The Sixth Circuit Court of Appeals oral arguments between the Michigan Gaming Control Board (MGCB) and Churchill Downs was not over event contracts or sports betting, but the debate around who oversees advance-deposit wagering (ADW) apps included many of the terms that have been discussed ad nauseum in those cases.
The case is ongoing in the lower Western Michigan District Court, but the court granted Churchill Downs a preliminary injunction to stay online as the case moves forward. The MGCB appealed that decision, which is what brought them to Cincinnati for oral arguments on Thursday.
What does the IHA say about the state where the bettor is?
At the heart of the debate was whether or not the Interstate Horseracing Act (IHA) occupies the field of regulating horse racing apps such as the TwinSpires, which is owned by Churchill Downs. In the eyes of the racing conglomerate, it does so entirely that even a state like Utah, where horse racing is illegal, can’t prohibit bettors in the state from using these racing apps.
Under the IHA, interstate wagering needs three clear consents:
1. The racetrack where the race is running
2. The racing commission where the race is taking place
3. The off-track racing commission where the bet is being accepted
For TwinSpires, that final group is the Oregon Racing Commission, which issued the app its ADW license. As Churchill explains, in its eyes, every wager on the app is accepted in Oregon. Churchill Downs counsel Tom Dupree argued that Michigan requiring ADW apps to partner with local tracks and obtain licensure from the MGCB is a fourth consent that is not mandated by the law.
At least one judge on the three-judge panel agreed that it did seem like a fourth consent, but there was quite a bit of consternation over the idea that a state such as Utah could not ban any form of wagering on horses in the state.
“We are saying that Utah would not have the right, under our reading of the IHA, to prohibit wagers on races by Utah residents that aren’t occuring in Utah,” he argued. The panel very clearly stated they feel like a state where horse racing is prohibited would mean ADW apps cannot be used by people in that state, but admired that Dupree stood by his interpretation of the law.
Dupree’s core argument wast that the state where the bettor is located is not involved, which the panel pushed back at.
The difference between placing and accepting a wager
“It’s in the text of the definition,” one of the judge said with exasperation, referencing the definition of “interstate off-track wagering”, which is as follows in the IHA:
“Interstate off-track wagering means a legal wager placed or accepted in one State with respect to the outcome of a horserace taking place in another State and includes pari-mutuel wagers, where lawful in each State involved, placed or transmitted by an individual in one State via telephone or other electronic media and accepted by an off-track betting system in the same or another State, as well as the combination of any pari-mutuel wagering pools”
Using an example of a bettor in New York calling Belmont Racetrack in Maryland to place a wager on the Kentucky Derby, the judge said it seems clear from that definition that Congress intended to consider all three states mentioned when crafting the language.
Dupree challenged that the interpretation of the statute to suggest the state where the bettor is was the intent of the legislation, as the word “placed” regarding betting does not appear anywhere else in the text and that the definition was only added to the fifty-one-year old act in 2000.
“Congress is not in the business of hiding elephants in mouse holes. If it wanted to give the state a fourth consent, right, it would not have secretly embedded it in a sub clause in the definitional section,” Dupree argued.
Judges seem to think the placing of wagers could involve states
The nature of the questions from the judges seem to suggest that they agree Churchill Downs is correct that the IHA preempts the state when it comes to accepting wagers, however the panel was less swayed that the placing of wagers is as clear cut.
Michigan Assistant Attorney General Mark Sands argued that the IHA is not nearly comprehensive enough to be the sole regulator of horse racing. Moreover, unlike some legislation that establishes federal regulations, such as the Commodity Exchange Act (CEA), the IHA doesn’t establish a federal regulatory body to actually enforce the framework and create regulations.
“The IHA does not pervasively regulate horse racing,” he argued, noting there aren’t age requirements and many other protections in place that are commonplace in state-level horse racing regulations. He also argued that the intent of Congress to keep states involved is clear based on the introduction of the IHA, which noted that the entire goal of the legislation was to ensure that one state did not interfere in the gambling laws of another state.
While the Sixth Circuit considers these arguments and composes its ruling, both patries have submitted motions for summary judgment in the case in the Western Michigan District Court. Given there are no factual disputes across the two parties and the suit is entirely based on the interpretation of the law, the parties are both inclined to skip discovery and have the judge render a decision.
