06/19/2017 1:03PM

Churchill Downs seeks approval for Instant Racing machines

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Churchill Downs Inc. has asked the Kentucky Horse Racing Commission for approval to add devices resembling slot machines to its flagship racetrack in Louisville, according to an agenda distributed by the commission on Monday.

The commission is expected to take up to the request at a meeting on Tuesday. The commission has generally issued approvals to other tracks that have sought to install the machines, which use races that have already been run to generate random numbers that determine payouts to players. The devices, which are in place at three Kentucky tracks and closely resemble traditional slot machines found in casinos, are known under Kentucky regulations as historical horse-racing machines, though they are also known as Instant Racing machines.

Churchill Downs officials have told financial analysts several times over the past six months that the company was considering adding the machines to its Louisville track. Prior to those discussions, the company had downplayed the devices as being poor competitors to traditional slot machines in place at casinos across the Ohio River in Indiana and Ohio.

That talking point was widely viewed as part of Churchill’s lobbying strategy to gain legislative approval for a casino in the state, under the belief that if Churchill installed the machines, the legislature would ignore its pleas for a full casino. But that game plan appears to have been sidelined as Churchill and other gambling companies have come to realize that the administration of Gov. Matt Bevin, a religious conservative elected in 2015 with strong tea party support, has absolutely no appetite for expanding gambling in the state.

Churchill officials did not immediately respond for requests for comment. The company typically does not comment on matters affecting its business during trading hours, citing regulations governing publicly traded companies.

Instant Racing machines have generated millions of dollars in profits for Kentucky track owners who have installed the machines, while simultaneously boosting purses. Horsemen receive a small cut of the revenue generated by the devices, typically just less than 1 percent of gross wagering through the machines.

Kentucky Downs in Franklin, a small track near the Tennessee border that runs a brief all-turf meeting each year, was the first to install the machines, in 2011. The following year, Ellis Park in Henderson, on the western end of the state, followed with its own Instant Racing parlor. Two years ago, a parlor opened at The Red Mile in Lexington, owned and operated in partnership with Keeneland Racecourse.

Turfway Park in northern Kentucky has also received approval to operate the machines, but the track’s owners have not yet decided whether to go forward with a project at the track, which, like Churchill, faces competition from casinos in nearby Cincinnati.

According to KHRC records, handle on the devices statewide this year through May was $839.0 million, up 44.5 percent from the same period last year, with handle up sharply at both the Kentucky Downs and Red Mile parlors. The gross commission on that handle was $65.3 million, with $12.6 million remitted to a variety of other sources, including $6.6 million to purses for Thoroughbreds and Standardbreds. Track owners retained the rest, $52.7 million, for a gross return on handle through the machines of 6.3 percent.

A parlor in Louisville would represent a large urban market for the machines, but it is hard to assess how the machines might fare at Churchill due to the competition from the casinos across the river. Churchill is located near the outer belt of a highway circling the main urban area, approximately five miles from the river crossing. Churchill would have two sites to consider for a parlor, its track and a nearby training center it owns and operates.

The machines at Kentucky Downs have drawn $520 million in wagers this year through May, branding the parlor there as the most lucrative location for the machines in Kentucky. However, the parlor benefits from its close location to Tennessee, where gambling on anything but the lottery is prohibited.

The legality of the machines has been challenged by a religious group in Kentucky, the Family Foundation, which has argued that the machines violate prohibitions in the state constitution on casino gambling. The group’s appeal of an earlier ruling upholding the commission’s authority to approve the devices remains unresolved.

Marty Maline, the executive director of the Kentucky Horsemen’s Benevolent and Protective Association, said that horsemen fully support the addition of the machines.

“We’re really enthusiastic about it, with what we’ve seen at Kentucky Downs, The Red Mile, and even Ellis Park,” he said. “Obviously, it’s going to help our purses, and that will be helpful.”