Instant Racing machine at Oaklawn Park.

Instant Racing machine at Oaklawn Park.

File Photo

Judge: Instant Racing Rules Under KHRC Valid

A Kentucky judge has ruled Instant Racing regulations are valid and lawful.

A Kentucky circuit court judge has ruled draft regulations for Instant Racing “are a valid and lawful exercise” of the Kentucky Horse Racing Commission’s statutory authority.

The ruling was issued Dec. 29 by Franklin Circuit Court Judge Thomas Wingate.

Wingate’s ruling also states licensed operation of pari-mutuel wagering on “historical races”—called Instant Racing in Arkansas—doesn’t contravene statutory prohibitions of gambling in certain Kentucky statutes, and that the state Department of Revenue’s contention that Instant Racing would be subject to typical pari-mutuel taxes is valid.

The KHRC and Kentucky’s eight racetracks petitioned the court this summer to get a ruling on the proposed regulations before going forward. The Family Foundation of Kentucky stepped in to challenge their petition.

Plans for Instant Racing moved forward earlier in 2010 when Attorney General Jack Conway issued an opinion saying there is nothing in state statute to bar pari-mutuel wagering on historical horse races, a form of gambling known as Instant Racing. The devices, which resemble video lottery terminals but are considered pari-mutuel because all money from the machines is pooled, rely on old races to generate the results of various video-like games.

The legality of Instant Racing was upheld in Arkansas but not in a few other states.

“We’re extremely pleased with the ruling,” said Patrick Neely, executive director of the Kentucky Equine Education Project. “We believed we were on firm legal footing, and the court affirmed it. Instant Racing has made a significant difference to the racing and breeding programs in Arkansas, and we’re hopeful it can do the same in Kentucky.”

Turfway Park president Bob Elliston called the ruling “good news because it confirms what we believe.” But he said it’s too soon to say what will happen next.

“We, too, wonder what next steps there are,” Elliston said. “There is a losing party in this (decision). It’s also a single court’s ruling that doesn’t have statewide jurisdiction.”

During a hearing in early December, both parties in the petition suggested they would appeal Wingate’s final ruling if it didn’t go their way. The Family Foundation indicated Dec. 29 it would appeal the ruling to the Kentucky Supreme Court.

Elliston said the part of the ruling dealing with the Department of Revenue could be an impediment. If a track’s daily pari-mutuel handle is above $1.2 million, the tax rate goes from 1.5% to 3.5% by statute.

Since the takeout rate on Instant Racing is roughly 8%-9%, similar to VLTs, not the about 20% it is for wagering on live horse races, the tax rate “could put a ceiling on what the tracks could do” in developing Instant Racing facilities, Elliston said. He acknowledged, however, the General Assembly could make changes in the tax rate.

Tracks will be hesitant to move forward given the uncertainty, but Turfway plans to “initiate internally a planning process about how we’d go about” handling Instant Racing, Elliston said.

The Family Foundation called on the court to employ a five-part test to determine the nature of pari-mutuel wagering. In his ruling, Wingate states the court “finds that the essential element of a pari-mutuel wagering system is that the patron does not wager against the association,” and that the “association must not have a financial interest in the outcome the bet beyond the uniform deduction allowed by law.”

Democratic Kentucky Gov. Steve Beshear issued a statement after the ruling was released. “We are very pleased with the court’s decision,” he said. “We feel strongly that the Kentucky Horse Racing Commission has the statutory authority to regulate historical horse racing, and we expect revenue produced from these games will help support our trademark racing industry.”

Download the ruling document here.