ALJDEC decisions subject to certification as final

21A-003-RAC-RES · Division of Racing · 2022-04-06

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of TP RACING, LLLP dba TURF PARADISE,

Appellant.

and

In the Matter of Arizona Downs, LLC,

Appellant.

No. 21A-002-RAC-RES

No. 21A-003-RAC-RES

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: March 14, 2022

APPEARANCES: Lena Kalkbrenner, Esq. for the Racing Commission; Scot Claus, Esq. for TP Racing LLLP; Kory Langhofer, Esq. for Arizona Downs LLC

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

On March 19, 2021, the Arizona Department of Gaming, Division of Racing, issued a Consolidated Notice of Appeal Hearing setting the above-captioned matters for hearing on April 22, 2021 at the Office of Administrative Hearings in Phoenix, Arizona.

The matter was continued and the hearing was conducted on March 14, 2022.

Appellant TP Racing LLLP, d.b.a Turf Paradise appeared through counsel and presented the testimony of Dave Johnson, vice president and assistant general manager. Appellant Arizona Downs LLC appeared through counsel and presented the testimony of David Auther, one of its members. The Arizona Racing Commission appeared through counsel, but presented no witnesses.

The issues for hearing relate to actions taken at Racing Commission Meetings held on November 12 and December 10, 2020.

On November 10, 2020, the Commission voted to approve a Simulcast Wagering Agreement between Turf Paradise and Monarch Content Management LLC (Agenda Action Item C.2). In addition to allowing Turf Paradise access to certain Monarch simulcast signals, the agreement allowed Turf Paradise to participate in Monarch’s commingled pari-mutuel wagering pools.

Although Monarch had issued a proposed Simulcast Agreement to Arizona Downs, Arizona Downs did not execute the proposed Agreement and did not submit it to the Commission for approval. Monarch’s proposed agreement with Arizona Downs did not allow it to participate in Monarch’s commingled pari-mutuel wagering pools, which is why Arizona Downs did not execute the proposed agreement.

Arizona Downs filed with the Commission a request for reconsideration of its approval of the Turf Paradise Simulcast Agreement. At the December 10, 2020 meeting, the Commission, by a vote of 2 to 2, declined Arizona Downs’ request.

The December 10th meeting agenda shows Action Item C.6.A as “Simulcast Horse Racing Import Signals Pursuant to [Interstate Horseracing Act] Section 3004(a)(3), Turf Paradise – Monarch and Monarch Affiliated.” The agenda item lists six tracks that are included in the Turf Paradise Simulcast Agreement.

IHA Section 3003(a)(3) requires the off-track racing commission’s approval before an interstate racing wager can be accepted.

At the December 10th meeting, the Commission, by a vote of 2 to 2, declined to approve items C.6.A(1) through C.6.A(6).

Arizona Downs and Turf Paradise each filed a request for hearing.

The Notice of Hearing shows that Turf Paradise alleges that in denying consent for the importation of the six simulcast signals at issue in agenda item C.6.A: (1) the Commission did not agendize a vote on any “wagering” and thus violated the open meeting law; (2) the Commission is not the “off-track racing commission” from which approval is required by the IHA; (3) the Commissioners predicated their vote on an interpretation of the statutory scheme that was contrary to law, making their decision arbitrary and capricious; and (4) the Commission’s action was arbitrary and capricious for other reasons.

The Notice of Hearing shows that Arizona Downs alleges that the Commission’s decision to deny reconsideration of its approval of the Turf Paradise Simulcast Agreement was was arbitrary, capricious and contrary to governing law including Ariz. Rev. Stat. section 5-112(U).

Ticket sales typically do not provide enough revenue to support live horseracing, with tracks dependent on revenue from off-track betting locations, which are formally known as “additional wagering facilities.”

Mr. Auther’s opinion is that Arizona Downs is not financially viable without off-track betting.

Because the quality of Monarch’s racetracks is high, Mr. Auther’s opinion was that bettors would not patronize Arizona Downs if it does not carry Monarch’s simulcasts.

About 80% of the money bet into a pari-mutuel wagering pool goes to the winning bettors, with the remainder covering various expenses including payments to the host track and the purse.

In a commingled pari-mutuel betting pool, all bettors are part of the same pool regardless of a bettor’s location when placing the bet. As such, the odds are the same for all bettors in a commingled pool.

In 2018, Arizona Downs LLC purchased and began renovations on the racetrack in Prescott Valley. Racing started in the summer of 2019. At that time, Monarch was unwilling to provide Arizona Downs with access to its signals.

Arizona Downs lobbied the legislature, which in 2019 passed HB2547, a portion of which is codified at Ariz. Rev. Stat. section 5-112(U).

Monarch’s proposed Arizona Downs Simulcast Wagering Agreement allows Arizona Downs to receive Monarch’s signals, but does not allow Arizona Downs to participate in Monarch’s commingled betting pools. This means that bettors at Arizona Downs would receive much smaller payouts than bettors at Turf Paradise or other locations participating in Monarch’s commingled betting pools.

The Arizona Downs’ wagering pool might consist of only tens of bettors, whereas the commingled pool might have thousands of bettors. The commingled pool might have payouts of $20 million per day. Because the Arizona Downs’ betting pool will be much smaller than the Turf Paradise pool, bettors are less likely to patronize Arizona Downs.

Mr. Auther was not aware of any tracks that were not part of the commingled pools.

The Arizona Horseman’s Association supports racing in Prescott Valley because this would allow for year-round racing in Arizona, with races conducted in Phoenix in the winter, spring and fall, and in Prescott Valley in the summer when it is too hot in Phoenix. Without the meets in Prescott Valley, many horses will leave the state each summer.

Simulcast signals include the races and information about the odds and horses running.

Because the pools are pari-mutuel wagers, the odds for bettors at Arizona Downs would not be the same as the odds at Turf Paradise.

Because the odds are set by the wagers made in any given pool, if Arizona Downs was to accept Monarch’s signals without access to the commingled pools, it would need to strip from the simulcasts the odds information and have its own odds added. Arizona Downs received an estimate showing that to do so it would incur start-up costs of about $25,200 and annual costs of $31,025 per host racetrack. These are not fees that Arizona Downs would pay to Monarch, but rather would go to an entity that would provide the service requested by Arizona Downs. Mr. Auther testified that Arizona Downs would not be viable at this price.

Turf Paradise introduced evidence showing that Arizona Downs was at one time in arrears with payments to Monarch and/or others. Mr. Auther testified to the effect that Arizona Downs had paid all outstanding amounts due. Mr. Auther did not agree that the content of the letters offered by Turf Paradise was entirely accurate.

Arizona Downs has offered to provide a deposit to insure that all costs and expenses are paid if it is granted access to the commingled pools.

The evidence shows that Monarch proposed to charge the same rates to both Arizona Downs and Turf Paradise and that Monarch would be providing both tracks the same content.

In late October and early November 2020, then Commissioner Jana Propheter exchanged emails with Arizona Downs’ Tom Auther before and after she toured the Arizona Downs facility.

David Auther testified that the tour was not provided to try to influence Ms. Propheter regarding the simulcast agreements at issue.

On November 12, 2020, Tom Auther and Ms. Propheter exchanged emails in which Tom Auther expressed his appreciation for Ms. Propheter “trying,” and he stated that “we” will keep trying and fighting, “you will be vindicated,” and that the Monarch signals needed to be pulled because Monarch had not offered its signals to all permittees in a reasonable way or without anti-competitive practices. Ms. Propheter responded “May you succeed and provide year [round] racing for the State” of Arizona.

David Auther did not know if these emails had been disclosed before the Commission’s December 10, 2020 meeting. There was no evidence or legal argument showing that these communications had to be disclosed.

The Turf Paradise Simulcast Wagering Agreement was on the November 12, 2020 agenda as action item C.2.

The Commission voted to approve the Turf Paradise Agreement at its November 12, 2020 meeting after a long discussion that was at times heated.

One purpose of the Turf Paradise Agreement is to allow Turf Paradise to import and display simulcast signals from Monarch tracks that are listed on attachment or exhibit A of the Agreement.

The terms of the meets (i.e., starting and stopping dates of the races subject to the Agreement) are shown in attachment A, but Latin American Racing has no term listed. As of the hearing date, all other terms had ended.

Mr. Johnson relies on the Commission’s agendas so he knows what information and documents to provide to the Commissioners.

Mr. Johnson’s opinion was that the December 10, 2020 agenda item C.6.A does not include the issue of consent to accept wagers.

During the December 10, 2020 meeting, Commissioner Hover was not present when the vote on item C.6.A was first taken, and the vote was 2 to 1 in favor. Commissioner Hover then rejoined the meeting and voted no, resulting in a vote of 2 to 2, which meant that the item failed. Mr. Johnson estimated that she was gone for a couple of minutes.

Turf Paradise has not been displaying the Monarch simulcasts that are the subject of its Agreement with Monarch because it has not received approval for the individual tracks and has been informed that it may not display those signals without approval. This has resulted in about a 30% reduction in revenue, which is about $2.5 million.

Monarch is premier provider and has preferred tracks. Consequently, this inability to display Monarch’s signals harms the betting public.

Prior to the adoption of section 5-112(U), a single vote on simulcast agreements and/or wagering was taken at which time all required information was considered. Since that subsection was passed, there have been two votes taken, first a vote on the Simulcast Agreement, then the vote on the individual tracks, as was the case in this instance.

Mr. Styles had informed Turf Paradise not to submit the individual track agreements and approvals when it submitted the Turf Paradise Simulcast Wagering Agreement that was voted on at the November 12, 2020 meeting.

The Turf Paradise Simulcast Wagering Agreement at section 1(d) shows that the parties understand that the Agreement is subject to the initial and ongoing approval of the appropriate regulatory bodies.

CONCLUSIONS OF LAW

The burden of proof at an administrative hearing falls to the party asserting a claim, right, entitlement, or affirmative defense, and the standard of proof on all issues in this matter is that of a preponderance of the evidence. Ariz. Admin. Code § R2-19-119; see also Ariz. Rev. Stat. § 41-1092.07(G)(1).

A preponderance of the evidence is:

The greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.

Black’s Law Dictionary 1373 (10th ed. 2014).

Ariz. Rev. Stat. section 5-101 provides the following definitions

1. "Additional wagering facility" means a facility that is not the enclosure in which authorized racing takes place but that meets the requirements of section 5-111, subsection A and is used by a permittee for handling pari-mutuel wagering.

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4. "Applicant" means a person, partnership, association or corporation placing before the department an application for a permit or license.

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7. "Commission" means the Arizona racing commission.

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12. "Department" means the department of gaming.

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14. "Director" means the director of the department of gaming.

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22. "License" means the license issued by the department to each employee or other person participating in any capacity in a racing meeting, including officials and employees of the pari-mutuel department.

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26. "Simulcast" means the telecast shown within this state of live audio and visual signals of horse, harness or dog races conducted at an out-of-state track or the telecast shown outside this state of live audio and visual signals of horse or harness races originating within this state for the purpose of pari-mutuel wagering.

Ariz. Rev. Stat. section 5-101.01 establishes the Division of Racing within the Department of Gaming.

Ariz. Rev. Stat. section 5-104, provides in part:

A. The commission shall:

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3. Conduct hearings on applications for permits and approve permits and shall conduct rehearings on licensing and regulatory decisions made by the director as required pursuant to rules adopted by the commission.

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B. The director shall license personnel and shall regulate and supervise all racing meetings held and pari-mutuel wagering conducted in this state and cause the various places where racing meetings are held and wagering is conducted to be visited and inspected on a regular basis. The director may delegate to stewards any of the director's powers and duties that are necessary to fully carry out and effectuate the purposes of this chapter. The director shall exercise immediate supervision over the division. The director is subject to ongoing supervision by the commission, and the commission may approve or reject decisions of the director in accordance with rules established by the commission.

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D. The division shall employ the services of the office of administrative hearings to conduct hearings on matters requested to be heard by the director or the commission for the division except for those rehearings that are required by the terms of this chapter to be conducted by the commission. Any person adversely affected by a decision of a steward or by any other decision of the division may request a hearing on the decision. The decision of the administrative law judge becomes the decision of the director unless rejected or modified by the director within thirty days. The commission may hear any appeal of a decision of the director in accordance with title 41, chapter 6, article 10.

Ariz. Rev. Stat. section 5-112(U) provides that:

Any simulcast of live racing into this state that originates from outside this state shall comply with this subsection. The simulcast must be offered to each commercial live-racing permittee in this state and additional wagering facility in this state. Each simulcast agreement executed pursuant to this subsection is subject to approval by the commission. The commission shall approve the simulcast agreement if the commission determines that the agreement is reasonable and complies with the requirements of this subsection. A provider of simulcasts originating from outside of this state may not engage in any anticompetitive or deceptive practice in offering to contract for the privilege to send any interstate simulcast to a commercial live-racing permittee or additional wagering facility in this state. For the purposes of this subsection, an anticompetitive or deceptive practice includes any of the following: ....

The Interstate Horse Racing Act, at 15 U.S.C. 3002 provides in part:

(1) "person" means any individual, association, partnership, joint venture, corporation, State or political subdivision thereof, department, agency, or instrumentality of a State or political subdivision thereof, or any other organization or entity;

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(3) "interstate off-track wager" means a legal wager placed or accepted in one State with respect to the outcome of a horserace taking place in another State and includes pari-mutuel wagers, where lawful in each State involved, placed or transmitted by an individual in one State via telephone or other electronic media and accepted by an off-track betting system in the same or another State, as well as the combination of any pari-mutuel wagering pools;

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(5) "host State" means the State in which the horserace subject to the interstate wager takes place;

(6) "off-track State" means the State in which an interstate off-track wager is accepted;

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(9) "host racing association" means any person who, pursuant to a license or other permission granted by the host State, conducts the horserace subject to the interstate wager;

(10) "host racing commission" means that person designated by State statute or, in the absence of statute, by regulation, with jurisdiction to regulate the conduct of racing within the host State;

(11) "off-track racing commission" means that person designated by State statute or, in the absence of statute, by regulation, with jurisdiction to regulate off-track betting in that State;

The Interstate Horse Racing Act, at 15 U.S.C. 3002(A) provides in part:

An interstate off-track wager may be accepted by an off-track betting system only if consent is obtained from-

(1) the host racing association, ....

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(2) the host racing commission;

(3) the off-track racing commission.

Arizona Downs argues that the Turf Paradise Simulcast Agreement is not reasonable and is anticompetitive because Monarch did not offer to Arizona Downs access to the commingled wagering pool but did offer access to Turf Paradise. Turf Paradise argues that subsection 5-112(U) does not speak to wagering pools, but rather covers only the access to signals and those signal have been offered to both parties under the same terms.

Arizona Downs’ argument is more persuasive because by definition, simulcasts are for the purpose of pari-mutuel wagering. See Backus v. State of Arizona, 220 Ariz. 101, 203 P.3d 499 (2009)(give effect to entire statutory scheme); Walker v. Scottsdale, 163 Ariz. 206, 786 P.2d 1057 (App. 1989) (the tribunal must adhere to the legislature’s definitions of terms).

The preponderance of the evidence shows that the Turf Paradise Simulcast Wagering Agreement is anti-competitive because it allows Turf Paradise to participate in Monarch’s commingled wagering pool, but Monarch did not offer Arizona Downs that opportunity.

Although there was evidence showing that Arizona Downs was in arrears with certain payments at one time, there was also evidence to show that it cured any deficiency and it has offered to post a deposit to negate the possibility of any future deficiencies. Consequently, it has not been proven that Arizona Downs’ payment history justifies Monarch’s unwillingness to allow Arizona Downs access to Monarch’s commingled wagering pools.

Turf Paradise argues to the effect that Arizona Downs’ proposed Agreement cannot be considered in this context because Arizona Downs did not execute the proposed Agreement. But subsection 5-112(U) requires only that the Commission consider executed agreements and it does not show that the Commission may not consider other information in determining whether to grant or deny those executed agreements.

Turf Paradise asserts that the Commission violated the open meeting law because wagering was not on the agenda on December 10, 2020. This tribunal is not the proper venue to consider violations of the open meeting law. See Ariz. Rev. Stat. § 38-431.07.

Turf Paradise argues that the Commission is not the "off-track racing commission” within the meaning of IHA section 3003(a)(3), but rather that the Director of the Department of Gaming is. This argument is not persuasive because although section 5-104(B) provides that the Director is required to regulate pari-mutuel wagering, that same subsection provides that the Director is subject to the ongoing supervision of the Commission and that the Commission has authority to reject the Director’s decisions. Consequently, read as a whole, section 5-104 provides the Commission with authority consistent with the IHA’s definition of "off-track racing commission.”

Turf Paradise argues that the Commission’s December 10, 2020 vote on agenda item C.6.A was flawed because the agenda shows that the vote was to be about the approval of simulcast signals and that is what the Commissioners considered, whereas simulcast signals are not covered in the IHA. Accepting that the IHA does not explicitly address simulcast signals, that act must nevertheless be read in conjunction with Ariz. Rev. Stat. Title 5, Ch. 1. As such, Turf Paradise has not proven that the Commission’s actions were inappropriate.

Turf Paradise argues that the Commission’s December 10, 2020 vote was flawed because it approved the executed Turf Paradise Simulcast Wagering Agreement in November 2020, and it declined to reconsider that vote on December 10, 2020. Although the Commission did approve the Agreement, the evidence of record shows that its approval of the individual agreements that were on the agenda in December 2020 was also required before Turf Paradise could begin taking wagers on those signals.

Turf Paradise has not met its burden to show that the Commission’s decision not to approve agenda item C.6.A at the December 10, 2020 meeting was legally or factually flawed. Consequently, Turf Paradise’s appeal should be dismissed.

Although the preponderance of the evidence shows that the Turf Paradise Simulcast Wagering Agreement is anticompetitive in violation of Ariz. Rev. Stat. section 5-112(U), Arizona Downs’ request for reconsideration of the Commission’s November 12, 2020 vote to approve that Agreement is effectively moot because the Agreement has no operative effect. Consequently, Arizona Downs’ appeal should be dismissed.

ORDER

IT IS ORDERED that TP Racing LLLP, d.b.a Turf Paradise’s appeal is dismissed;

IT IS FURTHER ORDERED that Arizona Downs LLC’s appeal is dismissed.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order is the date of that certification.

-54864001

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-137160-45720000Done this day, April 6, 2022.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Rudy Casillas, Director

Division of Racing

-54864001

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-137160-45720000By: Miranda Alvarez

Legal Secretary