Tribal gaming issues could derail Arizona bill to allow 'historic horse racing' gambling

Tribal opposition could sink a bill to allow wagering on old horse races, which comes as Gov. Doug Ducey is hoping to push through a new gaming compact and legislation to legalize sports betting in Arizona.

Sen. David Gowan, R-Sierra Vista, is sponsoring legislation that would permit racetracks and off-track-betting parlors to offer historic horse racing, in which old races are stripped of identifying information so gamblers can bet on them using machines that resemble video slot machines.

Racing interests touted the historic horse racing bill as a way to modernize and inject new life into an industry that has suffered declining interest and revenues. Brain Murray, a lobbyist who represents the company that operates the Arizona Downs racetrack in Prescott Valley, told the Senate Appropriations Committee that Arizona horse tracks have seen a 50% drop in their handles — the total amount bet on races — and a 60% drop in attendance since voters approved a massive expansion of Indian gaming in 2002.

“We feel that the gaming compacts themselves have been largely successful in helping the tribes. But our biggest issue is it’s done serious damage to all of the jobs associated with horse racing. And we’re just hoping that through the modernization program, we can fix that,” Murray told the committee on Feb. 23.

However, Senate Bill 1794 faces steep opposition from Native American tribes and other tribal gaming entities. And that could have serious ramifications for the new gaming compact that Ducey has negotiated with the tribes. Ducey has not released many details of the renegotiated compact, but it would permit new casinos and allow tribes to offer new games that are currently prohibited, like craps and baccarat.

It would also legalize betting on sporting events, fantasy sports and keno, which would be open to both tribes and non-tribal entities. Lawmakers have sponsored legislation in both the House of Representatives and Senate to enact Ducey’s plan.

The sports betting plan, along with the renegotiated gaming compact as a whole, has the support of Arizona’s gaming tribes. But Mike Bielecki, a lobbyist who represents the Navajo Nation Gaming Enterprise, said that could change if the historic horse racing becomes law.

“The tribes would have to completely reevaluate the compact position if, in fact, this law passed and the governor signed it,” Bielecki told the Arizona Mirror.

Adding to the concerns is the possibility that the historic horse racing bill would trigger the so-called “poison pill” in the tribal gaming compact approved by voters in 2002.

Under the terms of the state’s gaming compact, tribes are limited in the types of games they can offer, the number of tables and the number of casinos they can operate, and must provide between 1% and 8% of their gaming revenue to state and local governments. In exchange, the state limits gambling outside of reservations to things like the lottery and pari-mutuel horse racing that predate the compact and were grandfathered in.

But if the state permits new types of gaming on non-tribal land, the tribes are no longer bound by much of the agreement. They would no longer have to abide by restrictions the compact imposes on the types of games they offer, the number of tables they have or the number of casinos they operate. And the amount of revenue they’d be obligated to provide to state and local governments would drop substantially, to just 0.75%.

Democratic Sen. Sean Bowie pointed out in committee that a 2018 opinion by Attorney General Mark Brnovich found that historic horse racing would, in fact, run afoul of the poison pill. But Gowan said a court had never ruled on the matter, and he wants to investigate the issue further.

Save Arizona Horse Racing, a coalition that’s pushing SB1794, believes historic horse racing wouldn’t violate the gaming compact. Lorna Romero, a spokeswoman for the group, said historic horse racing is simply an expansion of the pre-existing pari-mutuel betting system, which was legal prior to the gaming compact. Therefore, she said, it wouldn’t trigger the poison pill.

But Bielecki, the Navajo Nation lobbyist, took the same view as Brnovich. That raises the possibility that the Navajo or other tribes could challenge historic horse racing under the terms of the compact. If the state and a tribe are unable to resolve their issue through mediation and arbitration, they could end up in court.

Tribal opposition isn’t the only hurdle that SB1794 has to overcome. In the Senate Appropriations Committee, which Gowan chairs, the senator amended language from Ducey’s plan to legalize sports betting onto his horse racing bill, shelving a separate bill that included the governor’s plan.

The final product narrowly passed on a party-line 5-4, with Democrats unanimously opposed. And one Republican senator, Kelly Townsend, said she would vote for SB1794 in committee, but because she never supports gambling bills, she’s unlikely to vote for it in the full Senate.

One impetus for legalizing historic horse racing may no longer be a factor. According to a report commissioned for the Department of Gaming’s Racing Division, Arizona Downs is facing insolvency, which could jeopardize the racetrack’s license. The report said a company called ELS Gaming now has an option to buy an 80% stake in Arizona Downs, but will only exercise it on the condition that historic horse racing is legalized in Arizona.

But on Wednesday, Arizona Downs announced that it had reached an agreement with Peninsula Pacific Entertainment, which owns the parent company of Colonial Downs Racetrack  in Virginia, to pay for a summer racing season with 32 race days this summer. It will be the first live races at the track since it shut down in response to the COVID-19 pandemic last year.

Peninsula Pacific Entertainment also now has an option to purchase a stake in Arizona Downs, owner Tom Auther said. He wouldn’t say how large a stake the company can buy, or whether it’s a majority. But, he said, “ELS is no longer part of the deal.”

Nonetheless, Auther said he’d still like to see historic horse racing permitted in Arizona.

And while the Arizona Downs announcement was a big deal for the track, Romero said the industry as a whole still wants to see historic horse racing legalized.

“We think historic horse racing needs to move forward so it can help bolster the industry throughout the state,” she said.

Meanwhile, it’s unclear what effect Gowan’s move to join SB1794 and Ducey’s sports betting bill might have on the governor’s plans. The full Senate has to hear Gowan’s bill. But the House gave preliminary approval to a sports betting bill on Thursday.

Sen. T.J. Shope, R-Coolidge, who sponsored the Senate version of Ducey’s plan, said he hopes to convince Senate President Karen Fann to withdraw his bill, which has already been approved by the Senate Commerce Committee, out of the appropriations committee, where Gowan held it. And he said he doesn’t think Gowan’s bill has enough support to pass and or that the maneuver will derail the sports betting bill or blow up the negotiations over the new gaming compact.

And though he’d like to see the state do something else to help Arizona’s racetracks, Shope said he doesn’t see how historic horse racing gets past the issues that Brnovich raised.

“I don’t know that anyone truly believes it does have the support to go forward with that one. Maybe it’s a bit of a delay (to) the overall gaming bill that I’m running,” Shope said.

C.J. Karamargin, a spokesman for Ducey, would not comment on the historic horse racing bill or Gowan’s move to amend the sports betting bill onto it, citing the governor’s policy of not commenting on pending legislation.

Gowan did not respond to a request for comment.