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Report: Kentucky Supreme Court Hears Case to Recoup Money from Zayat Asset Sales

In effort to recoup money from the buyers of horses and bloodstock interests from the financially embattled Zayat Stables, the New York-based lender MGG Investments has taken its case to the Kentucky Supreme Court. Dick Downey of The Blood-Horse first broke the story.

“The Kentucky Supreme Court heard oral arguments Feb. 8 pitting MGG, a lender of millions of dollars to Zayat Stables, against buyers of some of the now-defunct Zayat operation's Thoroughbreds and breeding interests. The parties landed in court when money generated by purchases did not turn up in the hands of the lender, even though it held liens on the assets,” Downey reported.

“After the Zayat loan lapsed into default in early 2020, MGG obtained in Fayette Circuit Court in Lexington an uncontested judgment of more than $24 million. Ahmed Zayat and Zayat Stables subsequently took shelter in bankruptcy court, where MGG filed several adversary proceedings based on allegations of fraud and other misconduct. Those claims were eventually settled for substantial sums, but sums well short of the defaulted obligation,” Downey reported.

According to court records cited by Downey in his Blood-Horse story, the sales included “breeding rights to American Pharoah to LNJ Foxwoods and Orpendale, breeding rights in stakes-winning mare Lemoona to Flintshire Farm and Brad Sears, and horses El Kabeir to Yeomanstown Stud, American Cleopatra to Hill 'n' Dale, and a 50% interest in Solomini to McMahon Thoroughbreds.”

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Kentucky Senate Passes Historical Horse Racing Bill; Legislation Moves To House Next

The Kentucky State Senate passed the Historical Horse Racing Bill, Senate Bill 120, by a margin of 22-15 on Tuesday, Feb. 9.

The Kentucky Equine Education Project (KEEP), Kentucky's equine economic advocate, released the following statement:

“We applaud the Senate for voting to keep historical horse racing in Kentucky and protect important jobs and investment in communities across the commonwealth. Senator John Schickel and Senate President Robert Stivers have been instrumental in moving this legislation forward, and we thank them for their efforts. Now, we are calling on our elected officials in the House to bring SB 120 to passage so that historical horse racing can continue in the commonwealth, just as it has for the last decade.

“The future of the horse industry and Kentucky's economy is in legislators' hands, and real jobs and livelihoods are at risk. Tens of thousands of Kentuckians rely on the equine industry to make a living and provide for their families—many of whom have already sent messages and made calls to their legislators asking them to vote yes on this critical legislation. They are your neighbors, family members, colleagues and friends. We hope that legislators will keep these individuals in mind as they discuss SB 120 in the coming days. A vote to keep historical horse racing in Kentucky is a vote for Kentucky families and the industry that supports them.”

The bill will be heard in the House Committee on Licensing, Occupations & Administrative Regulations before heading to the House floor for a vote.

The Kentucky Supreme Court issued a unanimous decision on historical horse racing machines on Sept. 24, 2020, deeming one particular brand to not constitute pari-mutuel wagering. When the Court declined to reconsider that decision in January, both Keeneland and Red Mile temporarily shut down historical racing operations.

Senator Schickel and Senate President Stivers introduced Senate Bill 120 on Feb. 2. It defines pari-mutuel wagering to be consistent with how the Kentucky Horse Racing Commission has regulated live racing for decades and historical horse racing for the last ten years. The legislation also reaffirms that only pari-mutuel wagering on simulcasts of live racing can occur at simulcast facilities. In effect, this maintains the status quo that Kentucky has known for the last decade, ensuring HHR venues can continue or resume operations.

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HHR Bill Introduced in Kentucky State Senate

Kentucky State Senator John Schickel and Kentucky Senate President Robert Stivers introduced Senate Bill 120 into the Kentucky State legislature late Tuesday with the goal of keeping historical horse racing in Kentucky and ensuring the future of Kentucky's signature equine industry.

“KEEP applauds Senator Schickel and Senate President Stivers for Introducing Senate Bill 120, Legislation to Keep Historical Horse Racing in Kentucky,” read a KEEP press release issued late yesterday.

“In response to the Supreme Court's ruling on historical horse racing, the legislation will define pari-mutuel wagering to be consistent with how the Kentucky Horse Racing Commission has regulated live racing for decades and historical horse racing for the last 10 years. The legislation also reaffirms that only pari-mutuel wagering on simulcasts of live racing can occur at simulcast facilities. In effect, this maintains the status quo that Kentucky has known for the last decade, ensuring HHR venues can continue or resume operations that are so beneficial to the horse industry and statewide economy.

“This effort is about preserving a system of wagering we've known for live racing for decades and historical horse racing for the last 10 years,” Schickel said last week, as he prepared to introduce the legislation. “This is about maintaining the status quo. Our immediate action as legislators is critical to protecting current and future jobs and economic development across the Commonwealth.”

A ruling in September by the Kentucky Supreme Court stipulated that many of the state's machines do not constitute pari-mutuel wagering and were therefore not allowed. It also required that legislation be introduced to uphold the existing definition of the games as pari-mutuel before the end of the legislative session Mar. 30. The original lawsuit against HHR was brought by the Family Foundation, a conservative organization opposed to gambling and its expansion. Members of the racing industry argue that the loss of revenue would be crippling to racing in Kentucky.

“We applaud Sen. Schickel for championing Senate Bill 120, which will keep historical horse racing in Kentucky and protect critical jobs, economic investment and state revenue at a time when they are needed most,” said the statement from KEEP. “We also thank Senate President Stivers for his support as a co-sponsor of this important legislation. The Kentucky Supreme Court gave the General Assembly clear direction to preserve the status quo, and SB 120 gives us a path forward.

“Historical horse racing is an integral part of Kentucky's signature equine industry and our economy as a whole and has helped position Kentucky as a worldwide leader in racing. With real jobs and investment on the line, we urge the members of the Senate Licensing and Occupations Committee to promptly move this legislation forward so that the commonwealth can continue to benefit from historical horse racing, now and in the years to come.”

SB 120 is set to be heard in the Senate Licensing and Occupations Committee at 11 a.m. Thursday, Feb. 4.

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HHR Bill With Support of Kentucky Senate President to be Filed Feb. 2

A Kentucky State Senator whose district includes Turfway Park said Thursday that he intends to file legislation and hold a hearing next week to make historical horse race (HHR) gaming legal, “maintaining the status quo” for the revenue flow that annually contributes tens of millions of dollars to purses in the state.

“Next week, I will file legislation to keep historical horse racing operational in Kentucky,” Senator John Schickel (R-Union) stated in a Jan. 28 press release first published by WTVQ.com. “The bill, which I am pleased to say will be co-sponsored by Senate President Robert Stivers, will address the recent Kentucky Supreme Court decision on pari-mutuel wagering and ensure that historical horse racing facilities are able to continue operating, while employing Kentuckians, generating state tax revenue and strengthening our signature equine industry.

“This effort is about preserving a system of wagering we've known for live racing for decades and historical horse racing for the last 10 years. This is about maintaining the status quo. Our immediate action as legislators is critical to protecting current and future jobs and economic development across the Commonwealth.

“I have long supported Kentucky's equine industry and recognize the importance of historical horse racing to its continued success. This issue is of particular importance in my district with the future of Turfway Park potentially in the balance, but if left unaddressed, the negative consequences are sure to impact the entire state. I look forward to working with my colleagues in General Assembly to address the clear legislative direction provided by the Kentucky Supreme Court,” Schickel concluded.

Schickel's statement did not disclose any specifics of the bill.

According to kentuckytoday.com, Schickel later added that he plans to file the bill Feb. 2, the first day lawmakers are back in session, and that it will have a hearing in the Senate Licensing and Occupations Committee, of which he is the chairman, on Feb. 4.

In a Sept. 24, 2020, judgment, the Supreme Court ruled 7-0 that HHR machines made by Exacta Systems do not “create a wagering pool among patrons such that they are wagering among themselves as required for pari-mutuel wagering.” The ruling also told a lower court to re-examine the legality of the most crucial form of funding for purses in Kentucky.

Although the Supreme Court case only involves HHR machines made by Exacta Systems, whose machines are in use at the Red Mile, Kentucky Downs and Ellis Park, the gaming systems operate in broadly the same manner throughout Kentucky, meaning that a precedent established for one version is likely to affect all forms of HHR. Anti-gambling advocates in Kentucky have challenged the legality of HHR since the inception of that form of gaming.

On Jan. 21, the Kentucky Supreme Court denied a petition for rehearing its September judgment, creating an apparent dead-end to the case in the courts.

Three days later, on Jan. 24, Keeneland Association and Red Mile announced they would be shutting their joint historical horse racing (HHR) venture at the Lexington harness racino while imploring the Kentucky legislature to provide “more clarity” regarding the disputed legal status of HHR.

On Jan. 26, Vince Gabbert, Keeneland's vice president and chief operating officer, said that “the measures that we took over the weekend have helped bring the urgency even more to the forefront than what we had so that the legislature understands the impact that not only racing, but HHR has on the economy in the commonwealth.”

Gabbert termed the HHR closure a “conservative” decision. It stands out because HHR venues operated by other licensees have remained operational in Kentucky.

Also on Jan. 26, Ellis Park general manager Jeffery Inman warned in a statement that “Without the revenue associated with HHR, there is no realistic path forward for Ellis Park.”

Turfway Park is currently conducting spectator-free live racing with simulcasting and HHR gaming proceeding at its satellite facility 12 miles away in Newport. But back in October, Churchill Downs Inc., (CDI), the gaming corporation that owns the tracks and HHR licenses associated with Churchill Downs Racetrack and Turfway Park, halted reconstruction on the Turfway grandstand it demolished a year ago, vowing not to continue with the planned rebuild until HHR's legality gets sorted out.

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