Tuesday, April 11, 2017

From Horse Racing to Gummy Drop! – The Continuing Evolution of Churchill Downs Inc.

Only six years ago, Churchill Downs Inc. (CDI), then the operator of five serious race tracks, accounted for 8% of all US thoroughbred races and earned 88% of its corporate revenue from horse racing. Reading through CDI’s annual report for 2016, its apparent that things have changed in a big way in those six years.

Having shed Hollywood Park and Calder, CDI’s is left with just three tracks – Churchill Downs, Arlington and Fair Grounds – that, together, ran 222 race days in 2016, totaling 2,073 races, or merely 4.9% of the US total. That’s a bit more than the New York Racing Association (NYRA) runs in a single state, but not a whole lot more.

The shrinkage may be part of CDI’s master plan, but it is a plan propelled by market forces. We all know that horse racing isn’t exactly a growth industry. As CDI points out in its annual report, US parimutuel handle, although steady the last few years, had declined 27% from 2007 to 2011. The number of Thoroughbred foals born each year has dropped in half, and, belatedly, the number of races run each year is declining.

So racing is not likely to be a big source of growth for CDI, and, as the only player in big-league horse racing that’s a public company listed on the stock exchange, CDI is under relentless Wall Street pressure to show bigger and bigger revenue and profits. The other major players don’t face the same savage capitalist forces. NYRA is  for all practical purposes a not-for-profit corporation, as is Keeneland; the Stronach Group is privately held and insulated from short-term market pressure, and all the rest are, frankly, minor league. Thus, because it is exposed to raw market forces, CDI is perhaps an early harbinger of racing’s future. If so, that future isn’t bright.

CDI’s response has been bad for racing, but smart for CDI’s bottom line. Despite the reduction in racing, CDI’s net income as a corporation and its share price, continue to climb. Operating income in 2016 for the corporation as a whole was $194 million, more than double the 2014 total of $90 million. And the CDI share price tripled between the end of 2011 and the end of 2016, outperforming the broad stock market indexes by more than 50%.

So what’s making money for CDI? It’s not the stagnant or even declining racing segment of the company; that’s for sure. In a (few) words, its (a) casino gambling; (b) the Twin Spires ADW wagering platform; and (c) online games – a sector in which CDI is now a major player through its 2014 acquisition of something called Big Fish Games, the maker of, inter alia, Gummy Drop! and Dungeon Boss.

Here’s what each of CDI’s four principal business segments contributed in 2016:

CDI accounts for its Twin Spires online betting platform separately from its live racing business. Included in Twin Spires, at least in CDI’s accounting, is its Bloodstock Research and Information Services (BRIS), purveyor of (to my mind, overpriced) handicapping and racing data. Twin Spires is the largest ADW in the country, eclipsing Frank Stronach’s ExpressBet, Betfair’s TVG, and NYRABets, among others. Twin Spires handle for 2016 was $1.1 billion, or 10.2% of total US handle, a substantial increase in both dollars and market share from the previous year.

Because nearly 90% of the money bet on racing is bet off-track, the net takeout retained by a track that actually stages racing tends to be lower than the handle retained by the ADW bet-takers, who pay only a fraction of that takeout to the sending track. For example, CDI’s live tracks reported only a net profit margin, or takeout, of 10.1% in 2016, while Twin Spires reported a margin of 18.4% on its handle. If this is true across the industry, then either (a) there’s room for substantial takeout reductions, since ADW margins are way too high, or (b) the tracks that actually put on racing should increase their fees to the simulcast outlets. Or both.

CDI’s casino business represents a small, but growing sector of the gaming world. The company owns five casinos and two hotels with gambling attached, and has ownership stakes in the Miami Valley casino and harness track in Ohio as well as the Saratoga casino and harness track across the street from NYRA’s Saratoga Race Course. In addition, it has 25% or greater stakes in a new casino in Colorado and in the casino and harness track in Ocean City, Maryland. Altogether, CDI has 9,000 “gaming positions,” about double the size of the slot-machine palace at Aqueduct.

No single casino operation under the CDI umbrella earned as much as $100 million last year, but in the aggregate, those 9,000-plus slots and a few table games accounted for earnings of $332 million.

And then there are those video games. Big Fish Games downloaded 2.8 billion games to customers in 150 countries in 2016. It’s the seventh biggest publisher of games for the mobile iOS and Android platforms in the US. These games are typically free, but make money when gullible players fork over real money to get an edge in the game, like extra moves or extra weapons. In 2016, Big Fish pulled in $486 million in revenue, up 7.3% over the prior year.

But video gaming is a volatile business. Just ask Atari. In the long run can the clash of the CDI corporate suits in Louisville and the Big Fish millenials in Seattle, Oakland and Luxembourg produce stable or, even better, growing, profits? It’s not an odds-on sure thing.

Here’s how the four segments contribute to CDI’s revenue last year:

SEGMENT
REVENUE ($ MILLIONS)
PERCENT OF TOTAL
Racing
268.1
21%
Casinos
332.8
25%
Twin Spires
221.9
17%
Big Fish Games
486.2

37%

Even combining live racing with Twin Spires, barely a third of CDI’s revenue these days comes from racing. Despite the aura of the Kentucky Derby, the company’s core business is watching wheels spin on slots and gumdrops slide down iPhone screens. What would Matt Winn, the man behind Churchill Downs and the Kentucky Derby, make of it?

Expenses for each of the four CDI segments aren’t all that different from one another, as a percentage of revenue. Those expenses eat up 75% of racing revenue, 73% of casino revenue, only 67% of what Twin Spires brings in, and a surprisingly high 82% of Big Fish Games’ revenue (must be all those perks for the game developers). And the suits (i.e., corporate, general, marketing, administrative expenses, etc., plus whatever CDI tucks away under the heading of research and development) gobble down another 10% of total revenue. But still, CDI is comfortably profitable, with net income of $108.1 million last year, a gain of better than 50% over the previous year.


From the point of view of the stock market and CDI executive bonuses, the message is clear: continue to minimize racing and focus on way easier kinds of betting, like slot-machines and video games. From the point of view of racing, the message is equally clear: a publicly traded company, beholden to the demands of the market, will never save horse racing. If CDI is the industry leader, us troops better turn around before we’re neck deep in the Big Muddy.

Sunday, April 9, 2017

NYRA Privatization Plan Will Still Leave Cuomo in Control

Budget talks have ended in Albany. As a result, the compromise plan agreed on by New York’s Governor Andrew Cuomo and legislative leaders for “privatizing” the New York Racing Association (NYRA) is now the law. Thanks to Tom Precious’s report in the Bloodhorse, we now know the broad contours of the NYRA plan. From the point of view of racing fans, bettors, horse owners and other industry participants, it ain’t pretty.  In fact, it’s pretty much a continuation of the politically dominated NYRA structure that we’ve been living with for the past five years. A pity that the Governor and Legislature missed the chance to do something new and imaginative.

Back in 2012, when the state took over NYRA, it established a Board of Directors of 17 members – seven appointed by the Governor, two each by the State Assembly and State Senate, and the remainder holdovers from the “old NYRA” Board. The current acting NYRA Board chair is Michael Del Giudice, a longtime Cuomo family consigliere.

That 2012 legislation also confirmed substantial oversight power by a state agency called the Franchise Oversight Board (FOB), originally established in 2008 when NYRA was in bankruptcy proceedings. No surprise, Governor Cuomo’s appointees dominate the Franchise Oversight Board.

NYRA had originally been scheduled to return to “private” status by 2015, but that deadline was extended twice, most recently to October 2017. The state budget bill creates a “new NYRA” that will take over  from the existing NYRA Board this year. You can read the text of the bill here.

Initially, Cuomo – who apparently hates racing and has never so much as set foot on a NYRA track -- had wanted to continue to control even a “privatized” NYRA, through a combination of a plurality of Board appointments and increased powers for his Franchise Oversight Board. Under the compromise agreement with legislative leaders that is embodied in the budget, his control will be reduced, but by no means eliminated.

First, the new legislation sets up a Board of 15 members – a bit too big for effective governance, so the real power will rest with NYRA CEO Chris Kay or his successor and with the smaller executive committee. Of those 15, Cuomo will directly appoint two, the State Assembly and Senate leaders one each, and the existing NYRA executive committee, dominated by Cuomo appointees, will appoint eight. The remaining three slots will be filled by the NYRA CEO and by representatives of the New York Thoroughbred Horsemen’s Association (NYTHA) and the New York Thoroughbred Breeders. In exchange for those NYRA Board seats, the breeders and NYTHA agreed to put a NYRA Director on each of their own Boards. I’m not sure the trade-off was worth it; would a labor union want a management rep sitting in on its executive board?

So, counting the eight members appointed by the Cuomo-friendly executive committee, the Governor would start out with 10 of the 15 Board members owing their appointment to him. That may change over time, particularly if Kay or a successor CEO uses his influence to have his own supporters named to the NYRA Board as the terms of the original Directors expire, but it certainly sounds like continuing Cuomo control, at least for a while, since the existing NYRA Board executive committee, which Cuomo controls, will appoint a majority of the new Board.

As for the Franchise Oversight Board, Cuomo had initially wanted the FOB to have the power to impound NYRA funds – including purse money – and to appoint an outside financial adviser if the FOB found that NYRA’s finances were at “significant risk.” In the compromise version, the draconian impounding sanction would require a unanimous vote by the FOB, including the votes of FOB members appointed by the legislature. That may satisfy some Albany politicians’ desire for a slice of the power pie, but it doesn’t do much to calm NYRA’s and horse owners’ fears. Those fears were already high, given Cuomo’s statements earlier this year about reneging on the contractual deal that gave NYRA and the horsemen’s purse account a share of the enormous profits from the slot machine palace at Aqueduct.

Cuomo doesn’t like racing, and sees it as an untapped source of money for the things he does like. It’s dangerous to leave him in charge.

On the positive side, the bill mandates a negotiated agreement between NYTHA and NYRA over the number of winter racing dates at Aqueduct. Blue-collar horsemen depend on the winter season, when Pletcher, Mott and McGaughey are away, to get the purses that will tide them through the summer. NYRA has been pushing for years to reduce or even eliminate winter racing.

In a different world, where state policy wasn’t made by three men in a room, in the annual Kabuki play that is the New York budget process, a reprivatized NYRA might look very different. Instead of a Board of Directors appointed by or beholden to, the Governor, what about a Board with members elected by racing’s different constituencies – fans, bettors, owners, breeders, trainers, backstretch employees, etc.? Of course, that kind of Board might require a CEO who actually knew something about racing, but that wouldn’t be a bad thing, would it?

Instead, we’ve got what looks very much like business as usual, only now NYRA won’t even have to pretend to be a public agency and offer minimal transparency. And we know how well all that secrecy worked in the past, when old old NYRA was run by Dinnie Phipps and his pals. Worked so well that they ended up in bankruptcy court.

As the Tweeter-in-Chief would say, Sad.


Friday, March 31, 2017

Barrett's March Sale -- No News Is, Well, No News

The third of the three "select" two-year-old sales, this one at Barrett's in California, is now in the books. (My comments on the previous 2017 select sales, Fasig-Tipton at Gulfstream and Ocala Breeders Sales, are here and here, respectively.) The only surprise is that there were no surprises; the Barrett's sale was a mirror image of the same auction last year.

If you look at Barrett's sales summary, it appears there were 128 horses catalogued for the sale, adding up the numbers of those sold, scratched, and who failed to meet their reserve (i.e., RNA). But the catalog itself had 135 horses listed. So let's stick with that number and adjust the other totals. (I really hate it when I have to go through the catalog page by page to do this; next time, maybe Barrett's could do some fact-checking.)

So my totals, which differ slightly from those published by Barrett's, are: 135 in the catalog, 45 (33.3%) sold, 19 (14%) RNA, and 71(53%) scratched. Using the traditional, if misleading, measure of a sale's success, only 19 (30%) of the 64 horses that actually went through the auction ring were RNAs. But what of all those other horses in the catalog? If they were scratched after traveling to the sale, that's a significant expense for their owners and consignors. Even if they were scratched earlier, at least some expense went into getting them far enough along to be in the catalog.

The median price for the horses that actually sold was $100,000, exactly the same as it has been at Barrett's March since 2015. The sale topper, by a considerable margin, was a Malibu Moon colt that was bought jointly by West Point Thoroughbreds and Spendthrift Farm for $675,000. Of the 45 horses sold, 12 of them went for more than $200,000. On the other hand, 15 sold for less than $50,000, including one of West Point's other purchases, a $35,000 colt by Creative Cause (West Point also paid $140,000 for a Jimmy Creed colt). Totally unsolicited advice for prospective West Point "investors": the $35,000 colt is the one you probably want a piece of. High-end purchases hardly ever pay back their buyers.

In addition to West Point, a couple of other public partnerships were active at the sale. My friends at Dare to Dream Stables paid $50,000 for a Smiling Tiger filly, and Eclipse Thoroughbred Partners paid $85,000 each for fillies by Animal Kingdom and Exchange Rate.The rest of us are still waiting for Ocala in April and Timonium in May.

And Art Sherman, who took a no-pedigree horse named California Chrome and did pretty well with him, went to all of $20,000 (yes, that's the right number of zeros) for a colt by Unusual Heat that's a full brother to two stakes winners and two other horses with six-figure lifetime earnings. I don't know what the physical issues were that let this horse get away so cheaply, but I'd be looking for him later this year at Art's home base, Los Alamitos.

So, what, if anything, to make of all this? The small number of horses sold, and the relatively modest median price at the Barrett's March sale make it a tough choice for consignors, mostly based in Ocala, to pay for the shipping and showing costs involved. Barrett's is already responding to consignors' worries about costs by suggesting that next year it will combine the March sale with its larger May sale (which tends to have more Cal-breds and a much lower median, around $30,000). That will ease the burden on consignors, but the auction house and the consignors will still need to figure out how to get the better horses seen by the richer buyers. After all, who would want to hang around Del Mar for a three-day sale? (Well, almost anyone, so I guess that's not such a big consideration after all.)

A more serious concern is that, for many years, Barrett's had a near-lock on Asian buyers, especially those from Japan. But those buyers, supplemented by new money from China, South Korea and Russia, now appear at all the sales. To the extent that Barrett's once had a competitive advantage in its superior access to Asian buyers, Fasig-Tipton and OBS have definitely closed the gap.

Next, we leave the "select" category and head for the big sales: OBS, April 25-28, with a catalog of 1,200 or so, and Fast-Tipton Timonium, May 22-23, with more than 500 likely in the catalog. Happy shopping!


Gambling Taxation Part 5 -- Record Keeping

As we saw in Parts 3 and 4 of this series, a gambler, whether a full-time professional or an occasional weekend player, may deduct the amount of losing bets from winnings to reduce taxable income (but not to create a loss that can be applied against non-gambling income). But how do you show how much you’ve lost? This post, the last in my series on taxation of gambling, addresses the question of how a horseplayer should document her wins and losses, and what the IRS and the Tax Court are likely to do if you have less than perfect documentation.

When I was living in Florida, I had a client – a jockey agent, naturally – who suddenly felt the need to file taxes (for the first time in his career, he had somehow landed a jockey who could actually win races). I asked the agent to bring his financial records, and he showed up with a very large trash bag filled with everything that conceivably might relate to his expenses for the past three years, expecting that I would sort through the trash and get him lots of deductions. Needless to say, there are better ways of keeping records, but many cases involving gamblers reflect a similar approach to record keeping. (By the way, and I’m sure this is no reflection on jockey agents in general, this guy stiffed me for half of my very reasonable fee.)

The most common problem that bettors have in sorting out how much they have won and lost is that a bettor hits one or a few big scores during the year and, as a result, gets some W2-G forms. Those report income, and the IRS computer programs will see that income whether the bettor reports it or not. But the track record of most bettors doesn't consist solely of a few big-ticket winners.  Most of us win some, lose some and also, if we’re lucky, hit a few big scores that generate a few W2-G forms. I looked at my NYRABets account for last year, and, yes, I did get one W2-G on a Pick 4, but that accounted for less than 10% of my total winnings.

But if the IRS spots a win via the W2-G, what typically happens is that the bettor says, well I lost more than that. Then the IRS says, but you won more than that too, so it’s up to you to prove the amounts. And that's true. The law says that the burden of proof is on the taxpayer.

So what should a horse race bettor do to satisfy the IRS and the courts? The starting point is an IRS guideline that was issued 40 years ago and that even Andy Beyer would have trouble satisfying.

Under this guideline, a “diary or similar contemporaneous record,” supplemented by “verifiable documentation,” will “usually” be acceptable proof of wagering losses. The diary or betting log is supposed to show the date and type of every bet, the name and address of the place it was made, the amounts won or lost, and, ideally, the names of witnesses. The guideline goes on to say that losing tickets, ATM withdrawals, and other paper provided by the track or casino qualify as verifiable documentation.

Back in 1977, when the guideline was issued, there probably weren’t many bettors who kept a bet-by-bet record, no matter how many times the how-to books tell you to do it. Now, though, it’s surprisingly easy to produce this record. Just make every single bet through your ADW betting account, and then print out the monthly or annual statements at the end of the year. Even if you’re at the track, make the bets through your account, either on your phone or tablet or by using a card at the teller machines.

Because so many people are doing it this way, the number of cases involving racetrack betting has declined to virtually zero. These cases came up all the time in the 1960s and 1970s. Now, there are still just as many cases about gambling record keeping, but they’re almost all about slot machines, not racetracks.

But what if you don’t do all your betting on an ADW account, and you don’t have the contemporaneous records that the IRS guidelines call for? You might still be saved by something called the “Cohan rule,” named for famed Broadway actor and producer George M. Cohan, who showed up at the IRS back in the 1920s with the equivalent of my jockey agent's black trash bag and said, “look, you know I had expenses, so you have to allow me some sort of deduction.”

The courts agreed, and the Cohan rule has now become part of tax law. Under it, a taxpayer can rely on reasonable estimates of expenses, as long as there is some factual basis for the estimate. So the next question is, what’s “some factual basis”? 

Going back to those cases from the 1960s and 1970s, we know that a pattern of borrowing money from friends every time you go to the track isn’t enough. Nor is bringing in a shoebox full of losing tickets, at least when they’ve been purchased from many different windows and some still have heel prints on them. If the losing tickets all come from the same or adjacent windows, though, and if they appear to have been saved more or less contemporaneously (one winning taxpayer wrapped up each day’s losing tickets in a rubber band), then the IRS or the Tax Court may find that convincing enough to allow at least some deduction.

But most of these Cohan rule cases end up allowing the bettor a deduction that’s not as big as the amount of their winnings, because judges still look with disfavor on gamblers, so there’s still some net betting income on which tax is due. If, like most bettors, you lose money over the course of a year, the best course is to use your ADW account and -- presto! – you have the contemporaneous records required by the IRS guidelines.

Not to mention that keeping contemporaneous records, so you can see how you’re doing, is one of the essential steps to becoming a member of that nearly extinct species, winning horse race bettors. If you don’t know what bets you’re losing, you can’t figure out why you’re losing and what steps to take to stem the leakage.

So, to summarize, if you want to be able to offset (reportable and other) wins with losses, at least up to the point of zeroing out the wins, keep good records in an orderly way. An ADW account that provides monthly statements showing each bet is ideal, but sometimes that shoebox full of losing tickets will still be useful.


Thursday, March 23, 2017

Gambling Taxation - Part 4. How to Be a Professional Gambler

Two posts back, I discussed the Internal Revenue Code section that limits any deduction for gambling losses to the amount of gambling winnings. In other words, if a bettor has a bad year and ends up with a net loss, that loss cannot be applied against other income, such as a salary or a consulting fee, to reduce total taxable income. But, even with that limitation, it’s better if the IRS says you’re in the “trade or business” of gambling, as opposed to gambling as a hobby or recreation. Here’s why.
Someone who’s in a trade or business can deduct all the “ordinary and necessary” expenses of that business. For a horse-race bettor, that would include the cost of past performances (yes, you, Daily Racing Form, with your $9 tabloids!), handicapping software and advice, travel to the track, as long as it’s not a daily commute, track admission and parking, internet service provider costs for those who bet online, some of the cost of meals while at the track, and even, in a couple of cases, ATM fees at the track. No, you can’t deduct net gambling losses, but these other expenses are still valuable as deductions.
Even more important – and here I have to get a little wonkish – being in a trade or business lets you take your deductions on a Schedule C, for sole-proprietorships, instead of on a Schedule A, for personal deductions. Here’s why that’s important.
First, when gambling income is listed on the Form 1040, and then gambling expenses and losses (the latter only up to the amount of winnings) are taken as personal deductions, that has the effect of increasing a taxpayer’s gross income. That, in turn, means that the Internal Revenue Code’s limits on personal deductions are also increased. Some deductions disappear entirely for taxpayers with high gross incomes, and some, like those for “miscellaneous business expenses” (those Racing Forms again) and medical expenses, must exceed a certain fraction of the taxpayer’s gross income to qualify. So, the higher the gross income, the higher the threshold before those expenses can be deducted.
Second, even apart from the increase in gross income, having to report expenses as personal, on a Schedule A, has its own drawbacks. Under current law, those miscellaneous deductions are allowable only to the extent that they are more than 2% of gross income. So, for a taxpayer with $100,000 in gross income, that means the first $2,000 of expenses are non-deductible.
In contrast, if someone is in the trade or business of gambling, then all this income and all these deductions go into the Schedule C business form. Instead of having to take the wagering losses and the expenses as personal deductions, they get subtracted from the wagering income right on the Schedule C, and only the bottom line of the Schedule moves over as income or loss onto the Form 1040.  No limitation on deductions, no artificial increase in gross income.
So, how do you get to be a professional, in the “trade or business” of gambling? The answer is in Internal Revenue Code Section 183 and the Regulations and court cases that have interpreted it.
Section 183 distinguishes between activities engaged in for profit, on the one hand, and all other activities. If an activity is not engaged in for profit, then the only allowable deductions are (1) deductions that would be allowable without regard to trade or business status (e.g., certain state and local taxes or interest); and (2) business-related deductions incurred in the activity, including a professional gambler's wagering losses and incidental expenses, but only to the extent of any taxable income that remains after subtracting the first category of generally allowable deductions. So, if you’re not a professional gambler, you can never have a net loss from gambling that reduces your tax bill from non-gambling activity.
Section 183 also establishes a presumption that an activity is engaged in for profit if gross income from the activity exceeds the deductions attributable to it in at least three of the most recent five taxable years. It’s only a presumption, though. The IRS can still argue that your gambling is just a hobby, even if you show that three-out-of-five-year profit.
The Treasury Regulations spell out the factors that matter in deciding if you’re in a trade or business. You don’t need a perfect six out of six, but most people who win their cases have at least a majority of the factors on their side.
First, the manner in which the taxpayer carries on the activity, in particular whether he or she carries it on in a businesslike way and maintains complete and accurate books and records. On this criterion, the casual gambler, going to the track or the casino every few weeks and not maintaining regular ledgers, would appear to fall in the hobby/recreation category, while those (relatively few) gamblers who maintain detailed and complete records would be seen as reasonably seeking a profit.
Second, the expertise of the taxpayer (or of the taxpayer's advisers). On this criterion, the gambler who has read all of Andy Beyer or who has served a faithful apprenticeship to an acknowledged expert in the field – think Andy Serling sitting in Steve Crist’s box at Belmont all those years -- is more likely to be seen as engaging in the activity for profit. Buying a tip sheet on your way into the track might not qualify. Interestingly, the Tax Court has treated a taxpayer’s development of a “system” for beating slot machines as evidence of expertise. I guess the Tax Court judges themselves are a bit lacking in such expertise.
Third, the amount of time and effort the taxpayer spends on the activity. Unless, according to the regulations, if the time and activity has substantial personal or recreational aspects. In other words, the more fun one is having, the less likely the IRS is to view the activity as engaged in for profit. The more you hate going to the track, the more likely you are to be a professional.
Fourth, the presumption that an activity is carried on for profit if it actually shows a profit in three of five years. Aha! You think, I can show a $100 profit in each of three years and a $10,000 loss in each of the other two. Nope. The relative size of the profits and losses is also relevant. A presumption is just that, a presumption.
Fifth, the financial status of the taxpayer. Do you really look to gambling to pay the rent and buy groceries? The wealthy industrialist or actor, for example, who gambles heavily, might not be seen to be engaging in gambling for profit, but the working-class retiree, whose only other source of income is a Social Security check, might have a stronger case.
Sixth and last, whether the activity contains elements of personal pleasure or recreation. This raises some generally troubling issues; most people, presumably, would prefer to work in occupations that gave them some personal satisfaction. To say that achieving such a goal puts the tax deductibility of legitimate expenses in jeopardy seems perverse.
No one of these factors is decisive. In each case the IRS and the courts weigh them all and reach a decision.
There has been a flurry of court cases in the past decade involving gamblers who seek to be classified as being in the trade or business. There have been several cases where the IRS agreed that the taxpayer was a professional gambler, others in which the Tax Court rejected the gambler’s claims, and a few where the Tax Court overruled the initial IRS determination and found the taxpayer actually was in a trade or business, most recently, in February of this year, in the case of a poker player who succeeded in deducting travel expenses for his trips to Las Vegas and Atlantic City casinos by showing the court that he played tournaments most weeks in the year.
But the general trend of the cases is against us. Relatively few gamblers approach their task with the single-mindedness of purpose necessary to escape the limitations described above. Those that do win in court typically spend at least 40 hours a week gambling. Thus, most losing gamblers would still not be able to deduct losses and expenses in excess of their winnings.

Next, the importance of keeping good records.