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Historical Horse Racing Debate Becomes Sticking Point In Minnesota Sports Betting Bill

Written By Matthew Kredell | Updated:
Pegasus World Cup horse racing

A prohibition of historical horse racing has suddenly become a big part of the Minnesota sports betting bill.

Rep. Zack Stephenson already added the prohibition to his bill two weeks ago. However, it took on an added importance in Wednesday’s hearing of the House Commerce Finance and Policy Committee, which Stephenson chairs.

The Minnesota Racing Commission voted 5-1 Monday to approve historical horse racing at Canterbury Park and Running Aces. The Racing Commission set a potential HHR launch date for May 21, and it’s surely not a coincidence that is the day after the legislative session ends.

While the racetracks would love nothing more than to install 500 HHR terminals at their facilities for May 21, there’s speculation the Racing Commission is trying to set up its tracks with leverage in negotiations for revenue share in the sports betting legislation.

Running Aces CEO Taro Ito told PlayUSA:

“The Racing Commission created us some leverage. Zack [Stephenson] said this may come back to bite us in the ass. Yeah, it might. But at least it got people talking. I got three calls from reporters. Maybe someone will hear us, listen and understand. All we want is to be treated fairly. We wanted a sports betting license and they shut the door. We wanted craps and roulette, and they shut the door. It seems like everything we offer up, they shut the door. So it doesn’t seem like there’s any good-faith effort on the part of the legislature to come up with something that makes sense for the horse racing industry.”

Thursday afternoon, Stephenson responded by filing new legislation, HF5274 that focuses specifically on the HHR prohibition. It also seeks to clarify that card games at the tracks can’t be offered electronically.

House Republicans stand up for tracks in committee

Much of Wednesday’s informational hearing centered around three Republican committee members questioning Stephenson about the historical horse racing prohibition.

“I just want to be very clear with folks, there is no universe in which any bill that leaves this committee is going to authorize historical horse racing at the tracks,” Stephenson said. “That’s a total non-starter. Will not happen. Will not be part of a sports betting deal. Bright red line in the sand.”

In addition to the HHR prohibition, Stephenson’s bill provides $625,000 from sports betting revenue to be split between the two tracks.

Rep. Anne Brindley said her understanding is it’s a skill-based game and that a Racing Commission appointed by a Democrat governor approved it.

“It seems like this is an easy way to help make these other organizations whole. And it still doesn’t make them whole. When we’ve opened up sports betting, they’ve seen significant losses in other states. I get that there’s an offering of some pennies in this bill to the tracks. I mean $625k to be split between the tracks, that’s literally couch-cushion money here, right. That doesn’t do anything to make anyone whole.”

Reps. Isaac Schultz also spoke up for the tracks. Schultz opined that prohibiting HHR would negatively impact the state’s agriculture industry. Stephenson said it wouldn’t because tracks don’t currently have slot machines.

Stephenson pointed to a letter submitted to the Minnesota Racing Commission from the Alcohol, Gambling and Enforcement Division that said the HHR machines are designed like slot machines. Instead of using a random number generator to determine a race’s result, HHR machines are based on the results of horse races that previously took place. The machines could even show a video of the race’s result. Minnesota Indian tribes have exclusivity to offer slot machines in the state.

“The nonpartisan regulator said that it breaks Minnesota law. It’s a gambling device that is unauthorized under Minnesota law. The Racing Commission does not have the power or authority to change that. We do. We are not. They also broke the law about not consulting with tribes before making a decision. We are going to clarify the law in this bill to make abundantly clear to a future Racing Commission that they do not have discretion to do this. But I will tell you, that if we don’t, I fully expect that the Racing Commission decision will not survive judicial review.”

Minnesota tracks want courts to decide on HHR

Ito said he welcomes a judicial review of the Racing Commission’s approval of HHR.

“Why not let the courts decide? I think they are much more qualified to determine whether it’s legal or not. If you think this is a slot and we don’t, let the courts decide. Why legislate it out? That seems unfair to me.”

Minnesota Indian Gaming Association Executive Director Andy Platto issued this statement on the Racing Commission’s decision on HHR:

“Slot machines not located on tribal land remain illegal in Minnesota. After decades of debate at the Capitol on the topic, the Racing Commission decided to usurp legislative authority and unilaterally authorize slot machines at the state’s horse tracks. We will strongly oppose any efforts to implement the Commission’s decision, and will be looking at all available options.”

Ito is confident in the legal arguments for Minnesota HHR. If Stephenson believes differently, he urges him to let it go to the courts and see.

“I think the Racing Commission was courageous. They saw the writing on the wall that the racing industry is not long for this world unless they get another revenue stream like other jurisdictions have. They put their necks on the line and we totally appreciate it. But they wouldn’t have done that if they thought they were on shaky ground. We provided a ton of material and legal opinions and they made a well-thought-out decision based on facts. If we can stop the legislature from prohibiting HHR by passing a standalone bill or through the sports betting bill and take this to court, I think we can prevail.”

Tracks are open to negotiating on HHR prohibition

Minnesota tracks took notice as other states, including Kentucky, allowed historical horse racing to boost falling parimutuel wagering revenue. Historical horse racing has been a topic among tracks for the past decade.

Ito said the difficult sports betting negotiations in recent years led to the tracks filing the HHR request with the Racing Commission at this time.

“The timing is right on this because they’re trying to cut us out of sports betting. That’s going to have a huge impact on the industry and we feel this product offers us an alternative revenue stream that doesn’t require some handout from the state or getting an allowance from tribes, and it doesn’t burden tax payers.”

Ito said HF2000 as it currently sits would kill the tracks. The tracks are willing to negotiate around an HHR prohibition, but they want something to offset what they project could be a $5 million hit on their operations if tribes launch online sports betting.

“This is all let’s make a deal. All we’re saying is give us something that makes sense for our industry. It’s not like we’re asking for moon. We’re just asking for something. We know we’re going to lose money because of sports betting and we’re not even going to be able to participate, so if we’re cut out there’s got to be some offset for what we’re going to suffer. The bottom line is the legislature is picking the winner and the loser, and we’re the loser in this equation.”

Republicans argue for equity for small tribes

Republicans also questioned Stephenson on creating a profit-sharing model for Minnesota’s 11 tribes to share equally in online sports betting revenue.

Brindley led the charge again:

“My understand is when this has been done in other states, two or three vendors take up the vast majority of the market share, like 80% of the market share. … It seems right now there’s a real potential here for a windfall for some and for others to be really left out of the mix, which frankly we have seen even in the casino market. It’s been really, really successful for a few tribes and less successful for others who don’t have the foot traffic, who don’t have the population centers.”

Stephenson said he wasn’t sure the most successful brick-and-mortar gaming tribes would dominate the online market in the same way.

“Because mobile sports betting is not reliant on the license holder being geographically close to a population center the same way that traditional casino gambling is, it’s entirely possible that one of these large operators that we’re talking about choose to partner with a tribe that is not close to the metro. That’s entirely possible, and I frankly think it very easily could happen. It’s not as preordained as I think people are saying.”

Stephenson did say that in his discussions with each tribe over the past three years, he has learned that some don’t plan to participate in sports betting. But he said he thinks an online sports betting operator would be available to partner with every tribe that wants one.

He acknowledged some validity to the argument from Brindley, Schultz and Rep. Tim O’Driscoll that not all operator partners are created equal. But he didn’t think it was the legislature’s place to tell the tribes how to share sports betting revenue.

“I don’t think it’s our job to tell sovereign tribes how to use their money. Could we do that in law? I don’t see why not for mobile sprots betting. I don’t think we should do that. If you look at the long history of how the state of Minnesota has interacted with tribal nations, I think that the respect for sovereignty is a more recent phenomenon and something that we should be extra cautious about. I think respecting tribal sovereignty means not telling them how to spend their money.”

New Minnesota sports betting bill filed

Three Minnesota sports betting bills were already filed this session with Stephenson’s HF2000, Sen. Matt Klein’s SF1949 and Sen. Jeremy Miller’s SF2425.

Now there is SF5330 from Sen. John Marty. Marty chairs the Senate Finance Committee, where Klein’s bill has stalled.

Marty is considered one of the two Senate Democrat opponents to Minnesota sports betting. He wrote an opinion piece for the Minnesota Star Tribune explaining his opposition.

Similarly to Miller’s bill, it won’t be moving forward. The only Minnesota sports betting bills with a chance to be the final vehicle are Stephenson’s and Klein’s.

But SF5330 does provide a blueprint for what Marty wants to see in Minnesota sports betting legislation in order to move it out of his committee, including a prohibition of in-game wagers, additional prohibitions on advertising and more money going toward compulsive gambling treatment.

Photo by Wilfredo Lee/AP photo
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Matthew Kredell

Matthew Kredell serves as senior lead writer of legislative affairs involving online gambling at PlayUSA. He began covering efforts to legalize and regulate online gambling in 2007 after federal passage of the Unlawful Internet Gambling Enforcement Act disrupted his hobby of playing small-stakes online poker. He has since interviewed more than 300 lawmakers around the country and written extensively about online gambling legislation. He has led coverage of bills to legalize online gambling in most states. A lifelong Angeleno and USC journalism alum, Matthew started his career working as a sportswriter for a decade at the Los Angeles Daily News. He has written on a variety of topics for Playboy Magazine, Men’s Journal, Los Angeles magazine, LA Weekly and ESPN.com.

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