The Kentucky Horse Racing Commission unanimously passed emergency and ordinary regulations to officially allow the state’s sports betting industry to launch in September.
It’s a six-month turnaround — one of the quickest launches of any state in this country — which means rules and regulations had to be ironed out in a timely manner.
A number of things stood out from both the emergency and ordinary regulations, which are identical. In total, 14 venues are eligible for retail sportsbooks. There are very few sports that Kentucky residents can’t wager on. The state will have strict rules around promotional language, too.
Some of the rules and regulations, however, could change.
In August, the regulations will go through a standard public review period. The state will seek feedback from the general public, sportsbook operators, industry experts, and others to get a better understanding of which regulations may need adjusting. There will be a public hearing on Aug. 22, and the KHRC will accept written comments through Aug. 31.
There’s no clear indication of which specific rules may come under the microscope.
But let’s take a look at some changes that could potentially happen down the road.
The Kentucky Betting Regulations That Could Change During Review
The Kentucky sports betting regulations had specifics on promotional and advertisement language, but nothing on the promo spend itself.
And that was one question heading into the launch.
Policies regarding allowing states to write off promotional spending aren’t the same across the country. Some states allow it, others don’t and some have different strategies.
As more and more states launch their sports betting markets, it’s clear that promotional spending is at an all-time high in the first couple of years. And rightfully so, as sportsbook operators seek to acquire customers for life. That acquisition most often comes through offering plenty of “bonus bets” (the operator’s money) to entice customers to stick around.
Many states have opted to not tax promotional spend right off the bat, but in doing so, they realized they missed out on a chunk of change. Both Colorado and Virginia adjusted their write-off policy after noticing this.
Ohio, though, took note and implemented a strategy of its own.
In Ohio, operators are allowed to write off promotional spending for their taxes. But starting in 2027, operators can only write off up to 10% of their gross revenue. Any promotional spend above that threshold becomes taxable income. That 10% jumps to 20% in 2031.
Maybe there’s something in the works in Kentucky at the moment. But as of now, nothing is public.
The state, should it want to get the most out of its early tax dollars, could end up taxing the Kentucky sportsbook promos operators offer starting later this year.
Kentucky May Implement Student-Athlete Protections Like Ohio
Currently, Kentucky regulations call for no specific student-athlete protection. There’s nothing about shielding the athletes from potential harassment, and that’s something industry experts are questioning.
Kinectify CEO Joseph Martin spoke with Gaming Today earlier this month. Kinectify, an anti-money laundering risk management technology company, recently partnered with a behavioral health company.
Gaming Today asked Martin about the current landscape, and he noted that “college athletic communities” — such as Kentucky — are being hit hard by gambling addictions. Those issues can lead to dangerous behavior toward college student-athletes.
“It’s deeply concerning that Kentucky universities are not (offering) protection from angry sports bettors,” Martin said. “This is the exact opposite direction of where Kentucky should be headed.”
It’s worth noting that Kentucky’s Division I colleges have not created their own policies to protect their student-athletes.
With no rules in place, should issues arise, Kentucky could potentially institute something similar to Ohio.
The state gave the Ohio Casino Control Commission the power to ban bettors from sports wagering if they are found to have threatened athletes or others associated with an event.
It may not be perfect, but it’s an option to stop bettors from taking their frustrations out on those competing or involved in games.
Could Kentucky Adjust the Way It Collects Sports Betting Taxes?
One of Kentucky’s neighbors recently did a major shake-up with how it collects taxes from sports wagering.
Tennessee just became the first state to tax its sports betting handle, moving away from the taxation of its wagering revenue. Tennessee previously taxed its sports betting revenue at 20%, but now the state will tax operators 1.85% of their handle. Those operators can deduct federal excise taxes of a quarter of a percent per wager before calculating their state tax, however.
There’s a big difference between taxing handle compared to revenue.
The handle represents the total amount of money bet in a given time frame. Revenue is … revenue.
Tennessee also had a 10% hold requirement for sportsbooks, which many failed to meet, resulting in fines. Nine of the 11 operators did not meet that mark, and in turn, wanted a change. This component is no longer a part of Tennessee’s taxation process.
Because operators failing to meet the hold requirement combined with the 20% revenue tax, it resulted in $126.4 million in taxes since 2020. With the current tax infrastructure, Tennessee would have seen $141.2 million under that same timeline. That’s a big difference.
Let’s be clear: Tennessee’s change is drastic. It was the first of any state to implement such a change. Tennessee also only offers online sports betting; no retail venues are in place.
Kentucky taxes its retail sports operation revenue at 9.75%. Taxes for online revenue are at 14.25%. Neither of those are outside the industry norm. And KHRC regulators could not change these tax rates on their own. That could only happen via the legislative process, as the tax rates are set forth in the Kentucky sports betting bill, itself.
However, the KHRC could start the ball rolling toward that change if it deems it necessary.
We don’t believe Kentucky would do anything of this magnitude this early, though. And more than likely, things won’t change.
But let’s say Tennessee collects more money and the operators are happier. There’s a chance (down the road) that Kentucky could take a page out of its neighbor’s book.
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