Kentucky Sports Betting Revenue

The era of legal Kentucky sports betting is just getting started. Following a path already taken by more than two dozen states, Kentucky will soon allow operators to start taking sports wagers. In turn, the Commonwealth will start enjoying revenue from taxes and sports betting licenses.

How big will sports betting be in Kentucky, and what are the expectations for Kentucky sports betting revenue?

Read on for an overview of Kentucky’s new sports betting law, the taxes and license fees the Commonwealth will collect, and current revenue projections. We’ll also cover how similar sports betting states might help indicate Kentucky’s sports betting future and how Kentucky plans to use its new revenue source.

Legal sports betting comes to Kentucky

Gov. Andy Beshear signed HB 551 into law at the end of March 2023. The new legislation authorizes both retail and online sports betting, meaning Kentucky will be in a position to maximize its potential revenue from sports betting from the beginning.

Kentucky’s nine horse racetracks and the Kentucky Speedway will all be able to open retail sportsbooks. Each of those sites can also have up to three online skins, which means a potential for more than two dozen online sportsbooks, although the actual number will likely be less than that.

Racetracks are starting to establish partnerships with online operators, making it possible to begin speculating about which online sportsbooks will launch in Kentucky.

Horse racing has long been a primary driver for legal gambling in Kentucky, so it is no surprise that the Kentucky Horse Racing Commission (KHRC) will oversee the new sports betting market. The KHRC is responsible for creating the rules, accepting applications and issuing licenses, and ensuring the industry’s integrity with audits and fines if needed.

The new law’s effective date is June 28, 2023, and it stipulates launching within six months. This makes Dec. 28, 2023, a deadline for Kentucky sports betting to go live. Expectations are that sportsbooks will open before then, perhaps in time for Kentucky bettors to wager on college and NFL football in the fall.

Tax rates on Kentucky sports betting revenue

After much negotiation among Kentucky lawmakers, the tax rates on sports betting revenue were set as follows:

  • 14.25% tax on online sports betting revenue
  • 9.75% tax on retail (in-person) sports betting revenue

Such rates are comparable to what was decided by other states that have legalized sports betting. For example, New Jersey taxes sports betting revenue at 13% for online revenue and 8.5% for retail.

New Jersey went live with legal sports betting in 2018. With several years of operation to consider, it makes sense to compare New Jersey sports betting to Kentucky as we project what might happen in the Bluegrass State.

In fact, many states have looked to New Jersey as a successful sports betting model when crafting their own legislation. NJ has consistently generated more revenue from sports betting than other states with larger populations, making it a gold standard of sorts.

Other states have followed NJ by taxing online sports betting more than retail. In states with both, online sports betting routinely accounts for the majority of the action (by a wide margin), and thus becomes a more significant revenue source.

While states like Arizona, Kansas, Louisiana, and Massachusetts tax online sports betting either more or less than the 4.5% difference NJ implemented, Kentucky is the first state to adopt that very same 4.5% gap between online (14.25%) and retail (9.75%) tax on revenue.

Projected tax revenue from Kentucky sports betting

Many factors will affect how much Kentucky sports bettors wager and, therefore, the amount of tax revenue sports betting will create. The number of available sportsbooks (retail and online), the handle (total wagers) generated, and how well bettors fare with their wagers will all impact the bottom line for operators and, thus, the taxes that will go to the Commonwealth.

During the discussions of legalizing sports betting, proponents (including Gov. Beshear) estimated that sports betting would generate approximately $23 million a year in annual tax revenue for Kentucky.  

For comparison, New Jersey realized a significant $97.88 million in tax revenue from sports betting in 2022. That figure was generated by 12 casinos with retail sportsbooks, plus nearly two dozen online sportsbooks.

It is worth noting as well that in Kentucky the minimum age to bet on sports is 18 years old, whereas in NJ and most other states, you must be at least 21.

New Jersey’s population is around 9.2 million, a little over twice Kentucky’s population of 4.5 million.

Coupling that with estimations of how many sportsbooks will ultimately launch in KY, that projection of $23 million per year appears reasonable and perhaps even on the conservative side.

Where does Kentucky sports betting tax revenue go?

Kentucky’s sports betting law identifies two recipients of sports betting tax revenue. Most of it will go toward supplementing Kentucky’s pension funds, with the rest earmarked for problem gambling programs.

Pension shortfall (97.5%)

A total of 97.5% of tax revenue from sports betting will go directly toward pension funding, making Kentucky the first state to use sports betting tax revenue in such a way.

Kentucky is enduring a pension crisis at present with an estimated $25.1 billion in currently unfunded pension liabilities. That means the estimated $23 million in tax revenue from sports betting is unlikely to create much of an impact.

Problem gambling (2.5%)

The remaining 2.5% of sports betting tax revenue will go toward funding programs to help with problem gambling. Despite Kentucky’s long history of legal horse race betting and other forms of legal gambling, including the Kentucky Lottery, this marks the first instance of public funds being used to support problem gambling services.

Most states with legal sports betting have also earmarked a portion of the revenue to go toward funding programs to help educate the public about responsible gambling and to provide support and treatment for problem gambling.

Kentucky sports betting license fees

One other not-insignificant source of revenue for Kentucky will be the fees racetracks and online operators must pay to secure Kentucky sports betting licenses.

Those license fees are as follows:

  • $500,000 initial license fee for a retail sports betting license, plus $50,000 annual renewal cost
  • $50,000 initial license fee for an online sports betting license, plus $10,000 annual renewal cost

Those fees will help increase the total Kentucky receives, especially during the first year when sports betting is just getting underway.

Kentucky finally enters the sports betting race

The prospect of creating state revenue was a primary argument in favor of Kentucky legalizing sports betting.

The fact that so many states surrounding Kentucky have already been offering legal sports betting and have enjoyed tax revenue as a result also helped KY sports betting proponents make their case. No less than six of the seven states that border KY have legal sports betting—Illinois, Indiana, Ohio, Tennessee, Virginia, and West Virginia—meaning that when compared to nearby states, Kentucky is relatively late to the game.

We’ll see how Kentucky compares both to its neighbors and other sports betting states across the US once the first sportsbooks launch in the Bluegrass State.