Industry News Roundup

Deduction changes to tax code negatively affect bettors:

Great piece here about how limiting deductions can (and will) really hammer recreational players. When at the track, it's a 100% cash enterprise, but via ADW, everything is tracked. Therefore, you must report it all on your taxes. I highly recommend you read the whole article. The whole argument is based wagering $50,000 a year

So, to take the simplest case, let's say that the "fiscal cliff" settlement raises Joe's marginal tax rate from 35% to 39.6% and, in addition, caps his itemized deductions at $50,000. All of a sudden, Joe has an extra $45,000 of income -- his winning bets -- that can no longer be offset by an itemized deduction for his losses. At the new 39.6% top marginal rate, Joe now has an additional tax bill of $17,820, attributable entirely to completely imaginary income.

Basically, instead of writing off a net loss of $5,000, now you have to report income of $45,000. Crazy. That's obviously assuming that you've reached your deduction cap, but still. It's just math that you lost $5k, not made $45k. Let's hope they sort this out (but I'm certainly not optimistic about anything productive ever coming out of Washington!)

Governor Cuomo vetoes OTB return to NYRA structure:

Now granted, the NYC OTB chain had its major structural issues, in fact, this (from the NY Times) blew my mind as I researched the initial closing of the franchise in 2010:

Closing costs have been estimated at $19 million, and pension and health benefits for retirees could climb above $600 million. Track owners seem less likely than ever to collect the $67 million they are owed, and the state would probably lose the $11 million it has coming.

Pensions for OTB workers valued at $600,000,000? That's when yearly revenue of the NYC OTB franchise was $1 billion annually (note: the OTB handle has been more than made up by increased ADW wagering from intra-New York sources, so at this point it is a push in terms of revenue).

Now Cuomo may have actually made a good move here. I honestly think that in an urban area like NYC, NJ, and most of the Northeast, the industry is better served looking for alternative methods of placing wagers than strictly via OTBs, especially when ADWs are easier anyway. New Jersey's consideration of allowing bars and restaurants to take bets is really the best idea ever. I could guarantee that, by myself, I could get half a dozen people betting on any given night in a bar. (In fact, on that exact note, when I went to NYC for the Belmont, I was sitting in this "Irish" pub in midtown, redoing my handicapping since IHA's scratch threw off all of my P3/4/6 wagers. The bartender, who was actually Irish, and I immediately started talking ponies, Frankel, and if IHA would actually have won. Meanwhile, the three guys sitting by me started asking questions, looking at my form, trying to learn what my notes meant, etc. It's not hard provided you're in social environment). When competing for entertainment dollars, you may as well attempt to integrate your industry's wagering locations with preexisting entertainment facilities. Like movie theaters that serve booze, it's a can't lose proposition.

Australia breeder challenges Live Cover rule of Aussie Jockey Club as part of registration requirements:

UPDATE: As soon as I posted this, the Aussie Court dismissed the case.

Citing "potential international consequences," Federal Court Justice Alan Robertson dismissed a bid to make Australia the first to allow artificial insemination for Thoroughbreds.

Worst Idea Ever. Artificial insemination destroys exactly what lends most value to the breeding industry: Limited Supply of Stallion Breeds. The breeding industries of those horses which allow AI is nowhere near as strong as the throughbred industry's is, in fact, you can make a clear argument that by completely decentralizing, you're asking for major defrauding of the entire system by making it pretty simple to transplant embryos, which means mares that have trouble carrying foals, but are valuable producers, have had their usefulness extended, but via nefarious means.

But most importantly, allowing AI destroys the breeding industry's huge efficiencies: Economies of Scale. Frequently, enterprises in similar industries will be in the same location. This could take advantage of geography, demographics, tax advantages, education levels, whatever. In the case of the breeding industry, we see one incredibly large cluster of breeding activity (Lexington) and several outliers that are more like satellites than true competitors (as in Mr. Prospector being moved to Lexington soon after his promise as a sire showed). The concentration in Kentucky allows a some huge advantages, not even including the Blue Grass side of the equation. These include world-class Equine medical care (Hagyard, Rood and Riddle) amongst other advantages. Just like Silicon Valley, Lexington has a huge number of things going for it, to include smaller breeding-oriented farms scattered between Midway, Versailles, Paris, Wadi, etc as you travel out I-64 and I-75.

With AI, you can ship semen anywhere immediately, which seems awesome, but the value of that "breed" is drastically reduced. You end up diluting the advantages that Lexington brings to the table, which, in my opnion, is counterproductive.

I completely understand the thought that allowing AI to be a good thing, since you would end up with lots more of the best stallions represented. But you will quickly end up with the "Japan Dilemma" in that you will drastically limit the gene pool and have a very few dominant sires represented in almost every pedigree. Now you can make the case that it is almost that way right now, mainly with Mr. Prospector. But in Japan it is much worse, with nearly every JPN bred having Sunday Silence in their last two to three generations. That's not good.