FEDERAL APPELLATE COURT VICTORY FOR ILLINOIS RACING

IMPACT FEE (3%) MONEY IN HORSE RACING EQUITY

By Michael Campbell, ITHA President

Glen Berman, Executive Director and General Counsel

July 8, 2011.  Today the federal appellate court in Chicago, by a 5-3 majority opinion, took a critical step toward releasing approximately $140 million in Horse Racing Equity Trust Fund monies that have been held in escrow pending legal challenges to the Illinois state law that established both the Fund and its associated tax.  The involved monies -- derived from the temporary 3% tax on Illinois riverboats that annually gross $200 million or more -- are to be split 60% to purses and 40% to capital improvements at racetracks.  This tax on riverboats was designed to help stabilize the Illinois horse racing industry and its associated jobs from competitive pressures that unavoidably resulted after additional riverboats were statutorily authorized. 

The riverboats subject to this tax have filed a series of lawsuits to challenge the validity of the “riverboat tax,” so far without success.  In 2008, the Illinois Supreme Court ruled that the riverboat tax is constitutional.  Thereafter, the riverboats filed a second suit alleging that the riverboat tax law was somehow the result of an illegal “pay-to-play” scheme involving former Governor Blagojevich and fundraising

Today’s decision dealt with the question of whether, under the federal Tax Injunction Act (“TIA”), riverboat tax proceeds could be held in escrow pending final resolution of the second suit described above.  In a significant victory for Illinois horse racing, the 7^th Circuit Court of Appeals determined that impeding the disbursal of Horse Racing Equity Trust Fund monies pending litigation is not allowed under TIA.  The federal appellate court did, however, allow the escrow to remain in effect for 30 days so that the riverboats could file an appeal with the United States Supreme Court.  In the likely event that the riverboats file such an appeal, the escrow would probably remain in place until final action by the Supreme Court.  The vast majority of Supreme Court appeals are not accepted for hearing, making it a longshot for the riverboats.  Odds are that we are months away from finally seeing the Horse Racing Equity Trust Fund monies used for their long-intended purpose.

Obviously we at the ITHA are thrilled with today’s federal appellate court decision.  In closing, I wish to share some insightful language from the majority opinion:

“[W]e note that horse racing is a major activity in Illinois and one with economic significance for the state.  It employs more than 30,000 people and generates more than $700 million in annual betting and some $15 million in state and local government revenues….And that’s just the beginning, because horse racing boosts the equine population of Illinois, which benefits breeders, horse farms, feed companies, and other businesses ancillary to horse racing….States routinely subsidize favored activities….Are animals not appropriate objects of state subsidy? Cannot Citation, Man ‘o War, Seabiscuit, and Secretariat be distinguished, as objects of public solicitude, from roulette wheels and one-armed bandits? Casinos are recent additions to the legal gambling scene in Illinois….They compete with the racetracks and thus attract gamblers away from them….[W]hether because of the advent of casinos or because of other factors, racetrack attendance and revenues in Illinois have plummeted in Illinois, along with the states that horse population and commercial activies that are correlated with the number of horses….The subsidy is rationally designed to promote the horse racing industry in Illinois, which seems no less proper an objective than promoting a state’s film industry by offering tax credits or other financial incentives to filmmakers, a common form of state subsidy.”

This ruling clearly indicates the beginning of the end for the riverboats legal maneuvers that have for long prevented the impact fee money from reaching horsemen purse accounts. The frustration of horsemen because of benefits to the riverboats at the direct expense to racing has reached the boiling point, but it is the collective conclusion of track managements and ITHA that this revenue will be released in the not too distant future. While the economic engine of Illinois is still in harms way it can be fairly said that at a minimum the train is at least back on track and building up a full head of steam and slowly moving forward.

Sincerely,

Michael B. Campbell, President

Glen Berman, Executive Director and General Counsel

“Serving the Finest People We Know, the Horsemen of Illinois”