In 1908, Churchill Downs faced the distinct possibility that the 34th Kentucky Derby would not be run and the racetrack would go out of business. Ultimately, Churchill Downs remained open and the Derby went off as scheduled, but only because of then-general manager Matt Winn’s last-gasp gamble on pari-mutuel wagering.
Winn, the executive who built the Kentucky Derby into the premier race in America, described in his book Down the Stretch the ominous situation he faced and how he went about solving it to keep both the racetrack and the Derby alive.
The president of Churchill Downs, Charles Grainger, had political enemies amongst what Winn called “The City Hall group” that ran Louisville municipal government in 1908. The City Hall faction of the Democratic party intended to punish Grainger–a leader of a rival branch of Democrats, who was a former Louisville mayor and owner of an iron foundry–by shutting down the Kentucky Derby through invoking a ban on bookmaking and sending in the sheriff to enforce it.
Winn decided to try to keep the Derby on schedule by replacing illegal bookmaking with pari-mutuel betting, also known as “French pools.” An 1878 amendment to a Louisville law that prohibited machine wagering on roulette wheels provided a loophole: “This act shall not apply to persons who may sell combination, or French pools, on any regular race track…”
However, City Hall and the sheriff persisted in their vendetta and contended that pari-mutuel wagering was illegal and would not be permitted. Churchill Downs then went to court and got an injunction to stop City Hall and the sheriff until the Kentucky Court of Appeals could hear the case (this court eventually sided with Churchill Downs’ right to conduct pari-mutuel wagering).
The next step was what Winn called a “frenzied hunt” to find pari-mutuel machines in time for the 1908 Derby. (Pari-mutuel machines had operated at Churchill Downs between 1878 and 1889, but were shelved after bookmakers complained about the competition.) Three machines were located and a fourth was cobbled together from spare parts. One was found in a storage room at Churchill Downs, another came from a pawn shop, and a souvenir hunter had one in his collection. Two more machines were shipped to Louisville from a racetrack in New York, as pari-mutuel wagering had been tried there in the 1870s but was abandoned when it proved to be unpopular.
After getting the machines in working order, which was no small undertaking, the next step was figuring out how to calculate payoffs, especially for place and show bets. The task was simplified to a great deal by the fact that the machines only took $5 bets. Flyers titled “Pari-Mutuels, How Calculated” were distributed on Derby Day 1908 and explained, for example, the mathematics behind win and place payoffs and how payoffs would be determined in the event of a dead heat. Winn had tickets printed on special paper and with a distinct emblem, along with his signature, to guard against forgery. (The illustrations shown below are (a) the cover page of the flyer handed out to attendees at the 1908 Derby and (b) the explanation from the flyer for calculating straight bets.)
The six pari-mutuel machines used at Churchill Downs for the Derby handled $67,570 for the full race card including $18,300 bet on the Derby. Bettors also had access to auction pools, which had an additional handle of $12,669.
After the 1908 rescue with the antiquated pari-mutuel machines, Churchill Downs had the first American pari-mutuel machines made in Charles Grainger’s foundry. The new machines took bets of $2, $5, and $10.
Had it not been for Matt Winn’s creativity, French pools, an obscure amendment to a Louisville anti-gambling law, and a fast decision by a judge to allow pari-mutuel betting, Kentucky Derby history would have been abbreviated and Churchill Downs would likely have gone bankrupt, quite possibly to never reopen.
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