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Kentucky continues to prepare for a push to legalize sports betting in 2019.
This morning, a key sponsor pre-filed a new bill (BR 29) for next session. It will be introduced by Sen. Julian Carroll, part of the nine-member panel created last week to advance sports gambling legislation.
The pre-filed version resembles his 2018 bill, essentially moving to expand the state’s pari-mutuel laws. It has just one glaring issue, proposing an unimaginably stiff tax rate.
Under Carroll’s proposal, the Kentucky Horse Racing Commission would be required to institute a sports wagering system for horse racing tracks and off-track betting facilities.
Here are the basics:
The bill does not include payment of integrity fees or other provisions favored by the sports governing bodies.
There is, however, some potential for league input and influence. Carroll’s bill would allow the governor to include league executives among his 15 appointees to the Commission. The language specifically mentions three professional leagues (MLB, NBA, NFL), plus the NCAA.
If sports betting becomes legal, the Commission would have a new task, too:
Developing programs and procedures that will aggressively fulfill its oversight and regulatory role on sports wagering to ensure that undue influence is not brought to bear on the outcome of any athletic event due to wagers placed upon the event.
The NBA and MLB would no doubt love to help regulators develop those procedures.
It’s an ambitious effort from Carroll, but his bill has a major problem as written. Those taxes simply won’t work.
First the good news. The senator has slashed the proposed tax rate! His 2018 bill would have instituted a 20 percent tax on handle, and he’s reducing that ask to just a fraction of itself.
The bad news is that the new rate is still untenable. Sports betting is an industry of tight margins, with Nevada sportsbooks holding only about five percent of the total money wagered. That means for every $100 wagered, an operator can expect to make $5 in gross revenue.
Kentucky effectively wants to take $3 out of every $100 wagered — with no concern for what revenue is — which would create an effective tax rate closer to 60 percent — the highest of any market in the world. Operators would find it almost impossible to turn a profit under that burden. Nevada, as the best case study, taxes sports betting revenue at 6.75 percent.
From the looks of it, Carroll and his colleagues could use a primer on handle versus revenue.