The state of Kentucky has a massive pension problem. And the plan is for sports betting to help fix it.
Former governor-turned-state senator Julian Carroll (D-7) pre-filed a sports betting bill in the Bluegrass State earlier this week and make no mistake – the goal is to raise money through KY sports betting to aid the state’s pension funds.
According to the text of the bill, revenue generated for the state would be split 50-50 between the state’s racing commission and a trust. The racing commission would use its portion of the revenue for integrity monitoring, while 60 percent of the portion earmarked for the “sports wagering distribution trust fund” is designated for the Kentucky Employees Retirement System Nonhazardous Retirement Fund and the Kentucky Teachers’ Retirement System pension fund.
Legal KY Sports Betting — and a Proposed 3 Percent Excise Tax — Would Help the State’s Ailing Pension Funds, Which Are More Than $30 Billion in the Hole.
“Now that sports wagering is legal, it is abundantly clear we must protect the public and, fortunately, it will generate much needed revenue for our public pensions and education system,” Carroll told Sports Handle via e-mail.
And the state is planning on a hefty payday from sports betting – the bill calls for a 3 percent excise tax on the sports betting handle, which works out to roughly a 60 percent tax on revenue, based on typical Nevada’s sportsbook’s 5 percent hold. The tax rate is the same as is currently used for pari-mutuel wagering in the state, however, with pari-mutuel wagering, a track is entitled to what’s called a “take out,” which guarantees the track revenue. How this would play out with sports betting remains to be seen.
“I decided to tax total amount wagered to conform sports wagering to our pari-mutuel wagering tax on live horse racing,” Carroll said.
In 2017, all of Nevada’s sportsbooks combined for a record $252 million win on a record handle of $4.8 billion. Nevada’s tax on sports wagering revenue is 6.75 percent. The proposed 3 percent in this Kentucky sports betting bill would draw 3 percent from the total amount wagered. Using Nevada’s numbers, 3 percent of handle would amount to $144 million.
It’s likely that gaming operators, who have pushed back hard at the suggestion of a 1 percent integrity fee from the professional sports leagues, will find a 3 percent tax on all wagers a bitter pill to swallow. In fact, potential operators in both Kansas and Pennsylvania have publicly stated that high tax rates may make sports betting impracticable from a business standpoint.
[Also See: NFL Joins Chorus In Pennsylvania: Your Sports Betting Taxes and Fees Are Too High!]
During a public hearing in Kansas in March, Whitney Damron, a lobbyist speaking on behalf of Kansas Entertainment, LLC, which owns Hollywood Casino, said that the integrity fee would “destroy the economic viability” of sports betting.
He also provided a chart breaking down where wagered money goes. According to the chart, only $5 of every $100 wagered is available for operating expenses, taxes and fees, meaning that a 3 percent tax on all wagered revenue translates into a $3 tax on every $5 available to cover the cost of an operation.
On the Integrity Fee. This was prepared by Hollywood Casino. pic.twitter.com/o8UJkLciNs
— Sports Handle (@sports_handle) May 17, 2018
Proposed Tax Rate Could Turn Away Potential KY Sports Betting Operators
It’s likely that the tax rate – and everything else in the new bill – is up for discussion, as it is an early stage attempt to open the conversation about sports betting in Kentucky, which has nine horse-racing tracks and OTB parlors, including famed Churchill Downs, that would be able to apply for sports betting licenses.
Other key components of the bill include:
- Adding a representative from the NCAA and/or major professional sports leagues to the Kentucky Horse Racing Commission, which will be tasked with overseeing sports betting;
- An initial license fee of $250,000 will be required and licenses may be renewed annually for $25,000;
- The commission can require any sports betting licensee to provide access to its balance sheet and earnings statement at any time; and
- Making it a Class C felony to for a participant in a sporting event who tampered with the outcome of a sporting event. There was previously no penalty fixing a sporting event in the state.
Carroll, who initially introduced sports betting legislation in 2017, is confident that Kentucky will make sports betting legal in 2019.
“Sports wagering will pass next session,” he said. “I am glad I was able to start the discussion last year prior to the Supreme Court ruling.”
The next legislative session begins on Jan. 8.
Last week, the state created a nine-member panel, of which Carroll is a member, to study sports betting in Kentucky. The new bill is Carroll’s alone, though a source in his office said the senator hopes the commission will see his bill as having laid the groundwork to make sports betting legal.
Kentucky Horse Racing Commission Would Oversee KY Sports Betting and Have Final Say on Things Like Mobile Sports Betting.
The bill leaves much up to the Kentucky Horse Racing Commission in terms of oversight and decision-making. The bill does not directly address mobile or internet sports betting, but does not disqualify it. There is already mobile pari-mutuel betting allowed on horse racing, so it’s not a leap to think that mobile/internet sports betting will ultimately be legal. And pari-mutuel bettors can register remotely.
There is also no mention of an integrity fee to be paid to the professional leagues. In fact, a source in Carroll’s office said it was never contacted by any of the major professional leagues that have been lobbying across the country for a piece of the pie.
Should this – or any other sports betting bill – become law next year, it would become effective on July 1, at which point operators could, if they were prepared, begin taking sports bets. The idea behind making the horse-racing tracks and OTBs eligible for licensing is that they are prepared to offer sports betting sooner than later.
“The horse-racing tracks or off-track wagering facilities in Kentucky already have the infrastructure to offer sports wagering,” Carroll said. “And when legislation is passed next session the racing commission will be able to quickly implement the law.”