Most eyes in the gaming industry are singularly focused on the trio of court cases in which Kalshi is arguing the Commodity Exchange Act (CEA) can upend state sports betting law.
However, there is a second court case also arguing that a federal piece of legislation means some online gaming apps do not need to adhere to state regulations.
In the case of Churchill Downs vs. the Michigan Gaming Control Board (MGCB), the heart of the matter is advance-deposit wagering (ADW) apps such as TwinSpires, which is owned and operated by Churchill Downs.
Churchill in court battle with Michigan over TwinSpires app
To date, Churchill Downs has obtained ADW licenses at the state level where requested, but actions by the MGCB have the operator changing its tune.
At the end of last year, the MGCB informed TwinSpires and other ADW apps operating in the state, such as FanDuel Racing, that they needed to cease operations. Since the lone track in the state, Northville Downs, closed in early 2024, the state determined these apps no longer had the in-state track partnership necessary to operate.
Churchill refused to comply and sued, arguing that it has all the assurances it needs to operate via the Interstate Horseracing Act (IHA) and does not need the state’s gaming regulators blessing to offer its product to Michigan residents.
Like Kalshi, Churchill won the first skirmish, receiving a preliminary injunction from the Western District of Michigan Court to remain online in the state. However, the MGCB and Michigan Attorney General Dana Nessel appealed that decision to the Sixth Circuit Court, requesting an appeal of the injunction and a stay on the enforcement of the injunction until that appeal is concluded.
The court has yet to rule on either matter but it has collected a range of opinions on the lower court’s decision.
Appeal questions where a wager takes place
The crux of the debate comes down to how the language of the IHA and the Unlawful Internet Gambling Enforcement Act (UIGEA) are interpreted and how to define where a bet is taking place.h
Churchill Downs relied heavily on a 1953 Michigan case involving horse racing and Western Union that determined Western Union was not guilty of illegally gambling within the state because the money being wired to racetracks constituted a bet only when it was received by the racetrack offering the wager.
The racing behemoth argued that the IHA requires three approvals for ADW racing:
- The racetrack where the race is being run
- The state racing commission of that track
- The state racing commission where the wager is being accepted
Arguing that TwinSpires wagers placed by customers from Michigan are being accepted at the TwinSpires hub in Oregon, Churchill Downs claimed that MGCB is trying to add a fourth criteria that is not required by federal law.
In its appeal, the MGCB and Nessel argued that this reliance on the one 1953 case failed to consider other cases in which the courts determined the IHA was not intended to supersede state racing regulations.
“Congress did not express an intent that the IHA should occupy the entire field of wagering on interstate horseracing, and such an intent cannot be inferred from the IHA’s narrow subject matter,” the brief argued.
Amicus briefs filed by MI casinos and tribes
The MGCB and Nessel also argued the lower court misinterpreted the definition of “interstate off-track wager”. In granting the injunction, the lower court allegedly looked only at the permissability of any off-track parimutuel wager in the state as opposed to the specific bets in question. The MGCB put forth that the bets taken by TwinSpires run afoul of the 2010 Michigan law that requires ADW apps to be tied to an active track in the state.
MGCB was not the only one to voice an opinion that Churchill Downs is running afoul of the law. The Arizona Department of Gaming and a group of Michigan-based gaming ventures including the three commercial casinos as well as the Saginaw Chippewa Indian Tribe of Michigan and the Nottawaseppi Huron Band of the Potawatomi.
“The idea that a wager is not accepted or gambling is not occurring until digital information (instantaneously) makes its way to a ‘hub’ in Oregon, which is not even where the horse races people are gambling on are occurring, is a fallacy—and a dangerous one,” noted the Arizona Department of Gaming brief, which voiced concern a ruling in favor of Churchill Downs here could jeopardize how horse racing is conducted in Arizona.
Not quite hub and spoke…but close
This is not the first time the location of where the bet takes place has been the center of a high-profile gaming case. In the court challenge to Florida’s sports betting compact with the Seminole Tribe of Florida, many tried to legally challenge the hub and spoke concept that the bet takes place on tribal lands because that is where the servers are located, even though the bets are being made on phones and computers across the state.
Though the courts sided with Florida in the matter, the decision put aside the issue of the hub and spoke argument altogether with a narrow ruling that ultimately concluded the compact satisfied the terms of the Indian Gaming Regulatory Act (IGRA) and the hub and spoke debate within the state was a matter for a Florida court. A group tried to challenge the issue in state court, but the effort was dismissed on procedural grounds.
Arizona might be right to worry that Churchill Downs will use the ruling in this case to justify offering ADW in other states without satisfying those state gambling laws.
Churchill warns MA that it may take a similar stance there
In Massachusetts, Churchill Downs recently switched in-state horse racing partners from Suffolk Downs to Raynham Park. While Suffolk Downs offers live horse racing, Raynham Park previously offered greyhound racing and switched to an OTB after the state outlawed greyhound racing in 2010.
There is now in-fighting between the two tracks about whether or not Churchill Downs can offer round-the-clock ADW racing through an OTB since the law is written differently for OTBs than it is for live racing venues. While these differences have not been enforced by regulators for several years when it comes to Raynham Park’s Dial 2 Bet phone wagering program.
The Massachusetts Gaming Commission heard input from parties during a July 1 meeting and said it will reconvene soon to determine a solution.
MA regulators and court face big decisions
However, in documents submitted to the MGC, Churchill Downs made a similar argument as it does in the Michigan case. Namely, that it may choose to accomodate state ADW regulations in some states where it operates, but that the company believes they are legally covered by the IHA and reserve the right to act accordingly.
Meanwhile, Churchill Downs filed its appellate brief on July 11, which means anyone filing a brief in support of the company’s position has seven days to do so. Once that window is complete, the MGCB and Nessel have the option to file a reply brief before the court either hears oral arguments on the case or a panel review looks over the written documents.
