Churchill Downs Fights|Texas Betting Law

AUSTIN (CN) - Texas would hurt out-of-state tracks if it renews enforcement of laws that require in-person bets, the operator of the Kentucky Derby horse race says.

Kentucky-based Churchill Downs and Churchill Downs Technology Initiatives Company dba Twinspires.com sued Chuck Trout, the executive director of the Texas Racing Commission, and nine commissions members Friday.

Churchill says the commission has traditionally refused to enforce the 25-year-old "unconstitutionally discriminatory" laws because the U.S. Constitution does not authorize wagering regulation that favors in-state tracks over out-of-state tracks.

As a result of the "unspoken but implicit understanding" between the industry and the commissions, Texans have been wagering on out-of-state races online or over the telephone since the 1990s, according to the federal complaint.

"A state cannot impose an 'in person' transaction requirement on the purchase of shoes or books, for no reason than to favor local businesses at the expense of out-of-state entities like Zappos.com or Amazon.com," Churchill says. "Such a law would surely violate the Commerce Clause. The same principle applies here. Indeed, this case is even more extreme."

Renewed enforcement would allegedly impose a heavy tax on out-of-state tracks, which would be forced to funnel wagers through a Texas competitor, establish their own in-state track or force customers to travel out of the state to place their wagers. Churchill says most Texans would no longer be able to bet on the Kentucky Derby.

"This is tantamount to forcing Pepsi to to sell its soda only through Coke machines, only if Coke consents, and only if Pepsi agrees to endure whatever marketing conditions Coke might demand and pay whatever fee Coke imposes," the 20-page complaint states. "The resulting competitive disadvantage to Pepsi is obvious. And Texas law is no different."

Churchill says the commission will resume enforcement of the laws for one reason: money, "to generate more revenue for the commission, by shifting market share from out-of-state to in-state race tracks."

"A significant portion of the commission's budget comes from revenues from Texas tracks," the complaint states. "The commission makes no money when a Texan wagers on an out-of-state race, unless it is funneled through a Texas track. So in 2011, during the commission's legislative reauthorization process, the Legislature indicated that the commission could make up for anticipated shortfalls in its budget, simply by enforcing its longstanding (but unconstitutional) inperson requirement." (Parentheses in original.)

Churchill says it accepts wagers over the Internet from Texas and elsewhere through its TwinSpires.com platform.

It seeks declaratory and injunctive relief for violations of the Civil Rights Act. It is represented by James Ho with Gibson Dunn of Dallas.

Follow @davejourno

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