(Reuters) - A federal appeals court reduced an award to Illinois casinos on Tuesday, ruling in a lawsuit that arose from the corruption scandal that toppled then-Governor Rod Blagojevich that the jury wrongly found a "pattern" of racketeering activity.

The ruling comes as the former two-term Illinois Governor seeks a drastically reduced prison sentence that would see him released from federal prison within a year after convictions in 2011 for corruption charges, including extortion and wire fraud.

Blagojevich's resentencing is scheduled for August 9 after an appellate court last year vacated five of the embattled Democrat's 18 criminal convictions.

Tuesday's ruling, that reduced the award from $77 million to $26 million, stems from a case that pitted casinos against racetracks amid a swirl of political hand wringing in the financially struggling Midwestern U.S. state.

In 2008, horse racetrack executive John Johnston promised a $100,000 campaign contribution to then-governor Blagojevich in exchange for signing a proposal to tax the largest casinos in the state for "the direct benefit of the Illinois horseracing industry," the 7th Circuit Court of Appeals wrote in its opinion.

After Blagojevich's 2008 arrest, Empress Casino Joliet Corp and other casinos affected by the tax sued Balmoral Racing Club, Inc, Maywood Park Trotting Association, Inc., and Blagojevich himself alleging a conspiracy to violate the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, among other claims.

A federal jury awarded the casinos $25.9 million in damages, which trebled under RICO to $77.8 million, the three-judge panel said.

But on Tuesday, an appeals court reversed that finding, siding with Johnston and racetracks that argued on appeal that plaintiffs failed to prove a RICO conspiracy.

"The jury did not have legally sufficient evidence to support a verdict finding a conspiracy to engage in a 'pattern' of racketeering activity, as required for liability on a RICO conspiracy theory," the court said.

Lawyers who have represented the parties in the lawsuit did not immediately respond to requests for comment.

Blagojevich was arrested in 2008 when he was still governor. He was impeached by the state's General Assembly in early 2009, becoming the first Illinois governor to be removed from office. He began serving his federal prison sentence in 2012.

(Reporting by Eric M. Johnson in Seattle; Editing by Michael Perry)