The light is low and the soft ping-ping of machines covered in cherries, angels and sexy devils rings through the air at Lexington's Red Mile. Briefly, when bets are made, a sliver of screen shows a real horse race, which quickly disappears. People wander among hundreds of machines, even on a weekday.
It looks like a casino, sounds like a casino, and makes money like a casino, but it's not called a casino and not considered one under Kentucky law. Instead it's a "historical racing" parlor full of "slot-like" machines, and along with three other locations at Kentucky tracks, exists as a gambling phantom in a netherworld between regulation and the Kentucky Constitution.
Although their very legality is still hung up in the courts, the sites are on pace this year to bring in more than $2 billion, according to a June report from the Kentucky Racing Commission, which oversees them. That's almost double the year before. And it will continue to grow. Churchill Downs is adding more machines, and in partnership with Keeneland will open a new facility near the southern border called Oak Grove next year.
This money has enabled the tracks to increase purse sizes, which attracts more and better horses to Kentucky. According to the Jockey Club, Kentucky track purses have risen 17 percent between 2015 and 2018. That's good for the state. What's not as good is that historical racing is taxed at the same rate as live racing, about 1.5 percent of the total handle. As Chris Otts of WDRB points out, that's a much lower rate than casinos pay in neighboring states. Sure, casinos make more money. Nonetheless, as the profits continue to surge in historical racing, that percentage needs to grow.
Here's a brief history. As the General Assembly repeatedly rejected proposals to expand gaming with casinos as a revenue-producing measure, Gov. Steve Beshear allowed the racing commission to start historical racing, which was based on machines that used past horse race results for bettors to bet against each other, rather than against the house. That's parimutuel betting, which is allowed under Kentucky law. Betting against the house is casino gambling, which is not.
The Family Foundation sued because it was so obvious that the slot-like machines were really slots. A lower court disagreed, ruling that historical racing did conform to parimutuel betting. The case is in front of the Supreme Court for a second time over the specific types of machines. Over the years, the racing commission has approved new and different machines that look and feel more and more like slots; this kind of gaming has brought in more money and become more entrenched.
At this point, the Family Foundation is still fighting this over the principle of the matter, said spokesman Martin Cothran.
"They're gaming the system," Cothran said in a recent interview. "It all started with uncertainty, the uncertainty has been heightened and they've gone ahead and expanded. They've got this little industry set up. What if the Supreme Court says this is unconstitutional? There's a real level of hubris involved here."
That's true. The Kentucky Racing Commission and the tracks say they're operating under the legal jurisdiction of the circuit court decision that deemed historical racing to be parimutuel, while they're really running a kind of extracurricular gambling industry with winks and nods to the Constitution. But the genie is out of the bottle, as it were, with new construction and new jobs in Lexington, Louisville and elsewhere, plus hefty new purses at the tracks. All done before the case was completely out of the courts.
It's also made lots of strange bedfellows, pitting uber conservatives like Senate Majority Floor Leader Damon Thayer, a former racing industry executive who supports the status quo, against the ultra conservative Family Foundation. Off to the side, Gov. Matt Bevin is holding forth about the link between casino gambling and suicides, while his gubernatorial challenger, Andy Beshear, would like to finish the work his father started.
Meanwhile, the behind the scenes power, the tracks, keep their heads down and count their money.
Here's how it breaks down, according to a monthly and fiscal year report from June:
• A $2 billion total bet.
• A $1.8 billion returned to public.
• A $16.9 million to various development funds, with the lion's share going to the Thoroughbred Development Fund.
A $13.5 million to the state General Fund. That's 1.5 percent of the handle and 18 percent of the profits.
A The total handle increased 85 percent from 2018 to 2019, exponential gains that are sure to continue with new betting parlors in the works.
So the tracks were right, instant racing is a huge success. Now it's time to direct more of those profits to the General Fund. Bevin is probably correct that gaming is not the answer to our pension woes, but it could sure help our ailing schools, our Medicaid bills and our criminal justice system.
Some Republican lawmakers agree. Rep. Jason Nemes, R-Louisville, says he wants to see what the Supreme Court finally decides.
"But no matter the outcome of that case, it appears that the state should get more tax revenue from historical racing," he said. "I'd like to work with the industry to solidify this form of gaming in the law while ensuring that it is taxed appropriately."
Another Republican House member, Rep. Adam Koenig of Erlanger, would like to see economic studies on the indirect benefits of the machines, as he says that more and better horses are coming to Kentucky to take advantage of higher purses.
"These historical racing machines have put us at the center of horse racing we should have been all along," he said.
In addition, Koenig is preparing a bill for the upcoming session to legalize sports gambling in Kentucky, as other states have already done in wake of the U.S. Supreme Court decision last year. He believes it could help solve Kentucky's critically underfunded pension system.
Of course, gambling shouldn't be a replacement for a robust economy powered by education and good jobs; it's more like a regressive tax on many of Kentucky's poorest people, and can lead to addiction. But, like smoking, people do things that are bad for them, and the best thing government can do is regulate and tax these behaviors for the betterment of all its citizens. Like the issue of legalized marijuana, expanded gambling feels like one of those things where the thin end of the wedge is already propping the door, and soon will open it wide.
It's obvious that historical racing can support the horse industry and do more to support the state. The public should tell lawmakers to take this strange hybrid out the shadows, give it definition and make it work for everyone.