HORSE RACING : It’s Not Quite a License to Print Money

Imagine that you own an ice-cream parlor in Laurel, Md. Looking to expand your business, you I think there would be a market for your ice cream in Silver Spring, Md. You contemplate taking the risk of borrowing money, building a new store and starting a new enterprise.

Maryland’s legislature regulates ice-cream parlors, so you go to Annapolis to seek a license, explaining that a successful venture will boost employment and generate tax revenue for the state. But you run into some problems. Hostile legislators argue that letting you open that Silver Spring store will be just another giveaway to greedy ice-cream merchants.

Others say the state shouldn’t help a business that contributes to obesity and tooth decay. The legislature finally passes a bill that will raise the state taxes on your revenue so that you won’t make too much money if your venture succeeds. As a result, you may be dissuaded from starting the new business.

This might sound like an absurd scenario in an era when virtually every American politician is scrambling to find ways of encouraging business investment and development. But this is what is happening to the Maryland thoroughbred industry’s bid for the legalization of off-track betting.

The OTB bill that Maryland’s Senate this week passed by a 27-18 vote will allow the state to take a larger cut from money wagered--money that would otherwise go to track operators and to horsemen in the form of purses. The total annual wagering at Maryland tracks is now about $400 million, of which the state gets one-half of 1%. But if an entrepreneur builds OTB outlets that push total wagering past the $500 million mark, the state’s percentage goes up to 1 1/2%. And if betting exceeds $650 million, the state’s share reaches 4 1/2%.

These percentages may look small, but they represent the state’s share of every dollar that passes through a betting window. Most of this money is returned to winning bettors, with the tracks and the horsemen now splitting about 18 cents of every dollar. So when the state demands 4 1/2 cents out of this 18-cent cut, it actually is taking 25% of the money that the tracks and the horsemen would receive.

Of course, state legislators across the country traditionally have squeezed tax dollars out of horse racing, since it’s politically easy to tax a “sinful” gambling industry. In Maryland, some lawmakers seem to think that profits made by the state’s racing monopoly are an illicit windfall, and that any action that stimulates the tracks’ business is a shameful giveaway to private interests. One senator derided the OTB bill as “a bailout for track interests that want to expand their empire . . . to legal bookie joints.”

These critics of the racing industry look at that $400 million wagering total and figure that the tracks are getting away with murder because they only pay half of 1% to the state. But Laurel and Pimlico also pay sales taxes, admissions taxes, parking taxes, etc.

Track management calculates they paid more than $7 million to state, county and city governments in 1991. And if the legislators think that owning a racetrack is the equivalent of a license to print money, they might consult with the ownership of Philadelphia Park, Garden State Park, Birmingham, Canterbury Downs, Prairie Meadows and the many other tracks from coast to coast that have been beset by critical financial problems.

While they may never be able to muster sympathy for racetrack owners, even anti-racing legislators ought to recognize the plight of horsemen and the need to boost purse money for races. The reason is simple: People don’t want to buy horses, breed horses or race horses because the economics of horse ownership is such a losing proposition. The only way to make horse ownership more attractive is to increase purse money. That’s why breeders and horsemen have attached such importance to off-track betting. They see it as the best chance--and maybe the only chance--to bolster their industry. Yet now the state wants to grab a large chunk of OTB money that would go to increase purses.

As the debate over Maryland racing moves into the House, legislators should be encouraging investment in OTB facilities instead of fretting that those investors might make a profit.