On February 19, 2025, the U.S. District Court for the Western District of Michigan ruled that the Interstate Horseracing Act1 (“IHA”), preempts the Michigan Horse Racing Law2 (“MHRL”), specifically, its requirement that out-of-state Advance Deposit Wagering (“ADW”) operators must partner with in-state entities to take Michigan resident wagers. This decision arose from a dispute between Churchill Downs Technology Initiative Company (“TwinSpires”), a licensed Oregon-based ADW, and the Michigan Gaming Control Board (“MGCB”), creating confusion around states’ ability to regulate pari-mutuel ADW wagering by their residents.
Background
The IHA, enacted in 1978, regulates interstate pari-mutuel wagering by establishing a federal framework for accepting interstate off-track wagers, ensuring cooperation between the parties involved. Michigan’s MHRL, passed in 1995, authorizes pari-mutuel wagering in Michigan and requires licensure to accept bets from Michigan residents. ADWs like TwinSpires must have a “third-party facilitator” license from the Michigan Gaming Control Board (“MGCB”) to accept pari-mutuel wagers from Michigan residents, which requires “a joint contract with all race meeting licensees and certified horsemen’s organizations in [Michigan].”
The Dispute
TwinSpires, seeking to accept wagers from Michigan residents, complied with the MHRL’s third-party facilitator requirements by partnering with the state’s lone licensed racetrack. However, after that racetrack lost its license, no in-state tracks remained with whom TwinSpires could contract. The MGCB instructed TwinSpires to stop accepting wagers from Michigan residents unless it formed a new contract with a licensed racetrack. TwinSpires argued that the IHA preempts this state requirement and filed a complaint seeking to enjoin enforcement of the MHRL.
The Ruling
The court ruled in favor of TwinSpires, finding that the IHA preempts the MHRL’s third-party facilitator license requirement for acceptance of interstate off-track wagers from Michigan residents. The court first addressed TwinSpires’ standing, ruling that it had a right to challenge state actions that conflict with federal law. It further determined that the IHA’s limitations on a person’s right to sue are not applicable here, as TwinSpires was not suing for a violation of the IHA. Additionally, the court ruled that while the MGCB was protected by the Eleventh Amendment’s grant of sovereign immunity as a state agency, its Executive Director and the Attorney General were not.
In its analysis of the IHA, the court emphasized Congress’s intent to regulate interstate off-track wagering through a federal framework. The IHA governs the process by which interstate off-track wagers can be accepted, as long as pari-mutuel wagers are “lawful in each State involved” in the transaction.3 Accordingly, states retain the authority to regulate intrastate betting but cannot impose additional requirements on interstate off-track wagering beyond those outlined in the IHA.
Michigan’s requirement for an in-state track partnership was ruled to be an additional regulatory burden on interstate wagering, which conflicts with the IHA’s exclusive regulatory scheme. Once a state decides to permit pari-mutuel wagering, the “federal field” covers interstate off-track pari-mutuel wagers therein. The MHRL was found to not violate the dormant Commerce Clause, however, because it imposed the same licensing requirements on all third-party facilitators, regardless of whether they are based in-state or out-of-state.
Notably, where the IHA requires that ADWs gain consent from three different entities to accept interstate off-track wagers (the host racing association, the host racing commission, and the off-track racing commission4) the court held that ADWs do not need consent from the regulating entity where the wager is placed (i.e. Michigan), but rather, where the wager is accepted. Therefore, the MGCB does not need to consent to the acceptance of wagers from Michigan residents, instead, the Oregon Racing Commission does, where TwinSpires’ ADW wagering hub is located.
Conclusion
The court ruled that requiring TwinSpires to obtain a Michigan license to accept wagers from Michigan residents violated the IHA’s preemption of state regulations governing interstate off-track wagering. As long as the IHA permits interstate wagers, states cannot add additional licensing requirements. This ruling casts doubt on states’ powers to tax and regulate off-track pari-mutuel wagering by their residents.
