Churchill Downs, Inc. Hires Lawyers; Sues Everyone

Harry How - Getty Images

Apparently, CDI just put a new lawyer on retainer.

Two interesting legal battles popped up today and both were centered on Churchill Down, Inc (CDI).

The first one makes complete sense (via Bloodhorse.com),

Churchill Downs contends the legislation allowing only wagers permitted are those made in person at a live or simulcast facility is unconstitutional. And to support its argument, Churchill notes that the Texas commission has declined to enforce its own ban on Internet and telephone wagering, thus allowing Texans to carry out such activity since the early 1990s.

That's a simple motivation: CDI wants Twinspires to get more business and Texas is a huge state. Whether or not the ban on ADWs is enforced or not, odds are that regular Texan handicappers know the rules and some are certainly discouraged from wagering online. However, I cant' figure out for the life of me why Texas wouldn't want the ADWs to be legal. All they do is basically set up an account at local tracks in Texas and then act as another bettor. It's basically free money for the tracks and therefore the state.

The second case is far more interesting and may be a sign of what CDI knows about the future of instant racing in Kentucky (also via Bloodhorse.com),

Churchill Downs Inc. has filed suit against the entities that have majority ownership of Kentucky Downs, contending the defendants breached their agreement with CDI by converting debt securities into equity... The company is seeking a court judgment "requiring Kentucky Downs and/or KDP to purchase Churchill Downs' interest in Kentucky Downs pursuant to terms of the Kentucky Downs operating agreement."

Kentucky Downs, with it's unique European-style turf course, has just enjoyed a record-setting meet and in fact has applied for additional racing days in March of 2013. The addition of Instant Racing has boosted on-track revenues and the handle has more than doubled from 2011 to a 2012 total of over $7 million. With this kind of growth, why would CDI want to exercise its option to sell its stake in the track?

Well another Kentucky (well, technically Florence, KY, but basically Cincinnati, OH) track may provide some clues. Turfway has eschewed Instant Racing due to pending legal challenges in the Kentucky courts. Management has been leery to install machines just to have them removed after a court order. Combined with the presence of riverboat casinos near Cincy, and Turfway cannot justify the expense when assessing the risk. Turfway looks to be going out of business based on field size and purses, so why wouldn't they jump at the opportunity for any additional revenue if it weren't in legal trouble?

While I personally think Instant Racing is in Kentucky to stay, maybe CDI knows differently. Churchill Downs itself has not installed a single Instant Racing machine, despite having a casino that is completely constructed and is seemingly just waiting for the machines to arrive. And its not like CDI is reticent to operate video or table gaming as Calder in Miami and Fairgrounds in New Orleans both have casinos and/or poker rooms on site.

Hopefully this is Churchill seeing an opportunity to sell their 5% stake in Kentucky Downs while the price is high and not a sign of more convoluted gambling politics in Kentucky.

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