The Kentucky Supreme Court came to a unanimous ruling on Thursday that certain slot-like historical horse racing (HHR) systems cannot be considered pari-mutuel wagering machines.
This 7-0 decision overturns the ruling made by a Franklin Circuit Court judge in 2018.
The definition of pari-mutuel wagering
The case called into question the true definition of “pari-mutuel wagering”, which has remained unchanged for the past 140 years.
Pari-mutuel wagering refers to bets players are able to make among themselves rather than against the house. Players wager on a particular race, create a pool, and set the odds. The pool is divided between the winning players, minus the operator’s “takeout”.
Betters receive neither the identity of the horse, nor the specific time and place of the race. However, statistical data is provided in order to encourage intelligent betting.
The justices argued that since players are not betting against other players at the same time and on the same race, these specific HHR machines do not qualify as pari-mutuel machines.
The problem with Exacta historical horse racing machines
The Exacta System, formerly known as Encore, is the current system at issue, though this decision could come to affect all HHR machines.
The Exacta System uses a triple race method where a player wagers on three randomly selected historical horse races. Once the race concludes, winning players collect against the total monies wagered, minus a 5% operator commission.
The ruling concluded that these machines miss the pari-mutuel wagering mark on two accounts. First, pari-mutuel betting must happen on a single, discrete event as opposed to multiple random historical horse races.
Second, betting pools must be established by the players, not by the association. With these machines, the initial seed pool is provided by the association.
As it stands, the machines in question do not provide a group of players simultaneous access to a singular historical horse race. In effect, players are not able to create a pari-mutuel pool where they can wager among themselves as well as set the odds and payout.
Odds of each event are established by the “off odds” set at the time the horses leave the starting gate. The “off odds” are the odds representing the amount a player will win if his or her horse wins the race.
Historical horse racing in Kentucky
The Kentucky Horse Racing Commission originally gave HHR machines the go-ahead on the basis that the machines met the standards of pari-mutuel gambling. The high court called the commission out on overstepping their authority by approving these machines in the first place.
The commission is responsible for regulating pari-mutuel wagering. However, it does not have the authority to approve a wagering pool where each player wagers on a different event.
The majority of Kentucky racing facilities incorporate HHR machines. Players wagered $270 million in July alone, resulting in more than $22.7 million in revenue for facilities.
The facilities that currently employ these Exacta machines are Kentucky Downs, Ellis Park, and Keeneland’s HHR facility at The Red Mile.
Churchill Downs Incorporated (CDI) has stated that it does not use the Exacta system in any of its facilities. Rather, CDI utilizes Ainsworth Game Technology at its Derby City Gaming venue in Louisville.
“We will work within our legal rights and in coordination with Kentucky legislators to ensure the ongoing legal operation of our (historical racing) facilities in Kentucky so that we can continue to provide critical funding for the equine industry and support the citizens in the commonwealth of Kentucky,” CDI said in a Sept. 24 press release.
It is unclear how other HHR machines will be affected. Exacta Systems stated, the decision “necessarily impacts all HHR system providers and operations in Kentucky.”
What this means for the Kentucky gaming industry
Although Kentucky prohibits casino gambling, the state still boasts a $2 billion gaming industry that contributes millions to the state budget. HHR machines generate the majority of this revenue.
What this means for the Kentucky horse racing and gaming industry is yet to be known. Kentucky’s gaming industry could suffer a huge blow if all HHR machines are ruled illegal.
Exacta Systems has already developed a new operating system that will meet the high court’s pari-mutuel standards. The company plans to present the new system to the Kentucky Horse Racing Commission within the next few days.
State Rep. Adam Koenig has been behind sports betting and gambling expansion in the state. The Kentucky Republican said, “Obviously it’s an issue that most likely will need to be addressed. We have had so much success with these machines in Kentucky, and this threatens the growth of the horse racing industry in our state.”
New legislation must go into affect if facilities want to continue operating these machines.
