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Internet breeds gap for Pennsylvania horse racing oversight

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Jim Simpson is president and CEO of York County-based Hanover Shoe Farms. Behind Simpson's desk hangs portrait of Sugarcane Hanover, a Standardbred trained by Simpson that won $1.7 million during its career.
Jim Simpson is president and CEO of York County-based Hanover Shoe Farms. Behind Simpson's desk hangs portrait of Sugarcane Hanover, a Standardbred trained by Simpson that won $1.7 million during its career. - (Photo / )

There are 478 Thoroughbred and 172 Standardbred horse breeders in the state, according to the Pennsylvania Equine Coalition. Of them, 135 Thoroughbred breeders and 20 Standardbred breeders are in midstate counties.

In 2010, the horse-racing industry generated $1.6 billion in annual economic activity and supported 23,028 jobs, according to state Department of Agriculture statistics.

Act 71 of 2004, which legalized slot machines in Pennsylvania, has helped fatten purses to make racing in the commonwealth more attractive to owners and bettors.

Jim Simpson, president of Hanover Shoe Farms, who helped push for the slot-machine law, said the Adams County farm has been able to maintain property and buy new land for breeding horses.

“It has accomplished all it has set out to do,” he said of Act 71.

But the money used by the state for oversight under another law being considered for amendment has been dwindling.

Insolvent oversight

In fact, in November, state officials told The Associated Press that the State Racing and Harness Racing commissions, which oversee the Thoroughbred and Standardbred racing industries, respectively, were on the brink of insolvency. The revenue projection for the State Racing Fund in 2013-14 was $13.5 million, while operating expenses were $18.5 million, according to information compiled by the Senate Agriculture and Rural Affairs Committee.

An audit of the State Racing Fund, released last month by Auditor General Eugene DePasquale, found $6 million in inappropriate charges to the fund were the result of overbilling to cover budget shortfalls and personnel costs unrelated to the operations of the state's racing commissions.

But another big culprit cutting the racing fund's revenue is a form of betting called “advance deposit wagering” that is not covered under the pari-mutuel wagering tax, the main revenue source for the State Racing Fund.

This kind of wagering, which uses a debit/credit system set up through the race tracks, allows bettors to place bets online or over the phone, meaning they do not have to be at the race track. The tax is collected only on wagers placed at tracks, said Mike Rader, executive director of the Senate Agriculture and Rural Affairs Committee.

It's hard to break out the exact decrease attributable to advance deposit wagering, Rader said. But in 2000-01, the State Racing Fund had revenues of about $17.3 million. By 2012-13, that amount had fallen to about $13.9 million, a nearly 20 percent decrease.

“The (slot) gaming act passed in 2004 was meant to make races more appealing, and I think it has done that,” he said. “But you won't see an increase in wagering participation. You'll see a steady decline in revenue, and part of that is attributable to people not wagering at the track.”

State Senate Bill 1188, which was approved June 27 by the Senate and sent to a House committee June 29, would amend the Race Horse Industry Reform Act. The act, last overhauled in 1981, regulates horse owners, trainers and breeders, such as Adams County's Hanover Shoe Farms, the largest breeder of Standardbred horses in the world.

The Senate bill, sponsored by Agriculture and Rural Affairs Committee chairman Sen. Elder Vogel (R-Beaver) seeks to license advance deposit wagering operations so Pennsylvania can begin collecting taxes on those wagers, Rader said.

Vital form of gambling

“Without remote wagering, horse racing would die out in the United States,” said I. Nelson Rose, a professor with Whittier Law School in California and an expert on gambling law.

Off-track betting operations and advance deposit wagering makes up the bulk of the racing industry's income, he said. But even still, horse tracks are closing. He noted Hollywood Park in Los Angeles is closing because the property can make more money in other uses.

That's why Rose said Pennsylvania should be wary of plans to tax advance deposit wagering.

“In terms of tax revenue, although taxes are essential, they're always a negative to an industry. They're an expense,” he said. “I mean, the industry is hurting because of competition to begin with, so any increase in taxes is never good news to the horse-racing industry.”

And bad news for the horse-racing industry could mean jobs, said Pete Peterson, spokesman for the Pennsylvania Equine Coalition.

“It's where the horse is,” he said. “That's where you have your blacksmith to do the shoeing, the veterinarian, the people who produce the feed.

“The horse is the job creator.” 

One independent commission


To help cut costs and further improve oversight, another key part of Senate Bill 1188 dissolves the State Racing and Harness Racing commissions, each with three members under the Department of Agriculture, and bring industry oversight under one independent commission.

Originally, the plan had been to have the new unified commission fall under the state Gaming Control Board, which oversees slots, table games, small games of chance and the state lottery, said state Senate Majority Leader Dominic Pileggi (R-Chester, Delaware) in a December interview with website The Legal Blitz.

The Pennsylvania Equine Coalition, which represents more than 10,000 horse owners, trainers and breeders in the state, balked at the idea. The group was concerned about the independence of the industry from the Gaming Commission, said coalition spokesman Pete Peterson.

Those concerns were born out by Auditor General Eugene DePasquale’s audit released last month, Peterson said.

In addition to independence, a smaller board will have lower overhead, said Mike Rader, executive director of the Senate Agriculture and Rural Affairs Committee.

“While the idea of the sports may be a little different, whether you’re riding in a sulky or mounting a horse, typically the same rules apply,” Rader said. “And to be quite honest, over the years, it’s been difficult to find people to serve on the commissions as they are now, as two separate commissions.”

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