Churchill Purse Cut Focus of Hearing

A federal judge June 4 heard preliminary arguments over a proposed injunction filed by Kentucky horsemen asking to reinstate a 20% purse cut imposed by Churchill Downs.

U.S. District Court Chief Judge John G. Heyburn II hosted about a dozen attorneys and others in both his Louisville chambers and via telephone during a conference call to discuss parameters of the temporary injunction motion filed May 23 by the Kentucky Horsemen’s Benevolent and Protective Association. The Kentucky HBPA, which has called the purse cut coercive and in breach of contract, is among the defendants in a federal antitrust lawsuit filed by Churchill Downs Inc. and affiliates.

Heyburn told the participants his main purpose in the conference was to make sure everyone was on the same page in regard to the issues involved with the injunction request, and he spent the better part of the hour-long meeting painting scenarios of different actions.

“I’m not trying to argue the motion for you,” he said prior to setting a June 16 formal hearing. “I just want to make sure we are all of the same thinking.”

Heyburn said that at first glance, the purse cut questions boils down to a few issues: If Churchill Downs misjudged the size of the reduction, but did it within the terms of a 2006 contract signed with horsemen, then an underpayment reimbursement at the end of the meet could clear up those matters. But if it was done, as the horsemen allege, in retaliation for actions that include withholding consent for the meet’s signal to some wagering outlets, then potential damage may have occurred.

“We all agree they have the power to reduce the purses,” he said. “The question is whether they did it in good faith. If they did it in bad faith, or did it unlawfully, that’s a whole different situation.”

Since the purse cut was enacted May 14, purses paid by Churchill Downs have fallen nearly 20.9% to a daily average of $148,960 when compared with a similar 16-card stretch of 2007, according to data compiled by The Jockey Club Information Systems. Total handle during the comparative period has dropped 23.6% to $86,962,865, not including separate-pool wagering, and has declined 8.8% to $356,609,158 for the meet to date.

Heyburn noted that even if he agreed to sign an order for the injunction, at the earliest a week after the June 16 hearing, it would only reinstate the purse levels for the last couple weeks of the Churchill Downs meet, which ends July 6.

“You would have sort of a two-week remedy; it’s an unusual injunctive relief,” he said.

Attorney Douglas L. McSwain, who represents the Kentucky HBPA, said it was still important to get the injunction in place. “We would not want the 20% cut to go into the fall meet,” he said, speaking by telephone.

Conversely, a Chicago-based attorney representing Churchill Downs told Heyburn if the injunction is signed too hastily, it might have negative effects on the fall meet for horsemen.

“If they get the relief they are seeking, and it turns out they are overpaid, then it gets taken away in the fall meet,” said David M. Schiffman via telephone, noting terms in the contract regarding overpayments.

Churchill Downs has said the 20% cut is justified based on projections of lost revenue resulting from the signal boycott, which is aimed at certain advance deposit wagering outlets that handle online and telephone bets.

Under terms of the contract, underpayments from the current meet would only be returned to those in a period of "lowest purse" as designated by the Kentucky HBPA, and can't exceed "25% of the racing days in which the underpayment occurred."

“If Churchill Downs is taking action that can’t be fixed, then it may be a valid reason (for the injunction), because there are 75% of the people that won’t get paid,” Heyburn said.

Kevin G. Henry, an attorney representing the Kentucky HBPA, said it would be difficult to calculate damages, because many horse owners who would have raced horses at Churchill Downs have likely shipped to other locations where purses are higher.

“I agree with your analysis,” he told Heyburn. “But I respectfully submit that it only takes into account horses racing through owners at Churchill Downs, and racing conducted at Churchill Downs through July 6. But it doesn’t take into account those that won’t ship in because of the purse cuts, and are instead shipping to places like Mountaineer Park or Presque Isle Downs. For that group, there can be no damage calculation. They are irreparably damaged.”

Since the purse cut was enacted, the average field size at Churchill Downs has been 7.54, down 6.3% from the same period a year ago.

Heyburn said owners have lots of options when faced with economic challenges, including the possibility of filing a lawsuit to try and collect damages. “We all have freedom of action,” he said. “Everyone presumably acts in their own best interest.”

Heyburn compared the horsemen withholding consent to union workers staging a walkout, and noted Churchill Downs was also likely suffering financially. “When you exercise the veto, it’s like a labor strike,” he said. “When you do that, it’s a threat; it’s an economic move. Everybody loses because the revenue stream declines. And you are hoping, just like in a union strike, that in the end it will be better.”

The judge also offered an unprompted early opinion on the charge by Churchill Downs that horsemen have violated federal antitrust laws by undertaking a joint boycott. “I’m not sure how strong that is,” he said of the antitrust allegation.

In addition to the Kentucky HBPA, others listed as defendants in the lawsuit are the Kentucky Thoroughbred Association, the Florida HBPA, and the Thoroughbred Horsemen’s Group, as well as various affiliated officers.

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