Kentucky Makes Cautious Steps Toward Sports Betting Legalization

A sweeping gambling overhaul bill is currently under consideration in Kentucky as lawmakers are struggling to find revenue generators for the state’s $43 billion pension crisis

The House Licensing, Occupations and Administrative Regulations Committee reviewed House Bill 175 during a Wednesday hearing but did not vote on it. The piece contains provisions for the legalization and regulation of sports betting, online poker, and fantasy sports.

The bill is sponsored by Rep. Adam Koenig, who says he believes Kentucky already has a thriving black market and is losing millions to unregulated sports betting operations.

If HB 175 survives all pending legislative hurdles, it will legalize and regulate the provision of in-person and mobile sports betting across the state. In addition, the legislation contains a provision that authorizes prop bets that are not related to sporting events.

The bill prohibits betting on Kentucky collegiate sports. Its authors have cited corruption concerns for their decision to exclude local college events.

According to projections by John Farris, founder of financial consultancy firm Commonwealth Economics, Kentucky could reap $48 million in tax revenue, if it legalizes sports betting before its neighboring states. Otherwise, if neighbors legalize the practice, Kentucky could collect around $20 million in tax revenue every year.

If the state opens its gambling market for legal wagering operations, most of the tax revenue generated would be allocated to help the state battle a heavy pension shortfall that currently stands at around $43 billion.

Taxation of Sports Betting

Under HB 175, Kentucky will tax sports betting at 10.25% for land-based operations and at 14.25% for online operations. The tax rates proposed can be classified as reasonable as they are in line with those in most of the states that have legalized and launched wagering operations in the months after the landmark SCOTUS ruling.

As mentioned above, the greater portion of the tax revenue generated would be used to pay off pensions. Smaller shares of the tax money would be allocated to fund the regulation of sports betting and the provision of gambling addiction and prevention services.

Interested sports betting operators will have to pay a $500,000 license fee (down from a previous proposal for a $1-million license fee) in order to be authorized to provide the service in Kentucky.

The bill seems to have gained some support in the Legislature, but stakeholders have expressed concerns over certain aspects of what it calls for. The Wednesday committee hearing was attended by a representative from fantasy sports operator turned sports betting operator FanDuel.

On behalf of the company, the representative asked the bill’s creators to consider authorizing betting on Kentucky college sports, due to the fact that in the absence of professional teams in the state, Kentuckians are already betting on college sports illegally to fuel a booming black market.

FanDuel also believes that lawmakers should remove a requirement that bettors need to register at physical facilities before being able to wager money via their smartphones. That extra step has been proposed by the bill’s sponsors for age verification purposes.

As mentioned above, no vote on the bill took place during the Wednesday hearing. It now awaits further action in the Legislature and it is yet to be seen when exactly lawmakers would take action on the piece that, if approved, would pave the way for the biggest gambling expansion the state has seen in a while.

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