After “Spreading Like Rabbits,” The Plug Has Been Pulled On Gray Games In Kentucky

They first showed up in Kentucky in 2021. Called gray games, they looked and acted like a slot machines, but the companies that manufactured the machines made the spurious claim that they were legal because they were actually games of skill. Before long, the machines grew to be so popular that, by some estimates, there were more than 5,000 of them, taking up residence in bars, restaurants and convenience stores across the state.

“They spread like rabbits,” said Majority Floor Leader Senator Damon Thayer of the games that got their name because, when it comes to legality, they operate in a gray area. “Before you knew it they were everywhere. These were mom and pop small businesses who were basically running illegal casinos in the back rooms of their gas stations, convenience stores, bars and restaurants.”

“This was their business model,” Thayer continued. “They'd come into a state where the games were illegal but there might have been a loophole in the law of a gray area in the law that gave them enough impetus with local businesses to go in and install the machines.”

The American Gaming Association (AGA) estimated that there are 580,000 gray games machines nationwide, including 67,000 in Pennsylvania, another state where the racing industry is dependent upon revenues from legal slot machines at its racetracks. The AGA also estimated that gray machines generated $27 billion a year in revenue. In 2021, the games were banned in Virginia, another state where racing benefits from revenue generated by HHR machines.

To Thayer, a staunch supporter of horse racing, gray games were a problem that was about to get much worse as the number of the machines in the state continued to climb. Not only did he believe that the machines were illegal but he recognized the threat they posed to racing. Purses have exploded in Kentucky in recent years, in large part because of the success of Historical Horse Racing (HHR) machines. The gray games machines gave HHR players another outlet, a place to spend their gambling dollars that would be of no help to horse racing.

“On behalf of the 60,000 jobs and billions of economic activity our signature horse industry provides, I proudly vote aye,” Thayer said when casting his vote in favor of the ban.

During the 2022 fiscal year, a total of $4.5 billion was bet through HHR machines in Kentucky.

“We went through so much to get HHR legalized and the machines are very popular and have led to huge purse growth that we all predicted,” Thayer said.  “And along comes this illegal threat to pari-mutuel wagering on horse racing as well as charitable gaming and the lottery. The gray games machines were viewed as an existential threat to all forms of legalized gambling in Kentucky.”

The problem was solved on March 16 when Kentucky Governor Andy Beshear signed House Bill 594, which outlawed the machines.

“They're entirely unregulated,” Beshear said after signing the bill. “I don't believe that they were legal, yet they came into Kentucky and just set up and were taking dollars from Kentuckians and taking them out of State with zero regulation, zero taxation, zero system to help those that might develop any issues from using them for gambling.”

Despite having key politicians like Beshear and Thayer in favor of a ban, nothing came easily when it came to gray games. Just two weeks before Beshear signed the bill a plurality of lawmakers voted to table the bill. That group wanted to create a state gaming commission to regulate and tax the machines. And in 2022, the Kentucky House passed a bill to ban the machines, but it got sidetracked when the Senate amended the bill and the House would not agree to the changes. Thayer said that gray games were gaining such momentum that he feared that if they weren't banned when they were their proponents were going to find a way to make them, officially, legal.

“They wanted to go another year with the machines continuing to multiply,” Thayer said. “They knew that if they made it another year with no ban there wouldn't be much the state could do to get rid of them. There was a real sense of urgency to pass a bill.  The feeling was if there was another year of uncontrolled growth of these machines they'd be here for good. That's because the more businesses that installed the machines the more advocates they would have calling representatives and senators to convince them not to ban them.”

Gray games had their advocates, primarily from the businesses, many of whom were, as Thayer described them “mom and pop” operations, who said they could not stay in business if the revenue they received from the gray games disappeared. Thayer said the gray games operators and manufacturers had “an army of advocates” and spent heavily on lobbyists and campaign contributions.

“You had this big freewheeling group of gray game operators spending an incredible amount of money on lobbyists and campaign contributions” he said. “Of all things, they aligned with group of Southern Baptist legislators who voted against HHR who were arguing to keep the gray games going. They did so because they had people in their district who owned places where they had the gray games machines. It was a strange group of bedfellows, one of the weirder things I have ever seen.”

The bill banning gray games goes into effect July 1, at which time they will disappear from a state where the horse racing and breeding industries can usually count on support from the state's lawmakers.

“There were a lot of reasons to be against gray machines,” Thayer said. “Everyone who voted to ban the machines had different reasons for doing so. There certainly was a big group of legislators who thought it was an illegal form of gaming that was a big group that saw it as a threat to horse racing.”

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Ellis Park to Open at Full Capacity

In accordance with the CDC and Commonwealth of Kentucky, Ellis Park will be open at full capacity for its live race meet June 27 to Sept. 4. Kentucky Governor Andy Beshear announced that June 11 all mask restrictions and capacity restrictions will be lifted in the commonwealth. Tickets will go on sale May 19.

The Governor's announcement stated that vaccinated individuals no longer need to wear a mask nor socially distance from each other in public settings. Based on this guidance, Ellis Entertainment has stopped enforcing mask restrictions at the property and began allowing guests to smoke in designated indoor areas if guests have been fully vaccinated.

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Slight Delay in HHR Bill’s Signage; ‘Extension Facility’ Greenlighted for Kentucky Downs

Kentucky Governor Andy Beshear on Tuesday reaffirmed his vow to sign the historical horse race (HHR) gaming bill that passed both chambers of the state legislature last week, but he explained that a decision by the Senate to adjourn through this week means that the HHR-enabling measure won't become law until the end of the month at the earliest.

Beshear's remarks came via videoconference at the start of the Feb. 16 KHRC meeting. After the governor spoke, commissioners unanimously voted in a series of “emergency” measures contingent on the bill getting signed into law that are designed to keep HHR churning in the interim so the revenue that helps to pay for purses in the state continues to accrue.

The KHRC on Tuesday also gave the preliminary go-ahead for Kentucky Downs to begin the process of planning to open an “extension facility” that will operate HHR gaming and simulcasting, similar to the satellite location that opened 12 miles from Turfway Park under that track's licensure late in 2020.

State regulations allow each licensed racing association to operate an extension betting facility that's located within a 60-mile radius of its track.

Beshear and KHRC chairman Jonathan Rabinowitz spent the opening part of Tuesday's meeting lauding racing industry participants and regulators and thanking long lists of politicians for working toward the passage of SB 120. But it was not until the close of his seven minutes of remarks that Beshear dropped the only newsworthy nugget of his speech.

“It was unfortunate on Thursday that the Senate went ahead and recessed, which meant when [SB 120] passed the House, they couldn't enroll it and send it to my desk,” Beshear said. “They can't do that until they come back into session. With the news [Tuesday] that they're not coming back this week, it looks like it's going to be all the way into next week.

“That's regrettable,” Beshear continued. “I was certainly here in the [capitol] building Thursday night, and I know it's something that we would have all liked to have [had signed into law]. But, we did get the bill through, and my commitment—I'll make it today publicly—I will sign that bill as fast as it reaches my desk.”

The most telling comment from Rabinowitz underscored that in exchange for the legislature's redefining of “pari-mutuel wagering” so it now includes HHR, the tracks will now be under political pressure to cooperate on pending legislation that will raise Kentucky's taxes on HHR.

“I assured the legislators that this commission is committed to holding the [tracks] to their commitment to work constructively to revise and raise the tax structure of HHR,” Rabinowitz said. “Knowing the leaders that made those commitments, there's no doubt in my mind that the [tracks] will fulfill those promises.”

Prior to the unanimous voice vote that ratified the KHRC's conditional approval of the Kentucky Downs request to expand its licensed premises so it can include a to-be-built extension facility, it was revealed that no location for the HHR/simulcast business has been publicly disclosed, and that no firm timetable has been established for its opening.

Marc Guilfoil, the KHRC's executive director, told commissioners that “My understanding is that they've got it down to two, maybe three [locations as of] a month ago. They did not want to disclose those because of competition.”

Guilfoil added that “I think a timeline is very close to being started now that we got SB 120 passed.”

Jennifer Wolsing, the general counsel for the KHRC, said the Kentucky Downs request
came to the commission back on Dec. 4, and she noted that the new facility will not be within a 60-mile radius of another track or 40 miles from an existing simulcast facility.

Beyond the HHR business that made up the bulk of Tuesday's agenda, the KHRC unanimously approved a live racing request by Keeneland Race Course to drop Thursday, April 1, from its upcoming spring meet. This move allows the track to revert to a traditional Friday opening day; the request had the approval of recognized Kentucky horsemen's groups.

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