Kentucky Supreme Court Ruling May Force Lawmakers to Move on Historical Horse Racing

Posted on: September 25, 2020, 09:06h. 

Last updated on: September 27, 2020, 11:41h.

The future of historical horse racing (HRR) in Kentucky is in jeopardy after the state’s Supreme Court reversed previous rulings, saying state regulators do not have the power to legalize the gaming machines.

Kentucky HHR
Oak Grove Racing and Gaming’s historical horse racing parlor opened for business earlier this month in the southwestern Kentucky town. On Thursday, the state’s Supreme Court ruled that the state Horse Racing Commission did not have the authority to deem HHR as pari-mutuel betting. (Image: Oak Grove)

Thursday’s unanimous ruling, though, left some ambiguity. The suit, filed by the Family Foundation, focused on a specific gaming system, Exacta Systems. Not all of the HHR parlors across the state use that system, but the Kentucky Horse Racing Commission (KHRC) approved the other systems those venues use as well. The opinion penned by Justice Laurance VanMeter questioned the body’s powers.

The Commission is charged with regulating pari-mutuel wagering,” VanMeter wrote. “But without positive legislative action and sanction, it has no authority to create from whole cloth and to approve a wagering pool in which each patron is wagering on a different event or set of events. Such a wagering pool by no means can be considered a pari-mutuel wagering pool in which patrons, as among themselves, are setting the betting odds and payout.”

In the decision, the justices ruled the case to be sent back to the circuit court level in Frankfort, the state capital, “for entry of a judgment consistent with this opinion.” The ruling comes nearly six weeks after justices heard oral arguments in the case.

Racing supporters criticized the ruling, saying the decision could have far-reaching consequences on the industry. Over the years, tracks have used the revenues from HHR to pump up purses for live racing. As a result, Kentucky tracks have attracted more horses. That, in turn, creates larger fields for races, which make them more attractive to bettors.

Thursday’s “Supreme Court decision is wrong, irresponsible, and will deal a death blow to Kentucky’s horse industry if not remedied,” Senate Majority Leader Damon Thayer, R-Georgetown, told Casino.org.

From Boom to Bust?

HHR machines look like slot machines, but use the outcome of old races to determine if the player’s wager wins. Industry officials had touted the technical difference in past court hearings, and that testimony has been critical in previous hearings that have enabled tracks to operate the machines in the state since 2011.

Since that time, nearly $8.6 billion has been bet through the machines. HHR has generated $50.5 million in general fund revenue and $128.6 million in excise taxes, which are used for various equine development programs across the state.

In a statement, the KHRC said it respects the decision rendered by the state’s top court, and is “considering its options.” Once the commission reaches a decision, it will respond.

The Supreme Court’s decision comes at a time when HHR is experiencing a rapid expansion, including into parts of the state where racing has not previously had much of a presence.

Currently, HHR machines are in use at five different tracks or parlors across the state. The latest, Oak Grove Racing and Gaming, located in the southwestern part of the state, opened just last week, and a parlor in northern Kentucky near Cincinnati is set to open next week.

In addition, Churchill Downs Inc. announced it would create a second smoking patio at its Derby City Gaming facility back in June, a $13.5 million investment. And earlier this month, Kentucky Downs, the state’s first track to offer HHR machines nine years ago, opened a $25 million expansion that added more than 600 machines to its gaming floor.

Kentucky Downs and Keeneland also announced earlier this week a joint venture to build a harness track and satellite venue in southeastern Kentucky. Both of those facilities would house about 400 HHR machines each.

Fewer Machines, More Revenue in August

On Friday, the KHRC released its August wagering totals. With just 1,741 HHR machines running, a near 40 percent reduction from August 2019 due to Kentucky’s COVID-19 restrictions, the state’s parlors reported a handle of $264.9 million. That was up by 12.4 percent from the same month last year. The tracks reported revenues of $22.3 million.

Of the nearly $4 million in excise taxes raised, $1.7 million went to the state’s general fund.

Tracks reached by Casino.org on Thursday said they were reviewing the decision to determine what impact it may have on their business. None indicated they would shut down machines.

“We do not have any immediate changes planned for current operations,” said Jeff Inman, general manager of Ellis Park Racing and Gaming in Henderson.

HHR Opponents Call for Stoppage

Representatives from the Family Foundation quickly claimed victory in the case. The conservative social organization, which opposes expanding gaming in Kentucky, has been very critical of the fact that an unelected regulatory body made the decision to legalize historical horse racing machines, and not the elected Kentucky legislature.

Martin Cothran, a foundation spokesman, announced on Twitter that the group seeks all tracks to suspend HHR operations until the games they offer are determined to be legal. That includes tracks using other systems besides Exacta.

“The Court ruled that the machines have to involve betting on a single event in a pool of bettors betting only against each other,” Cothran tweeted. “If the machines don’t do that, (they’re) not legal.”

The foundation wouldn’t say if it would seek an injunction in a lower court. But its representatives said the court’s ruling was clear.

“Suffice it to say, the Kentucky Supreme Court has decided it wants all these gambling devices to comply with the law regarding pari-mutuel wagering,” Executive Director Kent Ostrander told Casino.org. “So, I would counsel those operating these machines to get their house in order accordingly.”

Time for Legislation?

While the issue, for now, heads back to the courts, many industry and government leaders said the ruling calls for the General Assembly to get involved.

“We will work within our legal rights and in coordination with Kentucky legislators to ensure the ongoing legal operation of our HRM facilities in Kentucky, so that we can continue to provide critical funding for the equine industry and support the citizens in the Commonwealth of Kentucky,” Churchill Downs Inc. Vice President of Communications Tonya Abeln told Casino.org.

Churchill Downs’ historical horse racing venues include Derby City Gaming in Louisville, as well as Oak Grove and the soon-to-open facility in northern Kentucky. None of them offer the Exacta Systems machines.

Gov. Andy Beshear, who campaigned for governor a year ago on an expanded gaming platform, said HHR plays an important role in the state’s economy by providing millions to the state budget and supporting jobs across the state.

“We are working with various partners to find a path forward,” Beshear said in a statement.

State Rep. Adam Koenig, R-Erlanger, said it will take some time to parse what exactly the justices meant in their ruling. Koenig chairs the House Licensing, Occupations, and Administrative Regulations Committee whose oversight includes horse racing.

Our signature industry is, if you talk to people outside of Kentucky, mostly they say horse racing,” Koenig said. “They might say basketball. They might say bourbon. But mostly, they’d say horse racing. It’s a lot of revenue for the state. It puts a lot of people to work, and I would like to think we’re not going to rip the jobs away from thousands of people in the state.”

However, Koenig added that it’s never been a topic for a vote count in the state House because the tracks, until Thursday, always won in the courts. And Sen. Thayer, a former racing industry executive, said it was too soon to tell if legislation would be considered in next year’s 30-day session.