Horseracing Integrity and Safety Authority Assessment Methodology Rule Modification, 84600-84607 [2024-24567]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 89, Number 205 (Wednesday, October 23, 2024)]
[Notices]
[Pages 84600-84607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-24567]


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FEDERAL TRADE COMMISSION

[File No. P222100]


Horseracing Integrity and Safety Authority Assessment Methodology 
Rule Modification

AGENCY: Federal Trade Commission.

ACTION: Notice of Horseracing Integrity and Safety Authority (HISA) 
proposed rule modification; request for public comment.

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SUMMARY: As required by the Horseracing Integrity and Safety Act of 
2020, the Federal Trade Commission publishes a proposed modification of 
the Horseracing Integrity and Safety Authority's rules addressing 
horseracing in the United States. The proposed rule modification would 
amend the Rule 8500 Series, the Assessment Methodology Rule, which 
establishes a methodology for determining assessments described in the 
enabling statute. This document contains the Authority's proposed rule 
modification's text and explanation, and it seeks public comment on 
whether the

[[Page 84601]]

Commission should approve the proposed rule modification.

DATES: The Commission must approve or disapprove the proposed 
modification on or before December 23, 2024. If approved, the proposed 
rule modification would be effective 30 days following the date of the 
Commission's order approving the modification. Comments must be filed 
on or before November 6, 2024.

ADDRESSES: Interested parties may file a comment online or on paper by 
following the instructions in the Comment Submissions part of the 
SUPPLEMENTARY INFORMATION section below. Write ``HISA Assessment 
Methodology Rule Modification'' on your comment and file your comment 
online at https://www.regulations.gov by following the instructions on 
the web-based form. If you prefer to file your comment on paper, mail 
your comment to the following address: Federal Trade Commission, Office 
of the Secretary, 600 Pennsylvania Avenue NW, Mail Stop H-144 (Annex 
H), Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Sarah Botha (202-326-2036), Attorney 
Advisor and Acting HISA Program Manager, Office of the Executive 
Director, Federal Trade Commission, 600 Pennsylvania Avenue NW, 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION: The Horseracing Integrity and Safety Act of 
2020 \1\ (the ``Act'') recognizes a self-regulatory nonprofit 
organization, the Horseracing Integrity and Safety Authority (``HISA'' 
or the ``Authority''), which is charged with developing proposed rules 
on a variety of subjects. Those proposed rules and later proposed rule 
modifications take effect only if approved by the Federal Trade 
Commission (``FTC'' or the ``Commission'').\2\ The proposed rules and 
rule modifications must be published in the Federal Register for public 
comment.\3\ Thereafter, the Commission has 60 days from the date of 
publication to approve or disapprove the proposed rule or rule 
modification.\4\
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    \1\ 15 U.S.C. 3051 through 3060.
    \2\ 15 U.S.C. 3053(b)(2).
    \3\ 15 U.S.C. 3053(b)(1).
    \4\ 15 U.S.C. 3053(c)(1).
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    Pursuant to section 3053(a) of the Act and Commission Rule 1.142, 
notice is hereby given that, on October 4, 2024, the Authority filed 
with the Commission a proposed Assessment Methodology Rule modification 
and supporting documentation as described in Items I, II, III and IX 
below, which Items have been prepared by the Authority. The Office of 
the Secretary of the Commission determined that the filing complied 
with the Commission's rule governing such submissions.\5\ The 
Commission is publishing this document to solicit comments on the 
proposed rule modification from interested persons.
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    \5\ 16 CFR 1.140 through 1.144; see also FTC, Procedures for 
Submission of Rules Under the Horseracing Integrity and Safety Act, 
86 FR 54819 (Oct. 5, 2021).
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I. Self-Regulatory Organization's Statement of the Background, Purpose 
of, and Statutory Basis for the Proposed Rule Modification

a. Background and Purpose

    The Act recognizes that the establishment of a national set of 
uniform standards for racetrack safety and medication control will 
enhance the safety and integrity of horseracing. The Assessment 
Methodology Rule is established in the Rule 8500 Series, the 
``Assessment Methodology Rule.'' \6\ The Rule 8500 Series was published 
in the Federal Register on February 18, 2022,\7\ and subsequently 
approved by the Commission by Order dated April 1, 2022.\8\ The 
Authority filed a proposed rule modification to the Rule 8500 Series on 
October 20, 2022. The modification was published in the Federal 
Register on November 10, 2022,\9\ and approved by the Commission by 
Order dated January 9, 2023.\10\
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    \6\ The Assessment Methodology Rule is also referred to herein 
as the ``Cost Methodology Rule'' or ``Rule 8500 Series.''
    \7\ See FTC, Notice of HISA Assessment Methodology Proposed Rule 
(``2022 Proposed Rule Notice''), 87 FR 9349 (Feb. 18, 2022).
    \8\ FTC, Order Approving the Assessment Methodology Rule 
Proposed by the Horseracing Integrity and Safety Authority (Apr. 1, 
2022), https://www.ftc.gov/system/files/ftc_gov/pdf/Order%20re%20HISA%20Assessment%20Methodology.pdf.
    \9\ See FTC, Notice of HISA Assessment Methodology Proposed Rule 
Modification, 87 FR 67915 (Nov. 10, 2022).
    \10\ FTC, Order Approving the Assessment Methodology Rule 
Modification Proposed by the Horseracing Integrity and Safety 
Authority (Jan. 9, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/order_re_hisa_assessment_methodology_modification_not_signed_002_0.pdf.
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    The Authority now proposes modifications to several provisions in 
the Rule 8500 Series. The proposed rule modifications are described in 
detail in Item II of this document. As set forth below, the proposed 
modifications seek to eliminate consideration of the Projected Purses 
Paid from the current assessment equation and instead base assessments 
solely on Projected Starts. In addition, the proposed rule 
modifications establish by rule the equitable allocation among Covered 
Persons of the applicable fee per racing start for the Assessment 
Calculation for each Racetrack. Finally, several modifications are 
proposed to clarify the language of several rules for greater 
precision.
    The proposed modifications are consistent with the requirements of 
the Act in that they further the purpose of properly and equitably 
allocating the costs of the Authority's operations to the State racing 
commissions and/or Covered Persons involved with Covered Horseraces, as 
mandated by 15 U.S.C. 3052(f). The cost allocations ensure that the 
Authority is adequately funded and able to effectively implement and 
enforce the horseracing anti-doping and medication control program and 
the racetrack safety program, as required under the Act. Successful 
implementation of the Act and the two programs operates to ensure and 
enhance the safety, welfare and integrity of Covered Horses, Covered 
Persons, and Covered Horseraces. The proposed modifications have been 
crafted to address specific issues in the most precise manner possible, 
and no reasonable alternatives presented themselves for consideration.
    The Act requires that the Authority provide to each State racing 
commission an estimated amount required from the State to ``(I) to fund 
the State's proportionate share of the horseracing anti-doping and 
medication control program and the racetrack safety program for the 
next calendar year; and (II) to liquidate the State's proportionate 
share of any loan or funding shortfall in the current calendar year and 
any previous calendar year.'' \11\ A State's proportionate share is to 
be based on ``(aa) the annual budget of the Authority for the following 
calendar year, as approved by the Board; and (bb) the projected amount 
of covered racing starts for the year in each State.'' \12\ The Act 
further instructs the Authority to ``take into account other sources of 
Authority revenue'' as part of this calculation.\13\
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    \11\ 15 U.S.C. 3052(f)(1)(C)(i).
    \12\ 15 U.S.C. 3052(f)(1)(C)(ii).
    \13\ Id.
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    Any State racing commission may elect to remit fees directly to the 
Authority.\14\ If a State racing commission does not elect to remit 
fees pursuant to 15 U.S.C. 3052(f)(2), then the Authority is required 
to ``not less frequently than monthly, calculate the applicable fee per 
racing start multiplied by the number of racing starts in the State 
during the preceding

[[Page 84602]]

month.'' \15\ This calculation is required to be allocated equitably 
``among covered persons involved with covered horseraces pursuant to 
such rules as the Authority may promulgate'' and collected ``according 
to such rules as the Authority may promulgate.'' \16\
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    \14\ 15 U.S.C. 3052(f)(2).
    \15\ 15 U.S.C. 3052(f)(3)(A).
    \16\ 15 U.S.C. 3052(f)(3)(B), (f)(3)(C)(i).
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    On September 18, 2024, HISA representatives shared a draft of the 
proposed rule modification with a number of interested stakeholders for 
input. Those interested stakeholders included: Racing Officials 
Accreditation Program; Racing Medication and Testing Consortium 
(Scientific Advisory Committee); National Thoroughbred Racing 
Association; The Jockey Club; The Jockeys' Guild; Thoroughbred Racing 
Association; Thoroughbred Owners of California; California Horse Racing 
Board; National Horsemen's Benevolent and Protective Association; 
Thoroughbred Owners and Breeders Association; Kentucky Thoroughbred 
Association; American Association of Equine Practitioners; American 
Veterinary Medical Association; Stronach Racing Group (2 thoroughbred 
racetracks); Churchill Downs (6 thoroughbred racetracks); Keeneland; 
Del Mar; Association of Racing Commissioners International; Kentucky 
Racing Commission; Maryland Racing Commission; Delaware Racing 
Commission; Ohio Racing Commission; Thoroughbred Horsemen's 
Association; Thoroughbred Safety Coalition; New York Racing 
Association; Breeders' Cup; and ROCO.
    Additionally, on September 18, 2024, the rule modification proposal 
was made available to the public for review and comment on the HISA 
website at https://www.hisaus.org/. Several comments were received from 
various stakeholders, which are outlined in Item III of this document. 
Attached to this document is Exhibit A, which includes copies of all 
comments received concerning the rule modification proposal.
    With the review, input and ultimate approval of the Authority's 
Board of Directors, the proposed rule modification to the Rule 8500 
Series enhances the procedures for the Cost Methodology Rule 
promulgated by the Authority.

b. Statutory Basis

    The Horseracing Integrity and Safety Act of 2020, 15 U.S.C. 3051 
through 3060.

II. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Modification

    Rule 8510, Definitions, sets forth defined terms for the Rule 8500 
Series. The modification in Rule 8510(a) amends the definition of 
``Annual Covered Racing Starts'' effective January 1, 2026. This change 
is discussed below in connection with the modification of Rule 
8520(c)(2). The modification in Rule 8510(e) amends the definition of 
``Projected Purse Starts'' to ``Projected Purses Paid'' and clarifies 
that the total amount of purses paid for Covered Horseraces includes 
all purse supplements included in the Equibase result chart.\17\ The 
underlying principle of the current assessment methodology is to focus 
on purses actually paid. It is of no consequence whether the purses 
paid consist of money from purse funds or from purse supplements. This 
modification simply reinforces the principle behind the current Cost 
Assessment Rule. The deletion in Rule 8520(a) deletes language that was 
operative only in 2022 and is now no longer necessary.
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    \17\ The proposed modifications posted for public comment stated 
that the total amount of purses paid for Covered Horses shall 
include ``all purse supplements of any kind.'' A commentator raised 
the question of whether ``including all purse supplements of any 
kind'' was too broad. See Exhibit A, Comment from Christopher 
McErlean, PENN Entertainment, Inc. (``Penn'') (``Not all supplements 
are paid as part of the advertised purse at same time as payment of 
race purse is made, but are determined or calculated on amount of 
purse money earned and paid at a future date; such funds are not 
always disclosed or known by a Racetrack with no ability to 
track.''). This definition has been revised in response to this 
comment and now reads as follows: Projected Purses Paid means: (i) 
the total amount of purses paid for covered horseraces (including 
all purse supplements included in the Equibase result chart) in the 
previous twelve (12) months as reported by Equibase (not including 
the Breeders' Cup World Championships Races), after taking into 
consideration alterations in purses paid for the relevant State(s) 
for the following calendar year.
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    The addition set forth in Rule 8520(b) simply makes explicit the 
existing practice of calculating and distributing the estimated amount 
required from each State by Racetrack. Moreover, this new language 
corresponds to the new definition of ``Annual Covered Racing Starts'' 
effective January 1, 2026.
    The proposed modifications in Rule 8520(c)(1) are not substantive. 
The proposed changes remove unnecessary language and correct subsection 
and definition references.
    The proposed modifications in Rule 8520(c)(2) change the method of 
calculation for determining the amount of assessment owed from each 
State. Currently, the Cost Methodology Rule determines the assessment 
based on Projected Starts and Projected Purses Paid. Under the proposed 
modification, beginning January 1, 2026, the Cost Methodology Rule will 
calculate the assessment solely based on Projected Starts. In a 
response to comments posted to the Federal Register in 2022 regarding 
the proposed rule establishing the methodology for determining 
assessments, the Authority committed to ``review[ing] the Methodology 
Rule Proposal on an annual basis to ensure that the formula that forms 
the basis of the assessments is equitable and as a part of this review, 
the Authority will consider the comments that argue otherwise.'' See 
March 14, 2022 letter to Secretary April J. Tabor (the ``March 14, 2022 
Letter'').\18\ Since making that commitment, the Authority has 
thoroughly reviewed and reconsidered the Cost Methodology Rule.
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    \18\ This letter is available on the docket for the 2022 
Proposed Rule Notice at https://www.regulations.gov/docket/FTC-2022-0014/document.
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    Although the current Cost Methodology Rule was the appropriate rule 
when the Act was implemented in 2022, the Authority has been regularly 
analyzing whether it continues to be the appropriate rule and now 
concludes that beginning January 1, 2026, the more appropriate and 
equitable approach is to base assessments on Projected Starts only. The 
Authority is now in a position to review the successful operation of 
its Racetrack Safety program for more than two years and its Anti-
Doping and Medication Control (``ADMC'') program for over one year. 
Before the programs went into effect, the Authority anticipated:

that stakes races and graded stakes races will have higher testing 
costs and that horses that compete in such races will be subjected 
to more vigorous out-of-competition testing, which is an expensive 
element of a vigorous drug testing program. In addition, it is 
anticipated that drug disqualifications in stakes races will result 
in higher enforcement costs. Currently, much of the protracted and 
costly litigation in the states concerns drug positive 
disqualifications in stakes races. See e.g., Kentucky Horse Racing 
Commission v. Motion, 592 SW3d 739, 744 (Ky. App. 2019) (litigation 
over a drug positive in a 2015 stakes race did not conclude until 
the Kentucky Supreme Court denied discretionary review in 2020).

See March 14, 2022 Letter.
    Actual experience with the implementation of the Act has shown 
these budgetary predictions did not come to fruition. Due to the 
automatic Disqualification of race results for any established Presence 
violation under ADMC Program Rules 3212 or 3312, and the inability to 
avoid this sanction (even

[[Page 84603]]

if a Covered Person is found to have No Fault or Negligence under ADMC 
Program Rules 3224 or 3324 or No Significant Fault or Negligence under 
ADMC Program Rules 3225 or 3325), Covered Persons are less likely to 
litigate potential Program violations based solely on purse amounts. 
Instead, proceedings are more likely to occur based on the 
classification of the Prohibited Substance involved. Cases involving 
Banned Substances, which have a default sanction of a two-year period 
of Ineligibility, have a much greater chance of being litigated, 
regardless of the place in which the Covered Horse finished or the 
category of the race at issue. While the grade of the race is a 
consideration for the selection of Covered Horses for Out-of-
Competition testing, it is only one factor. Such testing is also driven 
by risk assessment (as required by the ADMC Program Rules), which can 
include intelligence received about the Covered Horse or Covered 
Person, Testing history, and the movement of the Covered Horse. It 
should also be noted that laboratory analysis costs are not affected by 
the grade of the race at issue or whether the test is Post-Race or Out-
of-Competition. Quite simply, the Authority's expenses after the 
initial implementation period have turned out to be closely correlated 
to starts and not to purse amounts or the grade of a race. Therefore, 
the Authority has determined that going forward the most appropriate 
and equitable approach is to base the assessments solely on Projected 
Starts, and the modifications in Rule 8520(c)(2) implement that 
approach.
    It should also be noted that numerous stakeholders have initiated 
litigation against the Authority over the use of paid purses in the 
Cost Methodology Rule. In fact, many of these entities benefit from the 
use of purses in the assessment formula but nevertheless believe that 
actual starts should be the sole basis for calculating the assessments. 
For example, in a Federal action filed by various West Virginia and 
Louisiana governmental and horseracing entities, including the 
Louisiana and West Virginia racing commissions, the court ruled:

    Because the FTC acknowledged that HISA's methodology includes 
``a metric that is not part of the Act's basis of calculation of 
fees--purses,'' this Court finds that Plaintiffs have shown a 
likelihood that the Assessment Methodology Rules are unlawful. While 
there is limited discretion given to HISA for determining funding, 
it cannot go outside the authority given to it in Sec.  3052(f). By 
adding this additional metric, HISA went outside the bounds of the 
Act and its authority for calculations. Plaintiffs are likely to 
succeed on the merits on their claim that the Assessment Methodology 
Rules exceeds HISA's statutory authority.

Louisiana v. Horseracing Integrity & Safety Auth. Inc., 617 F. Supp. 3d 
478, 498 (W.D. La. 2022) (the ``Louisiana Action'').
    After remand from the United States Court of Appeals for the 5th 
Circuit, the following entities filed an Amended Complaint in the 
Louisiana Action: the State of Louisiana, the Louisiana State Racing 
Commission, the Louisiana Horsemen's Benevolent and Protective 
Association 1993, Inc., Louisiana Thoroughbred Breeders Association, 
the State Of West Virginia, the West Virginia Racing Commission, the 
State Of Oklahoma, the Oklahoma Horse Racing Commission, the State of 
Nebraska, Nebraska Racing and Gaming Commission, the State Of Arkansas, 
the State Of Mississippi, Arizona Horsemen's Benevolent and Protective 
Association, Arkansas Horsemen's Benevolent and Protective Association, 
Illinois Horsemen's Benevolent and Protective Association, Iowa 
Horsemen's Benevolent and Protective Association, Indiana Horsemen's 
Benevolent and Protective Association, Kentucky Horsemen's Benevolent 
and Protective Association, Minnesota Horsemen's Benevolent and 
Protective Association, Nebraska Horsemen's Benevolent and Protective 
Association, Ohio Horsemen's Benevolent and Protective Association, 
Oklahoma Horsemen's Benevolent and Protective Association (``Oklahoma 
HBPA''),\19\ Pennsylvania Horsemen's Benevolent and Protective 
Association, Washington Horsemen's Benevolent and Protective 
Association, Charles Town [West Virginia] Horsemen's Benevolent and 
Protective Association, Tampa Bay Downs [Florida] Horsemen's Benevolent 
And Protective Association, Fonner Park [racetrack in Nebraska] and 
Horsemen's Park [racetrack in Nebraska]. The Amended Complaint seeks to 
have the Cost Methodology Rule vacated and enjoined because it includes 
purses in the assessment formula. The Amended Complaint states that 
purses cannot be utilized in the assessment formula and that the 
formula should be based on starts. Although the Authority believes its 
current Cost Methodology Rule is consistent with, and in accordance 
with the Act, the proposed modification will remove the threat and cost 
of litigation on this issue. As is evident from the list of plaintiffs 
in the proffered Amended Complaint, many of the States that benefit 
from the purses paid portion of the assessment calculation reject this 
benefit as being inconsistent with the Act.
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    \19\ Officers and board members of the Oklahoma HBPA have filed 
a separate lawsuit in Federal court in Oklahoma claiming that the 
assessment formula should only utilize starts. See Joe Offolter, et 
al. v. Horseracing Integrity and Safety Authority, Inc., et al., 
Case No. CIV-24-749-D (W.D. Okla.).
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    Proposed Rule 8520(e)(1) addresses the process for collecting the 
assessment if a State racing commission does not elect to remit fees 
pursuant to 15 U.S.C. 3052(f)(2) or has remitted a partial payment 
under Rule 8520(a). The changes contained in Rule 8520(e)(1) make 
explicit the current practice of calculating and distributing the 
estimated amount required from each State by Racetrack. The other 
modifications in Rule 8520(e)(1) clarify the formula that is used to 
calculate the applicable fee per racing start. And finally, a new 
subsection (v) is added to Rule 8520(e)(1). Subsection (v) states that 
underpayments, overpayments and past due amounts shall be equitably 
adjusted in the succeeding calendar year. This modification provides 
clear direction on the calculation of the applicable fee per racing 
start and specifies that underpayments, overpayments and past due 
amounts shall be adjusted in the succeeding calendar year.
    Under current Rule 8520(e)(3), the Authority determines how the 
Assessment Calculation is allocated among Covered Persons. The proposed 
Rule 8520(e)(3) establishes the equitable allocation for the applicable 
fee per racing start for the Assessment Calculation for each Racetrack 
as follows: Racetrack: 50%; Owners: 43.50%; Trainers: 5.00%; and 
Jockeys: 1.50%.\20\ In addition, the proposed rule permits the 
applicable horsemen's group to agree to pay the applicable starter fee 
for the owners, trainers and jockeys from the purse account or other 
sources \21\ and that such payments shall be deemed to be equitably 
allocated among the owners, trainers and jockeys.
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    \20\ Under the current rule, unless the Racetrack and the 
applicable horsemen's group agreed otherwise, the Authority 
established the equitable allocation for the applicable fee per 
racing start for the Assessment Calculation for each Racetrack 50% 
to the Racetrack and 50% to the horsemen. In most instances, the 
horsemen have agreed to pay their share out of the purse account. 
The proposed allocation of Owners: 43.50%; Trainers: 5.00%; and 
Jockeys: 1.50% is a reasonable estimation of the overall percentage 
amount Owners, Trainers and Jockeys receive out of the purse funds.
    \21\ Penn noted that the phrase ``other sources'' should be 
added.
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    The proposed Rule 8520(e)(3) also allows the horsemen's group and 
the Racetrack to mutually agree to the allocation of the applicable fee 
per racing start. And finally, the proposed

[[Page 84604]]

Rule 8520(e)(3) permits a Racetrack to voluntarily assume a larger 
percentage of the applicable fee per racing start than set forth in the 
rule. These modifications will establish by rule how the Assessment 
Calculation is allocated among Covered Persons. The remainder of the 
modifications memorialize current practices among the horsemen's groups 
and the racetracks.
    It should be noted that the current Rule 8520(e)(3) is the subject 
of a court challenge. See Kelly et al., v. Horseracing Integrity and 
Safety Authority et al., Civ. No. 4:24-cv-00264 (S.D. Iowa). Although 
the Authority believes it can successfully defend the litigation, it 
does not believe it is prudent to utilize resources to defend the 
current rule when the modified rule achieves the same result and 
eliminates the risk, cost, and expense of litigation.
    The modifications in Rule 8520(f) remove the objection procedure 
for objecting to relevant Equibase numbers. The modified definition of 
Projected Purses Paid and the new parenthetical in Rule 8520(f) make 
clear that only purses paid to the racing participants are counted in 
the assessment formula. The critical attribute of the use of paid 
purses under the current assessment formula was to gauge racing 
industry strength by the purse amounts paid to the participants 
(regardless of the source of these funds). The Equibase result chart 
provides the actual amount paid to the racing participants (regardless 
of the source of the funds). These objection procedures are no longer 
necessary and have also been the subject of a court challenge. See 
Kelly et al., v. Horseracing Integrity and Safety Authority et al., 
Civ. No. 4:24-cv-00264 (S.D. Iowa). Although the Authority believes it 
can successfully defend the litigation, it does not believe that 
utilizing resources to defend an unnecessary rule is prudent.
    The modification in Rule 8520(h) recognizes that the Authority's 
address may change and incorporates the Authority's address located on 
the Authority's website for all future notices required to be given to 
the Authority pursuant to the Act and the associated regulations.
    Proposed Rule 8520(i) is a new subsection. This new provision 
imposes interest on past due amounts. The imposition of interest on 
past due amounts ensures that prompt payments are made. Interest 
imposed on past due amounts is common throughout commercial and 
government practices across the country.

III. Self-Regulatory Organization's Summary of Comments Received Pre-
Submission and Its Responses to Those Comments

    The substance of various comments received, and the Authority's 
responses are summarized below. Comments were received from eleven 
individuals and groups in the horseracing industry.\22\ Two of the 
commentators supported the modifications in Rule 8520(c)(2) that will 
now base the assessment calculation solely on Projected Starts.\23\
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    \22\ Diane Hain (``Ms. Hain''), Phil Ziegler, President of 
Emerald Downs (``Mr. Ziegler''), the Minnesota Racing Commission 
(``MRC''), California Horse Racing Board (``CHRB''), 1/ST Racing 
(``1/ST''), Penn, Canterbury Park (``Canterbury''), Ohio Horsemen's 
Benevolent and Protective Association (``Ohio HBPA''), Churchill 
Downs Inc. (``CDI''), Washington Horse Racing Commission (``WHRC'') 
and National Horsemen's Benevolent and Protective Association 
(``NHBPA'').
    \23\ 1/ST (We are generally in support of this methodology for 
determining assessments at the various racetracks across the 
country. We believe that it is a fair way to apportion the costs of 
HISA. Particularly because the costs for many of the aspects of 
HISA, such as drug testing, are fixed irrespective of the purse 
level at a racetrack.'') and CHRB (``the funding formula seems 
fine'').
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    Eight commentators objected to the proposed modifications to Rule 
8520(c)(2).\24\ All of these comments have been considered. The 
assessment calculation has been the subject of an ongoing debate since 
the original rule was proposed in 2022. See, e.g., March 14, 2022 
Letter at n. 10. The Authority has considered both sides of the debate 
and has concluded that--for the reasons set forth above--the most 
appropriate and equitable approach going forward is to base the 
assessments solely on Projected Starts. It should be noted that the 
Ohio HBPA is taking a different view on the assessment rule in its 
comment than it is taking in litigation. The Ohio HBPA claims that the 
modification is ``a blatant attempt to shift HISA fees from the large 
tracks running short meets with large purse structures, which arguably 
can afford to pay those fees, to smaller tracks who run more racing 
days with much smaller purse structures who almost assuredly cannot 
afford them.'' This claim is in direct contravention of the position 
the Ohio HBPA is taking in the Louisiana Action, in which the Amended 
Complaint states that consideration of any factor but starts is 
contrary to the Act.\25\
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    \24\ Ms. Hain (modified rule would place an unfair burden on 
small racetracks); Mr. Ziegler (same); WHRC (same); Penn (same); 
Ohio HBPA (same); NHBPA (same); MRC (modified rule would place an 
unfair burden on small racetracks and estimates that the racetrack's 
assessment in Minnesota would rise from $883,327 to $1,049,000); 
Canterbury (same).
    \25\ It should also be noted that the NHBPA is taking a position 
directly contrary to numerous of its State affiliates.
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    Three commentators addressed comments to other aspects of the Rule 
8500 Series.\26\ As noted previously, Penn's comment regarding the 
Projected Purses Paid definition was incorporated in the modification. 
Penn also offered additional comments. Penn stated that use of the 
condition book in Rule 8520(e) is not a reliable guide for estimation 
of races because the condition book can overestimate ``the number of 
races in order to allow for a variety and cross section of potential 
races to be used.'' The Authority recognizes that the condition book 
could overestimate the number of races. This is the reason that the 
estimate is based on historical data from Equibase in addition to the 
condition book. The condition book will specify the planned number days 
of racing, and this information combined with the historical data will 
lead to the best estimate.
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    \26\ NHBPA, CDI and Penn.
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    In addition, Penn states that the assessment calculation in Rule 
8320(e) ``should be paid on a 30-day, net basis which is traditional 
payment rate for most businesses.'' The Authority has adopted that 
suggestion in the proposed rule. Finally, Penn states that the interest 
rate charge ``should not have additional points added'' and 
``Racetracks should not be charged interest on amounts owed by other 
Covered Persons who have not paid pursuant to the Regulations.'' \27\ 
After consideration of the comment, the rule has been modified to 
charge interest at prime rate without additional points.
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    \27\ Penn also asserts that a ``Racetrack should not be 
responsible, or liable, for any payments due from other Covered 
Purses required to pay a portion of the Assessment'' and that 
``Racetracks should not be required to collect and remit funds from 
Owners/Trainers/Jockeys.'' These comments relate to portions of the 
rule that are unchanged from the current rule.
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    The NHBPA argues that ``[o]ften times covered hoses may run in a 
race where they are not entitled to any of the supplements offered 
beyond the guaranteed purse, thus the added purse structure does not 
apply to all horses and therefore should not be added to the 
determination of funding methodology.'' The revised definition 
addresses this concern. As discussed above, the Equibase result chart 
reports the money actually paid to the race participants. The remainder 
of the comments of the NHBPA are directed at portions of the Rule 8500 
Series that have not been modified.

[[Page 84605]]

    CDI claims that the Authority is not authorized to collect 
interest. The Authority disagrees. Proposed Rule 8520(i) is fully 
consistent with the Act, which authorizes HISA to assess a fee owed to 
HISA and ``collect such fee according to such rules as the Authority 
may promulgate.'' 15 U.S.C. 3052(f)(3)(C)(i). Requiring an interest 
rate on amounts past due for assessments is necessary to incentivize 
timely payments and ensure HISA has the cash flow required to sustain 
its operations. CDI also objects to the removal of the objection 
process related to Equibase data in proposed Rule 8520(f). It is 
important to note that to date, no racetrack has lodged an objection, 
and the example of steeplechase racing offered by CDI is a non 
sequitur. Lastly, CDI argues that by modifying Rule 8520(b) to permit 
the estimated amount required from each State to be broken down by 
Racetrack, the Authority is not complying with the Act. This argument 
is not well-founded. In permitting the Authority to provide the 
estimated amount owed by Racetrack, the rule does not alter the State's 
right to opt to pay the assessment and its right to ``determine . . . 
the method by which the requisite amount of fees . . . shall be 
allocated, assessed, and collected.'' Instead, the rule as modified 
will simply provide full transparency to the industry of the details of 
the assessment calculations if a State racing commission chooses to not 
pay the assessment.
    The changes advanced in the proposed Cost Methodology Rule 
Modification are intended to enhance the Rule 8500 Series in a manner 
that is consistent with the Act. The proposed rules are carefully 
tailored to the unique character of horseracing and to the 
organizational structure of the Authority.

IV. Legal Authority

    This rule is proposed by the Authority for approval or disapproval 
by the Commission under 15 U.S.C. 3053(c)(1).

V. Date of Effectiveness

    If approved by the Commission, this proposed rule modification 
would be effective 30 days following the date of the Commission's order 
approving the modification.

VI. Request for Comments

    Members of the public are invited to comment on the Authority's 
proposed rule modification. The Commission requests that factual data 
on which the comments are based be submitted with the comments. The 
supporting documentation referred to in the Authority's filing is 
available for public inspection on the docket for this matter at 
https://www.regulations.gov.
    The Commission seeks comments that address the decisional criteria 
provided by the Act. The Act gives the Commission two criteria against 
which to measure proposed rules and rule modifications: ``The 
Commission shall approve a proposed rule or modification if the 
Commission finds that the proposed rule or modification is consistent 
with--(A) this chapter; and (B) applicable rules approved by the 
Commission.'' \28\ In other words, the Commission will evaluate the 
proposed rule for its consistency with the specific requirements, 
factors, standards, or considerations in the text of the Act as well as 
the Commission's rules.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 3053(c)(2).
---------------------------------------------------------------------------

    Although the Commission evaluates the Authority's proposed rule for 
its consistency with the Act and the Commission's rules, the Commission 
may consider broader questions--about the health and safety of horses 
and jockeys, the integrity of horseraces and wagering on horseraces, 
and the administration of the Authority itself--in another context: 
``The Commission . . . may abrogate, add to, and modify the rules of 
the Authority promulgated in accordance with [the Act] as the 
Commission finds necessary or appropriate to ensure the fair 
administration of the Authority, to conform the rules of the Authority 
to requirements of [the Act] and applicable rules approved by the 
Commission, or otherwise in furtherance of the purposes of [the Act].'' 
\29\ The Commission may exercise this rulemaking power on its own 
initiative or in response to a petition from a member from the public. 
If members of the public wish to provide comments to the Commission 
about its use of the rulemaking power, they are encouraged to submit a 
petition requesting that the Commission issue a rule addressing the 
subject of interest. The petition must meet all the criteria 
established in the Rules of Practice (part 1, subpart D); \30\ if it 
does, the petition will be published in the Federal Register for public 
comment. In particular, the petition for a rulemaking must ``identify 
the problem the requested action is intended to address and explain why 
the requested action is necessary to address the problem.'' \31\
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 3053(e) (as amended by the Consolidated 
Appropriations Act, 2023, H.R. 2617, 117th Cong., Division O, Title 
VII (2022)).
    \30\ 16 CFR 1.31; see FTC, Procedures for Responding to 
Petitions for Rulemaking, 86 FR 59851 (Oct. 29, 2021).
    \31\ 16 CFR 1.31(b)(3).
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VII. Comment Submissions

    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before November 6, 
2024. Write ``HISA Assessment Methodology Rule Modification'' on your 
comment. Your comment--including your name and your State--will be 
placed on the public record of this proceeding, including the https://www.regulations.gov website.
    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we strongly encourage you 
to submit your comments online. To make sure the Commission considers 
your online comment, you must file it at https://www.regulations.gov, 
by following the instructions on the web-based form.
    If you file your comment on paper, write ``HISA Assessment 
Methodology Rule Modification'' on your comment and on the envelope, 
and mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Mail 
Stop H-144 (Annex H), Washington, DC 20580. If possible, please submit 
your paper comment to the Commission by overnight service.
    Because your comment will be placed on the public record, you are 
solely responsible for making sure that your comment does not include 
any sensitive or confidential information. In particular, your comment 
should not contain sensitive personal information, such as your or 
anyone else's Social Security number; date of birth; driver's license 
number or other State identification number or foreign country 
equivalent; passport number; financial account number; or credit or 
debit card number. You are also solely responsible for making sure your 
comment does not include any sensitive health information, such as 
medical records or other individually identifiable health information. 
In addition, your comment should not include any ``[t]rade secret or 
any commercial or financial information which . . . is privileged or 
confidential''--as provided in section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--including, in 
particular, competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c), 16 CFR 4.9(c). 
In particular, the written

[[Page 84606]]

request for confidential treatment that accompanies the comment must 
include the factual and legal basis for the request and must identify 
the specific portions of the comment to be withheld from the public 
record. See FTC Rule 4.9(c). Your comment will be kept confidential 
only if the General Counsel grants your request in accordance with the 
law and the public interest. Once your comment has been posted publicly 
at https://www.regulations.gov--as legally required by FTC Rule 4.9(b), 
16 CFR 4.9(b)--we cannot redact or remove your comment, unless you 
submit a confidentiality request that meets the requirements for such 
treatment under FTC Rule 4.9(c), and the General Counsel grants that 
request.
    Visit the FTC website to read this document and any news release 
describing it. The FTC Act and other laws that the Commission 
administers permit the collection of public comments to consider and 
use in this proceeding as appropriate. The Commission will consider all 
timely and responsive public comments it receives on or before November 
6, 2024. For information on the Commission's privacy policy, including 
routine uses permitted by the Privacy Act, see https://www.ftc.gov/siteinformation/privacypolicy.

VIII. Communications by Outside Parties to the Commissioners or Their 
Advisors

    Written communications and summaries or transcripts of oral 
communications respecting the merits of this proceeding, from any 
outside party to any Commissioner or Commissioner's advisor, will be 
placed on the public record. See 16 CFR 1.26(b)(5).

IX. Self-Regulatory Organization's Proposed Rule Language

    The following language reflects the Assessment Methodology Rule 
with the proposed modifications incorporated. A redline version that 
shows every way in which the previously approved Assessment Methodology 
Rule would be modified by the proposed rule modification is available 
as Exhibit B on the docket at https://www.regulations.gov.

8500. Methodology for Determining Assessments

8510. Definitions

    For purposes of this Rule 8500 Series:
    (a) Annual Covered Racing Starts has the meaning set forth in Rule 
8520(c)(1) through December 31, 2025. Effective January 1, 2026, Annual 
Covered Racing Starts shall have the meaning set forth in Rule 
8520(c)(2).
    (b) Covered Horseraces has the meaning set forth in 15 U.S.C. 
3051(5).
    (c) Covered Persons has the meaning set forth in 15 U.S.C. 3051(6).
    (d) Projected Starts means the number of starts in covered 
horseraces in the previous twelve (12) months as reported by Equibase, 
after taking into consideration alterations in the racing calendar of 
the relevant State(s) for the following calendar year.
    (e) Projected Purses Paid means: the total amount of purses paid 
for covered horseraces (including all purse supplements included in the 
Equibase result chart) in the previous twelve (12) months as reported 
by Equibase (not including the Breeders' Cup World Championships 
Races), after taking into consideration alterations in purses paid for 
the relevant State(s) for the following calendar year.
    (f) Racetrack has the meaning set forth in 15 U.S.C. 3051(15).

8520. Annual Calculation of Amounts Required

    (a) If a State racing commission elects to remit fees pursuant to 
15 U.S.C. 3052(f)(2) for any calendar year, the State racing commission 
shall notify the Authority in writing on or before thirty (30) days 
from the receipt of the estimated amount provided to the State racing 
commission pursuant to Rule 8520(b). A State racing commission may be 
permitted to pay a portion of the estimated amount provided to the 
State racing commission pursuant to Rule 8520(b). In such case, the 
remaining portion of the estimated amount provided to the State racing 
commission pursuant to Rule 8520(b), shall be paid pursuant to Rule 
8520(e).
    (b) Not later than November 1 of each year, the Authority shall 
determine and provide to each State racing commission the estimated 
amount required from each State pursuant to the calculation set forth 
in Rule 8520(c) below. The estimated amount required from each State 
shall also include the estimated amount broken down by each Racetrack 
in the jurisdiction based on each Racetrack's proportionate share in 
the Projected Purses Paid in covered horseraces in the State over the 
applicable year (the ``Assessment Calculation for each Racetrack''). 
Notwithstanding the preceding sentence, effective January 1, 2026, the 
Assessment Calculation for each Racetrack shall be based on each 
Racetrack's proportionate share in the Projected Starts in covered 
horseraces in the State over the applicable year.
    (c)(1) Upon the approval of the budget for the following calendar 
year by the Board of the Authority, and after taking into account other 
sources of Authority revenue, the Authority shall allocate the 
calculation due from each State pursuant to 15 U.S.C. 3052(f)(1)(C)(i) 
proportionally by each State's respective percentage of the Annual 
Covered Racing Starts. The proportional calculation for each State's 
respective percentage of the Annual Covered Racing Starts shall be 
calculated as follows: (i) the total amount due from all States 
pursuant to 15 U.S.C. 3052(f)(1)(C)(i) shall be divided by the 
Projected Starts of all covered horseraces; then (ii) fifty percent 
(50%) of the quotient calculated in (c)(1)(i) is multiplied by the 
quotient of (aa) the relevant State's percentage of the total amount of 
Projected Purses Paid divided by (bb) the relevant State's percentage 
of the Projected Starts; then (iii) the sum of (aa) the product of the 
calculation in (c)(1)(ii) and fifty percent (50%) of the quotient 
calculated in (c)(1)(i) is multiplied by the Projected Starts in the 
applicable State. Provided however, that no State's allocation shall 
exceed ten percent (10%) of the total amount of Projected Purses Paid 
for covered horseraces as reported by Equibase in the State (not 
including the Breeders' Cup World Championships Races). All amounts in 
excess of the ten percent (10%) maximum shall be allocated 
proportionally to all States that do not exceed the maximum, based on 
each State's respective percentage of the Annual Covered Racing Starts.
    (c)(2) Notwithstanding Rule 8520(c)(1), effective beginning with 
the 2026 budget of the Authority, upon the approval of the budget of 
the Authority by the Board of the Authority, and after taking into 
account other sources of Authority revenue, the Authority shall 
allocate the calculation due from each State pursuant to 15 U.S.C. 
3052(f)(1)(C)(i) proportionally by each State's respective percentage 
of the Annual Covered Racing Starts. The proportional calculation for 
each State's respective percentage of the Annual Covered Racing Starts 
shall be calculated as follows: (1) the total amount due from all 
States pursuant to 15 U.S.C. 3052(f)(1)(C)(i) shall be divided by the 
Projected Starts of all covered horseraces; multiplied (2) by the 
Projected Starts in the applicable State.
    (d) Pursuant to 15 U.S.C. 3052(f)(2)(B), a State racing commission 
that elects to remit fees, shall remit fees on a monthly basis and each 
payment shall equal one-twelfth (1/12) of the

[[Page 84607]]

estimated annual amount required from the State for the following year.
    (e) If a State racing commission does not elect to remit fees 
pursuant to 15 U.S.C. 3052(f)(2) or has remitted a partial payment 
under Rule 8520(a):
    (1) The Authority shall on a monthly basis calculate and notify 
each Racetrack in the State of the applicable fee per racing start for 
the next month based upon the following calculations:
    (i) Calculate the amount due from the Assessment Calculation for 
each Racetrack as if the State had elected to remit fees pursuant to 15 
U.S.C. 3052(f)(2) (after taking into account any partial payment under 
Rule 8520(a)).
    (ii) Estimate the number of starts in covered horseraces for the 
applicable Racetrack for the applicable year based on historical data 
as reported by Equibase and the condition book for the applicable 
Racetrack (the ``Total Estimated Starts'').
    (iii) Calculate the number of starts in covered horseraces for the 
applicable Racetrack in the previous month that the applicable 
Racetrack conducted covered horseraces as reported by Equibase (the 
``Monthly Starts'').
    (iv) The applicable fee per racing start shall equal (1) the 
quotient of Monthly Starts divided by Total Estimated Starts; (2) 
multiplied by the Assessment Calculation for each Racetrack; and (3) 
such product divided by the Monthly Starts.
    (v) If the applicable fee per racing start results in an 
overpayment or underpayment of the Assessment Calculation for each 
Racetrack for the applicable year or there are any past due amounts of 
the Assessment Calculation for each Racetrack, such overpayments, 
underpayments and/or past due amounts shall be equitably adjusted to 
account for such differences in the succeeding calendar year.
    (2) Each Racetrack shall pay the Assessment Calculation for each 
Racetrack to the Authority within thirty (30) days from receipt of the 
applicable invoice.
    (3) Pursuant to 15 U.S.C. 3052(f)(3)(B), the applicable fee per 
racing start for the Assessment Calculation for each Racetrack shall be 
equitably allocated among covered persons as follows: Racetrack: 50%; 
Owners: 43.50%; Trainers: 5.00%; and Jockeys: 1.50%. Provided, however, 
if the horsemen's group that represents the majority of owners and 
trainers racing at the applicable Racetrack (the ``Horsemen's Group'') 
agrees to pay the applicable starter fee for the owners, trainers and 
jockeys from the purse account or other sources, such payments shall be 
deemed to be equitably allocated among the owners, trainers and 
jockeys. In such case, the Horsemen's Group and the Racetrack may 
mutually agree to the allocation of the applicable fee per racing start 
and such mutually agreed allocation shall be deemed equitably allocated 
among covered persons. Notwithstanding anything contained herein to the 
contrary, if a Racetrack voluntarily assumes a larger percentage of the 
applicable fee per racing start than set forth in this section, such 
allocation shall be deemed equitably allocated among covered persons. 
The Racetrack shall collect the applicable fee per racing start from 
the applicable covered persons involved with covered horseraces.
    (f) Not later than March 1 of each year, the Authority shall 
calculate the actual number of starts in covered horseraces as reported 
by Equibase for the previous calendar year and the actual total amount 
of purses paid (including all purse supplements included in the 
Equibase result chart) for covered horseraces as reported by Equibase 
for the previous calendar year and apply such amounts to the 
calculations set forth in Rule 8520(c) instead of the projected amounts 
utilized in the calculation of the estimated amount provided to the 
State racing commission pursuant to Rule 8520(b) for the relevant 
calendar year (the ``True-Up Calculation''). The allocation due from 
each State in the current year shall be equitably adjusted to account 
for any differences between the estimated amount provided to the State 
racing commission pursuant to Rule 8520(b) for the previous year and 
the True-Up Calculation.
    (g) In the event that any court of competent jurisdiction issues an 
injunction that enjoins the enforcement of the Rule 8500 Series based 
on the use of purses paid in the Assessment Methodology Rule, the 
applicable States, Racetracks and Covered Persons, as the case may be, 
shall pay the allocation due from each State pursuant to 15 U.S.C. 
3052(f)(1)(C) and 15 U.S.C. 3052(f)(3)(A)-(C) proportionally by the 
applicable State's respective percentage of Projected Starts (the 
``Alternative Calculation''). In the event that such injunction is 
reversed by a court of competent jurisdiction and such reversal is 
final and non-appealable, the Authority shall adjust the allocation due 
from the appliable States, Racetracks and Covered Persons, as the case 
may be, in the current calendar year to account for the overpayment or 
underpayment created by the use of the Alternative Calculation made 
during the time that the injunction was in force.
    (h) All notices required to be given to the Authority pursuant to 
the Act and these regulations shall be in writing and shall be mailed 
to the Authority's address listed on the Authority's website and 
emailed to [email protected].
    (i) Interest shall accrue on all past due amounts hereunder at an 
interest rate equal to the prime rate published in the Wall Street 
Journal on the date the payment is due, compounded annually, on such 
amount from the due date of the payment until such amount is paid.

    By direction of the Commission.
April J. Tabor,
Secretary.
[FR Doc. 2024-24567 Filed 10-22-24; 8:45 am]
BILLING CODE 6750-01-P