Politics & Government

Kentucky lawmaker wants to legalize and tax sports betting to help pay for pensions

Kentucky could collect tens of millions of dollars in revenue annually and dedicate most of it to the public pension shortfall under a bill that would legalize and tax sports gambling, online poker and fantasy sports contests, a House committee heard Wednesday.

But first, House Bill 175 must get the votes necessary to pass the House and Senate and overcome a possible veto from Gov. Matt Bevin, who opposes the state relying on new forms of gambling income. The sponsor — still making changes to the bill’s language — said he isn’t sure where it stands.

“As soon as it’s ready and I know we have the votes, we’ll be off and running,” said state Rep. Adam Koenig, R-Erlanger, after presenting his bill to the House Committee on Licensing, Occupations and Administrative Regulations.

Koenig, the committee’s chairman, said he might schedule a special meeting to vote on his bill in coming days.

In a shorter “odd-year” legislative session like this one, when the state budget is not on the table, a three-fifths super-majority is required in each chamber to raise revenue. That means 60 votes in the 100-member House and 23 votes in the 38-member Senate.

Koenig’s bill would allow Kentuckians to gamble legally at an approved location — one of the state-licensed horse tracks or the Kentucky Speedway in Sparta — or with an online app for which they registered in person at an approved location, to prove their identities and that they are adults.

But Kentuckians could not bet on collegiate sports inside Kentucky, so no wagers could be placed, for example, on the University of Kentucky football and basketball teams. The current version of the bill bans betting on any collegiate sport event, but Koenig said he will introduce a revised version that allows collegiate sports gambling on games not involving Kentucky teams.

Most of the revenue collected through taxes and licensing fees would go to the state’s “permanent” pension fund, used to pay down Kentucky’s $37 billion unfunded pension liability. A small amount would be set aside for a gambling addiction treatment program.

“It’s not going to fix the pension problem, but every bit that we can find helps,” Koenig said.

John Farris, a Lexington economist, told the House committee that Kentucky could generate an estimated $19 million a year from Kentuckians in taxes on sports gambling, not counting the additional money raised from licensing fees at participating tracks or from taxes on other forms of wagering.

John Farris

That sum potentially could rise as high as $48 million a year, Farris said, if border states like Tennessee, Indiana and Ohio do not legalize sports betting and their residents sign up for betting apps at Kentucky locations near their state lines.

Although Kentucky has a long tradition of betting on horse races as well as a state-run lottery, most other forms of gambling are illegal. However, last year, the U.S. Supreme Court struck down a federal law that had largely outlawed sports betting outside of Nevada. Since then, seven states have legalized gambling on sporting events, including West Virginia. Other states are weighing their own plans.

Kentuckians already gamble vast sums online illegally, so the state may as well enforce regulatory standards and raise money off the practice, Koenig told the House committee Wednesday.

“People are crying to do it legally,” Koenig said. “This is part of our culture — not just Kentucky’s culture, but America’s culture — and I think it’s time we brought these issues out of the shadows.”

Koenig’s bill assigns regulatory oversight for sports gambling to the Kentucky Horse Racing Commission, for online poker to the Kentucky Lottery Corp. and for fantasy sports contests to the Kentucky Public Protection Cabinet.

Hoping to tweak the bill, Stacie Stern, government affairs manager with betting website FanDuel, said Kentucky should not require gamblers to drive to a racetrack to register in person for a betting app. The state allows people to bet on horse races online without first making them report to a physical location for verification, and it should do the same for sports betting, Stern said.

“One of the keys to converting customers from the illegal market to a regulated one is meeting consumer expectations and providing a convenient way to bet on sports. Having to leave one’s home or work to drive to register will be perceived as an obstacle that will lead many to simply use their illegal app or website,” Stern said.

The Family Foundation of Kentucky testified against the bill, warning that gambling interests will exploit every possible loophole. For example, one line tucked deep in the bill would let the Horse Racing Commission legalize gambling on “non-sporting events,” citing the Academy Awards as an example.

That line opens up a vast swath of possibilities in what is supposed to be a “sports betting” bill, including casino-like games of chance, said Stan Cave, attorney for the Family Foundation. Attempts to legalize casino gambling in Kentucky by passing a state constitutional amendment have failed so far.

“As with most gambling legislation, this is an attempt by the gambling industry to slip daylight past the rooster so they don’t have to amend the state constitution,” Cave said.

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John Cheves is a government accountability reporter at the Lexington Herald-Leader. He joined the newspaper in 1997 and previously worked in its Washington and Frankfort bureaus and covered the courthouse beat.
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