N. Dakota officials seek tax break

N. Dakota officials seek tax break

Published Jan. 16, 2013 12:00 a.m. ET

It has been nearly a decade since high-stakes horse racing gamblers bailed out of North Dakota amid a federal investigation, taking with them much of the money the state's horse owners and breeders thought would help develop their industry.

Now racing officials are asking the Legislature to use tax incentives to lure them back.

A plan by the North Dakota Racing Commission would limit the taxes charged on companies that provide major betting services. That includes one outfit that expects to do $300 million in so-called account deposit wagering, in which gamblers usually pay a hefty amount of money up-front for bets.

The change would also generate more money for live racing at the state's two horse tracks, including the struggling facility in Fargo that held a brief racing meet last summer after being dormant for two years.


''It's the revenues from the wagering that really promote the sport and promote the racing industry,'' said Rep. Andrew Maragos, of Minot, a member of the racing commission. ''We are just making sure we remain competitive.''

These days, there are three major corporations in the United States that dominate racing, two of which (Churchill Downs and Monarch) have their own account wagering companies. The New York Racing Association, which includes betting at Aqueduct, Saratoga Springs and Belmont Park, is considering establishing its own account-wagering operation in North Dakota.

Whichever state lands the business would be able to tax the bets the company's high-stakes gamblers place on races across the country. The bettors, most of whom use the phone or Internet to place their wagers, wouldn't need to be based in North Dakota for the state to collect taxes.

And because the New York Racing Association would reap significant tax savings if it based its operations in North Dakota or another lower-tax state, it likely would be able to lower the fee it charges for its top bettors. That could generate even more business for the company and more taxable revenue for the state.

The proposed amendment would cap the tax on service providers at $400,000 for the year, with a 5 percent increase for each subsequent year. That is more than $100,000 less than Oregon, which is competing with North Dakota to lure the New York Racing Association's account-wagering business.

Winston Satran, the state's racing director, said about $153 million was wagered through North Dakota's licensed account deposit wagering companies in 2012, but the tax break could generate far more — particularly if it entices the New York Racing Association to set up its operation.

Another part of the new proposal would change the destination for money from unclaimed tickets and so-called breakage, which is the excess money left over when bets are rounded down to the nearest multiple of 20 cents. For example, the odds might add up to payout of $2.68, with $2.60 going to the bettor and 8 cents to the house.

That money previously had been divided among the promotion fund, breeders' fund and purse fund. Now all of it would go toward promotion.

''The promotion fund pays for the daily operation of the races,'' Satran said. ''So we're asking in this law to have all of the breakage go back to the promotion so we can actually support more days of racing in North Dakota.''

The North Dakota Horse Park in Fargo, which can stable 400 horses and is home to North Dakota State University equine sciences department, had shut down for two years due to mounting debt that included nearly $2 million to the city for construction of the track. It resumed action last summer with two weekends of racing.

The track is planning three three-day racing weekends this summer.

''This bill is really big because we cannot lose the possibility of getting income,'' said Jad Breiner, general manager of the North Dakota Horse Park. ''We still have a lot of work to do, but this would be a big step to getting us back on track.''

North Dakota was considered one of the top off-track betting states in the country in the early 2000s until a criminal indictment put pari-mutuel wagering under a microscope and scared away big bettors.

A decade ago, the off-track betting was managed by a private company, Racing Services Inc., until a federal investigation resulted in charges involving illegal gambling, including money laundering and conspiracy to conduct an illegal gambling business.

Susan Bala, one of company's founders and a handful of people charged in the case, was convicted after a trial in 2005 and ordered to serve 27 months in prison and pay back $99 million. A federal appeals court reversed the conviction after she had served 523 days in prison.

In the meantime, high rollers who were known by names such as ''New York Billy'' and ''The Brit'' went elsewhere.

Satran would not comment directly on the Racing Services case but said North Dakota lost ''significant credibility in horse racing in the United States'' for several years.

''This past four years the racing commission has made a substantial effort in gaining prominence in horse racing again,'' Satran said. ''To even garner interest from New York Racing Association is a significance of the growth of our stature.''

The racing commission also has talked with Canterbury Downs officials to promote Fargo as a site for some of the lower level horses at the Shakopee, Minn., track that is once again attracting some of the top talent in the country.

Maragos said North Dakota is finally repositioning itself as a place where the horse industry can thrive.

''We're really back on solid footing now,'' he said. ''All we have to do is nurture and let it grow and find its own level.''