Split Decision in Instant Racing Ruling

Any hopes for a Kentucky Supreme Court decision that resolved all legal issues surrounding historical racing in the state didn't pan out when the court issued its ruling Feb. 20, but the high court did find the Kentucky Horse Racing Commission has the authority to allow such wagering.

In its decision the Supreme Court recognized the KHRC's move to allow historical race wagering, a decision that appears to allow machines at two tracks in the state to stay up and running. But it gave the Family Foundation of Kentucky the ability to pursue discovery in lower courts.

The decision also put questions about how the wagers are taxed on the shoulders of state legislators; the court ruled that the Kentucky Department of Revenue lacks the statutory authority to tax Instant Racing wagers.

From the outside, Instant Racing machines look like slot machines but payouts are based on a pari-mutuel formula and winning bets are determined by the outcome of previously run races. Litigation began in the state soon after the KHRC authorized the wagering form and legislators approved the regulations in 2011.

Instant Racing currently is offered at Kentucky Downs and Ellis Park. Churchill Downs Inc. officials said because additional litigation is likely, it will continue to "monitor the situation and see how it develops." Chip Bach, general manager of Turfway Park, said the Northern Kentucky track is assessing the Supreme Court decision and will consider its options going forward.

The Supreme Court took no issue with the KHRC's adoption of Instant Racing regulations.

"We reject the (Family) Foundation's argument that historical horse racing falls outside the statutorily-circumscribed parameter of 'legitimate horse racing'," the court said in its decision. "... We find nothing in the statutes to suggest that a 'legitimate' horse race must be a 'live' horse race and we find nothing...indicating an otherwise legitimate horse race loses its legitimacy when later viewed by way of video recording."

The KHRC applauded that segment of the ruling.

"The Kentucky Horse Racing Commission has believed from the beginning, and the Kentucky Supreme Court has now found, the commission has the legal authority to promulgate regulations for the operation of historical horse racing in Kentucky," the KHRC said in a statement. "This is an important victory for the commonwealth and the future of the horse industry in Kentucky."

Still, aspects of the decision likely ensure continued litigation and debate. The court said further proceedings in the trial court are needed to determine if historical racing is allowed under gambling provisions in the state's penal code.

"Whether the actual operation of wagering on historic races violates the gambling provisions of the Kentucky Penal Code is dependent upon facts not in the record and therefore, this action is remanded for further proceedings in circuit court," the Supreme Court said in its ruling.

The court said new laws are needed to define how Instant Racing should be taxed, noting that the Kentucky Department of Revenue based its policies on laws that tax live racing.

"We simply cannot bend and stretch the English language far enough to refer to a machine that displays video recordings of Thoroughbred horse races that occurred in the distant past as live racing," the court said in its ruling. It noted in its summary: "The Kentucky Department of Revenue does not have the statutory authority needed to collect tax on the wagering on historic races."