Legislation and Its Impact: Overview
á Greg Avioli - Executive Vice President, Legislative and Corporate Planning, NTRA

Greg Avioli: Thank you, Jay. Good morning.

It's a privilege to have the opportunity to address the Round Table Conference again this year. Before I start with my remarks, I just want to note that the study that Jay just went through with you is probably the most effective tool that we have in Washington when we need to get something done to explain the impact that this industry has both in terms of tax dollars and in terms of jobs. It is really what gets congressmen and senators to move in our favor.

As in past years, my remarks this morning will focus on the NTRA's federal legislative agenda. You've indulged me, and Dinny's been kind enough to give me this platform for, I think, six years, so I'm going to try to be mercifully brief this morning and save most of our time for our lobbyist, Greg Means, to give you a more direct perspective on what we do and how we do it in Washington.

Since last year's conference, we have had an extremely busy and, I'd say, successful 12 months in Washington, D.C.

Last October, as we previewed at last year's conference, Congress did pass legislation removing the 30 percent withholding tax on international wagers. That's had an immediate impact on the U.S. racing industry. Within three or four months, most of the major track operators, including Churchill and Magna and NYRA, have begun plans and now implemented them to start commingling pools with western Europe and with Canada. Plans are already in place to expand this year and next year to South America and then on to Asia, which is the biggest Thoroughbred market in the world in terms of wagering. With the consent of racing jurisdictions in these and other countries, we think now we have the best opportunity for the U.S. industry to expand the reach of our product to the $85 billion world market.

Domestically, our legislative efforts have really focused in the last six months on tax relief for owners and breeders. We're very pleased that on the eve of Congress adjourning for their August recess, Senator Mitch McConnell introduced really wonderful legislation for this industry known as the Equine Equity Act. Mitch McConnell, for those of you who don't know, is the senior senator from Kentucky and is expected to be the next senate majority leader in 2007 when Mr. Frist steps down. This bill combines a number of initiatives that we've been working on with the American Horse Council since 1998, and the Horse Council and some of these have been going back a decade before that, so it takes on some major priorities for the industry, and in one fell swoop we hope can provide very strong benefits in terms of actual dollars. The bill will reduce the capital gains holding period on all horses from two years to one year. The bill will make horse breeders eligible for federal relief for agricultural emergencies.

But perhaps most important to the industry and the people in this room, the bill will formally and completely change the depreciation life of a race horse from seven years to three years. That's a very significant fact if you take a look at the schedule that we have on the slide. You'll see that you'll now be able to depreciate a race horse completely over four years. Let me give you an example of what that could mean in terms of real dollars. In 2004, the total for yearlings sold at public auction was $500 million. With this accelerated depreciation, an additional 32 percent of the collective sales price of these yearlings could be depreciated by the end of this year.

So, assuming a 40 percent tax rate, that would mean that more than $50 million would be available for reinvestment in the bloodstock market over just this two-year period. This bill will be introduced in the House, we expect, some time in September or October and realistically we think passage could occur in early to mid 2006.

Besides tax advocacy, we continue efforts to protect account wagering. The amended Interstate Horseracing Act specifically authorizes telephone and Internet betting on horseracing, provided it's allowed by state law. We talked a lot about that in previous years and we're probably going to talk a lot about it in the future, because account wagering is clearly the fastest-growing segment of our industry. This year it's going to count as much as 20 percent of the handle - or $3 billion of the $15 billion. If you realized that five years ago that number was around $500,000 million and it's grown from $500,000 million to $3 billion in under five years, and given the general growth of the Internet, it's pretty clear where all this is going. But because racing is the only form of wagering that enjoys federal authority to conduct Internet betting, we are under constant scrutiny and legislative challenge on this in Washington.

In the last six months alone, the challenges that we've faced to maintain our position as the only form of wagering allowed on the Internet include the Uvari criminal indictments alleging money laundering through Internet betting, a World Trade Organization ruling that could open up the U.S. gaming markets to countries like Antigua and other countries that host web sites that engage in gaming, and continued efforts by our friend Jon Kyl, a senator from Arizona, to pass legislation that would restrict the use of credit cards for Internet gambling. We deal on a daily basis with trying to explain in all these contexts why what we do is important, is justified, and to go back to what Jay was talking about with jobs, why does racing have a special provision? Because that special provision on gaming allows us to support the 500,000 jobs, allows us to pay the $2 billion taxes.

But I'd be lying to you if I didn't say it's an uphill battle. Sooner or later, Congress is going to act in this area. They've had bills on Internet gambling for the last eight years and they've never gotten across the finish line. But it's na´ve to think they're not going to finally act in this area. Probably in the next two to four years. That's why what we do in Washington is so important: to make friends and to have people understand our position and, as Tim Smith used to say, why we are relevant.

So with that as a brief overview, I'd like to introduce my colleague and good friend Greg Means. Greg began working on Capitol Hill over 20 years ago. He rose to the level of chief of staff for Congressman Dennis Eckart, who was a powerful ranking member of the House Energy and Commerce Committee. Ten years ago, Greg and another couple of his colleagues founded the Alpine Group, which has grown into one of the top firms in Washington. Their clients, in addition to the NTRA, include Ford Motor Company, British Petroleum, Ernst & Young and AT&T.

So, I think we are in good company, and we're happy to have Greg as part of our team. Thank you.

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