pool will determine the reporting or withholding of winnings rather than the base amount wagered on the correct result. If a horseplayer hits a $1 Pick 5 that pays $6,000 but wagered $100 in total, the amount used for reporting or withholding will be $100 rather than $1 under previous code.
The potential impact on pari-mutuel handle—churn should increase given the fact players will keep more of their winnings—hasn’t been quantified by the industry through detailed analysis. Guesses have ranged from $500 million to $1 billion per year in handle growth.
“Regardless of the amount, the impact will be measured in hundreds of millions of dollars if not billions of dollars in a very short time,” Waldrop said. “The results are expected to be powerful. The changes will result in more revenue for the racing industry.”
Efforts to change pari-mutuel reporting and withholding rules go back to at least the early 2000s when the NTRA and others lobbied for legislation. About three years ago, The Alpine Group, the longtime lobbyist for the NTRA in Washington, D.C., assessed the situation and changed course.
Greg Means, a founder of The Alpine Group and a racing fan, said a decision was made to instead take the regulatory route, which involved working directly with the Treasury Department and IRS. Previous attempts focused on getting language added to broader legislation.
“We looked at larger bills, but it became apparent over the years that these bills weren’t going to move,” Means said. “Congress at the time was bogged down—you can still argue that it is now.”
Means said a meeting that involved U.S. Rep. John Yarmuth, a Kentucky Democrat, as well as racing industry officials and horseplayers, was a “determining factor” in the process. Yarmuth then worked with other lawmakers to move the effort forward.
In 2016 the Senate Committee on Appropriations passed the Financial Services and General Government Appropriations Bill for fiscal year 2017. The bill made appropriations for the United States Treasury, Internal Revenue Service, and certain other government agencies.
A companion bill that passed out of committee in the U.S. House of Representatives included language that encouraged the IRS to modernize regulations for withholding and reporting of pari-mutuel winnings.
That legislation wasn’t required for the Treasury Department and IRS to change the Revenue Code. It was, however, part of the broader lobbying effort.
“It was one of the ways we attempted to remind the Treasury Department and IRS about the pending language changes,” Waldrop said. “It had no force of law; it was simply a legislative vehicle to remind legislators that they had unfinished business. It worked.”
Importance of a unified voice
The length of time it took for changes in the Revenue Code to become reality shows how difficult it is to play in the federal political arena—even when an industry is solidly behind a common cause. There was, understandably, no public industry opposition to the plan to allow horseplayers to keep more of their winnings. But as Means noted, every bill is “scored,” and the Revenue Code changes could impact how much money goes to the federal government.
“The only people (in racing) who may have been opposed to this are the 10-percenters,” Means said tongue-in-cheek in reference to individuals who cash IRS tickets for others in exchange for a cut of the winnings.
Means and Waldrop both noted the importance of grassroots lobbying; thousands of horseplayers and industry stakeholders submitted written comments in support of the Revenue Code changes. They also said industry consensus is particularly attractive to lawmakers.
“It’s very important to be unified, and I’m speaking purely from a political perspective,” Means said. “If I go up to Capitol Hill the first question I get asked, irrespective of the issue or the client, is, ‘Where is the rest of the industry on this?’ The last thing any politician—in this case a member of Congress—wants to get involved in is a family feud.
“So if part of the industry is supportive and another part of the industry is not supportive, the instructions back are, ‘Well, you all get your act together, come with unified position that helps the entire industry, and then I’ll be interested.’ Without that kind of message it can be a significant barrier.
“We also did a good job listening to stakeholders, identifying issues, reaching out, and putting together a team. I’m not going to say it’s impossible to get things done if there isn’t this kind of unification, but it does make it harder to do. It doesn’t take much to stop something on Capitol Hill, and an easy way to stop something is division within an industry.
“I think people in D.C. recognize the NTRA’s leadership, and we were able to present that unified voice.”
Waldrop mentioned the value of Horse PAC, the NTRA’s political action committee which in the 2015-16 Congressional cycle distributed $579,000 to candidates, in the latest success and other legislative efforts. The Thoroughbred Horsemen’s Association, a founding and continuous board member of the NTRA, is actively engaged in legislative advocacy as part of the NTRA and on its own.
“We congratulate the NTRA leadership and lobbying team for this monumental achievement,” said THA Chairman Alan Foreman, who represents the organization on the NTRA board. “We applaud the entire industry for recognizing the significance of this change to our overall economic well-being, and for providing critical support when needed.
“As this success demonstrates, and we know from our experience at the state level, the best interests of our industry are served when we engage in consensus-based efforts.”
The new rules and explanatory language as published in the Federal Register are available here.
Daily Racing Form update on wagering providers that will be compliant with the new code effective Sept. 28 is available here.
(Saratoga Race Course photo by Horsephotos/NTRA)