Audit renews concerns over Oregon Racing Commission that regulates a multi-billion-dollar industry

SALEM, Ore. — Oregon's five-member Racing Commission has come under intense scrutiny after a 38-page secretary of state audit highlighted issues ranging from board members' term limits to spending oversight.

The commission, which regulates the state's animal racing, does a minimal amount of spending, particularly when compared to other regulatory agencies like the Oregon Liquor and Cannabis Commission. During the 2021-2023 budget cycle, it brought in about $7.8 million in revenue.

That revenue is generated through licensing fees that the Oregon Racing Commission (ORC) imposes on companies that grossed about $6.4 billion in 2022, according to the audit. Oregon and North Dakota are the only two states that license companies which provide platforms for U.S. residents to bet on animal races taking place on racing tracks globally.

Most of ORC's revenue is spent on maintaining Oregon's dying animal racing industry, which is no longer self-sustainable. The last dog racing tack shut down in 2004 and lawmakers have since prohibited new dog racing licenses in Oregon over concerns of animal abuse. ORC revenue is spent on horse racing operations, which it both regulates and supports through grants to county fairs and prize awards for contestants.

The audit takes issue with ORC's tracking of that spending.

"For the past few biennia, ORC projected hub funds would be around $3 million. During the 2021-23 biennium, roughly $1.47 million was approved for associations; $630,000 to the commercial track; $611,000 for summer fair race meets; and $308,000 for related fair race meet expenses such as jockey incentives and insurance, and race consultants," the audit notes. "ORC allows immense leeway on how entities can use their hub fund moneys and there has been no standardized or consistent reporting and review of how the money was actually used. "

It also points to commissioners serving multiple consecutive terms with some board positions remaining unfilled.

"ORC did not have a full commission for over three years, only recently appointing a fifth commissioner, and has some long-standing commissioners overdue for a successor to be appointed," the audit notes. "Given its significant responsibilities and authority, more emphasis should be placed on ORC having a complete and renewed commission."

The audit also points to the need for more clarity surrounding the state's definition of what constitutes a casino. This comes after controversy over a license ORC greenlit in 2021 for a Historic Horse Racing facility in Grants Pass.

The Flying Lark Entertainment Center purchased by Dutch Bros Founder Travis Boersma was slated to install 225 Historic Horse Racing (HHR) machines which allow bets to be placed on horse races that have already occurred. A coalition of tribes protested the operation calling it a de facto casino particularly in light of flashy new technology the machines would employ making them very similar to slot machines with little to no skill required from players.

The tribal coalition sent a letter to then Gov. Kate Brown asking for an investigation into whether the license was a violation of Oregon's Constitution which prohibits private revenue lotteries. Brown suspended the license while asking the Department of Justice to issue an opinion on the matter.

In 2022, the DOJ sided with the tribes and Flying Lark's license was revoked.

While the DOJ was deliberating, the coalition also requested the secretary of state to audit ORC.

"It has been 25 years since the state has conducted a comprehensive review of gambling in Oregon. During that time, technological advances have dramatically reshaped the gambling industry," the letter reads. "Oregon’s regulatory structure and controls have not kept pace with technology."

The audit agreed with the tribal coalition's assessment noting that "as technology changes, laws and rules need to be better defined to ensure there are no conflicts between existing statutes authorizing pari-mutuel gambling with Oregon’s constitutional prohibition of casinos and limitation of lotteries."

The audit notes because the state has no clear definition of what constitutes a casino, "differing opinions regarding what is or is not constitutional remain, leaving a situation like The Flying Lark to reoccur.”

Tribal representatives said the audit's findings highlight what their expertise on gaming regulations had already signaled a few years prior.

"We asked for this audit along with several other Oregon Tribal governments and the results generally reflect what tribal governments knew there was inadequate oversight," said Anthony Boardman, general counsel for the Cow Creek Band of Umpqua Tribe of Indians. "Tribal governments and tribal governmental gaming is among the most highly regulated gaming activity in the United States. Tribes have a vast experience in ensuring gaming integrity and managing new technology as it evolves, and what was clear to us was that the Oregon Racing Commission and the Oregon state gaming regulation in general was not keeping up with innovation."

He called it a "double standard" for the tribes to be required to comply with intense gaming regulations while a five-board agency that regulates licensees worth billions is allowed to operate with minimal oversight.

It's an oversight that some lawmakers like Rep. David Gomberg, D-Lincoln City, have also become concerned with, mainly, as it relates to animal safety practices of greyhound racing tracks globally.

"We passed legislation that said we don't want to be in the business of dog racing here in Oregon," he said, referring a 2022 bill, which banned ORC from issuing any new dog racing licenses and called on the commission to review its licensee practices to stop clients in any of the 39 other states that also banned those types of races from placing bets through their portals.

In a Feb. 13 Joint Committee on Ways and Means Subcommittee On Transportation and Economic Development, Gomberg questioned ORC's Executive Director Connie Winn about what steps the commission had taken to bring its licensees in compliance with that law.

"I don't know what to say. I have been advised not to comment on it at this point," Winn said referencing a legal opinion which she sought from the state's Department of Justice and had not received a clear response.

Unsatisfied with the response, Gomberg and other Democrats on the committee refused to sign off on ORC's biannual budget, which ultimately passed, but Gov. Tina Kotek also indicated her disapproval of the agency by letting the budget item move forward without her signature.

"Senate Bill 1504 (2022) prohibited the acceptance of wager or the provision of gambling services in Oregon in connection with Greyhound racing," her letter explaining the move reads. "I believe in the intent of this law and will direct the Oregon Racing Commission to act within its available authority to prohibit wagering on Greyhound races regardless of where they take place."

Gomberg says he will also be looking into whether the state could be profiting more from the multi-billion-dollar industry it and North Dakota have sole licensure authority for nationwide.

"Online race bets are a big deal, they are a big business," he said. "Yet here in Oregon the licenses that we grant to these businesses provide miniscule returns to the state. About one half of one percent."

Right now, Oregon caps the amount of profits it taxes its licensees at $759,212. Any profits above that are untaxed. Gomberg noted that increasing the cap will need to be done tactfully to avoid pushing licensees to North Dakota.

"That is exactly what we are trying to do right now is identify some legislators and some agency people in North Dakota so we can put our heads together and figure out a way that together we can address this ongoing problem," he said.

In response to the audit, Winn accepted the findings and agreed to work on the issues.

"The Oregon Racing Commission (ORC) is in the midst of making bold changes to become a premier agency that is trusted and respected by all. We have a new Executive Director, Chief Investigator, Director of Mutuels, Steward, and Administrative Assistant," her written response reads. "We are essentially a renewed organization; we have robust goals and have made pro-active changes that are in alignment with the Governor’s priorities, including increased transparency, excellent customer service, strategic planning, and a commitment to the citizens of Oregon through both high quality work and responsible use of our resources."