In a unanimous opinion, the Kentucky Supreme Court ruled Thursday that the Kentucky Horse Racing Commission has the legal authority to regulate wagers on previously run horse races presented on electronic gambling machines — but that the legality of the wagers themselves has yet to be established.
The court said the case must go back to Franklin Circuit Court, where it originated, to determine whether "the licensed operation of wagering on historical horse racing as contemplated by (the racetracks and the state) constitutes a pari-mutuel form of wagering."
The court also reversed Franklin Circuit Court's previous finding that the state Department of Revenue could tax betting on instant racing, as the wagering is known.
"We adjudge that the department lacks the statutory authority to tax the money wagered on historical horse racing devices," the court held.
The Family Foundation, a conservative advocacy group, had sued the state and the racetracks involved to block instant racing from taking effect after the Kentucky Horse Racing Commission approved the regulations in 2010. Franklin Circuit Court ruled that the games were legal, and wagering began in September 2011 at Kentucky Downs in Franklin.
The games later were added at Ellis Park in Henderson, but other racetracks have held off to see whether the Supreme Court would find them legal.
Through Jan. 31, more than $573 million has been wagered on instant racing machines, generating about $8.6 million in taxes.
It is unclear whether the state will have to refund that money or stop collecting taxes; the tracks, which have received more than $36 million, may continue operating the games.
Finance Cabinet spokeswoman Pamela Trautner said the department was reviewing the opinion.
Proponents of instant racing hailed the ruling as a victory, although Thursday's decision apparently means the legal debate continues.
Gov. Steve Beshear said Thursday morning that he was pleased with the opinion, written by Justice Daniel J. Venters.
"I know there are some additional hearings now that will have to go on at the trial court level on specific games, but I am pleased overall that the Supreme Court has confirmed our belief that it was legal for the racing commission to take the actions that it did," Beshear said.
The racing commission, through spokesman Dick Brown, released this statement:
"The Kentucky Horse Racing Commission has believed from the beginning, and the Kentucky Supreme Court has now found, the commission has the legal authority to promulgate regulations for the operation of historical horse racing in Kentucky. This is an important victory for the commonwealth and the future of the horse industry in Kentucky."
Attorney Bill Lear, who represents Keeneland Race Course in Lexington, Turfway Park in Florence and Players Bluegrass Downs in Paducah, also called it "a very strong opinion in favor of the racing commission and the tracks."
However, Family Foundation attorney Stan Cave said his group intended to continue pursuing the case in Franklin Circuit Court.
"I view the opinion as a great victory for transparency," Cave said. "We said all along that we were entitled to ask questions and conduct discovery. The court recognized that they were not going to allow an issue as important as this to proceed in secret. We believe that when light is shed on these devices, we'll be able to discover their true nature."
The foundation contends the bets are not truly pari-mutuel. In the games, which are played on betting terminals designed to look like slot machines, players wager on previously run horse races. Bettors get no identifying information and minimal statistical data. Each player wagers on a different race.
The Family Foundation sought discovery on whether the betting was pari-mutuel: Are the odds set by other players or by the house? Kentucky law allows pari-mutuel wagering, regulated by the racing commission, but not casino-style gambling.
"If they were so positive it was pari-mutuel, it begs the question why they didn't want any questions to be asked," Cave said.
In the opinion, Venters wrote that the question of "whether the licensed operation of wagering on historic horse racing, pursuant to the commission's authority, violates the gambling provisions of the Kentucky Penal Code is an issue that depends upon facts not in the record, and therefore, must be deferred pending further proceedings in the circuit court."
Lear said the circuit court would rule only on whether individual games that the racing commission has approved are legal.
"The court fully recognized the authority of the racing commission to promulgate the regulations," Lear said. "The only issue is the very narrow one of whether specific games comply with the regs. ... What's gone back to Franklin Circuit is a very narrow opinion. ... I'm confident that measured against the now-approved definition of pari-mutuel wagering, they will be found pari-mutuel."