LOUISVILLE, Ky. (WDRB) -- The Kentucky Supreme Court on Thursday pulled the rug out from the state's $2 billion slot-like gaming industry in a surprise decision that some lawmakers say requires a legislative response.
The high court unanimously ruled that the slot-like historical horse racing system in use at three of the state's five gaming venues does not constitute pari-mutuel wagering, overturning a Franklin Circuit Court judge's 2018 ruling.
Casino gambling is illegal in Kentucky, but the state horse racing commission regulates games that look and feel like slots but instead offer wagering on old horse races invisible to the gambler.
The ramifications of the high court's 7-0 opinion were not immediately clear, but the elected justices seemed to acknowledge that they were effectively putting the brakes on the decade-old industry, saying that only Kentuckians acting "through their duly-elected legislators" can legalize the games.
Sen. Maj. Floor Leader Damon Thayer of Georgetown, the second-ranking member of the Republican leadership that controls the Senate, called the decision a "terrible" example of judges legislating from the bench.
"We’re literally talking about thousands of jobs and a huge economic impact for Kentucky," Thayer said.
Thayer called on the Supreme Court to revisit the case and said justices and lawyers overlooked a key fact: that the legislature acted in 2014 to tax historical horse racing like other pari-mutuel wagering. However, the court acknowledged that fact in a footnote in the opinion, adding that it doesn't change their analysis.
Short of the court reversing itself, Thayer said the decision "could reopen the door for casinos in Kentucky, which would be regrettable."
Gov. Andy Beshear had urged the Supreme Court to uphold the legality of the industry.
“Historical horse racing is an important part of Kentucky’s economy that supports jobs and contributes over $21 million to the state budget," Beshear said. "We are working with various partners to find a path forward.”
The case centered on the precise definition of "pari-mutuel wagering," which in general refers to bets players make among themselves (as in live horse racing) and not against the house (as in casino gambling).
The justices rejected the racetracks and the state horse racing commission's more expansive definition of the term.
When people put money into the slot-like gaming machines to technically bet on old horse races invisible to them, the racetracks said, it doesn't matter that those patrons aren't betting against others at the same time or on the same old races.
But the high court disagreed, saying, "Emphatically, such patrons are not wagering among themselves as required by pari-mutuel wagering."
Observers were surprised to see the judges so directly cross a booming industry.
But during the oral argument last month, Chief Justice John Minton described the issue as "a legislative decision that's been punted."
The court's opinion does not explicitly spell out immediate ramifications for the five gaming venues operating in the state.
But the justices seemed to concede that their decision has dire consequences for the industry.
"We acknowledge the importance and significance of this industry to this Commonwealth. We appreciate the numerable economic pressures that impact it," the high court said. "If a change, however, in the long-accepted definition of pari-mutuel wagering is to be made that change must be made by the people of this Commonwealth through their duly-elected legislators, not by an appointed administrative body and not by the judiciary."
State Rep. Adam Koenig, a northern Kentucky Republican who favors sports betting and casino gambling, said the ruling calls for legislative action.
"Obviously it’s an issue that most likely will need to be addressed," he said. "We have had so much success with these machines in Kentucky, and this threatens the growth of the horse racing industry in our state and puts us at risk at being no more important, with the exception of two days a year in Louisville, than states like Oklahoma when it comes to horse racing."
State Rep. Jerry Miller, an eastern Jefferson County Republican who also favors casino gambling, agreed. "This will be dealt with in the next session. It may not pass, but it will be dealt with," he told WDRB.
The socially conservative Family Foundation of Kentucky has been battling the racetracks and racing commission in the case for a decade.
Martin Cothran, the foundation's executive director, told WDRB News in an interview that he expects the racetracks to shut down their facilities voluntarily to comply with the Supreme Court's decision.
"If the Kentucky Horse Racing Commission does not follow the laws applicable to it, then the (Family Foundation) will evaluate options to enforce the Supreme Court opinion in all other available venues," the foundation's attorney, Stan Cave, said in an email.
In his 2018 trial, Frankfort Judge Thomas Wingate limited the scope of the case to the gaming system called "Exacta" or "Encore," which is in use at Kentucky Downs, Ellis Park and in some machines at the Red Mile in Lexington.
Churchill Downs uses a different system, called Ainsworth Gaming Technology.
Churchill Downs operates historical horse racing machines at Derby City Gaming in Louisville and, as of last week, at its new Oak Grove track in southern Kentucky. Churchill Downs is getting ready to open a third venue with the slot-like machines in northern Kentucky at the old Newport shopping center.
"CDI does not use the Exacta system in any of its (historical racing machines) in any facility in Kentucky," the company said in a statement. "We will work within our legal rights and in coordination with Kentucky legislators to ensure the ongoing legal operation of our (historical racing machine) 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."
Keeneland Association, which owns the Red Mile, said, "We are evaluating the ruling at this time."