Churchill Downs Claims California Owners “Shakedown” Over Online Betting Fee

Posted on: February 6, 2021, 11:30h. 

Last updated on: February 7, 2021, 07:27h.

Steve Bittenbender Read More
Expertise: Legislation, Sports Betting, Horse Racing.

A Churchill Downs Inc. subsidiary filed a lawsuit in federal court last week against horse owners in California. The suit is an attempt to keep them from taking the Louisville, Ky.-based company to arbitration over commissions the company’s online wagering service takes from bets made in the state.

Churchill Downs lawsuit
Hit the Road races to victory is Saturday’s Grade III Thunder Road Stakes at Santa Anita Park in Acadia, Calif. The track has boosted purses this year due to an agreement between owners, tracks, and online wagering platforms. Last week, Churchill Downs sued the Thoroughbred Owners of California because it claims the organization is trying to force it to take reduced fees and give more money to owners. (Image: Santa Anita Park)

Last Tuesday, Churchill Downs Technology Initiatives filed the lawsuit in the California Central District US District Court. In the filing, it said it reached an agreement with Santa Anita Park to establish a fee rate it would collect for wagers placed this year by California bettors through either TwinSpires or BetAmerica, its two online wagering platforms.

The amounts Churchill Downs will receive were redacted throughout the document. However, they are below 6.5 percent of the total handle, according to the lawsuit. The Thoroughbred Owners of California were not a party to those negotiations. However, Churchill Downs claims the horsemen want the company to get only 4.1 percent of the money wagered.

Under California law, online wagering platforms must submit copies of their in-state agreements with the TOC.

Churchill Claims “Shakedown” from Owners

According to the lawsuit, Churchill Downs claims the owners want it to “voluntarily return” more than $1.2 million it received last year. In addition, on Jan. 13, TOC formally requested arbitration and started a 60-day window. The complaint calls that process “unconscionable” and one that undermines the company’s ability to utilize the court system.

Churchill Downs called the TOC’s actions a “shakedown” and said it threatens the future of the TwinSpires and BetAmerica platforms within the state. The company said the owners are giving them three options, none of which are good – accept the lower rate, terminate the Santa Anita deal, or take arbitration.

“In other words, Churchill Downs Technology has to abandon the millions of dollars it invested in its business in California and the rights it has under contract, or it has to proceed to a standard-less but binding arbitration,” the complaint states. “This violates the Due Process Clauses of the United States and California Constitutions.”

Online Betting Grew Because of COVID

In a letter Wednesday alerting members to the lawsuit, the organization said the law it’s invoking to seek arbitration is not new. It’s been on the books for more than two decades, the group said. It also stated the law allows both the tracks and horsemen to seek arbitration to set the fee.

The TOC said it’s pursuing the action because the COVID-19 pandemic in 2020 kept fans away from the tracks. Horsemen receive a larger share of the money bet at racetracks and off-track betting parlors. According to information from the organization, 9.5 percent of the money bet at the track goes toward purses. At OTBs, it’s 6.8 percent. For online betting, 5.4 percent goes toward the purses.

Betting on thoroughbred racing throughout the United States almost exclusively takes place through pari-mutuel wagering. That means money from bettors is pooled and distributed, after the track takes out money, among the winning bettors. The TOC’s charts indicate about a 20 percent takeout, and that’s based on 2015 racing data.

Elsewhere in the US, takeout is slightly less, usually between 15 to 18 percent. Money for the tracks and horsemen come from that. Horsemen and tracks generally receive a smaller share from online wagering.

ADW wagering in California increased by over 40% year over year statewide in 2020 while purse generation from live tracks and OTBs dropped substantially due to COVID-19 closures and restrictions,” the letter stated.

It also claimed Churchill’s platforms received more than $7 million in fees from bets placed in California.

TVG, Stronach Platforms Pitch In to Boost Purses

The lawsuit comes on the heels of a “purse enhancement program” the TOC created along with Santa Anita, Del Mar Thoroughbred Club, The Stronach Group, and FanDuel’s TVG. As part of the program, the TVG and Stronach online betting platforms agreed to put up to $15 million toward purses for the 2021 and 2022 racing seasons.

TwinSpires has been the nation’s largest online wagering platform for racing for years. It seemed like a curious exclusion at the time of the announcement. With the filing of the lawsuit, its absence from the program now makes sense.

In court documents, Churchill Downs said TOC CEO Greg Avioli asked all online platforms to agree to a 3 percent commission rate for the ’21 and ’22 campaigns.

“Indeed, at such a rate, Churchill Downs Technology would be operating at a significant loss, and it would make little sense to do business in California or with California residents,” the lawsuit states.

Santa Anita will use the program to increase its average daily purse by 10 percent to $533,000. Del Mar officials expect their daily purses to exceed $600,000 this year, according to the TOC. The TOC and track officials expect those increases to make the Southern California meets more competitive with other racing markets that rely on casino or historical horse racing to bolster their purses.