Kentucky Supreme Court rules historical horse racing machines are not pari-mutuel

LEXINGTON, Ky. – The Kentucky Supreme Court ruled unanimously on Thursday that a type of gambling device operated in the past by some tracks in the state does not fit the definition of “pari-mutuel wagering” as defined by Kentucky law, a ruling that could jeopardize millions of dollars in annual revenues for the tracks and reduce purses in the state.

The ruling applied to a single type of machine used by Encore Racing – a company that is now known as Exacta Racing – and it is not yet clear if the ruling would apply to all the different machines that racetracks in the state use. The gambling devices, which are called historical horse racing machines, were approved by the Kentucky Horse Racing Commission in 2010 and first put into operation at a racetrack two years later.

The ruling said that the Encore machine “does not create a wagering pool among patrons such that they are wagering among themselves as required for pari-mutuel wagering,” and it remanded the case to the Franklin Circuit Court, which had earlier ruled that the machines did fit the definition of “pari-mutuel,” for “entry of a judgment consistent with this opinion.”

Exacta Systems chief development officer Patrick Neely said in a statement that it “appreciates the clarity surrounding HHR in Kentucky, and we are excited to present our systems solution that complies with today’s ruling to the KHRC in the coming days.”

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Since first being installed at Kentucky Downs in 2012, the KHRC has established a relationship with an outside consulting company that certifies that the machines comply with the state’s regulations. Manufacturers of the machines have had the new designs of dozens of the machines vetted by the KHRC in recent years, and it is possible that manufacturers will argue that the ruling does not apply to their newest system architecture.

The devices, which resemble slot machines, are in operation at casinos owned by Churchill Downs, Keeneland, The Red Mile, Kentucky Downs, and Ellis Park. Churchill Downs is also installing the machines at a rebuilt Turfway Park, which the company bought late last year for the explicit purpose of expanding its HHR operations.

The ruling acknowledged the enormous amount of investments that the tracks have made in the state to operate the machines, and it all but welcomed the legislature to clarify its intent on allowing the machines for eight years.

“We acknowledge the importance and significance of this industry to the commonwealth,” the ruling said. “We appreciate the numerable economic pressures that impact it. . . . 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 Supreme Court is the first court in Kentucky to rule negatively on the pari-mutuel nature of the machines. Courts in other states have made similar rulings, however.

The operation of the machines have led to a doubling in purses distributed in Kentucky over the past eight years, with a specific portion of the revenues from the devices sent to the Kentucky Thoroughbred Development Fund, which awards bonuses to Kentucky-bred horses and their breeders based on racing performance.

The Family Foundation of Kentucky, which brought the initial suit and appealed the lower-court rulings to the Supreme Court, issued a statement following the ruling that said that tracks should cease operating the machines “immediately.”

“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,” said Martin Cothran, the leader of the group. “We are grateful to the justices on the court for their common-sense ruling that the rule of law still prevails.”