Beshear seeks ‘path forward’ after court ruling deals horse industry ‘a death blow’
The Kentucky Supreme Court on Thursday unanimously ruled that at least some slot-like historical horse racing games being used by racetrack gambling parlors may not be legal.
A statement issued Thursday afternoon by Gov. Andy Beshear indicated that an effort may be underway to find a way to keep the games going.
“Historical Horse Racing is an important part of Kentucky’s economy that supports jobs and contributes over $21 million to the state budget,” Beshear said in the statement. “We are working with various partners to find a path forward.”
The opinion, written by Justice Laurance B. VanMeter, says that the Encore system (previously known as the Exacta system) “does not create a wagering pool among patrons such that they are wagering among themselves as required for pari-mutuel wagering.”
In pari-mutuel wagering, such as on horse races, gamblers set the odds because they are betting against each other rather than against the house, as in casino gambling.
The only forms of legal gambling in Kentucky are pari-mutuel wagering on racing, charitable gaming such as bingo and the lottery. Casino gambling and slot machines are prohibited under the state constitution.
The Kentucky Horse Racing Commission, which regulates the games, does not have the authority to allow bets in which every patron is wagering on something different “without positive legislative action and sanction,” the opinion said.
The opinion and order reverses the 2018 Franklin Circuit Court’s approval of the Encore gaming system, and sends the case back, saying the court applied the wrong legal standard.
It is unclear what the immediate impact will be.
Senate Majority Floor Leader Damon Thayer, R-Georgetown, called the court’s decision “wrong” and “irresponsible” in a statement.
He said it would “deal a death blow to Kentucky’s horse industry if not remedied.”
The opinion was the result of a decade-long legal fight between the conservative Family Foundation, which opposes expanded gambling, and the state’s racetracks and regulators, who approved the first games in 2010.
Since then, the electronic gambling machines have become more sophisticated and much more prevalent, with almost 3,000 machines approved for use across Kentucky, although only 1,741 were active last month due to the coronavirus pandemic.
What happens next
The Family Foundation, which has argued from the beginning that the games are not pari-mutuel, issued a statement Thursday calling on the tracks to halt all historical horse racing “until it is determined that the gaming being conducted is in conformity with law.”
Since the gambling began at Kentucky Downs in September 2011, more than $8.6 billion has been wagered, with most of the money returned to bettors in the form of winnings. But the stakes for the state are huge, with more than $50 million going to the general fund through August.
“The Family Foundation is grateful to the justices for seeing through the smoke screen generated by the tracks and the Kentucky Horse Racing Commission that for years has masked a form of gambling that ignored the clear legal definition of pari-mutuel wagering,” said Martin Cothran, spokesman for the group, in a statement.
“This decision reaffirms that words have meaning and that even the state’s most powerful industry can’t turn the plain language of the law upside-down for its own economic benefit. We are grateful to the justices on the Court for their common sense ruling that the rule of law still prevails,” Cothran said. “In light of this decision, we are calling on all horse racing tracks that are running historical racing parlors to cease operations until it can be demonstratively shown that their activities are legal. The time for flouting the law is over.”
Patrick Neely, chief development officer of Exacta Systems, said they are preparing new software designed to meet the requirements set by the Kentucky Supreme Court.
“Exacta appreciates the clarity surrounding HHR in Kentucky, and we are excited to present our system solution that complies with today’s ruling to the KHRC in the coming days,” he said in a statement.
What Keeneland says
Keeneland vice president Vince Gabbert said the Lexington track is still evaluating the opinion “but nothing seems to change course on their previous ruling that the commission acted appropriately in promulgating the regulations.”
The Encore games are in use at the Keeneland/Red Mile gambling parlor as well as Kentucky Downs and Ellis Park.
It is unclear what the ruling will mean for the gambling machines in operation at Churchill Downs and for other systems in use at the racetrack gambling parlors but the court found that no system that has players betting on different randomly generated horse races meets the existing definition for pari-mutuel.
All of them rely on the basic premise, according to the tracks, that the players are betting on a previously run horse race.
But the court said on Thursday that isn’t enough to make the games pari-mutuel.
What the court said
The opinion found that the Encore System isn’t pari-mutuel because bettors are not wagering on the same race and they are not betting into the same pool to set odds.
Players gambling on the “randomly generated historical horse races ... are not establishing odds with other patrons wagering on the same race(s),” the court said. “Emphatically, such patrons are not wagering among themselves as required by pari-mutuel wagering.”
That would seem to indicate that the other historical horse racing gambling systems in use in Kentucky also would not meet the definition of pari-mutuel.
Late Thursday, Churchill Downs spokeswoman Tonya Abeln said in a statement that Churchill “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. ... We appreciate Kentucky Governor Andy Beshear’s support of the industry in his statement regarding Historical Horse Racing today.”
Churchill Downs, which does not use the Exacta games, has invested millions in developing gambling facilities in Louisville, Oak Grove and now in Northern Kentucky.
The opinion notes that the requirement to bet on the same races still would allow for Pick-4 and Pick-6 type wagers with carryover pools.
All seven of the justices concurred, with Justice Michelle M. Keller writing a separate opinion saying that when the court previously ruled that the Kentucky Horse Racing Commission could regulate historical horse racing “we lacked a sufficiently developed record to determine whether any specific system was pari-mutuel. ... Ultimately, however I agree with the majority that the operation of the Exacta System is not pari-mutuel as defined by common law.”
Why it is important
The state’s racetracks sought the form of gambling as a way to shore up declining purses and breeders’ incentives for Kentucky-bred and Kentucky-raced horses.
Last year, more than $2 billion was bet on historical horse racing, generating more than $15 million for the general fund in tax revenue and $156 million for the tracks, plus more than $16 million for the horse industry.
The Kentucky Horse Racing Commission has not commented on what the ruling could mean for the track gambling parlors in operation around the state, which saw almost $265 million in wagering in August.
But the opinion noted that “without positive legislative action and sanction,” the Kentucky racing commission that regulates pari-mutuel betting, “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.”
The court acknowledged that the horse industry is important to Kentucky but said: “If a change, however, in the long-accepted definition of pari-mutuel wagering is to be made, that change must be made by the people of this Commonwealth through their duly-elected legislators, not by an appointed administrative body and not by the judiciary.”
The opinion also noted that although the legislature in 2015 passed a tax on “pari-mutuel wagering on historical horse races,” the bill also specified that “no provision of this Act shall be construed to as a recognition or finding concerning whether the operation of wagering on historical horse races constitutes a pari-mutuel form of wagering.”
Rep. Adam Koenig, R-Erlanger, chair of the House Committee on Licensing, Occupations and Administrative Regulations said Thursday that much of what happens now will depend on Judge Thomas D. Wingate’s decision based on the Supreme Court ruling.
If Wingate rules that one type of machine is not allowed but another is, Koenig assumes the tracks could switch them out.
If the decision is that none are OK, the state needs to consider whether it wants to remain a horse racing Mecca or fade away.
“We need to be a Grade 1 stakes-winning state,” he said.
Koenig, who favors allowing sports betting as well as casino gambling in Kentucky, said that if needed, he would back legislation to make clear that historical horse racing is legal.
“I’m assuming we would need some legislation to clean it up,” Koenig said.
This story was originally published September 24, 2020 at 11:13 AM.
