03/12/2010 1:00AM

Electronic gambling advances in Kentucky

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LEXINGTON, Ky. - A bill that would allow Kentucky racetracks to operate electronic gambling machines passed out of a Senate committee on Thursday with the tacit support of the racing industry and both political parties.

The legislation, which was sponsored in the Senate by Damon Thayer, a Republican who is a former director of marketing for the Breeders' Cup, is expected to come up for a vote on the Senate floor on Tuesday. The Senate is controlled by Republicans, who have in the past been uneasy about supporting expanded gambling at racetracks, but Republican legislative leaders indicated on Thursday after the bill passed that the legislation would receive their party's support.

The legislation would authorize Instant Racing machines, electronic devices developed by officials at Oaklawn Park and the bet-processing company AmTote that resemble slot machines. The machines allow bettors to make selections on the results of digitized representations of historical horse races, with all identifying characteristics of the horses or the location of the race hidden from bettors. In some cases, the machines use only the numerical results of the races to determine payouts, without showing a race.

David Switzer, the executive director of the Kentucky Thoroughbred Association, said efforts to legalize slot machines would fail this legislative session, and so the racing industry will "let the bill move forward."

"It's a step in the right direction, and right now we're having to take baby steps," Switzer said. "We don't think any [video-lottery terminal] or slot-machine legislation is possible this year, so we have to take what we can get."

The legislation would also impose a 1.5 percent tax on wagers made on Kentucky races by Kentucky residents through account-wagering operations, with all the money raised from the tax sent to breeders' awards programs for Thoroughbreds and Standardbreds. It is possible the tax will be applied to Kentucky customers of account-wagering operations, rather than paid by the account-wagering companies, meaning bettors would get reduced payouts on races and finance the breeders' awards.

Officials of Churchill Downs Inc., which owns the account-wagering platform Twinspires.com and has a deal to merge with Youbet.com, did not immediately return phone calls on Friday. Churchill's chief executive, Bob Evans, said earlier this month that the company was not opposed to a 0.5 tax on account-wagering bets.

Thayer said he supported the 1.5 percent tax to protect the parimutuel industry's share of wagering revenue. Thayer said the state's horsemen and racetracks are being shortchanged when Kentucky handicappers make account-wagering bets because the money is not treated the same as ontrack wagers, which typically award a larger share of the takeout to state tracks and their purse accounts.

"It's not my intent to put a tax on the bettors, but to make the ADW pay it out of their significant profits," Thayer said.

In addition, the legislation would create a single tier for the parimutuel tax that applies to each bet, at 1.5 percent. The current system has two tiers, with rates of 1.5 percent and 3.5 percent, based on a track's average daily ontrack handle. Because of their level of handle, Churchill Downs and Keeneland were the two tracks that commonly paid a 3.5 percent parimutuel tax, but recent declines in ontrack business affecting tracks nationwide has often pushed Churchill and Keeneland to the lower tier.

Under the bill, 81.5 percent of the bets through the Instant Racing machines would be returned to bettors. A total of 1.5 percent of the handle would go to the state's Kentucky Thoroughbred Development Fund or Kentucky Standardbred Development Fund, and the remainder, 17 percent of the net handle, would be retained by racetracks. Supporters said they expected racetracks to reach deals with horsemen that would divert some of the proceeds to purse subsidies.

Instant Racing machines can be more politically viable than slot machines in some states because supporters and manufacturers contend the machines offer "games of skill," and therefore do not violate constitutional or statutory prohibitions on gambling. Earlier this year, Kentucky's attorney general, Jack Conway, a Democrat, issued an opinion saying the state's constitution would not need to be changed in order to authorize the machines. Kentucky's constitution prohibits any gambling other than horse racing and the lottery.

If the legislation passes in the Senate, it would still need to pass the House, which is controlled by Democrats.