On a long deadline day in the Kentucky General Assembly on Wednesday, the state passed a major gambling reform bill that, among other things, bans sports wagering licensees from associating with prediction market platforms — but not to the full extent that was initially proposed.
House Bill 904 passed the House on March 19. In the Senate on April 1, it was first approved unanimously by a 10-0 vote in the Standing Committee on Licensing and Occupations and then passed the full Senate by a 24-13 vote. House members concurred with the altered version by a 64-19 vote on Wednesday night, around 14 hours after the committee session began.
The bill will now head to Gov. Andy Beshear’s desk to be signed, vetoed, or left alone. If it does not get any action from the governor, it will pass by default.
Everything from age and prop limits to DFS tax
Wednesday was the last regular legislative day on which chambers could discuss and vote on bills before the Assembly recesses for two weeks.
In the committee session hours before the floor votes, bill sponsor Rep. Michael Meredith noted that the legislation addresses “nearly every area” that is regulated by the Kentucky Horse Racing and Gaming Corporation (KHRGC).
That wasn’t much of an exaggeration. Some of the major measures included in the final 135-page committee substitute version include:
- Legalizing fixed-odds horse racing wagers
- Raising the minimum legal sports betting age from 18 to 21
- Licensing and regulating peer-to-peer daily fantasy sports and taxing it at 12%
- Banning “under” player prop bets on in-state college athletes
It would also explicitly ban betting on elections. “We didn’t believe that was allowed under the current law, but we put specific language in there to prohibit those,” noted Meredith in committee.
A Senate floor amendment that would have added a ban on the use of credit cards for any deposit or wager in relation to KHRGC-regulated gaming activity was initially approved, before senators realized that it was out of order as it applied to the original bill, not the approved committee substitute. The amendment was ultimately left off the final passage.
Lawmakers narrow prediction market partnerships ban
Perhaps the most headline-grabbing element of the bill concerns prediction markets, as Kentucky tries to rein in (and benefit from) the new betting equivalent.
HB 904 originally included a proposal to prohibit all Kentucky-licensed racetracks, sportsbooks, and fantasy sports operators from either operating or affiliating with a federally regulated exchange that offers event contracts anywhere in the U.S. In effect, that would have rendered the current Kentucky licenses of FanDuel, DraftKings, and Fanatics void, and would have precluded the likes of PrizePicks and Underdog from obtaining a DFS license.
The committee substitute scaled down that idea notably, limiting its scope to prediction markets within Kentucky. “They can’t operate prediction markets here and be licensed within our regulatory framework,” said Meredith in committee.
So, as long as FanDuel Predicts,DraftKings Predictions, Fanatics Markets, and so forth, do not offer event contracts within the Bluegrass State, they can continue to run state-regulated products in Kentucky. Those three operators all filed a written warning in opposition to the initial prediction markets proposal, claiming that it would “gut” Kentucky’s sports betting market and force their exit from the state.
While HB 904 will deny licensees from associating with prediction market platforms in Kentucky, that bill and another that also passed on Wednesday, HB 757, both include a provision to tax in-state prediction market activity at 14.25%, the same rate that Kentucky charges sports betting operators on state-regulated sports wagering. How Kentucky plans to implement that in practice is unclear.
During committee, Meredith acknowledged that while Kentucky does not currently have “a clear ability” to regulate prediction markets at the state level right now, he does not believe the bill constitutes regulation, per se.
“We have not taken a direct regulatory action in this,” he said. “We don’t directly regulate them in any way, shape or form.” However, he did add that there is room in the language for the KHRGC to set up a regulatory model “if the federal rules on that change or if the courts change how that is interpreted currently.”
A ‘gun to the head’ for Kentucky Derby?
The breadth of the scope of the prediction markets ban was a point of contention on the Senate floor on Wednesday. The language in the bill could be construed as applying to a wide range of affiliated entities, from platform providers to support services like geolocation and integrity monitoring firms, all the way to advertisers.
For a state in which the Kentucky Derby is a crucial cornerstone and a point of pride, that sparked concerns from some legislators.
During the Senate floor discussion, Minority Leader Gerald Neal asked whether Churchill Downs would be prevented from signing a national broadcast deal for the Derby with a company that supported prediction market platforms in any way. He noted Kalshi, for one, is advertised on major broadcast networks and has partnerships with the likes of CNN, CNBC, the Wall Street Journal, and more.
“Does this language mean that Kentucky racetracks have to avoid doing business with any of those companies?” he asked.
“The bill as written does prohibit that,” said Sen. Jason Howell, the bill’s representative in the Senate. Asked directly by Neal if that meant Churchill Downs would not be able to air the Kentucky Derby on national TV, Howell did not offer a definitive response.
Several lawmakers cited that concern as their main reason for voting no on the bill.
“One thing we cannot do in this state is anything that disrupts what people remember us by worldwide, and that’s the Kentucky Derby,” said Sen. Reggie Thomas. “That’s our signature event. That’s what people define us by in this state. I was all prepared to vote for this bill, but I cannot in good conscience vote for anything that’s going to harm or disrupt Churchill Downs’ signature event.”
Neal said that potentially restricting Kentucky Derby broadcasts is “like sticking a gun up to your own head economically.”
There was no real resolution to that discussion before the bill was passed in the Senate and subsequently certified in the House.
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