State says instant racing uses random number generators for more than picking races

In the long-running instant racing legal saga, the Kentucky Horse Racing Commission, racetracks and the state steadfastly have maintained that historical wagering is parimutuel and that the winners are determined by previously run horse races.

But a new filing in the case this month opened the door to an element of chance.

According to the racetracks, historical racing odds are set not by the house or a bookmaker but by the original odds of an anonymous, previously run horse race, with payouts determined in part by the amount in a jackpot pool, similar to the Pick 6 carryover.

The Family Foundation, a conservative advocacy group that opposes expanded gambling, consistently has argued that the electronic games with graphics of reels are basically slot machines and illegal.

Although the racing commission approved the games in July 2010, they remain the subject of an ongoing court case. In February 2014, the Kentucky Supreme Court ruled the games were subject to racing commission regulation but sent the case back to Franklin Circuit Court to answer the question of whether the games are parimutuel.

In parimutuel betting at the races, players are wagering against one another, and those who correctly pick winners split the money. So the more people who back a horse, the less an individual gets. That's why a long shot pays off much more than the favorite.

Stan Cave, the attorney for the foundation, has questioned whether the historical racing games use random number generators, similar to slot machines, to determine winnings.

In April, the racing commission told Franklin Circuit Judge Thomas Wingate that the random number generator was used only in selecting the historical race upon which a patron would wager.

But the new filing from the racing commission and state Cabinet for Public Protection attorneys expanded on that: "Subsequent to that hearing, counsel for the KHRC ascertained that a random number generator has additional purposes."

It's unclear what those additional purposes are. In response to questions from the Herald-Leader about the other ways the random number generator is used in the games, Public Protection Cabinet spokesman Dick Brown said in a statement that those were "issues of fact that the court will hear. We anticipate that answers to these questions will be fleshed-out through expert witness testimony. Therefore, it would be inappropriate to comment further."

Cave declined to comment on the correction filed with Franklin Circuit Court, where the Family Foundation is conducting discovery on how the games work.

Most of the machines in use in Kentucky are the trademarked Instant Racing games, although Encore Gaming now provides the games at Kentucky Downs. RaceTech, which created Instant Racing, sued Kentucky Downs and Encore in federal court in Bowling Green, alleging patent infringement. Kentucky Downs and Encore have denied this and have said the Encore system works differently.

Many documents in both cases are sealed, at least in part, because they have been deemed proprietary.

The state and the tracks have identified officials with Gaming Laboratories International as the experts who will testify about how the games work. In the correction, the racing commission and cabinet said the other uses of the random number generator were "taken into account" when Gaming Laboratories International "analyzed and tested the wagers for compliance with Kentucky statutes and regulations."

RaceTech's 2012 patent for parimutuel historical wagering says the games may be programmed for bonus games in which the "outcome may depend entirely on random events."

Players at the new Keeneland/Red Mile gambling parlor, which uses RaceTech's Instant Racing, indicated that whether they won or lost money seemed to be related to the images of spinning slot machine-type reels.

It was the slots-like appearance that got the games banned this month in Idaho, which legalized Instant Racing in 2013. In February, Idaho legislators voted to ban the games, despite threats about the death of horse racing in the state and the loss of an estimated $3 million in tax revenue.

Some lawmakers said they had been duped into approving historical racing, saying they thought it would play more like live horse racing than slots. Idaho's constitution forbids any game that simulates slots.

Idaho state Sen. Curtis McKenzie, R-Nampa, said at a hearing on the machines: "I don't think there is any way you can say that they are not a simulation of a slot machine — they were intended to be that. ... It's clear that the product itself does not fit within our constitutional definition. I don't think that is a debatable issue. I'm a trial lawyer, I often advise clients on whether to go to trial or not. ... A hundred juries out of 100 would find that these machines are simulations of slot machines. They clearly are."

McKenzie did not return a call for comment.

At the same hearing, RaceTech and Oaklawn Park vice president Louis Cella argued that his game wasn't a slot machine, despite all appearances. No matter what players think they are seeing, all the outcomes are being determined by potential pari-mutuel wagers, Cella said.

The key difference, he told Idaho lawmakers: The slot machine has a random number generator in it that determines whether the player wins.

"An important distinction between (Instant Racing's use) and a random number generator in a slot machine (is that it) directly impacts the outcome of that event. It says you win or lose," Cella said. "With Instant Racing, it's not involved. It depends on whether you have picked the right horse or not."

Cella could not be reached for comment.

Demonstrations of the games at Ellis Park in Henderson, Kentucky Downs in Franklin and at the recently opened Red Mile and Keeneland facility in Lexington are planned for the court this fall. The demonstrations might be recorded for use at trial next year. Wingate has set a trial date of Sept. 6.