The Kentucky Horse Racing Commission has only two employees charged with enforcing gambling regulations. It’s an understaffed section of a division that’s about to regulate a new form of gambling.
Sports betting is expected to launch by the end of 2023. Online sports betting in Kentucky, specifically, will make gambling available on smartphones statewide. The wide accessibility of gambling will make the consumer protection measures that the KHRC promulgates critical.
An understaffed enforcement division can’t perform the proper investigations to establish wrongdoing or issue fines.
Kentucky has time to hire the relevant officials to reverse its staffing shortage. The KHRC hasn’t finalized the regulations governing sports betting yet. There’s still time for Kentucky to avoid the staffing issues that led to Colorado’s regulatory failures when it launched sports betting in May 2020.
Colorado serves as a warning to Kentucky regulators
Colorado launched online and retail sports betting after voters approved a sports betting measure on the 2019 ballot. With a similar launch timeline to Kentucky’s, Colorado regulators enacted regulations and processed applicants.
However, the Colorado Division of Gaming experienced staffing issues following the state’s sports betting launch.
According to a state audit of the Division of Gaming, the division had 13 financial and criminal investigators to investigate each sportsbook applicant’s finances, operations and executive team members before May 2020.
After May 2020, “staff turnover and the Department’s hiring freeze resulted in the sports betting unit having only three investigators and one supervisor for most of Fiscal Year 2021.”
The low number of investigators meant the full investigations necessary to award permanent licenses couldn’t be completed. Instead, the division issued temporary sportsbook licenses, which last two years and have lower investigative standards.
The state audit found that 35 of Colorado’s 39 operator licenses were temporary. But none of the internet gambling operator applications the audit evaluated met the requirements for a temporary license. One operator failed to disclose a 6.2 million euro settlement in the UK. An internal Division of Gaming document stated that another applicant had no current or pending legal matters, even though the applicant disclosed one.
Have things improved in Colorado?
As of March 2022, Colorado’s Division of Gaming had only seven investigators on staff. These few staff members had over 30 temporary license applicants to re-investigate to renew the existing temporary licenses. They didn’t have time to do investigations in the depth required to issue new permanent licenses.
Although the pandemic added unique strain to the Colorado Division of Gaming, investigators still failed to meet the division’s investigatory standards.
Potential understaffing consequences as Kentucky starts to regulate sportsbooks
While Colorado struggled with investigation and licensing, Kentucky could struggle to adequately enforce penalties against new sportsbooks.
The possibility of fines depends on how strict Kentucky sports betting regulations are.
Ohio issued $1 million in fines in its first sports betting weekend largely because the state enacted first-of-its-kind advertising language restrictions. DraftKings faced an additional fine for sending sportsbook promotions to daily fantasy sports players over age 18 but under 21.
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Kentucky will also be committing public funds to problem gambling for the first time. With its new experience regulating sports betting and online wagering, it’s unlikely to come up with a new regulation that addresses emerging issues.
Many low-hanging fruit issues, such as prohibiting “risk-free” language in ads for Kentucky sportsbook promos, have been solved.
However, the harassment of college athletes, improved detection of prohibited bettors and impact of legal advertising on offshore sportsbook sign-ups are among what’s left for skilled regulators to formulate solutions for.
And these problems won’t be solved by understaffed regulatory agencies.