With the signature of Gov. Andy Beshear scrawled on HB 551 this morning, Kentucky became the 37th (or 38th, depending on how you count) state to legalize sports 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.
Under the new Kentucky sports betting 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 from sports betting to the newly created Kentucky problem gambling assistance account.
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 legalizing sports betting 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 sports betting states.
Kentucky is sparsely populated, with just 4.5 million residents, and ranks 44th 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 sports betting market at $185 million, with a ceiling of $200 million.
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