The Florida Thoroughbred industry may have won the first battle against decoupling in the spring, but the war may not be over yet.
That proved out Aug. 5 when Gulfstream Park filed a lawsuit against the Florida Gaming Control Commission with the track arguing it has the right to offer slot machine gaming decoupled from its horse racing business. Depending on the outcome of that litigation, the Florida industry could be in for another fight. Beyond that, experts believe such moves could be considered by racinos in other states.
READ: Gulfstream Renews Decoupling Push Via Lawsuit
That potential future and how the industry can best prepare for it were the center of discussion during “The Decoupling Battle—Past, Present, and Future” panel moderated by Greenberg Traurig shareholder Josh Oppenheimer on the closing day of The Racing and Gaming Conference Aug. 13 in Saratoga Springs, N.Y.
Earlier this year, supporters of Florida's racing and breeding industries successfully worked together to halt a bill that would have granted Gulfstream the ability to decouple.
“Although (the legislation) was not successful, the story is not over,” said Jones Walker partner Laura D’Angelo. “I think Florida is a precautionary tale that these efforts can take place in any state. The industry has to come together and really develop a plan and a response to those efforts in any particular state.”
That sentiment was echoed by California Horse Racing Board executive director Scott Chaney.
“Is Florida a unique, track-specific event? Or is it the beginning of a trend?” he asked.
The National Horsemen’s Benevolent and Protective Association has been an active participant in the fight against the Florida decoupling bill. Their CEO, Eric Hamelback, took time to praise the industry's united effort to defeat decoupling in the spring.
“We felt like it was a precedent that needed to be squashed. We all came together,” Hamelback said. “I didn’t see one entity not partake in trying to push back decoupling. We, as horsemen, know this needs to be protected.”
However, Hamelback made it clear that the fight is not over and that racing needs to better position itself against future threats.
“We need to have better standing to get more independent,” he said. “There are some ways to do that within horse racing. At least try to move away from casinos. Whether it’s horsemen-owned racetracks, I think there are opportunities there. It takes a lot of capital, but at the end of the day, we certainly like to not be tied to casino operators all the time."
That said, Hamelback noted that states approved these casino operations at tracks based on provisions that the added gaming, in part, would support the industry. He said it's important that people to keep that in mind.
“Being able to stand alone certainly is the goal, but at the present time I’m not going to relinquish the agreements that we made to allow (gaming operators) to come in the first place," he added.
Joe Faraldo, CEO of the Standardbred Owners Association of New York, brought a unique perspective while sharing the experiences of his portion of the racing world. Florida legislation in 2021 decoupled slot machine gaming from Standardbred and Quarter Horse racing. Neither of those breeds currently race in Florida today as the change to the law quickly ended racing in the state for those breeds.
“If you want to beat this decoupling thing, you better be sensitive to things that happened in my industry,” Faraldo said. “I used to say, whatever happens in harness racing will happen in Thoroughbred racing 15 years later. I’m down to five years. What happens to us will eventually happen to you.”
Faraldo emphasized the importance of noticing small changes, such as the reduction of race days, removal of training tracks or barn areas, the elimination of a track publicity director, and limited or no advertising and marketing, as signs that operators are trying to paint a picture to legislators that horse racing is no longer necessary.
“If you take away this enhancement to our purse structure that’s generated by alternative gaming, jobs will suffer, the agricultural industry will suffer, and the state’s economy will suffer,” Faraldo said.
Hamelback built off Faraldo’s advice by saying the best immediate action is for horsemen’s groups across the country to strengthen their contracts with operators.
“You’re going to have casino operators start to take away some of these things our horsemen would need,” Hamelback said. “Getting those contracts stronger to help with not having those things taken away from horsemen will benefit you in the long run.”
Hamelback also stressed the importance of lobbying for and electing officials who support the racing industry, noting the most important message for them to hear is the impact on the economy and jobs tied to the Thoroughbred industry. Oppenheimer began the panel relaying the American Horse Council's report that the racing industry generates about $36 billion annually.
“(Slot machines) don’t produce the jobs that our industry does,” Hamelback said. “They don’t have the economic impact that (racing and breeding) do. They make operators wealthy. You cannot break the agreement that was made in order to get more prosperity. If you have the opportunity to try and break that, we’re going to continue to fight.”
TwinSpires vs. Michigan Suit
Where is a bet made?
Where it was placed? Where it was accepted? Both?
Those questions sparked by the TwinSpires vs. Michigan lawsuit were discussed during the panel "ADWs, State Regulators, Federal Courts and What's Next?" moderated by Bennett Liebman, a government lawyer in residence at Albany Law School and an adjunct professor of law.
In January the state of Michigan requested TwinSpires, the advance-deposit wagering platform owned by Churchill Downs Inc., stop operating in the state because it was not connected to any licensed track in the state. (Live racing in Michigan has ceased.) CDI filed litigation and in February a United States district judge in Michigan ruled in CDI's favor, enjoining authorities from enforcing a state law prohibiting the ADW hub from accepting wagers from individuals in Michigan on races outside the state.
The court found the 1978 Interstate Horseracing Act provides "the exclusive procedure" for interstate off-track wagers and that Michigan's attempt to require "an additional licensing" is unconstitutional because the IHA preempts conflicting state law. CDI successfully argued that its ADW already is licensed by the state of Oregon, which oversees the vast majority of ADW wagers in the U.S.
READ: Federal Judge Rules ADWs Can Accept Bets From Michigan
"This places us within the realm of the most abstract and complex subjects in the world of law," Liebman said to start the panel.
The ruling agreed with the TwinSpires argument that, since the wager was processed on its computers in Oregon, Oregon is the proper regulator. On Wednesday some panelists questioned the ruling.
"If you get the conclusion that, at any time, particularly in 1978, that anybody passing the IHA intended for one state to regulate gambling in another state to the exclusion of the other state ... there's no way there was any intent of doing that," said Jack Jeziorski, the New York Racing Association's president of content management solutions.
Jeziorski further pointed out how states can geoblock sports wagering within their borders, which recognizes the importance of each state controlling its own wagering. Geoblocking had not yet been developed when ADW laws were initially passed.
The right for states to control their own gambling laws is why Melanie laCour, a legal director at ZwillGen, disagrees with the court and thinks the ruling is actually a violation of the IHA.
"States should have the ability to govern their own residents," laCour said. "The first section of the IHA emphasizes that states should have the primary responsibility for determining what forms of gambling take place in their borders. It's the federal government's job to prevent interference by one state to the gambling policies of another.
"In the proposed interpretation, either a state would have to completely outlaw pari-mutuel wagering, such that it would violate the IHA to accept wagers from there. Then, if pari-mutuel wagering remains legal, it cedes all regulation—including licensing, consumer protection issues—over the residents of that state for wagering activity occurring within its borders."
But a panelist with ADW experience thought the ruling made sense. Todd Bowker, of Starting Gate Consulting, spent many years as an executive for ADW companies. He supported to the ruling, pointing to the issues of double taxation and higher operating costs when dealing with multiple states as a negative for ADW operators.
"This is a lawsuit that has needed to happen for a long time," Bowker said. "The other big advantage here really comes to operations. If you only have one set of rules or statutes that you have to follow, it makes operations a lot easier."
CDI was not represented on the panel.
