The Kentucky Supreme Court dealt the state’s horseracing industry a blow when it ruled that some historical horse racing machines at racetracks constitute illegal gambling. HHR games are widespread at Kentucky racetracks and have become a significant revenue driver.
At the heart of the matter is the games’ structure and whether they meet pari-mutuel gaming requirements.
What Is Historical Horse Racing?
The term “historical horse racing” might spark images of Civil War reenactments and other odd forms of history-related entertainment, rather than betting or slot machines. But according to the recent ruling by the Kentucky Supreme Court, that is precisely what these games are.
According to the court’s decision, a significant number of historical horse racing (HHR) machines, which are a common sight at Kentucky horseracing tracks, would no longer be legal as per state gambling laws.
The ruling comes during a raging pandemic that has taken its toll on the racing industry. Not surprisingly, it has caused dismay in Kentucky horse racing circles. But, if the relatively short history of HHR machines across US race tracks is anything to go by, this decision was anything but shocking or unprecedented.
The Story of “Instant Racing”
Historical horse racing or historical horse wagering is a generic term for instant racing. It involves an electronic gambling machine that allows players to bet on races that have already occurred (hence the term “historical”).
The idea to use past races in betting was conceived in the 1990s by Eric Jackson, a General Manager desperately trying to save his failing Oaklawn Park race track in Arkansas.
The first deployment of the instant racing machines at Oaklawn Park in 2000 was a huge success. But it required steps from the state General Assembly to remove some legal restrictions related to simulcast racing.
Race tracks in other states soon followed suit, after gaining approval from state authorities. But in Oregon and Wyoming, HHR machines were met with opposition from the State Attorney Generals, who questioned their status as pari-mutuel betting systems.
In 2006, the Wyoming Supreme Court went as far as to call them “slot machine(s) that attempts to mimic traditional pari-mutuel wagering.” It would take another decade, and explicit legalization efforts from the Wyoming legislature before HHR machines were allowed at race tracks and betting parlors in the state.
Other states like Nebraska, Texas, and Idaho have made unsuccessful attempts to legalize and introduce instant racing machines. These attempts were dashed either by the Governors, Attorneys General, or the courts questioning their legality.
What is so different about HHR in Kentucky in 2020?
Instant racing was introduced to Kentucky in 2010 after the Kentucky Horse Racing Commission modified its definition of pari-mutuel betting.
Kentucky Downs was the first track in the state to launch these HHR machines in 2011. Others like Ellis Park, Keeneland, and Red Mile soon followed suit. The widespread adoption of these machines in the state was opposed by anti-gambling activists in 2014, which led to the Supreme Court’s long drawn out case.
What sets Kentucky apart from other states is how strongly they have pushed these HHR machines at race tracks. Since 2011, players have bet more than $8 billion on instant racing. In 2019 alone, over $2 billion was wagered on these machines at the state’s four major race tracks. That handle resulted in nearly $190 million in commissions, with the State of Kentucky receiving $21 million in taxes from HHR machines.
Is it gambling or pari-mutuel betting?
The point of contention regarding the legality of HHR machines is the concept of pari-mutuel betting – All other forms of casino gambling are illegal in Kentucky.
Also known as Totelisator or tote betting, pari-mutuel wagering is legal in Kentucky, home to Churchill Downs and the Kentucky Derby, which makes Kentucky arguably the horse racing hub of the United States.
In order to be considered a pari-mutuel betting system, bets on the same race must be pooled together.
In HHR machines, this is generally not the case. The machines in question show three different historical races to players, all incognito. The system accepts bets from multiple players into a common pool, which is what made it appear legal under Kentucky law. But the argument against them is that since players aren’t betting on the same race, it does not technically count as pari-mutuel betting.
The evolution of instant racing machines also played a role in how anti-gambling activists and the courts perceive them. The machines’ earlier designs leaned heavily into the racing aspect, showing you info from the racing form to the jockeys and the horses.
But later iterations have abandoned that approach. Instead, going for a more “slots-heavy” system, with spinning reels taking over and the actual horse race video getting less on-screen space. Most machines even offer an auto-bet feature, taking out the player’s need to pick a horse. They resemble slots and seem to exploit loopholes in state laws that prohibit slot gambling for all practical purposes.
There is no doubt that these developments worked against the HHR machines in the Kentucky Supreme Court’s eyes, and not without justification. After all, slot machines are illegal in Kentucky.
What does the future hold for Kentucky race tracks now?
The pandemic has hit racing venues hard, with canceled races and bans on visitors. Losing the hundreds of millions of dollars in HHR commissions would have been painful in normal times, but in 2020, it can be downright fatal to a venue.
Given the extraordinary circumstances, it is not hard to see the Republican majority in the state legislature taking proactive action to keep these HHR machines running in Kentucky.
There are several ways this can play out. The Supreme Court has essentially put the ball in the court of the State Legislature. If they want to keep the taxes rolling in from these HHR machines, they will have to legalize it, plain and simple.
That could open the door for a new push to legalize slots and casino gambling in the state, something the state has failed to do, despite several attempts.
Another option is updating the definition of pari-mutuel betting, or allowing a special provision for HHR machines. That seems like the more probable plan of action.