COMMONWEALTH OF KENTUCKY, FRANKLIN CIRCUIT COURT DIVISION CIVIL ACTION NO. 19-CI-

COMMONWEALTH OF KENTUCKY FRANKLIN CIRCUIT COURT DIVISION CIVIL ACTION NO. 19-CI- KENTUCKY DOWNS, LLC; and KENTUCKY RACING ACQUISITION, LLC PETITIONERS/APPELLANTS PETITION FOR REVIEW AND APPEAL OF v. APPROVAL OF WKY DEVELOPMENT, LLC LICENSE APPLICATION AND DENIAL OF KENTUCKY DOWNS, LLC LICENSE APPLICATION COMMONWEALTH OF KENTUCKY, PUBLIC PROTECTION CABINET, KENTUCKY HORSE RACING COMMISSION RESPONDENTS/APPELLEES and Serve: Marc Guilfoil, Executive Director Kentucky Horse Racing Commission 4063 Iron Works Parkway, Building B Lexington, KY 40511 Serve: Hon. Andy Beshear Office of the Attorney General 700 Capitol Ave., Capitol Suite 118 Frankfort, KY 40601 WKY DEVELOPMENT, LLC d/b/a OAK GROVE GAMING AND RACING, LLC and Serve: CT Corporation System 306 West Main St., Suite 512 Frankfort, KY 40601 PLAYERS BLUEGRASS DOWNS, LLC d/b/a BLUEGRASS DOWNS Serve: Corporation Service Company 421 West Main St. Frankfort, KY 40601 COM : 000001 of 000039 1

INTRODUCTION Kentucky Downs, LLC and Kentucky Racing Acquisition, LLC (collectively, Kentucky Downs ), by and through counsel, appeal the vote of the Kentucky Horse Racing Commission to award a license to conduct live racing and pari-mutuel wagering in Christian County, Kentucky to WKY Development, LLC and to deny Kentucky Downs application for a license to conduct live racing and pari-mutuel wagering in Christian County, Kentucky, along with the document titled Final Order issued by the Commission on December 5, 2018 memorializing that decision. As grounds for this appeal, Kentucky Downs states as follows: PARTIES 1. Kentucky Downs, LLC is a Kentucky limited liability company that offers live, simulcast, and historical horse racing in the Commonwealth of Kentucky. 2. Kentucky Racing Acquisition, LLC is a Delaware limited liability company that has a contractual interest in this action. 3. Respondent Commonwealth of Kentucky, Public Protection Cabinet, Kentucky Horse Racing Commission ( KHRC or Commission ) is an administrative agency of the Commonwealth of Kentucky vested with the powers set forth in KRS Chapter 230 to, among other things, act upon applications for licensure as a racing association. Summons is being served on the Honorable Andy Beshear, Attorney General for the Commonwealth of Kentucky, as the agent for service of process for the Commission, pursuant to CR 4.04(6), and also as the legal advisor of all state officers, departments, and agencies pursuant to KRS 15.020. 4. On information and belief, WKY Development, LLC d/b/a Oak Grove Gaming and Racing, LLC ( WKY ) is a Delaware limited liability company with two members, Churchill Downs Incorporated ( Churchill Downs ) and Keeneland Association, Inc. ( Keeneland ). COM : 000002 of 000039 2

5. On information and belief, Players Bluegrass Downs, LLC d/b/a Bluegrass Downs ( Bluegrass Downs ) is a Kentucky corporation owned by Caesars Entertainment Corporation that offers live and simulcast horse racing in the Commonwealth of Kentucky. JURISDICTION AND VENUE 6. Pursuant to the provisions of KRS 230.330 and KRS Chapter 13B, the Franklin Circuit Court has jurisdiction over this case and venue is proper in this Court. BACKGROUND ON HORSE RACING LICENSURE 7. Under Kentucky law, only nine horse racing tracks may be licensed at any given time. KRS 230.377(3) (the Commission shall approve no more than nine (9) tracks for participation in horse racing, intertrack wagering, and simulcasting. ) 8. The Commission historically has been conservative in its issuance of racing licenses. On information and belief, it has never had all nine licenses issued since the enactment of KRS 230.277(3). 9. For over 20 years, from approximately 1994 to 2017, eight tracks were licensed by the Commission. 10. During this time, the Commission was asked to license a ninth track but chose not to. 11. For example, in 2002, Southern Bluegrass Racing, LLC ( Southern Bluegrass ) applied for a license for a racetrack in Williamsburg, Kentucky. 12. The Commission denied Southern Bluegrass s application after hearing objections from other tracks, including Churchill Downs, that a new license would adversely affect existing licensed tracks and off-track betting sites near Williamsburg. S. Bluegrass Racing, LLC v. Kentucky Horse Racing Auth., 136 S.W.3d 49, 51 (Ky. App. 2004). In addition, the Commission COM : 000003 of 000039 3

received a report from an ad hoc committee of the Commission regarding the viability and sustainability of a new track. Id. 13. As explained in more detail below, the Commission also refused to accept or act on applications for new licenses in 2017. 14. In 2017, Appalachian Racing, LLC did not renew its license, leaving only seven licensed tracks in Kentucky. 15. Prior to awarding WKY the license in dispute in this action, seven of the nine licenses had been awarded by the Commission, thus leaving only two available licenses that the Racing Commission could award for the entire Commonwealth. 16. Prior to awarding WKY the license in dispute in this action, the Commission had not awarded a new license in approximately 25 years. 17. Pursuant KRS 230.300(6), and among other statutory and regulatory requirements related to licensure, the Commission should not issue a license unless it finds that the applicant meets the requirements established in KRS 138.530 and other applicable provisions of [KRS Chapter 230], and if the racing commission finds that the proposed conduct of racing by the association would be in the best interest of the public health, safety, and welfare of the immediate community as well as to the Commonwealth. FACTS AND PROCEDURAL HISTORY 18. Kentucky Downs owns and operates Kentucky Downs racetrack in Franklin, Kentucky. 19. Kentucky Downs conducts a successful live thoroughbred racing meet each fall at its Franklin, Kentucky facility. It also offers simulcast wagering and wagering on historical horse races year-round at its Franklin, Kentucky facility. COM : 000004 of 000039 4

20. Beginning in approximately 2014, Kentucky Downs explored the possibility of developing a separate facility in Oak Grove, Kentucky. Based on its discussions with local officials and standardbred horsemen, Kentucky Downs determined that a separate facility offering standardbred racing (also referred to as harness racing) would be appropriate and decided upon the name Oak Grove Meadows. The KHRC Refuses to Accept or Consider Applications in 2017 Due to the Lack of a Licensure Process or Criteria. 21. In 2017 and before, Kentucky Downs spent considerable time preparing an application to offer harness racing and wagering on historical horse racing at Oak Grove Meadows in Oak Grove, Kentucky. 22. In 2017, Kentucky Downs completed an application to submit to the KHRC and advised the Commission that it would be submitting its application to offer harness racing and wagering on historical horse racing at Oak Grove Meadows in Oak Grove, Kentucky. 23. On the day Kentucky Downs planned on submitting its application, however, the Commission advised Kentucky Downs that it would not accept new applications. 24. As a result, in reliance on the Commission s statement, Kentucky Downs did not submit its application. 25. The Commission then advised all current licensed tracks of its position that it would not be accepting applications for licensure of new facilities. 26. Despite the Commission s announced position, Churchill Downs and Keeneland submitted an application for a license to conduct racing and historical horse racing at new facilities in Corbin, Kentucky and in Oak Grove, Kentucky. 27. In response to Churchill and Keeneland s submission, Commission Chairman Frank Kling and then Vice-Chairman John Roach issued a statement, which provided in part: COM : 000005 of 000039 5

Over the last several months, we have informed Kentucky s race tracks that we would not consider any applications for new race track facilities in Kentucky. Despite that communication, Churchill and Keeneland have chosen to submit an application for new race track facilities. At this time, neither of us have any plans to take any action related to this application or any other application for a new race track facility. It is our hope that in the future we will be able to develop a process and criteria to determine whether any new race track facilities are needed in the Commonwealth. September 15, 2017 email from J. Eads, attached as Exhibit 1 (emphasis added). 28. To Kentucky Downs knowledge, the Commission did not take any further action related to the 2017 application of Churchill Downs and Keeneland application for a license to conduct racing and historical horse racing at new facilities in Corbin, Kentucky and in Oak Grove, Kentucky. The Racing Commission Did Not Develop a Process or Criteria in 2017 or 2018 to Evaluate and Consider License Applications. 29. The Commission has not developed a process at any time since 2017 to determine whether any new race track facilities are needed in the Commonwealth. 30. The Commission has not developed criteria at any time since 2017 to determine whether any new race track facilities are needed in the Commonwealth. 31. Kentucky Downs has submitted open records requests to the KHRC pursuant to KRS Chapter 61 asking for the existence of any process or criteria developed since 2017 by which the KHRC can determine whether any new race track facilities are needed in the Commonwealth. 32. The KHRC has not provided any documents to Kentucky Downs suggesting that any process or criteria has been developed since 2017 by which the KHRC can determine whether any new race track facilities are needed in the Commonwealth. COM : 000006 of 000039 6

33. The only criteria or process provided by the KHRC in response to open records requests are those set forth in 811 KAR 1:037, which is the same regulation that was in existence in 2017 when the KHRC stated it would not take action until a new process and criteria was developed. 34. The KHRC has stated in response to open records requests that KHRC legal staff provided memoranda to Commission members discussing the licensing process, but refused to provide Kentucky Downs with any such memoranda setting forth licensing criteria. The KHRC Changes Course and Acts on an Application in Expedited Fashion. 35. At no time from September 2017 to September 2018 did Chairman Kling or the Commission announce that it was ready to accept applications or would act on any application if one were filed. 36. Kentucky Downs relied on the statements made by the Commission that it would not consider applications until a process and criteria were developed and refrained from preparing or filing an updated application for a license to operate a facility at Oak Grove. 37. On September 4, 2018, however, WKY submitted an application for a license (i) for ten (10) live race dates in 2019 to be held in Louisville, Kentucky at [Trackside]; (ii) for fifteen (15) conditional live race dates in 2020 to be held at a new Standardbred Horse racing facility to be located in Oak Grove, Christian County, Kentucky; and (iii) to offer exotic wagers on historical horse races[.] 38. The Commission accepted WKY s application and began acting on it immediately. 39. On information and belief, representatives of WKY had discussions with Commissioners or members of the KHRC staff regarding WKY s application following the filing of the application. COM : 000007 of 000039 7

40. On September 17, 2018, WKY submitted an amended application for a license (i) for ten (10) live race dates in 2019 to be held at a new Standardbred Horse racing facility to be located in Oak Grove, Christian County, Kentucky, and (ii) to offer wagers on historical horse races[.] 41. WKY s application also included a request to offer simulcasting at its facility. 42. The Commission accepted WKY s amended application. 43. Two days later, on or about September 19, 2018, the Commission announced that it would now accept applications, and that all applications for a new license were to be submitted within 12 days, by October 1, 2018. 44. No new process or criteria for consideration of applications for licenses for new racetracks had been developed or communicated to potential applicants as of September 19, 2018. 45. The application for initial licensure requires significant technical information such as detailed market analyses, revenue projections, and drawings and plans. 46. While WKY had unlimited time to prepare its application, Kentucky Downs and any other entity that wished to apply for a license had 12 days. 47. Nonetheless, Kentucky Downs devoted a great deal of time working on the application in the 12 days available to it, and it timely filed its application on October 1, 2018. 48. Bluegrass Downs also filed an application to conduct standardbred racing, simulcasting, and wagering on historical horse races at a facility in Oak Grove, Kentucky. 49. On information and belief, the Commission s Race Dates Committee met on October 9, 2018 and may have discussed the three pending license applications. Kentucky Downs has requested minutes of the Race Dates Committee meeting and any reports or recommendations made by the Race Dates Committee to the full Commission, but has not been provided any such COM : 000008 of 000039 8

documents to date. No report or recommendation of the Race Dates Committee regarding the three license applications was presented to the Full Commission in any open meeting of the Commission. 50. On October 19, 2018, the Racing Commission announced that it would take the applications up at its October 30, 2018 meeting. 51. On October 25, 2018, the Commission sent Kentucky Downs a request for additional information. See October 25, 2018 Letter from M. Guilfoil to C. Johnsen, attached as Exhibit 2. 52. The Commission asked Kentucky Downs to respond to the request for additional information before the October 30, 2018 Commission Meeting. 53. Thus, on October 29, 2018, Kentucky Downs provided its responses with the caveat that these questions were received by Kentucky Downs only a few days before the October 30, 2018 Racing Commission meeting. Thus, it was not practical for Kentucky Downs to provide full and compete responses to certain of them given the short timeframe. See October 29, 2018 Letter from C. Johnsen to M. Guilfoil, attached as Exhibit 3. 54. Kentucky Downs did not receive copies of any requests for additional information to WKY or Bluegrass Downs, nor did it receive WKY or Bluegrass Downs responses to the Commission s requests for additional information. 55. On October 26, 2018, counsel for Kentucky Downs sent a letter to counsel for the Commission requesting a full due process hearing relating to the three pending applications. See October 26, 2018 letter from J. Ingle to J. Forgy, attached as Exhibit 4. 56. Counsel for Kentucky Downs explained that, among other reasons, a full due process hearing is necessary so that the Commission can fully understand complex business issues COM : 000009 of 000039 9

and analyses provided in each application. Specifically, the application asks for information related to construction cost estimates, revenue projections, market research studies and other information. The criteria by which the Commission is instructed to evaluate applications includes analyses of financial feasibility, sustainability, and effect on the racing industry as a whole. Id. 57. The letter went on to explain that the applications appear to differ significantly, thus [i]n order for the Commission to evaluate whether the proposed projects are in the best interest of the industry or are sustainable, they necessarily require testing, verification, and examination if the Racing Commission is going to rely on that information to make an informed decision. Id. 58. On October 29, 2018, in a one paragraph letter in response, counsel for the Commission summarily denied Kentucky Downs request for a due process hearing. See October 29, 2018 letter from J. Forgy to J. Ingle, attached as Exhibit 5. 59. On that same day, counsel for Kentucky Downs sent counsel for the Commission a letter setting forth procedural and substantive deficiencies in the application process, including without limitation, the following: a. Just one year ago, the Racing Commission announced publicly that it needed to develop a process and criteria so that applications can be considered fairly, yet no process or criteria has been established or shared with potential applicants. b. Potential applicants such as Kentucky Downs were only given 12 days notice of the deadline for applying for new licenses, while one applicant had already applied after months of time to prepare its application. c. The Racing Commission only allowed itself 29 calendar days to investigate and evaluate the three applications it received, which included significant amounts of data that differed materially with regard to financial investment and sustainability. d. The Racing Commission not only must consider the accuracy and viability of the three applications in those 29 calendar days, it must also consider the effect on the entire racing industry in the Commonwealth. e. The procedural guidelines for the Racing Commission hearing itself were not shared with applicants until approximately 4 days prior to the hearing. f. Certain procedural guidelines appear to have changed during the application process, as it is our understanding that Commissioners were advised to refrain from any ex parte COM : 000010 of 000039 10

communication with applicants at some point in October. If this is true, then applicants who had ex parte communications with Commissioners prior to that pronouncement have gained an advantage. g. The procedural guidelines for the Racing Commission hearing on October 30 are insufficient to allow the applicants to present all material information regarding the benefits of its application and how other applications may be detrimental to the industry as a whole. h. The procedural guidelines for the Racing Commission hearing on October 30 are insufficient to allow the Commissioners to adequately assess the merits of each application and how each application may affect the industry as a while. See October 29, 2018 letter from J. Ingle to J. Forgy, attached as Exhibit 6. 60. Counsel for Kentucky Downs requested that the Commission refrain from taking any action on pending licenses until the new process and criteria referenced as necessary by the Commission in 2017 could be formulated. Id. 61. Counsel for the Commission did not respond to counsel for Kentucky Downs October 29, 2018 letter. Churchill Downs is Fined for its Use of the Non-Compliant Ainsworth System for Wagering on Historical Horse Racing 62. As part of its application, WKY sought permission to operate up to 1,500 historical horse racing terminals at its proposed Oak Grove facility. 63. It was apparent from WKY s application and presentations to the Commission that the primary focus of its proposed facility was the operation of historical horse racing terminals. For example, the revenue projections used to justify a financial investment in excess of $100 million were based on revenue from the operation of historical horse racing terminals. Thus, lawful wagering on historic horse races was essential to and an integral part of WKY s application. 64. On information and belief, WKY intends to use the Ainsworth System for wagering on historical horse racing. (The portion of the application disclosing details regarding the historical COM : 000011 of 000039 11

horse racing operations was redacted when provided to Kentucky Downs by the Commission pursuant to an open records request.) 65. The Ainsworth System is the system used by Churchill Downs (the principal owner of WKY) for wagering on historical horse racing at its Derby City facility. WKY s financial projections provided to the Commission were also based on the performance of the Ainsworth System terminals at Churchill Downs Derby City facility. 66. Churchill Downs first began offering wagering on historical horse racing using the Ainsworth System on September 10, 2018. 67. While WKY s application was pending, the Commission became aware of potential violations of Kentucky law involving the operation of the Ainsworth System by Churchill Downs at Derby City. 68. Kentucky Downs also identified certain potential issues involving the Ainsworth System and advised the Commission of those potential issues by letter dated October 29, 2018. A copy of the October 29, 2018 letter to the Commission is attached as Exhibit 7. 69. One issue with the Ainsworth System was the use of historical races where horses had been scratched from the race, as such races are not permissible historical horse races by definition under 810 KAR 1:001, Section (30). 70. Other issues identified by Kentucky Downs include: a. The races presented to patrons do not appear to match the races provided in the results; b. The handicapping information provided to patrons does not allow them to wager on the outcome required to win the award for the wager, as patrons are required to pick various positions in each race (i.e., 3 rd, 5 th, and 7 th ), but are provided handicapping information related to 1 st, 2 nd, and 3 rd place finishes; c. The handicapping information is not provided to patrons in a manner where the patron can use it to wager on the outcome of a horse race: COM : 000012 of 000039 12

i. The Ainsworth System provides handicapping information for only 5 seconds for each race and provides the patron a total of 100 seconds to make all selections, which is inadequate to use the handicapping information and, in fact, inadequate to even manually make all of the selections in the time allotted (even without any handicapping); ii. The Ainsworth system appears to replace any selections already made by the player once time runs out and instead fills all 80 spots with a random number assignment; d. The Ainsworth system does not appear to use the program numbers of the horse races on which wagers are supposedly based; e. It does not appear that patrons are ever shown the selections assigned to their wager by the system; f. Patrons are never shown official results; and See Ex. 7. g. The graphical results screen is not accurate or consistent with the official chart with regard to the actual finish distances between horses. 71. Kentucky Downs also identified other potential questions or issues based upon the limited information available to the public, including whether payouts are posted, whether static prizes are used, whether the division of wagers into two pools is accurately described, whether that division causes a patron s wager to fall below the minimum wager allowed by regulation, whether that division causes a patron s wager to meet the minimum payout required by regulation, whether certain wagers include a component that is not tied in any way to the outcome of a horse race, and the lack of breakage. Id. 72. On October 26, 2018, the Commission issued an administrative penalty and fine to Churchill Downs due to the fact that the Ainsworth System is providing wagering opportunities on races that do not comply with the administrative regulations governing pari-mutuel wagering COM : 000013 of 000039 13

on historical horse racing. A copy of the Commission s Notice of Administrative Fine is attached as Exhibit 8. 73. In its Notice, the Commission found that the Ainsworth System had been operating in violation of the regulations cited above since it was placed in operation for public use on September 10, 2018. The Commission fined Churchill Downs $1,000 per day beginning on September 10, 2018 for each day the System is operated without complying with Kentucky law. 74. To date, the Ainsworth System continues to offer wagers on races with scratched horses at Churchill Downs Derby City facility. As such, it continues to be in violation of Kentucky law and has not operated one day in the Commonwealth of Kentucky in full compliance with Kentucky law. 75. Upon information and belief, the Commission s investigation into the compliance of the Ainsworth System with regard to other issues is ongoing and has not reached a conclusion without explanation for the delay. 76. Given the likely or proposed use of the Ainsworth System by WKY at its proposed facility, Kentucky Downs attempted to present its letter of October 29, 2018 to the Commission at the Commission meeting of October 30, 2018. 77. The Chair of the Commission, after consultation with counsel for the Commission, refused to accept the October 29, 2018 letter at the meeting or include it as part of the record of the Commission meeting. 78. The Commission did not discuss or consider the potential use of the non-compliant Ainsworth System by WKY in any of its discussion or deliberations at any Commission meeting considering the pending license applications. The KHRC Holds a Meeting on October 30, 2018 to Consider the Pending Applications. COM : 000014 of 000039 14

79. The Commission met on October 30, 2018 to consider the applications of WKY, Kentucky Downs, and Players Bluegrass Downs. 80. No new process or criteria for consideration of applications for licenses for new racetracks had been developed or communicated to applicants as of October 30, 2018. 81. Because the three applicants all sought a license for a standardbred facility in Oak Grove, Kentucky, the Commission made clear that approval of one application would necessarily mean denial of the other two applications. 82. At the October 30 meeting, each applicant was allowed to make a 30-minute presentation, which was followed by questions from the Commission. 83. No testimony was presented by any applicant. 84. No witnesses were sworn in to testify under oath. 85. No cross-examination of any witness or speakers was allowed. 86. No exhibits were admitted into evidence. 87. No proffers of proof were made or accepted. 88. The applicants were instructed not to comment on the proposals of other applicants or offer evidence or testimony to question the credibility of other applications. 89. No disclosures of ex parte communications by Commissioners were placed on the record. 90. No disclosures of financial interest by Commissioners were placed on the record. 91. Following the presentations, the Commissioners met for approximately 30-45 minutes. 92. During that time, there was no significant discussion of the merits of the three presentations or the qualifications of any applicant to meet the statutory criteria for licensure. COM : 000015 of 000039 15

93. No recommendation, report, or comment from the Kentucky Harness Horsemen s Association ( KHHA ) was received by the Commission. (The KHHA is the statutorily recognized organization representing the interests of standardbred horsemen in Kentucky.) 94. No recommendation or report by any formal or informal committee of the Commission was made to the Commission. 95. No recommendation or report by any outside consultant or professional was made to the Commission. 96. No recommendation or report by Commission staff was made to the Commission. 97. The majority of the discussion by Commissioners centered on whether to move forward with a vote at that time or reconvene at a later time, with a substantial portion of that time devoted to how to even make such a motion to reconvene. to approve. 98. The Commission voted to reconvene at a later time to determine which application Kentucky Downs Requests Disqualification of WKY Due to Failure to Meet Statutory Criteria, But the Commission Takes No Action. 99. On November 7, 2018, counsel for Kentucky Downs sent a letter to counsel for the Commission requesting that the Commission disqualify the other applicants because neither had entered into a binding horsemen s agreement with KHHA as required by Kentucky law. See November 7, 2018 letter from J. Ingle to J. Forgy, attached as Exhibit 9. 100. As noted by Kentucky Downs, 811 KAR 1:250, Section 6(2) requires an association seeking approval to offer wagering on historical horse racing at a standardbred track to enter into an agreement with the KHHA establishing the allocation of takeout. In addition, 811 KAR 1:250 Sec. 4(1)(i) requires an applicant to include a memorandum outlining the terms of the association s agreement with the KHHA as part of its application. COM : 000016 of 000039 16

101. WKY had not entered an agreement with the KHHA as of Kentucky Downs November 7, 2018 letter or the November 16, 2018 Commission meeting at which WKY was approved. 102. As of November 7, 2018, Players Bluegrass Downs had entered into a non-binding letter of intent with the KHHA, but did not have a binding agreement. Upon information and belief, Players Bluegrass Downs had not entered a binding agreement with the KHHA at the time of the November 16, 2018 Commission meeting. 103. Counsel for Kentucky Downs further advised that Kentucky Downs was the only applicant that has satisfied this regulatory requirement. Id. 104. Counsel for the Racing Commission did not respond to counsel for Kentucky Downs November 7, 2018 letter. 105. The Commission did not discuss or consider WKY s lack of an agreement with the KHHA in any of its discussion or deliberations at any Commission meeting considering the pending license applications. The KHRC Holds A Meeting on November 16, 2018 to Vote on the Pending Applications. 106. Following the October 30 meeting, the Commission forwarded requests for additional information to each applicant. 107. On Friday, November 2, Kentucky Downs received its request for additional information. See November 2, 2018 Letter from M. Guilfoil to C. Johnsen, attached as Exhibit 10. 108. The letter requested that Kentucky Downs respond with your answers no later than Wednesday, November 7, 2018. Id. 109. Kentucky Downs provided its response to the Commission on November 7, 2018. November 7, 2018 Letter from C. Johnsen to M. Guilfoil, attached as Exhibit 11. COM : 000017 of 000039 17

110. Kentucky Downs did not receive copies of any requests for additional information to WKY or Bluegrass Downs, nor did it receive WKY or Bluegrass Downs responses to the Commission s requests for additional information. 111. On November 13, 2018, the Commission announced that it would hold a meeting on November 16, 2018 to further consider the pending applications. 112. No new process or criteria for consideration of applications for licenses for new racetracks had been developed or communicated to potential applicants as of November 16, 2018. 113. At the November 16 meeting, each applicant was allowed to make a 5-minute presentation, which was followed by questions from the Commission. 114. No testimony was presented by any applicant. 115. No witnesses were sworn in to testify under oath. 116. No cross-examination of any witness or speakers was allowed. 117. No exhibits were admitted into evidence. 118. No proffers of proof were made. 119. The applicants were instructed not to comment on the proposals of other applicants or offer evidence or testimony to question the credibility of other applications. 120. No disclosures of ex parte communications by Commissioners were placed on the record. 121. No disclosures of financial interest by Commissioners were placed on the record. 122. Following the presentations, the Commissioners took a short break. 123. Immediately upon reconvening, a motion was made to approve the application of WKY and deny the applications of Kentucky Downs and Players Bluegrass Downs. 124. The motion was seconded and a vote was taken. COM : 000018 of 000039 18

125. The motion passed 11-3. 126. Prior to the vote, there was no discussion whatsoever of the merits of the three applications or the qualifications of any applicant to meet the statutory criteria for licensure. 127. No recommendation, report, or comment from the KHHA was received by the Commission. 128. No recommendation or report by any formal or informal committee of the Commission was made to the Commission. 129. No recommendation or report by any outside consultant or professional was made to the Commission. 130. No recommendation or report by Commission staff was made to the Commission. 131. On December 5, 2018, the Commission issued a document styled Final Order that purports to be an order denying Kentucky Downs and Bluegrass Downs application for a license to conduct live racing and pari-mutuel wagering in Christian County, Kentucky. A copy of the Final Order is attached as Exhibit 12. 132. The Final Order attached as Exhibit 12 advised Kentucky Downs of appellate rights under KRS 13B.140(1) and appears to be an attempt by the Commission to issue a final order as contemplated by KRS 13B.120. 133. The Commission has not conducted an administrative hearing under KRS Chapter 13B relating to the three license applications at any time. 134. To Kentucky Downs knowledge, the Commission did not meet at any time between the date of the November 16, 2018 Commission meeting where a vote was taken and the issuance of the December 5, 2018 Final Order. COM : 000019 of 000039 19

135. On December 20, 2018, Kentucky Downs filed an Appeal and Request for Administrative Hearing with the Commission pursuant to KRS 230.320(3), requesting an appeal and administrative hearing regarding the vote of the Commission on November 16, 2018 to deny Kentucky Downs application for a license to conduct live racing and pari-mutuel wagering in Christian County, Kentucky and award a license to conduct live racing and pari-mutuel wagering in Christian County, Kentucky to WKY Development, LLC. A copy of Kentucky Downs Appeal and Request for Administrative Hearing is attached as Exhibit 13. 136. In response, the Commission summarily denied Kentucky Downs Request. See December 28, 2018 Letter from J. Forgy to J. Ingle, attached as Exhibit 14. 137. In denying Kentucky Downs request, the Commission offered no explanation as to why KRS 230.320(3) does not apply. Id. GROUNDS FOR APPEAL AND REVERSAL I. The KHRC Acted Arbitrarily Because Its Licensure and Appeal Process Was Not Followed by the Commission or Is Unclear. 138. Kentucky Downs incorporates the averments contained in paragraphs 1 through 137 by reference. 139. The process by which to seek a license as a racing association or to conduct live, simulcast, or pari-mutuel wagering was not followed by the Commission or is unclear. 140. During the application review and consideration process, the KHRC stated that it was not conducting a full evidentiary hearing pursuant to KRS Chapter 13B. 141. The procedures followed by the KHRC were not consistent with an administrative hearing pursuant to KRS Chapter 13B. 142. Rather, the Commission held meetings without the introduction of sworn testimony, evidentiary exhibits, cross-examination, or a hearing officer. COM : 000020 of 000039 20

143. At those meetings, the Commission voted to approve WKY s application and deny the applications of Kentucky Downs and Players Bluegrass Downs. 144. Following the Commission s vote approving the WKY application and denying the Kentucky Downs application, the KHRC entered a Final Order that appears on its face to attempt to comply with KRS Chapter 13B. 145. The Final Order states an ultimate decision by the KHRC and advised the applicants that they could appeal the Final Order to this Court pursuant to KRS Chapter 13B. 146. KRS 230.330 states that any applicant aggrieved by any final order of the racing commission may appeal to the Franklin Circuit Court in accordance with KRS Chapter 13B. 147. The Final Order, however, was not the result of an administrative hearing pursuant to KRS Chapter 13B, from which an appeal could be taken. 148. Rather, pursuant to KRS 230.320(3), any applicant for a license whose applications is denied may appeal that decision and request an administrative hearing pursuant to KRS Chapter 13B. 149. Kentucky Downs requested an administrative hearing pursuant to its rights under KRS 230.320(3), but that request was denied by the Commission. 150. As a result, the licensure and appeal process followed by the Commission was either inconsistent with Kentucky statutes or is so unclear as to render it arbitrary and capricious. II. The KHRC Acted Arbitrarily Because It Admitted It Did Not Have Sufficient Process or Criteria to Make a Decision in 2017, but Awarded a License the Following Year. 151. Kentucky Downs incorporates the averments contained in paragraphs 1 through 150 by reference. 152. The Commission acted arbitrarily because it admitted it did not have a sufficient process or criteria to issue a new license. COM : 000021 of 000039 21

153. In 2017, the Commission advised all current licensed tracks of its position that it would not accept applications for licensure of new facilities. 154. Commission Chairman Kling and then Vice-Chairman John Roach stated that the Commission would not take any action related to applications for new race track facilities. See Ex. 1. Instead, they stated that the Commission would develop a process and criteria to determine whether any new race track facilities are needed in the Commonwealth. Id. 155. No such process and criteria was ever shared with Kentucky Downs even though the Commission approved WKY s application and denied the applications of Kentucky Downs and Players Bluegrass Downs. 156. Upon information and belief, the Commission did not establish a process and criteria since 2017 to determine whether any new race track facilities are needed in the Commonwealth. 157. Thus, the Commission admitted publicly that it did not have a sufficient process or criteria to consider new license applications in 2017, yet received applications and acted on them in 2018 without any new process or criteria. III. The KHRC Acted Arbitrarily Because It Had No Stated Grounds for Its Decision. 158. Kentucky Downs incorporates the averments contained in paragraphs 1 through 157 by reference. 159. The Commission was asked to consider three competing applications that each included hundreds of pages of information and proposed investments of tens of millions of dollars. 160. As noted above, the Commission made its decision based on a vote after no discussion or deliberation whatsoever. 161. Thus, the Commission stated no grounds for its decision. COM : 000022 of 000039 22

162. Without any stated grounds or bases for its decision, the Commission s decision is necessarily arbitrary and without support of substantial evidence. 163. The Commission cannot make decisions or take action without stated grounds or bases, as such action would deny applicants such as Kentucky Downs any meaningful right of review or appeal. It would be fundamentally unfair and a violation of due process for an applicant to be required to challenge a decision as arbitrary, without support of substantial evidence, or in violation of statutory provisions without the applicant knowing the grounds or bases for the decision it is challenging. IV. The KHRC Acted Arbitrarily Because It Did Not and Could Not Make an Informed Decision. 164. Kentucky Downs incorporates the averments contained in paragraphs 1 through 163 by reference. 165. The KHRC acted arbitrarily and its decision was not supported by substantial evidence because it did not and could not make an informed decision based on the information it gathered. 166. Based on the criteria that were in place in 2017 and 2018, the Commission is required to consider construction cost estimates, revenue projections, market research studies, and to analyze whether the proposed projects are sustainable and in the best interest of the horse industry. The Commission must also consider the effect of the application on other existing racetracks. 167. The applications included proposals that called for investments of tens of millions of dollars based on market research information provided by each applicant. COM : 000023 of 000039 23

168. The market research information presented by Kentucky Downs was significantly different than that presented by WKY, calling into question the economic feasibility of WKY s proposal. 169. The market research information not only differed among the applicants, but WKY s market research and proposal changed materially during the application process. 170. For example, between the time WKY submitted its application in September 2018 and the Commission meeting on October 30, 2018: a. WKY s proposed facility cost changed from $125 million to $150 million; b. WKY s projection of jobs created changed from 967 to 1,121; c. WKY s projection of impact on labor changed from $135 million to $158 million; d. WKY s projection for state and local tax revenue doubled from $8 million to $16 million; e. WKY s projection for pari-mutuel excise tax in the first year nearly tripled from $4.3 million to $11.2 million; f. WKY s projection for total tax revenue over 30 years increased by over $300 million, changing from $303 million to $655 million; g. WKY s projection for funds provided to standardbred purses and/or incentives more than doubled from $1.4 million to $3.5 million; h. WKY s projection for funds provided to thoroughbred purses and/or incentives more than doubled from $1.4 million to $3.5 million. 171. WKY s stated reason for the projections was a result of the performance of the historic racing terminals at its Derby City facility. COM : 000024 of 000039 24

172. While Commissioners raised concerns and asked questions of WKY regarding the dramatic change in financial projections, no information or analyses were presented by Commission staff or consultants commenting on the reliability of either WKY s initial projections or revised projections. 173. The applicants presented varying information regarding the effect that a new facility would have on existing racetracks, including the Kentucky Downs racetrack in Franklin, Kentucky approximately 50 miles away. 174. WKY stated that a new facility in Oak Grove would have no effect on the Kentucky Downs track in Franklin, while Kentucky Downs stated that a new facility in Oak Grove would have a material impact on its existing operations. 175. Prior to approving WKY s application and denying the applications of Kentucky Downs and Players Bluegrass Downs, the Commission (or its staff) did not conduct an economic study to evaluate the applications. 176. Prior to approving WKY s application and denying the applications of Kentucky Downs and Players Bluegrass Downs, the Commission (or its staff) did not hire an independent third party to conduct an economic study to evaluate the applications. 177. Prior to approving WKY s application and denying the applications of Kentucky Downs and Players Bluegrass Downs, the Commission (or its staff) did not conduct a feasibility study to evaluate the applications. 178. Prior to approving WKY s application and denying the applications of Kentucky Downs and Players Bluegrass Downs, the Commission (or its staff) did not hire an independent third party to conduct a feasibility study to evaluate the applications. COM : 000025 of 000039 25

179. Prior to approving WKY s application and denying the applications of Kentucky Downs and Players Bluegrass Downs, the Commission (or its staff) did not conduct a study to determine the impact a racetrack in Oak Grove would have on other racetracks in Kentucky. 180. Prior to approving WKY s application and denying the applications of Kentucky Downs and Players Bluegrass Downs, the Commission (or its staff) did not hire an independent third party to determine the impact a racetrack in Oak Grove would have on other racetracks in Kentucky. 181. Prior to approving WKY s application and denying the applications of Kentucky Downs and Players Bluegrass Downs, the Commission staff did not offer any reports or recommendations as to which applicant should be awarded the license. 182. Prior to approving WKY s application and denying the applications of Kentucky Downs and Players Bluegrass Downs, the Race Dates Committee (or any other committee) did not offer any recommendations as to which applicant should be awarded the license. 183. Throughout the application process, the Racing Commission did not consider the concerns and comments raised by the KHHA related to fundamental flaws in WKY s application, such as WKY s refusal to offer stalls at its facility. V. The KHRC Acted Arbitrarily Because It Awarded the License to an Applicant that Did Not Meet the Statutory Criteria, Regulatory Criteria, or was Not Otherwise Entitled to the License. 184. Kentucky Downs incorporates the averments contained in paragraphs 1 through 183 by reference. 185. The Commission acted arbitrarily in awarding WKY the license because WKY s application failed to meet several statutory and regulatory requirements. COM : 000026 of 000039 26

186. The Final Order erroneously states that WKY Development, LLC meets all statutory and regulatory requirement for the issuance of a license. A. WKY Did Not Meet Regulatory Criteria Requiring a Binding Horsemen s Agreement with the KHHA. 187. WKY did not enter into a binding horsemen s agreement with KHHA, which is required by law in an applicant s request to offer wagering on historical horse racing. 188. The regulations governing racing associations make clear that a horseman s agreement is mandatory as part of the application process. 189. Specifically, 811 KAR 1:250 Sec. 4(1)(i) provides: An association shall submit a written request to the commission for permission to offer any exotic wager on an historical horse race, which shall include: A memorandum outlining the terms of the agreement between the association and the Kentucky Harness Horsemen s Association referenced in Section 6(2) of this administrative regulation. 190. The requirement is mandatory, as the word shall is used rather than may. 191. The application requirements track the legal requirements for offering historical horse racing, which also require an agreement with the KHHA for associations offering harness racing: *** Each association shall enter into an agreement with the Kentucky Harness Horsemen's Association establishing the allocation of the takeout on all exotic wagers on historical horse races offered by the association. The agreement shall apply to all exotic wagers on historical horse races offered, or to be offered, by the association during the term of the agreement. (b) The agreement shall include provisions allocating a percentage of the takeout to purses on live races run by the association. (c) Each association shall provide a memorandum outlining the terms of the agreement to the commission COM : 000027 of 000039 27

811 KAR 1:250 Sec. 6(2). 192. Thus, WKY did not meet the regulatory criteria for a license. B. WKY s Application Did Not Meet Statutory Criteria Because Its Proposal Was Based on the Transfer of Development Funds in Violation of Kentucky Law. 193. In addition, WKY advised the Commission that it intends on transferring Kentucky Standardbred Development Fund ( KSDF ) monies generated at its Oak Grove facility to thoroughbred purses or tracks that conduct thoroughbred racing. 194. KSDF monies, however, cannot be transferred to other breeds purses or tracks that conduct racing of other breeds. See KRS 138.510(1)(c)2( An amount equal to one percent (1%) of all money wagered on live races and historical horse races at the track shall be deposited in the [KSDF] established in KRS 230.770 ); see also KRS 230.770(2) (these funds can only be used to promote races, and to provide purses for races, for Kentucky-bred standardbred horses ); KRS 230.3770(4) ( Money distributed from the [KSDF] to licensed standardbred race tracks with the Commonwealth shall be used exclusively to promote races and provide purses for races conditioned to admit only Kentucky-bred standardbred horses. ). 195. During its presentation, WKY stated to the Commission that it believed that it could legally transfer KSDF funds to development funds for other breeds. 196. The Commission s staff and legal counsel made no statement correcting WKY s statement or otherwise explaining the legal requirements that funds at a standardbred track be dedicated to KSDF. 197. Pursuant to the Commission s directions, the statement of WKY was not subject of cross-examination or argument and was therefore left unchallenged. COM : 000028 of 000039 28

198. Based on questions to the applicants from Commissioners, it was apparent that the ability to transfer funds for the benefit of thoroughbred racing was a key factor that Commissioners considered and relied upon. 199. Commissioner Jackson, who ultimately made the motion to approve WKY s application and deny the others, asked representatives of Kentucky Downs during the November 16 meeting if Kentucky Downs would agree to support the industry and amend statutes to remove statutory requirements regarding KSDF monies and limitations on simulcasting. 200. The questions by Commissioner Jackson were an acknowledgement that WKY s application could be contrary to law and fatally deficient. 201. Upon information and belief, these questions were an attempt by Commissioner Jackson to force an applicant to give up its acknowledged statutory rights. 202. WKY s application does not meet the standards of KRS 138.530 as required by KRS 230.300(6) because its application proposes to transfer KSDF funds, which is in violation of KRS 138.510. C. WKY s Application Did Not Meet Statutory Criteria Because it Sought, and Was Granted, the Right to Simulcast in Violation of KRS 230.380. 203. WKY s application included a request to offer simulcasting at its facility. 204. WKY took the position during Commission meetings that it did not need permission from nearby licensed associations to offer simulcasting. Commission. 205. This is a misstatement of law, which was not corrected by counsel for the Racing 206. Pursuant to the Commission s directions, the misstatement of WKY regarding simulcasting was not subject of cross-examination or argument and was therefore left unchallenged. COM : 000029 of 000039 29