Sen. Matt Klein, DFL-Mendota Heights and the chief sponsor of the Senate’s sports betting bill, said, “Historical horse racing is basically slot machines.” (Star Tribune/The Minnesota Star Tribune)

The Minnesota Racing Commission’s vote to legalize historic horse racing is illegal and will backfire on the state’s two racetracks as the Legislature considers legalizing mobile sports betting, bill sponsors said Wednesday.

“This was really poorly thought out, and it’s not going to end well,” said Rep. Zack Stephenson, DFL-Coon Rapids, the lead sponsor of the House bill to legalize sports betting.

Late Monday, the commission approved historical horse racing (HHR) at the behest of the state’s two tracks: Canterbury Park in Shakopee and Running Aces in Columbus. HHR is a machine-based game that would generate cash for purses at the state’s two tracks. Beginning May 21, the tracks could each install up to 500 HHR terminals. The machines would bring in a projected $6 million for purses in their second year, according to the tracks.

A month before the vote, the state’s Alcohol and Gambling Enforcement division director Carla Cincotta sent Racing Commission Director Kyle Gustafson a letter saying the HHR devices are video slot machines.

“The Racing Commission does not have the power to override state law and place gambling devices at the tracks,” Stephenson said.

State law gives exclusive rights of casino gambling to American Indian nations, and they’re already considering a lawsuit over the decision.

Legislators now say they are motivated to pass a bill specifically banning HHR. What’s more, the tracks may ultimately hurt efforts to provide them cash to offset the losses they say they will suffer from mobile sports betting.

“It’s definitely shaken things up,” said Sen. Matt Klein, DFL-Mendota Heights and the chief sponsor of the Senate’s sports betting bill. “Historical horse racing is basically slot machines.”

Stephenson agreed, calling HHR a euphemism. “You don’t even have to watch the race. It’s a horse-themed slot machine,” he said.

Gov. Tim Walz is also aware of the decision and is “frustrated by the approach the commission took,” a spokeswoman said.

The push to legalize mobile sports betting has been a balancing act of interests trying to assemble enough bipartisan backing to overcome opposition. It’s been assumed that winning support for passage would require financial support for the racetracks.

The main sports betting bills under consideration this year would give exclusive rights to the state’s tribes to partner with established betting platforms and allow Minnesotans to gamble on their cellphones. The bills also include aid to the tracks. The House bill has $625,000, and the Senate included up to $3 million annually for the tracks to share.

There was a breakthrough on sports betting recently when Stephenson announced a deal with Allied Charities of Minnesota that gave them some $40 million in tax breaks. In exchange, the charities agreed not to challenge the 2023 law that barred open-all features on electronic pulltabs.

The state’s tribal nations challenged the open-all feature because, they argued, it made electronic pulltabs too similar to video slot machines in violation of their exclusive rights. The charities countered that banning the open-all feature would hurt their revenue by slowing down electronic pulltab players.

Republicans have been interested in providing relief to the charities, so the deal was considered a sweetener to attract the bipartisan votes necessary to legalize sports betting. Republicans have also advocated for the two tracks. A question now is whether the commission’s decision will hinder efforts to help the tracks. Stephenson thinks so.

“The path that we were on was to try to negotiate a compromise that everybody could live with,” Stephenson said. “This makes that path much more difficult. I think that folks will be much less inclined to accommodate the tracks. But we’ll just have to see how everything else plays out.”

After the commission vote Monday night, Andy Platto, executive director of the Minnesota Indian Gaming Association (MIGA), called the action “an extreme violation of legislative authority” and said the group “will be looking at all available options” to stop the tracks from adding the games.

The commission had been warned.

In the March 1 letter, Cincotta told Gustafson that HHR is casino gambling with video slot machines. Cincotta described HHR as a “multi-line video slot machine” with winnings specific to a player, not a parimutuel pool.

Stephenson was perturbed by the effective date the commission set to begin placing HHR machines, right after the Legislature’s adjournment.

“People should make no mistake, there’s not going to be historical horse racing,” Stephenson said. “The Legislature will override it either by way of a sports betting bill or stand-alone bill, and they’ll lose in court because they broke the law.”

The House sports betting bill already contains a ban on HHR. Klein said the Legislature will now be motivated to pass an outright ban — regardless of whether sports betting is legalized.

After Monday’s vote, Running Aces CEO Taro Ito said in a written statement that he was pleased. “At a time when so many of the state’s politicians are pushing to exclude the horse racing industry from any meaningful benefit from sports betting legislation, (HHR) will enhance the tracks’ self-sufficiency, create new jobs and produce additional revenue for state and local governments without burdening taxpayers,” he wrote.