Kentucky Judge Rules Historical Racing Is Legal Pari-Mutuel Wagering

by | 10.24.2018 | 7:35pm
Historical horse racing games are based on previously run races

An eight-year court battle over the legality of historical racing machines in Kentucky may at long last be over. On Wednesday, Franklin Circuit Court Judge Thomas D. Wingate ruled that wagering on historical racing machines developed by Exacta Systems (formerly Encore Gaming) was, in fact, pari-mutuel wagering as defined by Kentucky law.

The Exacta Systems historical racing machines, which resemble slot machines but base their results on previously run horse races, were in place at Kentucky Downs in Franklin and Ellis Park in Henderson during the course of the legal challenge. They have since been added to the Red Mile/Keeneland joint venture gaming facility in Lexington.

The case dates back to July 21, 2010, when the Kentucky Horse Racing Commission, the Kentucky Department of Revenue and various racetracks in the state sought confirmation from Franklin Circuit Court that historical racing regulations adopted by the horse racing commission were valid and that the devices themselves did not violate state gambling laws.

On Dec. 29, 2010, the court entered an opinion and order in favor of the state agencies and racetracks, but the Family Foundation appealed the decision to the Kentucky Court of Appeals. The appellate court vacated the decision, remanding the case back to the Circuit Court for further review through the process of discovery. A discretionary review by the state Supreme Court also found that discovery was necessary to determine the legality of the historical racing machines. The Supreme Court affirmed the validity of the regulatory changes and racing commission's statutory authority, but found that the Department of Revenue exceeded its authority when it amended its regulations to allow historical racing revenue to be subject to the pari-mutuel tax.

Since the case was remanded back to the Circuit Court by the Court of Appeals and Supreme Court, four years of extensive discovery was conducted, followed by a bench trial on Jan. 8-11, 2018. To be considered pari-mutuel wagering, betting on historical races had to be proven to be among customers and not against the racetracks/association, that wagers are placed in a designated pool or pools and that the “net pools” (wagers minus takeout) are returned to the winning customers.

“The sole issue before the Court is whether the licensed operation of wagering on the Exacta System constitutes a pari-mutuel system of wagering,” Wingate wrote in his Oct. 24 order. “The Family Foundation states first and foremost that the historical racing machines of the Exacta System are just disguised slot machines and at first glance that argument is persuasive. The machines look like Vegas slot machines, they are advertised as 'Vegas style gambling,' and a casual observer would be hard pressed to discern the difference. The Family Foundation also reasons that allowing the machines to operate is bad public policy. Furthermore, the Commonwealth is being shortchanged on revenue as $2 billion in wagering has produced only $8 million in state revenue.”

After considering testimony from a variety of witnesses and weighing numerous math models, however, Wingate found that the Exacta Systems machines passed each requirement to be considered pari-mutuel.

“The arguments raised by the respondent, the Family Foundation, are noble, moral and altruistic,” Wingate wrote, “however, the arguments advanced by the Family Foundation fail as the Exacta machines are structured to operate in accordance with the pari-mutuel system of wagering. Furthermore, the Legislature has determined that historical racing machines are not gambling devices as long as they comport with pari-mutuel wagering.”

The order applies specifically to Exacta Systems machines. Two other historical racing systems from Parimax and Ainsworth Game Technology have been approved by the Kentucky Horse Racing Commission.

“The Exacta system was designed and built to be pari-mutuel, and to comply with pari-mutuel statutes and regulations in racing states across the country,” commented Exacta Systems president Jeremy Stein following the ruling by Wingate. “The Exacta system and games underwent extensive scrutiny through the course of several years of exhaustive discovery and a multi-day trial where every aspect of the wagering system was explored in great detail.  The finding of the Court was clear and unambiguous, and should settle the question once and for all that the Exacta Historic Horse Racing system and games are pari-mutuel wagers on the outcome of horse races.”

“With this ruling behind us, we look forward to expanding our position as the industry leader in Historic Horse Racing while opening new markets to generate much needed additional revenue for the horse racing and breeding industries,” noted Exacta CEO Ray Reid.

Kentucky Downs has benefited the most from its year-round operation of historical racing machines, pouring millions of dollars into purses annually during its brief, turf-only race meet. As a result of an agreement with the Kentucky Horsemen's Benevolent and Protective Association, Kentucky Downs contributed $1.5 million to purses at Churchill Downs, Ellis Park and Keeneland.

“Obviously we are very pleased with the Court's well-reasoned and detailed ruling,” said Kentucky Downs president Corey Johnsen. “Judge Wingate carefully considered the facts and found that Exacta Systems and our historical horse racing is pari-mutuel and complies with Kentucky law.
“In the world of horse racing, Kentucky often sets the pace,” Johnsen continued. “This is an important ruling for the future of pari-mutuel wagering on historical horse racing. I'm sure other states are watching this situation closely, and the ruling is really great news.
“Horse racing originally offered win, place, show and the Daily Double on track,” he concluded. “Then we developed simulcasting, followed by advance-deposit wagering that permitted players to bet from anywhere. It took 15 to 20 years for each of those innovations to fully develop. I believe that historical horse racing is the next important innovation for our industry.”

Churchill Downs recently opened Derby City Gaming, a historical racing facility in Louisville at a former harness track and OTB, using machines developed by Australia-based Ainsworth Game Technology.


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