Latest Sports Wagering Legislation Updates in Kentucky

July 11, 2023, 12:45 p.m. | Steve Ruddock | @SteveRuddock

The legalization of sports wagering earlier this year was a pleasant surprise. The Bluegrass State was certainly a candidate, but it wasn’t one of the top candidates. And now it’s provided another piece of good news: it plans to launch retail betting on Sept. 7, followed by a mobile launch on Sept. 28. 

The news came during a special Kentucky Horse Racing Commission meeting to announce temporary regulations. 

The timeline would have Kentucky retail sportsbooks holding ribbon-cutting ceremonies on the same day the 2023-2024 NFL season kicks off. Retail betting would be available for Week 4 of the NFL season. 

Gov. Andy Beshear called the timeline ambitious on Monday but believes it is achievable. Retail betting is unlikely to be an issue, but the mobile launch timeline may leave some applicants behind. 

Whether the KHRC can vet what is likely to be more than a dozen applicants by the end of September is an open question. As is the capability for some of those operators to have their product ready in such a short period considering only one operator, Caesars Sportsbook has officially announced it is entering the Kentucky market. 

It’s Fast, But Not the Fastest

The timeline from legalization to launch will be one of the shortest in U.S sports betting history history. 

Kansas is another recent addition to the ranks of legal wagering that used an accelerated launch timeline. Gov. Laura Kelly signed SB 84 into law on May 12, 2022, and had the industry up and running on September 1, 2022. 

Quick launches were more common early on. 

Iowa took just over three months from legalization, May 13, 2019, to launch on Aug. 15, 2019. 

In Indiana, sports wagering was signed into law on May 8, 2019, with retail operators going live in September and a mobile launch on Oct. 3. 

Arizona Gov. Doug Ducey signed his state’s legislation into law on April 15, 2021, and the industry launched on Sept. 8, 2021.

The commonality between the quick-to-launch states is a desire to have the industry live for betting on the NFL. 

That said, Kansas and now Kentucky are the recent outliers, diverging from the more deliberate and systematic rollouts seen in other recent or soon-to-be-launched states like Massachusetts, Maine, and Maryland. 

The Kentucky Market

Kentucky is an interesting locale when it comes to gambling. The state lacks full-fledged casinos, meaning sports wagering will run through the state’s horseracing tracks.

Kentucky currently has nine tracks (with two more under construction), and each can offer up to three online sportsbook skins (or brands). 

Per the law, there are 14 potential retail sportsbook locations in the Bluegrass State:

• Churchill Downs
• Cumberland Run
• Derby City Gaming (two locations)
• Ellis Park (two locations)
• Keeneland
• Kentucky Downs
• Mint Gaming Hall
• Newport Racing and Gaming
• Oak Grove Gaming and Racing
• Red Mile Gaming & Racing
• Sandy’s Gaming and Racing
• Turfway Park

Betting licenses have a one-time cost of $500,000 and an annual renewal fee of $50,000. An operator license is $50,000, with an annual fee of $10,000.

Kentucky imposed modest tax rates on sportsbooks. Retail sportsbooks will be taxed at 9.75%, while online wagers are taxed at 14.25%. 

April 11, 2023, 12:45 p.m. | Steve Ruddock | @SteveRuddock

Imitation is said to be the highest form of flattery, but we should be careful whom we imitate. 

Kentucky plans on mimicking some of the policies used by some of its predecessors, including rushing to market.

Kentucky is wise to look at what others have built. Still, it would also be wise to reconsider setting (even unofficially) a launch timeline before rules are promulgated and the licensing process has been finalized.

Stop. Collaborate and Listen

There are several well-oiled betting states Kentucky can borrow from. However, every market goes through its growing pains, and even if Kentucky manages to keep all the good and avoid the bad, it will still have its share of hiccups. 

Further, there is a significant difference between borrowing a state’s responsible gambling policies or its list of approved sports and sports-adjacent markets and instituting an arbitrary timeline based on the sports calendar.

The goal for any state should be to limit avoidable mistakes. Rushing a product to market will likely lead to the opposite. 

Unforced Errors

Looking at the situation unfolding with Massachusetts sports betting provides a look into Kentucky’s future should it go down that road. 

• The industry nearly convinced the MGC to allow promotional deductions from tax obligations.
• An 11th-hour effort – and a 30-day waiver – was required to allow affiliate marketers into the market. That indicates a complete lack of understanding of the market.
• Every retail operator accepted prohibited wagers in the first days after launch, with one violator flat out saying the rushed timeline contributed to the mistake.
• What is and isn’t allowed in advertisements is still being debated, which is only pouring fuel on an already burning fire about the volume and content of advertising.
• The responsible gambling fine print (seen below) is a comical length and includes multiple numbers to call.

All of these are avoidable missteps. And many of these examples were hashed out in meetings scheduled at the last minute. One MGC Commissioner, Nakisha Skinner, was clear that the accelerated timeline was concerning.

Kentucky may want to launch in time for football season, but why? If it was so important, why didn’t it legalize the activity in 2020, 2021, or 2022? 

The best advice anyone can provide Kentucky is not to set timelines. The timeline is whatever regulators need to ensure they’ve considered the what if’s and checked and double-checked their work. 

Relationships Matter

Sports gambling is new everywhere, but some states already have relationships with operators via land-based casinos. 

Massachusetts’ three retail sportsbooks are already licensed casino operators in the state, and all three have their own wagering platforms. And even with that familiarity, the rollout has been anything but smooth. 

Kentucky, a state with zero casinos, is far more likely to stumble as it sprints towards the finish line. Kentucky doesn’t have casinos. Yes, it has excellent relationships with the licensees (racetracks), but the actual platforms and operators are entirely unknown to regulators. So, the regulatory body, the Kentucky Horse Racing Commission, will be learning on the job and dealing with entities with no formal relationship.  

March 31, 2023, 1:16 p.m. | Steve Ruddock | @SteveRuddock

With the signature of Gov. Andy Beshear scrawled on HB 551 this morning, Kentucky became the 37^th (or 38^th, depending on how you count) state to legalize betting. The result was part of a mad dash to the finish line in the Bluegrass State, with the Senate passing the bill on its final day in session.

In what was expected to be a razor-thin vote, the Senate approved HB 551 by a 25-12 majority, two votes above the 23-vote threshold needed to pass the legislation in an odd-numbered year. 

Kentucky, along with positive movement in North Carolina, has salvaged what was shaping up to be a sluggish year for online gambling legalization. 

Bill Details

Under the new law, Kentucky’s nine racetracks could each offer up to three mobile skins for a potential total of 27 mobile betting platforms in the state. However, the actual number is likely around 10, based on the variables in the state (see the next section).

Licensees would pay a $500,000 initial licensing fee and a $50,000 annual renewal fee. Each platform provider partnered with a track would be on the hook for a $50,000 initial licensing fee and a $10,000 annual renewal fee. 

The state settled on a moderate tax burden with a 14.25% tax rate applied to online wagers and a 9.75% rate on retail bets. Promotional credits cannot be deducted from a licensee’s tax obligations, but they can deduct the federal excise tax. 

On the responsible gambling front, the law earmarks 2.5% of the state’s tax revenue to the newly created Kentucky problem gambling assistance account. 

Launch Timeline

HB 551 requires a 90-day waiting period before the rules are promulgated. That means the rulemaking process won’t begin until late June in Kentucky.

Looking at other states and Kentucky’s unfamiliarity with non-racing forms of gambling, the rulemaking and licensing process will likely take several months, if not longer. In a bull case, the state’s mobile betting sites in late 2023. In a bear scenario, mobile betting might not go live until Q2 2024. 

Rep. Michael Meredith, the bill’s sponsor, provided a similar timeline to the local press, estimating a late-2023 or early 2024 launch date. 

It’s a Market

Ok, and now let’s pump the brakes. 

Kentucky's step towards legalization is a pleasant surprise and a nice win for the industry. That said, on its own, Kentucky isn’t exactly a world-beater and is likely to be one of the lower-performing online wagering states. 

Kentucky is sparsely populated, with just 4.5 million residents, and ranks 44^th in median household income. On top of that, the state doesn’t look favorably at gambling. When asked what held Kentucky back during a NCLGS panel in 2022, former Rep. Adam Koenig quipped, “you can’t swing a dead cat in Kentucky without hitting a preacher.”

The state also lacks professional sports teams but has two top college athletic programs at the University of Kentucky and Louisville. However, both schools over-index for basketball. 

With all that considered, Eilers & Krejcik Gaming estimates the Kentucky betting market at $185 million, with a ceiling of $200 million. 

Jan. 10, 2023, 11:30 a.m. | Steve Ruddock | @SteveRuddock

Kentucky has entered the online poker and betting conversation following the introduction of a bill that seeks to legalize both activities, along with daily fantasy sports, in the Bluegrass State.

The bill, HB 106, was introduced on Jan. 5 and listed three sponsors:

• Rep. Derrick Graham (D)
• Rep. Cherlynn Stevenson (D)
• Rep. Rachel Roberts (D)

All three sponsors are Democrats and hold leadership positions in the Minority Caucus. That will likely work against HB 106. Republicans have a 75-25 advantage in the Kentucky House of Representatives and a 30-8 edge in the Senate. If a gambling bill is going to land on the desk of Gov. Andy Beshear (a Democrat), Republicans will want to take credit for it.

As such, you can expect the introduction of another bill (with or without online poker and DFS attached) by a Republican lawmaker soon. That bill is the likely vehicle for Kentucky’s online gambling discussions. 

When the Republican bill is introduced, we will better understand what will be included and whether online poker will make the cut. HB 106 is comprehensive, as it includes online poker and DFS, but to bring enough lawmakers on board, the final legislation may have to be more targeted. 

HB 106 Demonstrates Bipartisan Support

What HB 106 does is show strong support from Democrats regarding legalizing mobile sports betting, online poker, and DFS. The question is, is there enough support among Republican lawmakers?

Beshear supports legal sports wagering, saying, “I’m 100% for sports betting,” at a groundbreaking ceremony at Turfway Park in September. “Pushed it every year I’ve been governor and as I was attorney general. Need a few people in the general assembly to come around. There are a whole lot of them here tonight. Hopefully, they like what they see.”

However, Republicans might not want to give Beshear, a Democrat, any legislative victories, as he is up for reelection in 2023. The 2023 legislative session will take place against the backdrop of the Republican gubernatorial primary, which could factor into the House and Senate agendas. 

Dead Cats and Preachers

One of the biggest hurdles any gambling expansion in Kentucky faces is the state’s religiosity. 

According to a 2016 Pew Religious Landscape Study, 63% of Kentucky respondents said religion is very important in their lives, with 75% saying they believe in God with absolute certainty (the sixth highest percentage in the country). 

As former Kentucky Rep. Adam Koenig said more plainly during an NCLGS panel in July, “you can’t swing a dead cat without hitting a preacher in Kentucky.

The Online Poker Fiasco

Kentucky also has a long, strange history with online poker. The state has explored online poker legalization in the past but is best known for a lawsuit it filed against PokerStars Poker – the suit was settled in 2021, with PokerStars handing the state $300 million.

Kentucky used an antiquated law that allows anyone to sue the winner of an illegally placed bet after six months.

Per the Kentucky statute:

KRS 372.020

If any person loses to another at one (1) time, or within twenty-four (24) hours, five dollars ($5) or more, or anything of that value, and pays, transfers, or delivers it, the loser or any of his creditors may recover it, or its value, from the winner, or any transferee of the winner, having notice of the consideration, by action brought within five (5) years after the payment, transfer or delivery? …

KRS 372.040

If the loser or his creditor does not, within six (6) months after its payment or delivery to the winner, sue for the money or thing lost, and prosecute the suit to recovery with due diligence, any other person may sue the winner, and recover treble the value of the money or thing lost, if suit is brought within five (5) years from the delivery or payment.

The suit was first filed in 2008 by J. Michael Brown, the Secretary of Justice and Public Safety of the Commonwealth of Kentucky. In 2015, the Franklin Circuit Court sided with Kentucky and assessed the liability at $290 million, which, when trebled per the Kentucky statute, produced an $870 million bill for PokerStars. 

PokerStars scored a legal victory in 2018 when the Kentucky Court of Appeals overturned the 2015 ruling, calling the judgment “absurd.” The reprieve was short-lived, as the Kentucky Supreme Court (in a 4-3 decision) reinstated the 2015 ruling in 2020. To add insult to injury, the court upped the total due to $1.3 billion, the original amount plus interest. 

PokerStars, now owned by Flutter Entertainment, appealed the decision to the United States Supreme Court. Still, they reached a $300 million settlement with Kentucky, thus ending one of the strangest gambling lawsuits in history and making Kentucky the biggest financial beneficiary of online poker in the U.S., despite not legalizing the activity.