"Horse Racing"

Industry horsemen’s groups have the power to prevent off-site betting at Horsetracks

This post was written by staff member Nick Kloiber.

Racetracks in Kentucky have been in the news due to their place in the recent legislative battle over slot machines. Some tracks have said that, because of the dire financial times, they might have to close without the added draw of slot machines on site. Other tracks have threatened to reduce purses in an effort to cut costs. Turfway Park is one such racetrack, and it seems their solution might actually hurt them more than they originally thought, quickening a rush to closure.

The racetrack has proposed a 5% cut in all purses for the upcoming year compared to 2008, a total cut of about $700,000. Gregory Hall & Jenny Reese, Turfway, Horsemen dispute purse cut, THE COURIER-JOURNAL, Aug. 26, 2009, available at http://www.courier-journal.com/apps/pbcs.dll/article?AID=2009908250345. Without an agreement with the horsemen's group, simulcast betting on Turfway's races at other tracks nationwide could be prevented by those state's horsemen's groups. Id. The law that gives these groups this power is called the Interstate Horseracing Act of 1978. Congress decided that the Federal Government needed to ensure interstate cooperation in the area of horserace simulcasting, "in order to further the horseracing and legal off-track betting industries in the United States." 15 U.S.C.S. § 3001 (LexisNexis 2009). That is a straightforward proclamation of Congress's intent and position on regulation in the industry. The way they decided to regulate, however, reveals many questions.

Racetracks must get, among other things, consent from the host racing association in order to accept off-site betting. 15 U.S.C.S. § 3004 (LexisNexis 2009). As "a condition precedent to such consent, said racing association . . . must have a written agreement with the horsemen's group, under which said racing association may give such consent, setting forth the terms and conditions relating thereto." Id. Why did Congress give such a power to industry groups? Is it a legislative form of a collective bargaining grant? State's horsemen's groups can effectively band together and say they won't accept simulcasting from a track unless a contract is in place between that racetrack and its horsemen's group. With such a group effort, these groups have the power to prevent tracks from changing purse payouts or other contract issues with their local group, for fear that the changes will be rejected and their simulcast business will also be blocked.

For a track in Turfway's predicament, their efforts to reduce costs to try and stay in business could very well cost them even more money due to no simulcast business, tightening what was already a precarious financial situation even more. Everyone is allowed to bargain for what they think they can get, but Congress giving these industry groups a one-handed bargaining chip doesn't help struggling racetracks trying to stay competitive and in business.

Ohio and Kentucky both debating the issue of racetrack gambling

This post was written by staff member Katie Huddleston.

The issue of allowing additional gambling at racetracks, usually in the form of slot machines, has been a hot topic in the equine industry since the recession that began last fall has lead to dramatic decreases in betting and earnings at such tracks. Janet Patton, Drop in wagering eats into Ky. Coffers, LEXINGTON HERALD LEADER, Sep. 22, 2009, available at http://www.kentucky.com/news/state/story/944936.html. Kentucky, home to the world's most renowned horse race, the Kentucky Derby, has yet to approve such racetrack gambling. Governor Steve Beshear called a special legislative session in June in an attempt to pass legislation that would allow slot machines to be added to the Kentucky racetracks: Churchill Downs (home of the Kentucky Derby), Keeneland Race Course and Turfway Park. However, the measure was unsuccessful. Now, neighboring Ohio is facing its own challenges in its attempt to institute video lottery terminals at equine racetracks.

Monday, September 21, 2009, the Ohio Supreme Court put a freeze on the implementation of slots at the state racetracks after Gov. Ted Strickland had "authorized the machines by executive order" and the legislature had included the expected revenue in its budget. Julie Carr Smyth, Ohio high court ruling puts racetrack slots on hold, LEXINGTON HERALD LEADER, Sep. 22, 2009, available at http://www.kentucky.com/101/story/944935.html. This measure was the result of a suit brought by the developers of LetOhioVote.org. The group sued the Ohio Secretary of State for ignoring submitted petitions asking for the issue of racetrack slots to be included on the ballot in November of 2010. While the state argued that the slots revenue was "shielded from the referendum process" by reason of being an appropriation, the court disagreed. Id. The court ordered Secretary of State Jennifer Brunner to accept the petitions submitted by LetOhioVote.org, which requires the Secretary to put the question of racetrack slots on the ballot next year. According to the court's ruling, until such vote is held, the slots plan cannot be implemented. The Ohio Lottery Commission, the Governor and legislators were disappointed with the result, which they claim will result in a "nearly $1 billion shortfall" in the state budget. Id.

The Supreme Court's decision could have wide-reaching implications on the issue of racetrack gambling across the country. In Kentucky, the decision may offer a reprieve. With betting at Kentucky racetracks falling as much as 17 percent last season, the added pressure of competing with Ohio tracks may be diminished by this delay in slot implementation. Janet Patton, Drop in wagering eats into Ky. Coffers, LEXINGTON HERALD LEADER, Sep. 22, 2009, available at http://www.kentucky.com/news/state/story/944936.html. The decision may also provide incentives for racetrack gambling opponents and proponents to consider seeking a referendum to finally decide the issue. In the meantime, Indiana tracks will fill the void temporarily left by Ohio and Kentucky by implementing racetrack slot gambling this year, monopolizing the market for such gambling in the region, at least for the time being. Id.

Coexisting: Track Betting and Lottery Prohibitions

This post was written by staff member Alex Torres.

While a great number of states authorize, if not actively run and endorse, lotteries there was a time when such widespread presence was non-existent. Specifically the Supreme Court in Champion v. Ames, 188 U.S. 321 ( 1903) upheld, as within Congress’ powers under the Commerce Clause, the Federal Anti-Lottery Act which prohibited the transport of lottery tickets across state lines. While lotteries have become increasingly prevalent among the several states in the century since the decision in Champion tensions have arisen when this prohibition, which was incorporated into multiple state constitutions in the following years, was alleged to prohibit other types of gambling.

Specifically, the Supreme Court of Michigan was called on in Rohan v. Detroit Racing Ass’n, 314 Mich. 326, 345 (Mich. 1946) to determine whether a state statute authorizing the licensing and “parimutuel betting” violated the Michigan Constitution providing that “the legislature shall not authorize any lottery nor permit the sale of lottery tickets.” MICH. CONST. of 1908, art. V, § 33. Should the court have found that horse betting did qualify as a lottery the import would have been to establish a precedent against horse betting and, by extension, the horse racing industry as a whole as a result of extensive lottery prohibitions in state constitutions across the country.

Thankfully the court held that gambling on horse races did not come within the penumbra of a lottery. The court based this primarily on the logic that lotteries were differentiated from horse races, and presumably other games of ‘chance’, on the premise that the result of a lottery could not be divined by “will… human reason, foresight [or] sagacity.” Rohan, 314 Mich. at 343(citing People v. Elliott, 74 Mich. 264, 267 (Mich. 1889). Chance was further emphasized as a necessary ingredient in the finding that a system was a lottery with the court emphasizing that, “[c]hance is an essential element of a lottery in the sense that, unless a scheme for the awarding of a prize requires that it be awarded by chance, it is not a lottery.” Id. at 344. The court held that betting on horse racing required more than mere chance, specifically that winners were not ones chosen at random but those who, by their own volition, “bet on the winning horse.” Id.

Since the winners were not determined by mere chance, but by exercise of “judgment and discretion” in selecting their entrants, the court found that pari-mutuel betting fell outside the purview of the lottery prohibition and was therefore not unconstitutional in that regard. Id. at 346. This holding is especially relevant as the 6th Circuit is home to our nation’s greatest reserve of equine potential which would have been unfairly stunted should horse betting have been found violate. Further, the court’s holding that horse betting was more than mere chance imparts an air of respectability, and perhaps glamour, to our equine industry, differentiating it from mere lotteries and other games of chance.

Reining in the Horse Racing Industry: A Proposal for Federal Regulation of Steroid Use in Racehorses

Appearing in KJEANRL Vol. 1 No. 1, this note was written by staff member Jennifer Jabroski. The abstract was written by staff member Bryan Henley.

The use of performance enhancing drugs is a major and ongoing controversy in many professional sports involving human athletes, most notably Major League Baseball. In general, arguments surrounding these issues are invariably drawn to the effect these drugs have on the integrity sport itself, and the risk of harm that they have on the athletes. It should come as no surprise that many of the same problems permeate sports where nonhuman athletes compete, such as horse racing. Strong arguments have been put forth that improper use of anabolic steroids on racehorses both harms the endeavor of sport of racing itself and increases the risk of injury to the horse. Accordingly, many jurisdictions have “banned” use of these drugs. However, many steroids are distillations of naturally occurring chemicals found in the body, so regulation relies on setting reasonable thresholds where the occurrence of a concentration in excess of that threshold denotes a foreign supply. Furthermore, these drugs do have valid medical uses that regulation should not encourage trainers to neglect, less such regulation become an instrument of harm to the horse – a purpose in direct contrivance of its generally accepted goals.

In her KJEANRL note entitled “Reining in the Horse Racing Industry: A Proposal for Federal Regulation of Steroid Use on Racehorses,” Jennifer M. Jabroski explores the current regulatory schemes of four states with a well developed horse industry: Kentucky, California, New York, and Illinois. These schemes are then compared with each other and with the suggested standards set for by the Racing Medication Testing Consortium, which is a voluntary body composed of major stakeholders and technical experts for the horse racing industry. The result is inconsistency; inconsistency with the drugs, their therapeutic regulation, and the penalties associated with noncompliance. Such inconsistency is anathema to economic development of the sport and possibly the health and well being of the horses themselves. As it currently exists, horse racing relies heavily on the transportation of the same horse between multiple states. A diligent owner would be burdened with compliance to the multiple, and potentially contradictory, regulations of all relevant states. Alternatively, as many jurisdictions have failed to regulate at all, horses that only race in unregulated jurisdictions would be placed at greater risk.

Federal regulation is the solution that Ms. Jabroski proposes. Empowered by the commerce clause, Congress could prescribe a uniform regulation of steroid use for race horses. This uniformity would be of economic benefit to the industry by providing its participants with a clear and consistent standard of operation. Additionally, and perhaps most importantly, the integrity of the sport would be maintained both by direct fair standards of competition while simultaneously securing the safety of all racehorses within the United States.

Why are there no horse races at the Kentucky State Fair?

The Kentucky State Fair is over 100 years old dating back to the first state fair held in 1902 at Churchill Downs in Louisville, Ky. Starting tomorrow from August 20-30 the fair will once again return to Louisville at it's new home since 1956, the Kentucky Exposition Center. Persons from around the Commonwealth come to show off livestock, crops, food, crafts, various other exhibitions. The Fair also plays host to the World's Championship Horse Show, attracting over 2,000 individuals from around the world for competitions involving, saddlebreds, roadsters, road ponies, hackney ponies, and saddle seat equitation. Kentucky State Fair, http://www.kystatefair.org/horse_shows/index.html (last visited Aug. 19, 2009). The Fair also hosts a Quarter Horse Show, a Morgan Horse Show and a Minature Horse Show. There's no question that the fair hosts an abundance of horses, but what's missing in a state noted for horse racing, is a good old fashioned horse race.

The Kentucky Supreme Court addressed the issue of whether or not a horse race on the state fair grounds is constitutionally permitted in the 1949 case of Hargett v. Ky. State Fair Bd., 216 S.W.2d 912 (Ky. 1949). Back in 1949 the Kentucky Fair Board leased a material portion of the fair grounds for a four year period with an option to renew the lease for a fourteeen year period to a private individual or leasee for the express purpose of conducting horse races. Id. at 914. A second private individual sued the Kentucky State Fair Board arguing that the lease was invalid and lost at the trial level. On appeal the private individual raised four issues:

"1. The attempted lease extends beyond the term of the Board, and is therefore void.

2. The State Fair Grounds belong to the public and may not be leased or sold without specific authority from the people, which has not been given by the General Assembly.

3. The lease authorizes private persons to operate exhibitions and attractions on State Fair Grounds for private profit, and under the control of private persons, in violation of the Statute directing 'exclusive control of such activities by the State Fair Board.'

4. The attempted lease and option is really intended to facilitate race track gambling of the State Fair Grounds, and is contrary to the express public policy of this Commonwealth.'" Id. at 913.

The Kentucky Supreme Court examined the purposes of the lease agreement and determined that the lease failed to meet the test applied at the time to a "contract authorizing the conducting of 'horse racing and related general purposes' on a part of the State Fair Grounds.'" Id. at 916. K.R.S. 230.040 only permits horse racing in the Commonwealth sanctioned by the State Racing Commission. Ky. Rev. Stat. Ann. 230.040 (repealed 1960).The authority of the Kentucky Racing Commission to regulate and license the running of horse racing was upheld in State Racing Commission v. Lationia Agricultural Ass'n, 123 S.W. 681 ( Ky. App. 1909). For failing to register for a horse racing license with the State Racing Commission the license was found to be void.

Additionally, the Kentucky Supreme Court held that as a general rule a board of public officers exercising a government function cannot make a contract extending beyond its term of office without express authority to do so. Id. at 918. The lease for horse racing in this case was to occur during the State Fair and to extend to times when the fair was not in operation as a form of generating revenue for the State. Id. The Kentucky Supreme Court found no problem with the State Fair Board's policy to authorize the use of its property for other than State Fair purposes but held that in this instance the State Fair Board went beyond its specific authority because it cannot issue horse racing licenses. Id. In the end the Supreme Court reversed the trial court's decision and held that the lease to the private individual was invalid. And the rest so they say is history.

In closing it is interesting to note that the statute granting the Kentucky Racing Commission sole authority over the licensing of horse racing in Kentucky was repealed in 1960. So now the question lingers... can horse racing return to the Kentucky State Fair? I suppose the real problem with that proposition is the lack of a suitable race track on the fair grounds. But that is a question for another day...