Analysis: How Big Will Kentucky Sports Betting Online Market Become?

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Kentucky sports betting

The centuries-old Bluegrass State gambling industry is on the cusp of another modern expansion, with legal online Kentucky sports betting sites set to go live Thursday.

Kentucky sports betting could generate $1 billion in handle and $100 million in revenue before the end of 2023, according to LSR projections.

National leaders FanDuel and DraftKings are stomping in the starting gates, eager to add more turf to their ever-growing territorial empire. This launch might be a bit more competitive than most, though. No sports betting brand has a home-field advantage in Kentucky, and a few would-be disruptors are hoping to use the market as a pivot point for a larger shakeup.

Anticipation has reached Derby-day levels, and the timing for launch could hardly be better. Jumping into the water just as the tide comes in, Kentucky sports betting is poised to make a significant contribution to the upcoming string of record months for the US industry.

How Kentucky weighs out for sports betting

Kentucky became the 34th legal sports betting state when retail sportsbooks opened earlier this month. It will soon become the 25th with statewide online sports betting.

The law authorizes sports betting licenses for the nine horse racing venues the state, each of which may partner with up to three other brands. That creates room for as many as 27 online sportsbooks in Kentucky, a number it seems unlikely to reach in the near term. New Jersey and Colorado are the only states with more than 20 active brands today.

This abundance of licenses provides a good foundation for the market, as does the scope of the betting menu. Kentuckians can legally bet on all major professional, collegiate, and international sports, as well as competitive esports.

Comping Kentucky sports betting market

With 4.5 million residents, Kentucky’s population ranks 26th among US states, about the same size as Louisiana. Both have a median household income in the bottom 10 states nationally.

Louisiana sports betting makes for an interesting comparison all around. It also rolled out in stages, with retail sportsbooks opening a few months ahead of the online launch in late January 2022.

In their first full year of operation, Louisiana operators handled $2.5 billion in wagers and generated $243 million in sports betting revenue. Retail sportsbooks now account for around 10% of monthly volume, almost twice the national average across all multichannel markets.

A land-based gambling industry comprised of more than 20 casinos with New Orleans as the focal point helps bolster the retail output there. Those numbers are good targets for Kentucky’s first year of operation too.

Mitigating factors for Kentucky sportsbooks

Nothing about the sports betting framework makes Kentucky drastically different from the national baseline.

But there are a few localized factors that might shape its long-term outlook:

Expect a hot start

An aggressive first-year forecast reflects the speed with which other young markets ramped up to their initial maturity. Louisiana is one good example, but states like Kansas, Massachusetts, and Ohio also reached a galloping pace within their first year.

Promotions drive much of the early volume in these new markets. Recent launches have been marked by enormous promotional front-loading, as operators have come to recognize the value of the first few months of customer acquisition.

In Ohio, for example, operators have so far given back 88% of their gross revenue to customers in the form of signup bonuses and odds boosts. In fact, 10 of the 18 operators have given away more money than they have won over the past seven months.

An influx of promotional bets should help drive the numbers in Kentucky toward the top of the forecast range, albeit on paper only. At least half of the total revenue reported for year one will originate with the operators themselves. Many began offering early-signup bonuses to prospective customers several weeks ago.

New challengers appearing

FanDuel and DraftKings will almost certainly lead the early reporting, but the fight for market share in Kentucky could be quite interesting.

Fanatics Sportsbook is the new kid on the block, arriving late but working hard to carve out its slice of the national pie. Fanatics’ ability to stream live NFL games in-app is a potential differentiator for its product, as is its ability to connect its licensed memorabilia business to its sports betting operation.

Penn is also bringing a new brand to the block party, preparing to roll out ESPN Bet across the country this fall. Whether or not ESPN will succeed in gambling remains to be seen, but its leading position among American sports brands remains unrivaled. It has a far better chance to disrupt the current balance of power than Barstool or any of the other media brands that came before it.

BetMGM, Caesars, and Circa will also be part of the Kentucky sports betting market, though their performance elsewhere in the country makes for modest expectations. The same can be said for bet365, an international heavyweight just starting to unleash its full potential in the US.

Betting on sports at the track?

States often position sports betting as an expansion of an existing gaming industry, whether it be casinos or the lottery or horse racing. In Kentucky, of course, it is horse racing.

Race tracks in the state welcome well more than 1 million visitors every year, most of them to Churchill Downs for the Kentucky Derby in May. Horses run year-round in Kentucky, though, and it is worth considering the way in which trackside betting is a ritualistic part of the weekend across much of the state. Sportsbooks are a logical addition for those venues.

It remains to be seen whether the racing culture will make Kentuckians more eager to embrace in-person KY sports betting at the tracks and simulcast facilities in their state. The new sportsbooks are off to a strong start, though, with a reported $4.5 million in wagers through the first two weeks of operation, about the same as the retail portion of New York‘s market.

Calling all adults

As an expansion of its horse racing industry, Kentucky will allow licensed sportsbooks to serve customers as young as 18 years old. Five other US markets have an 18+ framework for sports betting.

DraftKings already serves 18+ customers in New Hampshire and Wyoming, while bet365 is active in a number of 18+ jurisdictions internationally. Both brands also operate in the 19+ Ontario sports betting market, and will be the lone sportsbooks coming off the more nationally utilized age of 21 years old in Kentucky.

As with in-person betting at the tracks, the effect on Kentucky’s fiscal performance is hard to predict. Younger segments of the population tend to be more engaged with sports gaming than older generations, albeit with demonstrably less disposable income.

The 18+ rule will undoubtedly attract some action from younger bettors from neighboring states in which the legal sports betting age is 21, solidifying the floor for Kentucky sports betting revenue.

What’s working against Kentucky?

For bettors 21 and up, however, Kentucky is thin on unique gambling opportunities. Apart from its small border with Missouri, it is entirely surrounded by states that already have competitive online sports betting.

It does not have a traditional casino industry either, though it does serve as the capital of American horse betting. People come to Kentucky to bet on horses, and the historical horse racing product additionally powers a new form of casino-style gaming that mimics slot machines.

Kentucky is a gambling state, but it is not a gambling state in the same way Nevada and New Jersey are. And it does not have the resident population or the four-seasons tourism of other horse racing states like New York and Florida.

Kentucky is also light on the sports part of the ‘sports + gambling’ equation, with no home teams across the four primary professional leagues. Racing Louisville FC could help boost soccer betting in the state, but the seven Division I college sports programs will drive most of the local betting interest.

Expect college sports betting to be above-average in popularity in Kentucky, possibly at the expense of some pro betting volume.

Kentucky sports betting revenue outlook

Louisiana’s first-year totals represent a per-capita betting handle of around $550, matching the average US pace out of the gate. As the national population has become more acquainted with sports betting and as operators continue to refine the acquisition process, new markets are ramping up much quicker than the first wave of legalized states did.

Expect Kentucky sportsbooks to contribute around $1 billion of volume and $100 million of gross revenue to the national totals between now and the end of the year, jumping right up to speed with the rest of the country. It will be part of another record year for the broader industry, with nationwide handle on pace to surpass $100 billion for the first time.

Over the longer term, Kentucky should be able to generate between $2.3 billion and $2.9 billion in handle, and about $250 million in revenue annually. With no allowance for promotional deductions, those totals should produce around $30 million in annual taxes for the state, perhaps in the top 10 ahead of some larger markets by that measurement.

Because of an inclusion from Rep. Michael Meredith, the state will allocate 2.5% of its tax revenue from sports betting to responsible gambling efforts including treatment programs for problem gambling and addiction.