‘It’s An Aggressive Approach’: Closer Look At iGaming Lawsuit Accusing Maine Of ‘Race-Based Monopoly’

Churchill Downs Inc., mostly a brick-and-mortar gambling company and a member of the National Association Against iGaming since the group’s founding last February, has made its views on online gaming clear: The company is opposed to its legalization and regulation.

In its lawsuit filed Jan. 23 in U.S. District Court in Maine, that long-held position comes with an asterisk.

“Plaintiffs believe that no entities should be allowed to offer iGaming in the State of Maine,” reads Paragraph 10 of the preliminary statement. “But since Maine has decided to allow iGaming, Plaintiffs, too, are interested in and would apply for an iGaming license.”

Earlier in January, Gov. Janet Mills caught many off-guard when she allowed Maine to become the eighth state to legalize iCasino, declining to veto LD 1164, which gives four tribes — the Penobscot Nation, Passamaquoddy Tribe, Mi’kmaq Nation, and Houlton Band of Maliseet Indians — the right to each launch an online casino platform, while not extending that right to the state’s commercial casinos.

Churchill Downs owns and operates Oxford Casino Hotel in the southern region of the state about 35 miles north of Portland, hence the parent company’s objection to the particular way Maine is going about legalizing iGaming.

The lawsuit, with Churchill Downs, subsidiary BB Development LLC, and Oxford Casino as plaintiffs, and Maine Gambling Control Unit Executive Director Milton F. Champion listed as the defendant, is notable in that its intention appears split between overturning the legalization of online casino, and being a part of the legal online casino market.

The old saying, “if you can’t beat ‘em, join ‘em” comes to mind — but it’s open for interpretation whether Churchill Downs wants to beat ‘em, or just wants to join ‘em.

“It’s a little bit of a strange argument, as it strikes me that if they were allowed in, then the remedy would be giving them something they say they don’t want — an expansion of iGaming,” observed attorney Dennis Ehling, a Los Angeles-based partner at Blank Rome who specializes in gaming industry law. Blank Rome is not involved in the Maine lawsuit.

“It definitely sounds to me,” Ehling continued, “like they’re conceding that they’re less likely to be able to prevent iGaming and more likely to be able to get themselves added to it so it’s not only the tribes. But, that said, I don’t want to try to read too deeply into what they may or may not be trying to get to.”

‘An aggressive approach’

The element of the lawsuit that has gotten the most attention in the first week or so since its filing is the claim from Churchill Downs that LD 1164 would create “a race-based monopoly.”

Ehling has thoughts on that aspect of the filing.

“Look, it’s an aggressive approach,” he said. “There are a number of tribal gaming organizations all over the country that have rights that other gaming organizations in the state do not. And I think that’s contemplated by the Indian Gaming Regulatory Act. What the state decides to do vis-a-vis tribal gaming, it doesn’t necessarily have to line up with how they choose to restrict non-tribal gaming.

“I should clarify that the state cannot put greater restrictions on tribal gaming than it does on non-tribal gaming. So if you’re in a state that, for example, allows online sports betting, or sports betting generally, you can’t tell the tribes they can’t do it. Or if you’re a state that has casino wagering, you can’t say to a tribe, well, the commercial entities can have it and you can’t. But, it is not necessary that you allow your non-tribal gaming interests to do everything that a tribal gaming interest can do.

“I’m not sure I’d call the division here ‘race-based.’ I’d say it’s more heritage-based. Whether or not it counts in today’s world as a reverse discrimination against the people who are not of that heritage — it’s hard to say. Again, this strikes me as an aggressive move.”

As always with matters of online casino legalization, the topic of cannibalization comes up in the legal filing. Different studies have reached different conclusions, and Churchill Downs cites one by The Innovation Group that “shows that land-based casino revenue drops by 16% on average after iGaming is introduced.” The suit builds on that to note, “As for Maine, that same study projects that on average the introduction of iGaming into the State will lead to approximately 378 lost jobs, $22 million in lost labor income, and $60 million in lost value added throughout the economy.”

From there, the lines blur again on whether Churchill Downs believes the legalization of iGaming is bad for the commercial retail casinos or if legal iGaming is fine as long as those commercial casinos get a piece. The suit follows the above quote with:

“All these harms are the direct consequence of a race-and-geography-based monopoly. If the Maine Legislature has made the choice to allow iGaming within the State, it should give everyone a fair chance to compete, without regard to race or citizenship, as both the United States and Maine Constitutions require.”

History, and mystery

Is there precedent for a lawsuit successfully blocking the launch of a form of state-legalized gambling?

One example of note came when Delaware legalized sports wagering in 2009, only to see professional sports leagues file a suit in opposition, with the courts ultimately ruling that Delaware could only offer parlay cards, not Nevada-style single-game betting.

Ehling also pointed out that in the early 1990s, California legalized certain forms of tribal gaming but did not amend the state Constitution to allow it, “and the California Supreme Court looked at that and said, essentially, what you tried to do is lay a legislative solution over the constitutional prohibition, and that doesn’t work,” Ehling said. “So then the proponents had to go back and get a statewide referendum to amend the Constitution. That’s an example where the lawsuit triggered the further response.”

So history suggests a legal challenge can get in the way of a gambling expansion advanced by a state, as Churchill Downs is now trying to do in Maine.

Ehling is reluctant to make a prediction on what will happen in Maine or to handicap the possible outcomes. But his assessment of the lawsuit is, “I don’t think that what [Churchill Downs has] put forth so far is supported by existing law. I think there’s plenty of existing law that would support what Maine is doing here.

“But, that being said, that doesn’t mean the law couldn’t change.”

In the shorter term, the next step is for the Maine Gambling Control Unit to file a response, within 21 days of when service was completed — meaning in roughly the next two weeks.