An advertisement for sports betting at a casino in Mississippi, which has legalized such wagering.

A bill that would legalize wagering on sporting events and earmark tax revenue to Kentucky’s underfunded pension system received a hearing at a legislative committee meeting in Frankfort Wednesday morning.

House Bill 175, sponsored by Rep. Adam Koenig, R-Erlanger, would allow Kentuckians to not just wager on most sporting events around the country, but also set up a regulatory framework for residents to legally play online poker and fantasy sports contests, with the state receiving revenue from taxes, registration fees and licensing fees.

Estimates have shown that Americans illegally bet anywhere from $100 billion to $150 billion on sports each year — with the large majority of that revenue going overseas — but after the Supreme Court of the United States struck down a national ban on sports wagering, many states have begun efforts to legalize, regulate and tax such betting.

Noting this Supreme Court ruling, Koenig told the House Licensing, Occupations & Administrative Regulations Committee that “we have an opportunity now to make sure this is done legally, safely and in a regulated fashion, where people can be protected when they want to engage in this type of activity.”

Rep. Adam Koenig, R-
Erlanger

The bill would establish a wagering fund through newly taxed gaming revenue to administer the program, with 5 percent of the remaining funds going to a gambling addiction services program and the rest dedicated to a fund established in 2016 for paying down the state’s public pension plans.

Acknowledging that Kentucky’s public pension systems are “over $40 billion in the hole,” Koenig said his bill “is not going to fix the pension system, but every bit we can find to go to it helps.”

Gov. Matt Bevin has publicly ridiculed the idea of paying for the state’s pension liabilities with newly taxed revenue from either the legalized expansion of gambling or marijuana, saying that it would take hundreds of years for such revenue to raise what is needed while causing negative effects to society.

In HB 175, sports wagering would go under the exclusive jurisdiction of the Kentucky Horse Racing Commission, with only horse racing tracks and the Kentucky Speedway eligible to receive a license. The original bill filed by Koenig set an initial licensing fee of $1 million for these venues to allow sports wagering, with an annual renewal fee of $50,000, but a substitute bill filed with the committee on Wednesday cut that initial fee in half to $500,000.

Koenig explained that such licensed venues would allow sports wagering on their property, with a tax rate of 10.25 percent. But Kentuckians could also go to these venues to download an app on their mobile phones, which could then be used to bet on sports at any location within the state and be taxed at a higher rate of 14.25 percent.

The only restrictions on such sports wagering would be on games played by colleges in Kentucky, with Koenig bringing up the possibility of local corruption and bribery. Under the bill, it would be a Class A misdemeanor for a person to place a wager on a game in which they are a participant while tampering with the outcome of a sporting event would be a Class C felony.

The legislation would also allow the Kentucky Lottery Corporation to authorize online poker games, with an initial licensing fee of $250,000, a renewal fee of $10,000 and gaming fee of 6.75 percent on such revenue. Fantasy sports operators would have to register with the Public Protection Cabinet, with an initial fee of $5,000 and a renewal fee of either $5,000 or 6 percent of its adjusted gross revenue, whichever is higher.

House Bill 175 has not yet received a fiscal impact statement from the Legislative Research Commission, but a private consultant testified to the committee that the taxable revenue on sports wagering alone would be at least $20 million a year for Kentucky.

Commonwealth Economics Founder John Farris — who is also the chairman of the Kentucky Retirement Systems — told the committee that based on studies of such betting overseas and in states that have recently legalized it, in-person sports wagering would generate $4.6 million in Kentucky annually, while mobile wagering would bring in $15.6 million.

Farris said that this estimate did not include the $500,000 licensing fees for sports wagering venues or revenue from fantasy sports and online poker, and only counted the participation of adult Kentucky residents. Assuming no other surrounding states also legalized sports wagering, Farris estimated that Kentucky’s annual revenue could reach $48 million per year.

However, Koenig noted West Virginia has already legalized sports wagering, while bills that would do so in Indiana and Tennessee are already progressing quickly through their state legislatures. Noting the progress of such legislation in neighboring states — and acknowledging the potential revenue already lost by Kentucky’s failure to expand gaming with casinos — Koenig warned, “let’s not be behind the curve, as we have been in other areas on this topic in the past.”

Asked after the meeting who commissioned Commonwealth Economics to analyze the fiscal impact of HB 175, Koenig told Insider Louisville that it was paid for Keeneland, the historic racetrack in Lexington.

Critics say the bill is unconstitutional, would breed corruption

House Bill 175 was not without its critics in the committee meeting from both ends of the perspective when it comes to gambling, which included a representative on a large fantasy sports company and the socially conservative Family Foundation of Kentucky.

Stacy Stern, the manager of government affairs for FanDuel, testified against the legislation, speaking against the need for mobile users on the sports wagering app to have to download and register for that app at the physical venues, as they are able to verify the age and eligibility users online. She also criticized the prohibition on betting on games involving Kentucky universities.

From the other end of the perspective, Stan Cave — an attorney for the Family Foundation of Kentucky, which opposes expanded gaming in any form on moral and legal grounds — testified that HB 175 was “an attempt to slip daylight past the rooster,” as its provisions could not be allowed without an amendment to Kentucky’s constitution.

Noting that the regulation of sports wagering licenses would come under the Horse Racing Commission, Cave referenced the infamous Boptrot scandal from the decades ago that led to the imprisonment 15 of state legislators and lobbyists, warning that similar corruption could stem from such power. He also told legislators that the commission has been reluctant to fully comply with open records requests, which could complicate the ability to provide sufficient government oversight of its actions.

Koenig said that whatever form his legislation takes — or if the constitution is amended to allow expanded gaming — it will face a lawsuit from the likes of the Family Foundation, so the matter will ultimately be decided by the courts. He also noted that he took offense at Cave’s reference to the Boptrot scandal, assuring the committee members that the implication was unwarranted.

The committee meets again next week, where members could take up a vote on the bill.

Besides Nevada and New Jersey, eight states have passed laws legalizing sports wagering since the Supreme Court ruling.

Joe Sonka
Joe Sonka is a staff writer at Insider Louisville focusing on government, politics, education and public safety. He is a former news editor and staff writer at LEO Weekly and has also freelanced for The Nation and ThinkProgress. He has won first place awards from the Louisville Metro chapter of the Society of Professional Journalists in the categories of Health Reporting, Enterprise Reporting, Government/Politics, Minority/Women’s Affairs Reporting, Continuing Coverage and Best Blog. Email him at [email protected]