Meadow: Horseplayers Face Even More Ominous Issues Than Takeout

by | 03.21.2014 | 3:53pm

This article is a sneak preview of the 6th Annual Track Ratings Industry Issue of Horseplayer Monthly e-magazine, to be released April 2nd.  To download the March edition of the e-magazine, free, with articles, interviews and more, click here.

Yes, rising takeouts are a big problem, but there are a couple of other taxation areas that may prove even worse for horseplayers.

For many months, Massachusetts players who collect more than $600 on any bet—even a $300 win bet on a 2-1 shot—have had 5% of their collected cash immediately withheld. This has driven some players to Rhode Island and New Hampshire and inspired others to ask for multiple smaller tickets (e.g., instead of betting $200 on an 10-1 shot, they'd bet four $50 tickets instead). Others, no doubt, quit playing altogether. Ironically, New Hampshire enacted a similar rule in 2009, only it was 10%–until horseplayers disappeared en masse, and the state was forced to repeal the measure in 2011.

If the number $600 sounds familiar, it's the threshold for federal reporting (though not withholding, where the number is $5,000), and it's only for bets paying at least 300-1. And if you have losses during the year, you can deduct them at tax time against winnings, possibly getting back all or at least some of that score money. That's better than nothing, although if you win, say, $80,000 on a pick 6–even if your net win for the year is zero–that $80,000 is added to your adjusted gross income, which may have serious tax implications elsewhere on your return.

But back to our horseplaying brethren in Massachusetts. Not only do they get that 5% confiscated off the top of any $600 payoff, but state tax laws do not allow players to deduct any losses. That means if you win $7,000 one day and lose the whole $7,000 the next, the state taxes you on your nonexistent “winnings.”

And if you think that's some crazy rule that typifies a place nicknamed Taxachusetts, you're wrong. Several other states–Connecticut, Illinois, Indiana, Michigan, Ohio, West Virginia, and Wisconsin—have the same ridiculous law. And Kansas, beginning with its 2014 tax returns, has joined this bandwagon of mathematical idiocy.

Why? Lawmakers figure that any anti-gambling rule is a free shot. They use words like “subsidies” and “loopholes” to describe the availability of deducting losses against wins. A corporation pays taxes on its net profits–revenues minus expenses. Not only can'thorseplayers deduct their expenses from any winnings (unless they've declared themselves as full-time professional gamblers), but in these states, they can't deduct their matching losses, either.

Adding to our problems are the recent approvals of source market fees (taxes on ADW's) by Pennsylvania and New York. As soon as Pennsylvania began charging a 10% source market fee last fall, rebate shops like MutuelsOnline, AmWager, and IdaBet closed the accounts of their Pennsylvania customers. Not that the state is any kind of gambling hotbed anyway, what with its tracks charging a takeout of more than 30% on some bets despite a slots subsidy that has totaled hundreds of millions of dollars. New York probably hasn't done itself any favors, either. The state has raised 2014 admission prices at Belmont and Saratoga and added the source market fees which discourage rebate betting, even though Resorts World Casino New York City has contributed tens of millions of dollars to racing coffers in the state since it opened in late 2011.

Then there's the surcharge in Illinois, passed a few months back. Remember how great that New York City OTB surcharge worked out? Oh yeah, New York's OTB doesn't exist any more.

Of course, we also have the states that have outlawed Internet betting altogether, or restricted it to only out-of-state tracks (the very tracks that locals have the least interest in).

While you can't find a lawmaker whose stated goal is to kill horseracing altogether, when you put all of this together–adding immediate withholding of even minor wins, eliminating deductions for gambling losses (even vs. winnings), putting the squeeze on rebate shops due to source market fees, adding surcharges, restricting Internet gambling–the trend is clear. And ominous.

Some legislators actually believe they are helping the sport by raising prices or forcing people to visit their in-town track instead of calling in their bets. Of course, we live in a country where one-third of Americans don't believe in evolution, and Kim Kardashian pulls in eight figures a year.

Because we horseplayers have no active lobby, legislators feel free to pick our pockets. There's no political risk, for instance, to raise the takeout, even though it does nothing but harm the sport. Case in point: In 2010, despite dire predictions of disaster from horseplayers, California Gov. Arnold Schwarzenegger signed a bill to increase the takeout on two-horse bets to 22.68% (up 2%) and on three-or-more-horse bets to 23.68% (up 3%), with all the promised increased cash going to purses. Behind the bill were California's horsemen and tracks such as Santa Anita. Legislative analysts estimated that the takeout increase would generate $200 million annually in increased purses. As it turned out, the racing board's report for the next fiscal year showed not an increase, but an actual drop of more than 5% in purses—since handle fell precipitously (which is what you might expect when you raise prices).

Ah, the lobbying business. It's no great revelation to report that people who contribute money to politicians do so because they expect that somewhere down the line, the favor will be returned. Lobbyists not only control much of the legislative agenda, but often write the laws themselves (much as a tutor might “help” a football star with his term paper).

Horseplayers have no lobby. At all. Our own Horseplayers Association of North America may have a solid reputation as a players' advocate, but it's an all-volunteer organization that employs no lobbyists. The National Thoroughbred Racing Association (NTRA) boasts that it has spent $3 million on lobbying efforts since 2002, except that is a pittance, and it includes work on behalf of breeders, owners, racetracks, etc..  The NTRA's Horseplayers Coalition, which is funded mostly by tournament players via a mandatory deduction, is supposed to represent players; it was formed in 2008, but a recent check of the website showed not a single entry on that subject after that year. The American Horse Council has shown little interest in the plight of horseplayers.

All this will only get worse. Politicians and the groups that lobby them—owners, breeders, track operators—don't seem to understand the basic math of the racetrack. If you make each bet more expensive by raising the takeout, players lose faster. If you make it harder for people to bet, they won't. If you torpedo rebates, you lose the rebate players. If you confiscate winnings, bettors have less to play with, and thus the churn plummets.

Better gamble while you still can, in the ever-falling number of states that at least give you some chance to hold on to some of your money.

Barry Meadow has spent 40 years in the gambling world as a bettor, author and industry analyst. He is an advisory board member of the Horseplayers Association of North America.

  • Sal Carcia

    The law in Massachusetts is in the process of being changed because of the lobbying of people like Steve Wynn. That law was passed as part of the casino bill a few years ago. The casino finalists believe it will not work in a casino environment. Can you imagine tax slips being handed in a poker game for every hand? Well, here’s hoping they come to their senses.

    • Rivegauche610

      Republiklans don’t have any senses to come to.

      • kyle

        Yet another well-informed, obviously astute, citizen.

    • jack

      The tough new tax law is the work of far left Democrat Stanley C. Rosenberg Majority Leader from western mass. It was passed by 100% democrats with not ONE Republican vote. Suffolk Downs was silent..
      I know one guy at Suffolk who bets 100 $2 wagers when wagering a $200 win bet. He does it often just too get back at Suffolk… Suffolk must have a big autotote paper bill.

      • Sal Carcia

        Did I say something about a political party? I am confused about the responses. ;) Suffolk, not only stood silent, but they kept their customers in the dark right up to the day it went into effect. Jack, do you have any idea where the repeal of this clause in the Bill stands? I thought it passed committee.

        • jack

          Speaker De Leo (D) doesn’t want to change it as of now. No pressure from anyone but WYNN and he has no business in mass yet. .of course Suffolk is silent.
          I mention party because it was put into affect by only one party, if it was the other I would say it.

  • PTP

    Handle will go up $2B per year if these issues are addressed.

    Eating falafel sandwiches are fun on Food Truck Day (and sometimes hearty) however, horse racing runs on betting, not sandwiches. Help customers bet more, not eat more.


  • lovesabq

    We have no active lobby? I thought NTRA was supposed to be our lobbyist.

    • J.D.

      Never materialized as it should have

    • Sal Carcia

      The racetracks said they could do their own lobbying and eventually withdrew their support for the lobbying arm of the NTRA. And they do do their own lobbying…for slots.

  • Add this to the declining foal crop and winning will be even more difficult with the smaller fields. All the warnings came out years ago, but here we are still talking about it.

  • Tinky

    As the economic crisis intensifies en route to the impending crash, frantic politicians will undoubtedly make an increasing number of similarly desperate, moronic moves.

  • AZ Wildcat

    If they enact this rule in California, New York or Florida I am through with this sport. But seeing that the public sees us as a bunch of degenerate gamblers I am expecting it.

  • jttf

    i like these financial experts in horse racing. jockeys have complained for years and years about insurance. when the jockeys get sponsors advertising on their clothes and all of the additional casino money they are receiving. how come none of this new money isnt used for the insurance ? the jockeys just put it in their pockets and keep complaining that the racing fan needs to give more money.

    • ChiSpy

      Jockeys should buy their own insurance. They have no legitimate claim to forcing others to pay for it. They are independent contractors, working for themselves. I’m an independent contractor and must buy my own insurance.

  • south florida tom

    Meadow: you stated that “Not only can’thorseplayers deduct their expenses from any winnings (unless they’ve declared themselves as full-time professional gamblers), but in these states, they can’t deduct their matching losses, either.” Doesn’t the federal government allow a tax payer to deduct their matching losses, or are you writing about filing a state tax return?
    P.S. Here in Florida there is no state tax. There is no state tax withheld from paychecks and obviously no state tax filing. They make up for it by taxing all purchases except grocery store food.

    • BarryMeadow

      While the federal government does allow taxpayers to deduct their matching losses, the states mentioned in the article do not when filing state tax returns. And there are some very large states in that list (though not, as you point out, Florida.)

  • Bman

    I will be holding my own ‘tea party’ down at Boston Harbor when Suffolk Downs opens on May 3rd. I’ll be throwing monopoly money into the harbor while standing stripped naked and chanting, ‘if you think I’m experience shrinkage, it’s nothing compared to what the state of Massachusetts is doing to the wallets of those who will playing the horses today and having additional taxes on top of their already taxed wagers.”. Or maybe just “stop the shrinkage”. You get it. Who will join me?

    • kyle

      That might be a good first step. Many people, as any racing executive will tell you, don’t know or care about shrinkage. I asked my friend Elaine, who has been to the track more than a few times, and she said, “It shrinks?” I said, “Yeah, like a frightened turtle.” She said, “I don’t know how you guys play that game.”

  • wabstat

    Forget the states and lets get together on Federal taxes. You all know that federal oversight is coming due to the dsyfunctional and drug-ridden state of the sport. Maybe we can get some tax reform or when it comes. Contact your reps. and tell them to support a “windfall” federal tax rate of zero.

  • Tony Murabito

    If you are a Massachusetts resident you are screwed no matter where you play. Was at Keeneland last fall – hit a $8200 pik 4. After paying federal and state taxes there, I was still required to pay Mass their 5% when it came to filing my 2013 taxes. Losing tickets – no way – we give you credit for the face value of your bet only.

    • David G.

      Didn’t Mass. give you a resident credit for paying taxes on the winnings to Kentucky?

    • David G.

      I think for your state return, it’s reported on a Schedule Z

  • brodman

    Excellent article. Reminds me of a recent comment about the 3 legs of the stool that supports racing; supposedly owners, trainers & bettors. Wrong — all 3 legs are the bettors. Without them, the entire industry shrivels to insignificance. I now spend a larger share of my gambling dollars shooting dice in Atlantic City, where I can get the house edge to one tenth of the vig I have to pay if I bet to win, place or show. And there’s no one there to require a deposit of taxes on any of my winnings or issue a Form 1099, even though I am scrupulous in my tax reporting. You’d think what with dramatically increased competition for the gambling dollar that the industry would react more effectively. But like any sport, we lack a representative user’s organization — just like Yankee fans put up with ever-increasing seat prices. Instead of just taking it, I’d love to see some organized resistance. Any ideas? Boycott Suffolk? Nobody bet the Triple Crown races?

  • Roger

    The customer is the horseplayer. Track management and other State appointed leaders may refer them as horseplayers or bettors….some will even say worse in describing their customers.
    That is the DISCONNECT and the only thing that’s changed in the last 20 years is that track management now can identify their 1% clientele and cater to their suggestions which is skewed
    to their advantage.
    You can write letters,send emails and post criticism but the racing leaders will LIE-SPIN- AVOID and RATIONALIZE in most cases. All the customers get is phony LIP SERVICE and without
    journalists from local newspapers and Daily Racing Form writers address customer issues…there will never be media pressure like other sports where the owner or GM have to respond to criticism from their fans.
    Good example is the current Santa Anita Meet where SA execs decided to DROP Rolling Doubles in favor of Designated 3 Doubles figuring it boost traffic and handle. The decision was ill-advised from the get-go and despite an online fan request to reinstate Rolling Doubles and complaints to CHRB ….nothing has changed as DAY 54 of Meet concluded today in Week 13 the Double Handle is DOWN -$4,990,815 so if customers can’t even get back Rolling Doubles when it’s obvious the Designated 3 Doubles – IS -WAS – WILL ALWAYS BE A FAILURE…’s a Stacked Deck and only successful BETTING BOYCOTT’s would make Racing Leaders/Shareholders take notice of their “customers.”

  • David

    The part about driving folk to tracks really a hoot. There hasn’t been a major mall built in the US since ’06 and what’s out there now will be halved in 15 years. I had three 1099’s filled and there is no way I broke even in ’13, a real joke. He’s right, Racing is an easy mark with the only ones caring an ever-decreasing fraternity of players with absolarily no voice.

  • brian m

    As for the California law from 2010, one BIG reason Santa Anita was behind it (that never seems to be discussed) is that the law gave them the power to use money taken from the public through takeouts to promote the Breeders Cup so that California could become the permanent home for it.
    In other words, the law lets Stronach and Santa Anita spend money from the takeout to steal the Breeders Cup from the rest of the country. I am guessing that is why Santa Anita has been awarded Breeders Cup in every vote since. And is probably the same reason why Del Mar is expanding their turf course and going back to real dirt.

  • “The National Thoroughbred Racing Association (NTRA) boasts that it has spent $3 million on lobbying efforts since 2002…”

    That’s $22,727 a month. In WDC, that wouldn’t pay for the coffee and Danish.

    In other words, the money has been missed away.

Twitter Twitter
Paulick Report on Instagram