Internet Poker May be Back on Congress' Lame Duck Agenda

Horseracing interests, led by the NTRA legislative team, have been involved in Internet gaming issues on Capitol Hill for nearly a decade. In the lame duck session following the 2010 elections, Senate Majority Leader Harry Reid (D-NV) proposed a draft I-gaming bill to be included within other legislation. The draft bill would have essentially legalized Internet poker (but not other forms of I-gaming) and left it to individual states to decide whether they would allow it within their borders, but that effort was abandoned near the end of the 2010 lame duck session for undisclosed reasons. The NTRA was highly active in negotiations with various elected officials and other stakeholders regarding that potential legislation but because no definitive bill was ever introduced, we never took a position pro or con.  

There is speculation that Sen. Reid and other proponents of I-poker legislation may try to push a similar bill during this lame duck session.  Because such a federal bill could open the door to a major expansion of online gambling competition for horseracing, the NTRA will oppose the bill unless we can secure several key measures that are essential to the horseracing industry.

First, we insist that no new regulatory regime created to oversee I-gaming includes new regulatory authority over our industry because our online business is already highly regulated at the state level. Similarly, no new taxation or fee schemes should apply to our industry.

Second, the new bill will necessarily amend the federal Wire Act. The Wire Act prohibits interstate online wagers on sports contests other than horseracing. Nonetheless, we insist on language in the bill to clarify that the Wire Act does not apply to wagers made permissible under the Interstate Horseracing Act. 

Next, we are working to include language that will eliminate the tax withholding rules that are unfairly applied exclusively to pari-mutuel wagering.  Currently, any winning pari-mutuel wager on horseracing paying $5,000 or more at odds of 300-1 or greater is subject to mandatory 25% tax withholding.  The legislation must remove this automatic withholding requirement from pari-mutuel wagers.  This is a longstanding legislative goal of the industry that would free up millions of horseplayer dollars and substantially increase wagering churn, thereby increasing handle and purses nationwide.

Additionally, any pari-mutuel winnings of $600 or more at odds of 300-1 or greater currently must be reported.  The legislation must contain a provision moving the reporting level to $1,200.  This would likewise free up millions of dollars for horseplayers and generate substantial new purse dollars. 

The legislation must also include language that will allow certain horseracing entities to apply for and be awarded an Internet poker license.  Exactly which entities may apply has not been firmly established, but horseracing cannot be left out of this important new online market.

Finally, the NTRA has promoted a concept (mitigation) that would compensate the industry for any adverse economic impact that legalization of new Internet wagering might have on us. In light of the dire economic situation facing states and the nation as a whole, achieving such an equity fund will be difficult, but we will continue to fight for this.

We continue to believe that passage of I-gaming legislation by year end remains a long shot. This is because, despite the intentions of Sen. Reid and other pro-gaming interests, there remains plenty of opposition to I-gaming legislation from other non-racing interests. 

Late last year, the U.S. Department of Justice determined that the Wire Act does not apply to state lotteries. This opinion cleared the way for state lotteries to offer their products intrastate via the Internet, which several are preparing to do. Not surprisingly, the lotteries have increased their D.C. lobbying in an effort to prevent interstate I-gaming legislation. Since they now believe that they have the legal right to offer wagering via the Internet within their respective states, they would prefer not to have online competition from large Las Vegas casinos. 

Further, a number of states are considering the legalization of various types of intrastate online casino wagering.  This also appears to be allowable under the Department of Justice’s new interpretation of the Wire Act. Looking for their own sources of tax revenue, these states oppose a federal approach to I-gaming.  We are monitoring these efforts carefully--especially in states like California, Illinois and New Jersey where racing might be directly affected.

There are other issues that we also continue to pursue and monitor in the broader debate concerning the so-called “fiscal cliff.” These include changes to the tax code that might limit or cap itemized deductions. Such a cap could be devastating to horseplayers whose losses are currently deductible as an itemized deduction up to the amount of their winnings in a given year. The concern is that, due to the cap, some bettors may be taxed on the full amount of the winnings, but get to deduct only a small portion of the losses, thus paying tax on income the bettors did not actually receive. 
No one knows how any of the above will play out in a lame duck session when almost anything can happen. Our list of demands is long. It is possible that we will have to compromise along the way in order to remain at the negotiating table.  But staying at the table is the best way to ensure that equine interests are well represented and protected in the legislative process. 

What are your biggest concerns for racing during this lame duck session of Congress? Let me hear from you.

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