CDI Files Suit Over Texas' Wagering Rules

Track operator challenging telephone and Internet wagering prohibition.

Recent action by the Texas Racing Commission to enforce its ban on Internet and telephone wagering has resulted in a lawsuit filed by Churchill Downs Inc. and

In the suit, filed Sept. 21 in U.S. District Court in Austin, Texas against members of the Texas Racing Commission and its executive director, Churchill Downs contends the legislation allowing only wagers permitted are those made in person at a live or simulcast facility is unconstitutional. And to support its argument, Churchill notes that the Texas commission has declined to enforce its own ban on Internet and telephone wagering, thus allowing Texans to carry out such activity since the early 1990s.

"Since the 1986 enactment of the Texas Racing Act, Texas law has required any Texan wishing to wager on a horse race to do so in person," Churchill's suit states. "But tellingly, the in-person requirement has gone unenforced. Texans have placed wagers via telephone or the Internet on out-of-state races since the 1990s─and the Racing Commission has allowed them to do so. State officials do not ordinarily shirk their duty to reinforce state law. But they also have a higher duty: 'Of the legislative act is a contravention of the Constitution the office shall obey the Constitution.'

Texas has not amended its Racing Act to permit Internet or telephone wagering─as have a lot of states─and a recent legislative review and reauthorization of all racing laws resulted in the provision that all wagers must be made in person remained intact.

In fact, in the latest legislation, language was added that states: "A person may not accept, in person, by telephone, or over the Internet, a wager for a horse race or greyhound race conducted inside or outside this state from a person in this state unless the wager is authorized under this Act."

New language added to another section of the Racing Act also states: "A person who is not a (racing) association under this Act may not accept from a Texas resident while the resident is in this state a wager on the result of a greyhound race or horse race conducted inside or outside this state."

According to the CDI lawsuit, on June 26 of this year, the Texas commission "issued a subpoena to the racetrack operator seeking information about the company's acceptance of wagers from Texas in an effort to enforce the in-person rule."

CDI also states that a provision in the Racing Act is discriminatory in that it provides the "only way the vast majority of Texans will be able to wager on the Kentucky Derby or any other out-of-state horse race is with the consent of a competing in-state race track."

The Churchill suit contends the commission has a vested interest in enforcing the "in-person" only wagering provision since the regulatory body receives a portion of its funding from wagers placed in-state, but would not receive money from Internet or telephone wages placed on out-of-state races.

"Raising revenue is a legitimate government function," the complaint says. "And in times of budget crisis, government agencies understandably seek out new revenue sources to address budget shortfalls. But, of course, revenue generation is not a local interest that can justify discrimination against interstate commerce (C&A Carbone v. Clarkstown)."

Churchill Downs is seeking an injunction enjoining the Texas Racing Commission from enforcing "and otherwise giving any effect to" the provisions under the Racing Act related to its prohibition against telephone or Internet wagering.

"Under the U.S. Constitution, states may ban all wagering on horse races altogether─but they may not authorize wagering on terms that effectively favor in-state over out-of-state tracks," the CDI suit states. "Indeed, it is only because the commission has dutifully declined to enforce unconstitutionally discriminatory laws─quarter-century-old state laws that would otherwise require persons wishing to bet on a race to do so in person, to the obvious detriment of out-of-state tracks and their in-state customers─that Texans have been able to wager on out-of-state races by telephone or on the Internet since the 1990s.

"A state cannot impose an 'in person' transaction requirement on the purchase of shoes or books, for no reason than to favor local businesses at the expense of out-of-state entities like or," Churchill continued in its filing. "Such a law would surely violate the Commerce Clause. The same principle applies here. Indeed, this case is even more extreme."