Every month that Kentucky delays its sports betting launch, it’s missing out on nearly $2 million in tax revenue. This amount trickles down from an estimated $208 million in monthly sports betting handle during the peak sports season. Handle is the total amount of money that customers wager. After payouts to players and promotional deductions, there’s little tax revenue left over.
Gov. Andy Beshear is on the record hoping that Kentucky sports betting will be live by the NFL season’s start. Kentucky could make an additional $6 million in tax revenue by launching in September instead of December (September is expected to be the ramp-up month, so the monthly $2 million would begin in October.)
Although eye-catching, $2 million per month is a measly addition to the state’s $45.4 billion in 2022 expenditures. Satisfying Kentuckians’ demand — and the governor’s “hopes” — may be tempting for regulators. However, the cost of skimping on regulation includes:
- Failing to do enough financial due diligence to ensure a sportsbook can reliably pay out.
- Rushing background investigations and missing key lawsuits in other jurisdictions.
- Misunderstanding technical requirements to ensure apps are stable and secure.
By law, Kentucky sports betting must go live by December 28. Many other states have used their deadlines as launch dates. Writing regulations and then evaluating license applicants is time-consuming. Extra months and weeks to perform criminal background checks, flesh out legal challenges, and study financial statements are valuable for a safe and modern sports betting industry.
$30 Million in Annual Kentucky Sports Betting Tax Revenue Projected
Gaming Today projects that Kentucky sports betting will generate $2.3 billion in handle in its first year. That will lead to $186 million in taxable revenue and about $30 million in annual tax revenue.
Kentucky is similar in population to another state with a thriving gambling industry: Louisiana. Based on adjustments for population, Gaming Today projected handle and net revenue. The handle is the total amount of money that sports bettors wager. Net revenue is the amount of taxable revenue left over after sportsbooks pay out winnings and deduct promotional credits. For Gaming Today’s projections, net revenue was based on the average sportsbook hold in Louisiana, which was 6.8% for online wagers and 9.6% for retail wagers in 2022.
Sportsbook hold can vary wildly from month to month. During Louisiana’s first month of online sports betting, online sportsbooks had a -22.3% hold. This loss came from the deluge of bonus offers in which sportsbooks awarded site credits. In July 2022, the online sportsbook hold was 18.6%, likely driven by parlay bets, which are tempting for bettors but fantastic deals for sportsbooks.
Louisiana also measures hold differently from other states. In Louisiana, sportsbook hold is based on what’s left after both player payouts and promotional deductions. In other states with legal sports betting, the hold is based on what’s leftover after payouts to players.
Additionally, we used the split between online and retail sports betting that Louisiana experienced. Both states have substantial gambling outlets. Louisiana has its casinos and riverboats. Kentucky has its race tracks.
Both states also enjoy out-of-state tourism to their gambling outlets. Louisiana draws casino revenue from Texas and Arkansas. Kentucky’s horse tracks are unrivaled tourist attractions during major horse racing events.
Finally, online sports betting almost always composes 80-90% of a state’s sports betting handle. Nevada is on the low end at about 57% because of the other entertainment revenue from Vegas hotels and the lack of online sportsbook brands like DraftKings and FanDuel. In New York, online sports betting handle is over 99% of the state’s handle. It’s much easier to bet on a phone in New York City than drive out of the city to the retail sportsbook in Schenectady.
We derived tax revenue using Kentucky’s sports betting tax rates, 14.25% for online wagers and 9.25% for retail wagers.
What Could Prove the Projections Wrong
Kentucky’s sports betting revenue projections rest on a few key assumptions that, if proven wrong, would change Kentucky’s sports betting performance.
For example, the ramp-up period could be faster than one month. In new sports betting markets, it takes one to three months for handle to settle into the amount that each month’s betting activity will fluctuate around during the peak and slow seasons. There are exceptions, like New York, whose ramp-up time was about one week.
The horse tracks could generate a greater proportion of sports betting handle than expected, leading to higher retail handle. That wouldn’t increase handle by an appreciable amount. Those horse tracks are partnered with online sportsbooks anyway. Online sports betting handle tends to be so overwhelming that fluctuations in retail sportsbook handle are inconsequential. Retail sports betting is a better way to sign customers up for online sports betting than a revenue generator in and of itself.
The biggest X-factor in Kentucky’s projections is Kentuckians themselves. Their appetite for gambling is clear. A PlayKentucky survey found that 77% of Kentuckians already bet on sports in some way in the past year. This could’ve included daily fantasy sports (DFS), out-of-state sports betting, or in-state horse tracks.
When presented with more narrow options, 15% of respondents said they bet on horse racing regularly, 26% played casino games regularly, and 13% participated in sports betting regularly. These regular gamblers are where most of a company’s revenue comes from. While casual bettors are more numerous, individual regular gamblers are more profitable.
Whatever Kentucky’s sports betting revenue is, this new industry will be a synergetic addition to a state with a thriving horse betting market.
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