Kentucky racing industry suffers setback in gambling ruling, Beshear says state will act

LEXINGTON, Ky. – A ruling issued Thursday by the Kentucky Supreme Court invalidating the operation of a type of gambling device in use at state racetracks has sown confusion and uncertainty within the state’s racing industry, which is now grappling with the implications of the ruling and its response.

The 7-0 ruling by the court said that gambling devices known as historical horse racing machines did not legally fit the definition of parimutuel wagering in the state, overturning the rulings of several lower courts. The ruling was remanded to the Fifth Circuit Court in Frankfort, which was instructed by the Supreme Court to issue a new opinion “consistent” with its interpretation.

One day after the ruling, casinos across Kentucky owned by racetracks continued to operate the devices, and the machines were expected to remain in operation at least until the Fifth Circuit issues its own ruling in the case.

The devices were approved in 2010 by the Kentucky Horse Racing Commission and have been in operation since 2012. Since Kentucky Downs was the first to install the devices, every racetrack operator in the state has embraced the machines, which in the last fiscal year generated $150 million for their operators and $15 million in subsidies for purses and breeder awards, according to KHRC figures.

The ruling was seemingly welcomed by exactly one group, the Family Foundation of Kentucky, a religious conservative group that filed the initial lawsuit leading to the Thursday ruling. Following the release of the ruling, Gov. Andy Beshear, the state Senate majority leader, racetracks, and equipment manufacturers all issued statements that were supportive of the continued operation of the machines.

Sen. Damon Thayer, the Republican majority leader, said in an interview Friday that the loss of the machines would have a “potentially devastating” impact on the racing industry due to the enormous amount of revenues the machines have generated. Overall purses at Kentucky tracks have doubled since 2012.

“There could be huge job losses, huge hits to the economy at a time when we can least afford it, irreparable harm to our racing industry,” Thayer said.

Still, Thayer said that there is not yet a clear path forward for the legislature, which does not reconvene until Jan. 5.

“It’s premature to talk about a legislative solution right now,” Thayer said.

Patrick Neely, chief financial officer of Exacta Systems, a manufacturer of the devices with 1,000 machines in operation at Kentucky tracks, said in a statement that the company had “anticipated” that the Supreme Court might issue a ruling striking down the legality of the machines and had been working for some time on a software change that would align its devices with the mandate set out by the Supreme Court in its Thursday ruling. The software change will be presented to the KHRC “in the coming days,” the statement said.

“After reading opposing legal briefs and hearing the questions asked at oral arguments, we wanted to have an alternative system in place that addressed the objections raised by opposing counsel and the various justices, as a contingency in the case of a negative ruling,” the statement said. “The updated Exacta system is fully compliant with the requirements as articulated by the Supreme Court.”

The KHRC did not immediately respond to requests for comment, but the agency was said to be carefully studying the Supreme Court ruling in order to determine how the commission would move forward in the wake of the ruling. Many other officials involved in Kentucky racing have not returned phone calls, underlining the uncertainty created by the ruling.

In a narrow sense, the ruling applied to devices manufactured by Exacta, since the company (under its former name, Encore) was the only manufacturer with devices in use at the time the Family Foundation filed its lawsuit. Although that could lead some to interpret the ruling as being applicable only to the specific machines named in the ruling, an official who works closely with manufacturers said Friday that all of the machines in use at Kentucky racetracks faced the same problem of being in violation of the parameters the ruling set out for being compliant with the state’s parimutuel definitions.

“It does have statewide ramifications,” said the official, who spoke on the condition of anonymity. “It impacts every operator and every provider.”

Churchill Downs Inc., which operates the devices at a casino at its Trackside training center and at a new harness track/casino in the southwestern portion of the state, released a statement Thursday night saying that the company may need legislative help to erase the uncertainty created by the ruling. Churchill also has announced plans to install the machines at Turfway Park in Northern Kentucky, a track it purchased late last year, and at its flagship track in Louisville.

Churchill “will work within our legal rights and in coordination with Kentucky legislators to ensure the ongoing legal operation of our [gambling] facilities in Kentucky,” the statement said.

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