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Analysis Says Sports Betting Could Generate $20M Annually

Sergey Kuzmin
123rf Stock Photo

Legal sports betting in Kentucky could be worth at least $20 million a year in new taxes, with most of it going to the state's struggling public pension systems, according to an analysis of a proposal in the House of Representatives.

Kentucky is one of several states eying sports wagering to fill budget holes after the U.S. Supreme Court last year struck down a federal law that effectively banned the practice in most states. Since then, seven states have legalized sports wagering, including West Virginia, which borders Kentucky to the east.

Stacie Stern, a lobbyist for the fantasy sports company FanDuel, said she expects at least a dozen states to consider sports betting legislation this year.

House bill 175 would tax bookmakers' 10.25 percent for wagers made in-person and 14.25 percent for bets made on mobile phones. John Farris, founder and managing partner of the firm Commonwealth Economics, estimated the proposal would generate at least $20.2 million each year in state tax dollars. He said that number could swell to $48 million if none of the surrounding states legalize sports betting.

"People are crying out to do it legally," said Republican state Rep. Adam Koenig, the bill's primary sponsor. "It is part of not just Kentucky's culture, but America's culture. I think it is time we bring these issues out of the shadows."

The analysis did not consider the effects of other fees that would be required in the industry. It also did not include potential effects from fantasy sports gambling and internet poker, which would also be legalized under the proposal.

The proposal would require the state to spend a portion of the tax money on regulating the new industry and providing addiction prevention services. But the rest of it would go toward the state's pension systems, which are at least an estimated $39 billion short of the money required to pay benefits over the next three decades, making them among the worst-funded public retirement plans in the country.

"It's not going to fix the pension system, but every bit we can find to go to it helps," Koenig said.

Teachers and other public workers have opposed Republican-led efforts to make benefit changes to the pension system without first finding new sources of revenue. Nema Brewer, an organizer with the teacher group #120strong, said she supports anything that would bring in new money.

"Our elected need to have just a little political courage and think outside the box," she said.

The proposal would require a three-fifths majority in the legislature, meaning at least 60 votes in the House and 23 votes in the Senate. And it would have to overcome opposition from the state's conservative religious communities, including groups like The Family Foundation. Stan Cave, the foundation's lobbyist and a former state lawmaker, said the proposal would violate the state Constitution.

"This is an attempt by the gambling industry to slip daylight by the rooster so they don't have to amend the Constitution," he said.

Koenig disagreed, adding he believes he has the votes to get the bill out of committee. Beyond that, he is unsure.

"Hopefully, this is the time when the revenue is important to some folks, the freedom is important to others and folks vote their conscience rather than playing politics," Koenig said.

For decades, Kentucky has allowed wagering on its signature horse racing industry, including the annual Kentucky Derby. But House bill 175 would let people also place bets on professional and college sporting events at most of the state's horse racing tracks and the Kentucky Speedway, which hosts a NASCAR event each summer. People could place bets in person or on their smartphones.

The bill would ban betting on any sporting event involving a Kentucky college or university, including the state's beloved basketball teams at University of Kentucky and the University of Louisville. The reason, Koenig said, is because people have closer access to amateur sports, making it easier to illegally influence the outcome of the games. That happened in the 1950s, when several University of Kentucky men's basketball players were arrested for accepting bribes to shave points in a game. The NCAA suspended Kentucky's basketball program for the 1952-53 season.

But some are pushing to lift the proposed betting ban for Kentucky college sports. Stern, the lobbyist for FanDuel, said nearly 1 million Kentucky residents are already placing illegal bets on offshore websites, and she was willing to bet a lot of them were wagering on Kentucky college sports' teams.

"Kentucky will be leaving money on the table with the ban on Kentucky collegiate athletic events," she said.

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