Sports

Baltimore Tries to Use Eminent Domain to Condemn the Preakness Stakes Horse Race

The condemnation is legally dubious. And even if the city prevails in court, it is likely to come out a loser. Baltimore should listen to naysayers who advise letting the neighsayers move to another location.

|The Volokh Conspiracy |

Starting gate of the Preakness Stakes horse race, 2011.

A horse is a horse is a horse, of course…. unless it's running in a race the City of Baltimore is trying to condemn!

Baltimore has filed a lawsuit seeking to use eminent domain to take Preakness Stakes horse race and the Pimlico racetrack, where the race is held. As one leading eminent domain expert puts it, "Baltimore is trying to condemn a horse race. A freaking horse race."

The Preakness is one of the Triple Crown horse races (along with Belmont and the Kentucky Derby) and therefore one of the most significant events in American horse racing. The condemnation is legally questionable. But even if the city wins the lawsuit and succeeds in taking over the Preakness, it is likely to end up a loser.

Walter Olson of the Cato Institute has a Wall Street Journal op ed discussing the case. As he explains, the city's goal is to keep the owners of the Preakness from moving it out of the city:

In 2009, then-[Maryland] Gov. Martin O'Malley threatened condemnation to keep the venerable Preakness Stakes horse race, including its trademarks and other intangible assets, from leaving Baltimore. It stayed. In the ensuing 10 years, the economic rationale for keeping the Preakness in Baltimore have dwindled to nothing. The race is held at Pimlico, a decrepit facility in a severely depressed section of the city that is hard for visitors to get to and sits idle the rest of the year.

The owners of the race and track, Canada's Stronach Group, have focused renovation energies on the Laurel Park racetrack midway between Baltimore and Washington, where the race would continue to benefit the greater Baltimore economy and would likely have a more secure future. But Baltimore Mayor Catherine Pugh has filed suit, asking a court to use condemnation powers to award ownership of the racetrack and the race to the city.

Pause to think how a city nationally famed for its failures at running such basic services as police and schools is going to turn around a struggling facility and event in a sector of the sporting world, horse racing, itself long in decline. Most likely state taxpayers would end up subsidizing the event and facilities even more heavily than they now do.

The Inverse Condemnation blog has some additional details about the case, including the complaint Baltimore has filed in state court. It is important to emphasize that the city is trying to condemn not just the race track, but also all the "intellectual property" associated with the Preakness Stakes, including its trademarks and the legal right to hold the race. Some of the legal issues at stake in this battle for ownership of the Stakes are likely to prove difficult.

Maryland state law authorizes Baltimore to condemn both the race track and the associated intellectual property. Both the Fifth Amendment and the Maryland state constitutions mandate that the government may only use eminent domain to take property for a "public use." However, a publicly owned entity—even a race track and horse race—probably qualifies as a public use even under the narrow interpretation of that concept that I have defended in my work on the subject. Another possible basis for a "public use" is a 1982 California Supreme Court decision holding  that promoting sports and recreation qualifies as a public use, thereby validating the City of Oakland's plan to condemn the Oakland Raiders in order to keep them from moving to Los Angeles—though that ruling strikes me as extremely dubious (the Oakland Raiders taking was eventually invalidated on other grounds). Regardless, Baltimore will probably prevail on the public use issue.

But that's just the beginning of the fun. The condemnation of the Raiders was eventually invalidated in state court because it violated the Dormant Commerce Clause of the federal Constitution, which prevents state and local governments from unduly intruding on Congress' power to regulate interstate commerce. The court ruled that the Dormant Commerce Clause had been violated because of "the interdependent character of the NFL [in which] each member team is substantially dependent for its income on every other team…"

For this reason, and also because there is a "nationwide league structure" in professional football, Oakland's effort to condemn a franchise to keep it from moving undermined federal power over interstate commerce. Horse racing is not as integrated a business as the NFL. Nonetheless, the Triple Crown races are marketed as a unified entity by Triple Crown Productions, and many of the same horses compete in all three races. It is plausible to argue that "each member [race] is substantially dependent for its income on every other [race]." Thus the owners of the Preakness have at least some substantial chance of getting the taking invalidated on the same basis as the Raiders prevailed over Oakland.

Another difficult issue is the question of the location of the trademarks and intellectual property associated with the Preakness. Baltimore only has authority to condemn property within its jurisdiction. In the case of land and other tangible property, location is usually easy to determine. Things are much tougher when it comes to intellectual property.

The Stronach Group, current owner of the Preakness and Pimlico, is located in Canada, but the officially listed owner of the trademarks is the Maryland Jockey Club (MJC), located in Baltimore, but owned by Stronach. Stronach could potentially try to amend the trademark ownership to have it listed as Stronach's directly owned property, rather than that of the MJC (which, to repeat, is itself owned by Stronach). The question of jurisdiction is going to be a crucial one, and it is hard to say which way the court will rule on it. This issue is vitally important because the intellectual property associated with the Preakness is far more valuable than the decaying Pimlico racetrack. It's the real prize in the case.

Finally, should Baltimore prevail on the public use, dormant commerce, and jurisdictional questions, there will be a further legal battle over the amount of compensation owed to Stronach. Supreme Court precedent requires the government to pay "fair market value" compensation to owners of condemned property. Estimating the fair market value of a major horse race may not be an easy task. It certainly is not the sort of property that is usually appraised in eminent domain litigation. In fact, I cannot think of another similar case. Expect prolonged litigation over that question if the two sides cannot agree on a price.

But let's assume that Baltimore prevails on all counts and becomes the proud owner of both Pimlico and the Preakness Stakes horse race. That might be an impressive legal victory. But what will the city actually gain?

As Olson points out, owning a decrepit and unprofitable race track is unlikely to be a boon to the city. Indeed, it will probably be a money-loser.

The Preakness Stakes is, of course, far more valuable. Perhaps the city could turn a profit on that. But, as Olson also notes, Baltimore's record of economic management is far from wonderful. And the history of publicly managed commercial enterprises is not an encouraging one. There's a reason why such activities are usually best left to the private sector.

Moreover, the "fair market value" the city will have to pay Stronach in compensation for the trademark will surely incorporate estimates of the race's future profitability (probably on the assumption that the race will be owned by a normal private owner). In order to come out ahead on the transaction, Baltimore will need to make a bigger profit than a conventional private owner would be expected to achieve. That's a very dicy proposition at best.

Studies show that owners of condemned property often don't manage to secure the fair market value compensation the law requires. Perhaps Baltimore hopes to make the taking pay by low-balling Stronach. But that's unlikely to work in a case where the owner is a sophisticated commercial entity, with sufficient resources to hire topnotch lawyers and engage in prolonged litigation. Low-balling is far more effective in cases where the owners are poor, lacking in legal sophistication, or both.

Moreover, Olson notes that the use of eminent domain here would send a terrible signal to other businesses considering investing in the city:

[T]hink what message this sends other large enterprises eyeing the city. The nation's seventh-biggest city and a jobs powerhouse as recently as 50 years ago, Baltimore now has little attraction for national employers (it hosts no Fortune 500 companies) and has yielded ground in what was once a modestly successful finance and insurance sector, for which payrolls within the city have declined from 19,700 at the start of 2004 to 11,800 at the start of 2019….

The message to others that might think of coming to Baltimore? If you do, we'll consider your property—including your intellectual property and business relations—ours to grab in the future. That won't exactly get tomorrow's enterprising ambitions off to the races.

Businesses considering moving to the city might choose to go somewhere else. Some of those already in Baltimore would be more likely to move. These sorts of considerations are a big reason why local governments rarely try to condemn mobile assets, including intellectual property. Doing so is likely to cause them to flee the jurisdiction—or never come there in the first place.

It is likely that Baltimore's ultimate goal is not really to condemn the Preakness, but to use the threat of eminent domain to force Stronach to give up its plan to leave. Indeed, eminent domain is probably a "Plan B" that will be used only if the city's other causes of action against Stronach (which contend that state law bars them from moving the Preakness) fail. But even just using the threat of eminent domain to force a business to stay could still have a chilling effect on other potential investors. Moreover, it is far from clear that Baltimore will really benefit from forcibly retaining a business that is struggling in its current location.

This is not the first time Maryland authorities have tried to use eminent domain to keep a prominent entertainment business from moving. In 1984, the state famously tried to condemn the Baltimore Colts to keep them from moving to Indianapolis. The plan failed when the franchise literally escaped in the dead of night. As Olson notes, the state used the threat of eminent domain to keep the Preakness from moving in 2009—only to end up with an increasingly troubled enterprise, and a decaying race track. In 2014, the state legislature considered, but ultimately rejected an ill-considered plan to condemn the popular TV show "House of Cards" in order to prevent it from filming in another state.

Baltimore would do well to learn from this history. The city should take the advice of Walter Olson and other naysayers who counsel the city to let the neighsayers go race somewhere else.

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54 responses to “Baltimore Tries to Use Eminent Domain to Condemn the Preakness Stakes Horse Race

  1. Doesn’t the mayor have better things to do……like, say, peddling the childrens’ book she wrote?

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  2. The Preakness Stakes is, of course, far more valuable. Perhaps the city could turn a profit on that.

    This is completely vile behavior in a free country. If it ever passed all the hurdles, it is incumbant on every good citizen to disavow the action (same applies to sports teams) and destroy its value. Do not consider it part of the triple crown anymore. Put something else in, ideally The Preakness 2 outside the city.

    Why not seize GM plants and start making the cars by government?

  3. Pugh and the Baltimore City Government could not manage a one man parade successfully so running a track and race seems a bit out of their league.

    Where are the getting the money? Its not going to be cheap.

  4. If by some bizarre chance the city wins this fight, and therefore ownership of the “decrepit” Pemlico stadium and the intellectual race property, then The Stronach Group should just open a new race at Laurel Park racetrack, call it The Preakress (or something else entirely), and use their clout to sway Triple Crown Productions to change the three primary races to The KY Derby, The Preakress, and The Belmont. With all due respect to tradition, fans don’t care what they’re called or where they’re located, we just wanna see the ponies run for the Triple Crown title.

    1. “call it The Preakress ”

      Not if the intellectual property is seized. That would be an infringement on the trademark etc.

      1. Yeah they would need to use a non-similar name. But they could do it.

      2. They could use any of the other Grade 1 stakes races run anywhere in Maryland in that time frame. No need to create a new race.

        Part of the problem is that the entire property is effectively a historic site and making any repair/modernization effort runs into roadblocks, which is why Stromach is contemplating the move in the first place. The track itself is good, it’s the infrastructure that needs work.

        1. It isn’t so much the landmark status. It is in an urban location and it would cost $400 million or more to build a large enough new grandstand facility. And that isn’t worth it for 1 race. The track loses money the rest of the year.

    2. That’s actually the key point here. I don’t see how state law can permit the condemnation of a federal trademark (which includes exclusive use outside Maryland), but even if it could, the City definitely can’t condemn the contractual right to run the second jewel of the TC.

      So Stronach will just rename the race and run it somewhere else.

      1. They can just call it “The Run for the Black-Eyed Susans” which apparently worked for the Kentucky Derby.

        1. There is no Maryland Derby, that name could be used with Black-Eye Susans.

        2. Preakness comes from a horse and township in NJ and apparently is Native American for Quail Woods. So just start using Quail Woods for the race as its new name.

    3. maybe – currently Maryland has restriction on when/where horse racing is allowed.

      That being said – if Triple Crown decided it doesn’t want to do business with the City of Baltimore they can replace the Preakness with another race anywhere in the country.

  5. Trying to take the intellectual property and racetrack is a bit like taking over a movie studio and then realizing you lack actors and crew. You may be a “movie studio” but you can’t actually make movies. Even if the city wins this one, they’ll just end up with intellectual property and real estate but not the horses to actually conduct the race or the employees to work there.

  6. Wait, so who is the favorite for the Preakness?

    1. Improbable seems to the the consensus pick so far.

  7. Of course this is not the first or most famous time, Baltimore has tried to seize a prominent sports property. In 1984, the Maryland Senate passed a bill permitting Baltimore to use eminent domain to seize the Colts (an NFL franchise). The owner of the Colts immediately* moved the Colts to Indianapolis.

    *Two days later, moving trucks picked up all of the Colts’ property and moved it to Indiana.

    1. Now THAT is the part of the story no one ever mentions when it comes up in conversation.

  8. Am I the only one that thinks it is insane that the government can condemn and take over any business it wants “for the public good”?

    1. Under socialism, social ownership of the means of production is the method to the madness.
      That’s pretty much summarizes every democrat running for president right now.

      1. This fits nicely with the Stossel piece about socialism in Venezuela.
        Government taking over businesses and such.

    2. Eminent domain was designed to build roads and bridges. It’s sometimes necessary for large construction projects of this nature that have to be in a certain configuration. It’s been misused for numerous reasons over the years.

      However, this takes the cake. The idea that you can use it on intellectual property is mind-blowing and arguably treasonous. There is no justification that I can see.

  9. Presumably the mayor cannot do this on her own. Will the city council continue to back this once it sees that there will lengthy litigation and a good chance of losing a lot of money?

    1. Not to mention that there probably will not be any participants in a Baltimore run “Preakness” race run at Pimlico.

      Race horse owners are touchy about anyone telling them they “have” to do something with their horse, especially horses that have a chance at the Triple Crown.

  10. So… I read the headline and thought that was some sort of metaphor, taking the Preakness by eminent domain just sounds silly. So I assumed that they were gonna take the track and use it to buy off some developers by giving them prime land for a shopping mall or somesuch.

    Uh…. nope.

    They really, really do want to just straight up steal a private business and just keep it for themselves.

    That takes some degree of chutzpah..

    1. Part of the reason is that Baltimore has designated Pimlico as a historical site therefore it is almost impossible to upgrade the facilities around the actual track, which is the only excellent part of the whole site.

      1. So if the analysis is correct that “public ownership” counts as a “taking for public use”…. What is the obvious conclusion?

        Well, obviously there should be an immediate “land rush” to grab profitable companies before they can get away. Atlanta should take over Coca Cola and Home Depot. Los Angeles should grab up the entertainment industry, lock, stock and barrel. Detroit could revitalize itself by grabbing up the auto industry. New York…Woo Hooo! New York can grab the big banks and the stock exchange!

        That’s the end of budget problems!

        But you gotta hurry! Because if L.A. doesn’t move, California will grab it away from them.

  11. They might be able to take a physical object, like the track, but how could they get the intellectual property that constitutes the horse race?
    The IP of the race, and the various copyrights are granted through federal law and the constitution. The owners of the Preakness could choose to run the race anywhere they choose, and it would seem there is nothing that Baltimore could do to take the Preakness, if for no other reason, that being nothing more than an idea, would slip through their greedy fingers like water.

  12. The very fact that the State actually thought about exercising eminent domain over House of Cards, even for a moment, tells you all you need to know about State legislators.

  13. I am a lawyer whose practice is representing privately-owned businesses being condemned by municipalities. Where this happens most often is with utility companies. A city will decide it no longer wants the water system in town to be owned by a private corporation, and will condemn the entire business – physical assets, IP, etc. – to turn it into a municipal enterprise. I will be following this case with fascination, as many of the principles will be the same.

    A couple thoughts. 1) While there will surely be challenges valuing the intangible assets (including IP), there are business valuation experts who do this day in and out. Not just for condemnation, but for things like private company business ownership interest analysis, fairness analysis for transaction due diligence, etc. So it won’t be too much of a challenge for either side to come up with valuation by a reputable firm. 2) Re whether the Triple Crown can just replace Preakness with a different race if the City is successful. One would think this is something the City has thought carefully about (but who knows). I think it would depend in large part on the substance of any contracts between Triple Crown and the Preakness folks. Contracts can often be condemned. In my eminent domain practice contracts are commonly among the assets of the company the condemnor seeks to acquire.

    1. Some contracts are freely assignable without the consent of the other parties to the contract, while other contracts are not. Personal service contracts are often given as examples of contracts which cannot be freely assigned without consent. It would surprise me a bit if the other parties to the Triple Crown series, Churchill Downs and Belmont Part, didn’t reserve at least some rights to object to an assignment by the current operator of Pimlico or the sponsor of the Preakness Stakes without their consent.

    2. A couple of important distinctions here:

      1. This isn’t the condemnation of a local business. The parent company of Pimlico owns that trademark for use throughout the United States. They use it too. They sell merchandise. They advertise the race nationally. They license the marks to NBC.

      I don’t doubt that a municipality might be able to condemn the local water company and take its locally used trademarks. But that is vastly different from a local Maryland state court ordering that Baltimore be allowed to confiscate a trademark that exists under federal law and which grants the exclusive rights of use throughout the country. That is literally none of a state court’s business. It’s completely preempted.

      2. I don’t think the City has thought about anything carefully here. If they thought carefully, they would realize that the people who run the Preakness get to run the race anywhere they want and they can either try to lure them to stay or let them go.

      But more narrowly, they are just throwing stuff up on the wall. Which is the opposite of careful thought.

      3. In addition to Diver Dan’s point that the TC tracks almost certainly have a right to approve any assignment of the rights, or to terminate the contract and just contract with a new entity, the contractual obligation to stage the Second Leg of the Triple Crown is simply not a property right at all. It’s a contractual obligation. The City doesn’t get it just because it condemns the property.

  14. Since one of the defining characteristics of intellectual property is that it does not necessarily imply an exclusive use, it seems that a very simple fix is for the current owner of the trademark in Preakness Stakes to grant a nonexclusive license to an entity outside of Baltimore to use that trademark in connection with a horse race connected with the Triple Crown. Then, even assuming that Baltimore could use eminent domain to seize the trademark, it couldn’t terminate the nonexclusive license and it couldn’t stop the outside entity from using Preakness Stakes in connection with a Triple Crown race, even if it were run on a completely different track outside Baltimore. True, Baltimore could then conduct its own Preakness Stakes at the decrepit Pimlico Track, but how many genuine contenders would show up to run that race? Especially if the other Triple Crown participants, Churchill Downs and Belmont, announced that only the winner of the New Preakness Stakes would qualify for any Triple Crown bonus.

    1. Technically, there’s no Triple Crown bonus anymore, but the breeding industry, television rights, and behavior of racetracks basically create the same result. Nobody would enter the City’s rump Preakness because there would be a race somewhere else that the industry and the public would consider the Second Leg of the Triple Crown.

  15. If they condemn the track, there will never be another major horse race there again. They may not be able to call it the Preakness, but the industry will make city regret their actions and leave them with a decaying track where only second and third tier horse run. They need to consider what happened to USAC when the IRL was formed. For decades, USAC controlled open wheel racing in the US with the Indy 500 being the premiere race. Since 1997, the IRL has not only controlled the Indy 500 but the term Indycar. The sport needed to evolve and USAC was unwilling to and now no longer control open wheel racing in the US.

    1. The USAC analogy is a pretty good one, actually. What makes a sporting event “official” is the behavior of the sports officials and the public. And those things are not any form of property, let alone one that can be seized in a state court eminent domain proceeding.

      To take your analogy further, let’s say that a city that is fearful of losing its IRL race attempts to seize the track and the race’s IP. It wouldn’t accomplish anything. Because the IRL could simply decertify the race and sanction a different race the same week.

  16. Somin should stop worrying about the convoluted legal arguments designed to distort logic and the 5th Amendment. Just consider the obvious: Baltimore is threatening the use of force to deprive private property owners of the value of their property.

    That’s what governments do, and then they rationalize it as in the best interest of something or other. Just expose the folly and the nature of the proposed theft of private property – discredit the city and the state and the process and objective of government theft.

    Theft is wrong! No matter the purpose. Don’t rely on courts to defend private property. Courts are designed to legitimize government theft. How do you think judges get paid?

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  18. Although Baltimore has about the worst infrastructure in the United states, look at there sewer system that has polluted so many beautiful streams and lakes, I like the idea of keeping traditions. And without doing this the Stronach group will most certainly move the race to Laurel Park which doesn’t sit well with an old time historian like myself.

  19. Maybe if I had a horse in this race…but wait, maybe I do and don’t know it.
    Oh, the uncertainty…

  20. I lived in the Baltimore during the rein of William Donald Schaefer, who was widely considered the best Mayor the City had had in living memory. Sadly, as Governor of the State, he proved to still be a very good Mayor of Baltimore. In the years I lived there, the inner city got a serious facelift, and became much more prosperous, at least in appearance. I gather things have gone downhill since, which is sad.

  21. Maryland state law authorizes Baltimore to condemn both the race track and the associated intellectual property.

    How is this even a thing? Can the state condemn Joel Madden’s house and then claim the copyright to Good Charlotte songs?

  22. However, a publicly owned entity – even a race track and horse race – probably qualifies as a public use even under the narrow interpretation of that concept that I have defended in my work on the subject.

    And this is why we hate lawyers. A class of people who create legal edifices to allow government to do things that shock a reasonable man’s conscience.

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  25. The race is part of Baltimore history. The track is a decrepit piece of garbage in a neighborhood in decline. Considering what the government did with the rest of the city hard to see how they would not accelerate the decline rather than fix it. Only the area near the waterfront in Baltimore and a small area in NW part of the city is doing well. The rest is decrepit and getting worse, the track included.

  26. The Inverse Condemnation blog has some additional details about the case, including the complaint Baltimore has filed in state court. It is important to emphasize that the city is trying to condemn not just the race track, but also all the “intellectual property” associated with the Preakness Stakes, including its trademarks and the legal right to hold the race.

    I can think of a couple good ways to involve the members of the Baltimore government responsible for this with horses.

  27. Yuck. Using eminent domain to seize trademarks seems both constitutionally and pragmatically problematic. The Maryland is going to seize the right to call its race “The Preakness”, and prevent the Stronach Group from calling any other race “The Preakness” so that consumers don’t confuse… what exactly? Isn’t Maryland really seizing the right to cause consumers to confuse the government’s “Preakness” with the Stronach Group’s “Preakness”?

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