Kentucky’s Legalization of Sports Wagering: How the Sports Gambling’s Ties to Horse Tracks Continue to Leave the Horseracing Industry Financially Vulnerable

Blog Post | 112 KY. L. J. ONLINE | September 26 , 2023

Kentucky’s Legalization of Sports Wagering: How the Sports Gambling’s Ties to Horse Tracks Continue to Leave the Horseracing Industry Financially Vulnerable

By: Ethan Schaaf, Staff Editor, Vol. 112

In its 149-year tenure, Churchill Downs has hosted some of the most spectacular moments in sports history.[1] The racetrack witnessed its most recent milestone on September 7th, 2023, when Governor Andy Beshear traveled to Louisville, KY to place the first legal sports wager in the Commonwealth’s history.[2] The Governor’s bet marks the culmination of what has been a persistent push by Kentucky residents to legalize sports gambling in the Commonwealth and signifies the start of what is set to be an integral relationship between casino entertainment companies and the horseracing industry.[3]

In 2018, the United States Supreme Court struck down the 1992 Professional and Amateur Sports Protection Act, a law which effectively made sports gambling illegal in all states except Nevada.[4] The Supreme Court’s decision in Murphy v. National Collegiate Athletic Ass’n. left legislative power to the states to determine whether to permit sports wagering and in what capacity to regulate it.[5] House Bill 551 makes Kentucky the latest state to legalize sports wagering, joining a trend thirty-seven other states have followed since 2018.[6]

Utilizing the legislative freedom granted in Murphy, the Kentucky legislature has opted for a sports wagering system in which the horse racing industry plays an integral role.[7] Kentucky’s sports gambling structure is unique in that all sanctified brick-and-mortar gambling establishments throughout the state are horse tracks or track-owned properties.[8] New Jersey and West Virginia are the only other states with horse racing tracks acting as in-person sports books.[9] The connection between the horse racing industry and legalized sports gambling was largely established to appease horse racing corporations that feared that an expansion to legalize all sports gambling would eat into their profits.[10]

The horse racing industry has struggled in recent years.[11] While the industry has recently experienced tentative growth, overall betting revenue, attendance, and viewership have consistently declined.[12] Revenue is a particular area of concern as it has declined 5.2% over the past five years.[13] This period of economic hardship was exacerbated by the COVID-19 pandemic, culminating in a 2020 revenue decline of 33.2%.[14] Additionally, concerns regarding animal welfare have persuaded viewers to stop watching and betting on races.[15] This past summer, Churchill Downs experienced a significant increase in equestrian fatalities during races, forcing the track to close temporarily.[16]

Demand for horse racing has been replaced by competing entertainment and alternative gambling opportunities that draw potential customers away from the track.[17] Revenue has been maintained primarily through a base of loyal customers. These loyal customers mainly consist of older men.[18] As this revenue-generating group ages and concerns about the industry’s future grow, many believe the sports wagering industry could provide a much-needed spark to horseracing.[19]  

There is little doubt that introducing sports gambling in the Commonwealth will affect the horse racing industry in some capacity. Still, the question remains whether the effect will be significant enough to make a difference in the struggling industry. Governor Beshear’s $20 bet is the first money in a pot expected to generate $23 million in annual tax revenue for Kentucky.[20] The majority of proceeds of Kentucky wagering will go to the Commonwealth’s pension fund, with 2.5% of profits contributing to gambling addiction assistance organizations.[21] House Bill 551 also establishes new 9.75% excise taxes on sports wagering done at a licensed facility and a 14.25% on wagers placed online.[22]

Many hope that the horseracing industry’s role in legalized gambling will bring more financial traffic to racetracks.[23] Jim Goodman, the director of wagering at Keeneland, views the relationship positively, explaining that “[h]aving sports betting at racetracks helps the horseracing industry as opposed to opening it up [to outside sportsbooks] to come in and build a brick-and-mortar facility not associated with a racetrack.”[24] Keeneland is partnering with Caesars Sportsbook and Red Mile Gaming & Racing to facilitate an in-person sports book.[25]

Despite the optimism exhibited by horse racing track administrators, current trends suggest that in-person wagering won’t be sufficient to account for the losses tracks have recently experienced.[26] Online gambling is another gambling alternative that stands in the way of saving the horse industry.[27]

While Kentucky legalized in-person wagering on September 7th, online wagering becomes available to Kentuckians on September 28th.[28] Online betting has accounted for 94% of all betting volume nationally in the United States in 2023, and Kentucky figures project a similar split between online betting and in-person wagering.[29] If these predictions reign true, horse tracks will only experience a marginal boost in revenue despite receiving a small piece of the online-betting pie from online sportsbooks. Furthermore, older generations are significantly more likely to use in-person wagering options than younger generations, who facilitate most of their betting online.[30] Thus, the horse industry will experience any marginal boost from the same customer population already loyal to the tracks.

There is an additional concern that Kentucky's tourism rates are insufficient to support a significant increase in in-person betters at the track. New Jersey, for example, is home to two of the most popular in-person betting racetracks in the country, The Meadowlands and Monmouth Park.[31] Although New Jersey has found success with this sportsbook style, Kentucky tracks are unlikely to generate similar success. In 2022, New Jersey tourists spent an estimated $45.2 billion while visiting.[32] In that same period, Kentucky tourists spent only $8.9 billion.[33] Although Governor Beshear predicts that legalized gambling will boost tourism in the state, it won't increase levels anywhere near those experienced in New Jersey.[34] Furthermore, the online versus in-person betting projections suggest that if tourism in Kentucky does increase, the effect on horse tracks offering in-person betting sportsbooks will be minuscule.[35]

Kentucky residents can remain hopeful that the horse industry will benefit financially from legalizing sports gambling, but Kentuckians should apply optimism cautiously. Competition from online sportsbooks, a continued decline in horse racing revenue, and increased problems within the industry provide serious roadblocks toward a solution.[36] House Bill 551 shouldn't be viewed as the definitive solution, and Kentuckians will likely have to look towards alternative measures to provide a much-needed spark to the state's beloved horseracing industry.

[1] The History of Churchill Downs, CHURCHILL DOWNS, https://www.churchilldowns.com/visit/about/churchill-downs/history/#:~:text=Churchill%20Downs%20had%20its%20first,Leger%20Stakes (last visited Sept. 13, 2023).

[2] Bruce Schreiner, Legal Sports Betting Opens to Fanfare in Kentucky; Governor Makes the First Wager at Churchill Downs, U.S. NEWS (Sept. 7, 2023), https://apnews.com/article/sports-betting-kentucky-df80628d1fac2ae52f4f483e17882d45.

[3] Id.

[4] Jill R. Dorson, What is PASPA, The Federal Ban on Sports Betting?, SPORTS HANDLE (July 1, 2020), https://sportshandle.com/what-is-paspa-sports-betting-ban-professional-amateur-sports/.

[5] Murphy v. Nat’l Collegiate Athletic Ass’n, 138 S.Ct. 1461, 1484–85 (2018).

[6] Crystal Staley & Scottie Ellis, Gov. Beshear Signs Historic Legislation Legalizing Sports Betting, OFF. OF THE GOVERNOR, (Mar. 31, 2023), https://www.kentucky.gov/Pages/Activity-stream.aspx?n=GovernorBeshear&prId=1730.

[7] James Gazzale, Kentucky Sports Betting Launch Spotlights Horse Racing Tracks, LEGAL SPORTS REP., (last updated Sept. 7, 2023), https://www.legalsportsreport.com/131777/2023-kentucky-sports-betting-launch-puts-racetracks-in-spotlight/.

[8] Id.

[9] An in-person sports book is a physical location where legal-aged individuals can place wagers on various sporting competitions. See id.

[10] Frank Angst, Kentucky Tracks Excited to Offer Sports Wagering, BLOOD HORSE (Mar. 31, 2023), https://www.bloodhorse.com/horse-racing/articles/267586/kentucky-tracks-excited-to-offer-sports-wagering.

[11] IBISWORLD, Horse Racing Tracks in the US Industry Analysis, (Sept. 2023), https://www.ibisworld.com/united-states/market-research-reports/horse-racing-tracks-industry/#IndustryStatisticsAndTrends.

[12] Id.

[13] Id.

[14] Id.

[15] Tim Sullivan, If American Horse Racing is Doomed, Churchill Downs Will Be The Last Stand, LEO WEEKLY, (May 6, 2023), https://www.leoweekly.com/2023/05/tim-sullivan-american-horse-racing-is-doomed-churchill-downs-will-be-the-last-stand/.

[16] Cara Tabachnick, Churchill Downs Suspends Races and Moves Meet to Ellis Park After 12 Deaths, CBS NEWS, (June 2, 2023), https://www.cbsnews.com/news/churchill-downs-suspends-races-and-moves-meet-to-ellis-park/#.

[17] The Relatively Forgotten Sport of Horse Racing and How We Can Bring It Back to the Mainstream, The Plaid Horse, (Mar. 31, 2023), https://www.theplaidhorse.com/2023/03/31/the-relatively-forgotten-sport-of-horse-racing-and-how-we-can-bring-it-back-to-the-mainstream/#:~:text=Factors%20Contributing%20to%20the%20Decline,a%20shift%20in%20cultural%20values.

[18] IBISWORLD, supra note 11.

[19] Id.

[20] Staley & Ellis, supra note 6.

[21] Id.

[22] Id.

[23] Gazzale, supra note 7.

[24] Id.

[25] Id.

[26] Id.

[27] Id.

[28] Martin Green, Kentucky Sports Betting Launch 2023: Get Early Sign Up Offers Now!, LEXINGTON HERALD LEADER (Sept. 21, 2023), https://www.kentucky.com/betting/article274396300.html.

[29] Gazzale, supra note 7.

[30] Miranda Perez, The Gee Code: Tech’s Impact on Gen Z’s Gambling Habits, YR Media (Mar. 3, 2023), https://yr.media/tech/gee-code-tech-gen-z-gambling-habits-casino-miranda-perez/.

[31] Gazzale, supra note 7.

[32] Genesis Obando, NJ Tourism Rebounds After Pandemic Peaks, NJ SPOTLIGHT NEWS (May 17, 2023), https://www.njspotlightnews.org/2023/05/nj-tourism-rebounds-after-pandemic-peaks/#:~:text=The%202022%20Economic%20Impact%20of,up%20%248.2%20million%20from%202021.

[33] Bruce Schreiner, Kentucky Reports Best Year For Tourism in 2022, With Nearly $13 Billion in Economic Impact, AP NEWS (last updated Aug. 8, 2023), https://apnews.com/article/kentucky-tourism-d948ada62df921847fba675bc3c68625. 

[34] Schreiner, supra note 2.

[35] Gazzale, supra note 7.

[36] The Plaid Horse, supra note 17.