Federal Court Finds Congressional Regulation of Interstate Horseracing Wagering Preempts Ohio Law

Oct 10, 2008

By Chris E. Wittstruck, Esq.
Racehorse Ownership Institute at Hofstra University
A federal district court judge in Ohio has found that a three decades old congressional scheme which regulates the transmission of simulcast signals and wagers on horse races across state lines is so pervasive as to preempt even the best of intentioned state statutes.
The Interstate Horseracing Act of 1978 (15 U.S.C. §3001, et seq.) was promulgated to protect racetracks and their horsemen from losing their fair share of pari-mutuel wagering handle through the export of the content of their live races and wagering upon them to off track betting facilities and tracks in other states. The original legislative introduction precluded all forms of interstate simulcasting, tracing the language of the 1961 Wire Act, which purportedly bans all forms of interstate wagering. The compromise was to permit simulcasting of horse races into other states so long as consent was received from all interested stakeholders. In addition to obtaining the consent of the racing commissions in the transmitting (host) and receiving (guest) states, the consent of the horsemen’s group at the host track must also be obtained (15 U.S.C. §3004(a)(1)).
In October 2006, the managements of Ohio’s Beulah Park and River Downs (“host tracks”) sought the consent of the Ohio Horsemen’s Benevolent & Protective Association (“HBPA”) to export their live racing signal to Chester Downs, a Standardbred track in Pennsylvania, at a rate of three percent. The HBPA balked at the low rate for signal transmission, and refused to consent. Rather than negotiate, the host tracks raised objection with the Ohio State Racing Commission (“Commission”) based upon an Ohio state statute which dictated that the horsemen’s consent in this regard “…shall not be unreasonably withheld and shall be consistent with the interest of preserving live racing” (Ohio Rev. Code § 3769.089(G)).
The Commission sided with the host tracks, finding that HBPA was unreasonable when they withheld consent to the proposed simulcasting. Based upon this ruling, one track actually began to simulcast to Chester Downs in January 2007, sans the horsemen’s approval. HBPA then filed suit in federal district court for a declaratory judgment, injunction, and related damages (HBPA v. Zonak, et al., 2:07-cv-00057). Chester Downs ceased accepting the signal just before the suit was filed. Neither side disputing the underlying facts, both parties moved for summary judgment.
On September 23, 2008, the Honorable Michael H. Watson of the United States District Court for the Southern District of Ohio ruled that the Interstate Horseracing Act (IHA) preempted the Ohio statute, that the Ohio statute was otherwise unconstitutional, and that Chester Downs was liable for damages under the federal law.
First, reviewing the specific language of the IHA mandating that, “[n]o person may accept an interstate off-track wager except as provided in this chapter” (15 U.S.C. §3003) the Court reasoned that the statute left no room for supplementation by the state. Based upon both the Supremacy Clause (Article VI, clause 2) and the Commerce Clause (Article I, Section 8, Clause 3) of the U.S. Constitution, Congress had impliedly intended to preempt state regulation in the limited field of interstate off-track horse betting, given the pervasiveness of the federal scheme. The court further ruled that defendants’ interpretation of the IHA as deferring to the state’s traditional police power in the regulation of gambling, “would lead to the absurd result of rendering the entire regulatory scheme of the IHA impotent and without purpose.”
In additional to “field” preemption, the court found that the Ohio statute was also subject to “conflict” preemption. The court rejected the defendants’ arguments that in promoting the protection of live racing, the very goal of the IHA, the Ohio statute fostered, rather than impeded federal law. To the contrary, Judge Watson concluded that inasmuch as the horsemen’s protection under the IHA was afforded based upon the their unfettered decision to give or withhold consent, the Ohio statute stood as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Moreover, the court agreed with the previous interpretation of the horsemen’s veto aspect of the IHA by the Sixth Circuit U.S. Court of Appeals, finding that it advanced the legitimate federal goals of Congress in a rational manner, and rejected claims that the economic impasse such veto may occasionally cause somehow alters that conclusion (Kentucky HBPA v. Turfway Park Racing Association, 20 F.3d 1406 (1994).
Further, the court ruled that the IHA mandate of direct consent of the host commission for all interstate wagers did not grant the Commission the ability to directly regulate the host track’s contractual procurement of consent from the horsemen’s group. Also rejected was the premise that the IHA somehow conferred upon the Commission the right to override the required consent of another party to the proposed simulcasting.
While the court deferred decision regarding the HBPA claims against the host tracks pursuant to 42 U.S.C. 1983 pending a determination as to their status as state actors, the court had no hesitation in assessing civil damages against Chester Downs (15 U.S.C. 3005) for illegally accepted wagers.
The potential effects of the judgment are broad. The decision places a chilling effect upon guest facilities accepting out of state signals and conducting wagering thereon. Despite their reliance on the ruling of a state racing commission acting in conformity with a state statute, Chester Downs was penalized for not recognizing the supremacy of the IHA. The decision clearly reinforces the significant power of horsemen’s groups to protect the value of the product they produce, and greatly assists horsemen in a pending lawsuit in Kentucky wherein Churchill Downs Corporation had filed Sherman Anti-Trust claims against them for withholding consent in a signal pricing dispute.
Additionally, inasmuch as the court determined that states are preempted in the field of interstate simulcasting, the constitutionality of several state statutes governing mandated rates for import and export of signals, and other items related to out of state simulcasting, are in grave doubt. In this regard, consider by way of example New York Racing, Pari-Mutuel Wagering and Breeding Law §§1014 – 1018 which extensively regulates, and in some instances outright prohibits, interstate simulcasting.
Chris E. Wittstruck, an attorney, horsemen’s association director and Standardbred owner, is the founder and coordinator of the Racehorse Ownership Institute at Hofstra University, New York and a charter member of the Albany Law School Racing and Gaming Law Network.


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