Kentucky Betting and Prediction Market Reforms Stalled by Governor Veto

House Bill 904, which would have raised the legal age for gambling in Kentucky, and added restrictions on prediction markets, has been vetoed by Governor Andy Beshear. This is wide ranging bill was approved by the House of Representatives and the Senate, and looked on track to reform the gambling laws of Kentucky, but it was not to be. The Governor stated that the reform’s proposal to give the Kentucky Horse Racing & Gaming Corp and the Lottery Corp authority to issue regulations without the Governor’s approval is the reason why the bill was vetoed.

No mention was made about the new gambling age rise, banning or props bets, or the legislation relating to prediction markets. The question here is more about how much authority the gambling regulators should have regarding gambling products. And, in relation to the prediction markets, which are technically federally regulated, but this status has been challenged in many a lawsuit of late. It is not the end of the bill just yet, as now it will head back to chambers for a vote to override the veto.

Main Points of the Bill

Sports betting was legalized in Kentucky just over 3 years ago, in March 2023, but this is an industry that moves very fast. Already, lawmakers are exploring the notion of reforming these gambling laws, that at barely over 3 years old, are already dated. Kentucky, a state that has a big football fanbase, historic horse racing, and a massive interest in college basketball, has a competitive sports betting market. HB 904 would have seen several changes to the general framework of the gambling laws, including:

• Raising the legal age from 18 to 21
• Restricting or outright banning certain prop bets, particularly those involving college athletes
• Preventing partnerships between licensed sportsbooks and prediction market platforms
• Expanding the scope of fixed odds wagering on horse racing
• Clarifying definitions between fantasy sports, betting, and emerging event based markets (prediction markets)

It is indicative of a trend in the US right now. One where regulators are tightening the laws to better define the betting rules, draw a clearer line between sports betting, DFS, peer to peer betting products and the prediction markets, and also try to curb gambling addiction. The latter is targeted through measures to cut back on the gambling ads, create education programs or innovative responsible gambling initiatives, and pinpoint the highest risk products. These include microbetting, props bets, and VIP programs that entice higher spending.

Governor Beshear Vetoes HB 904

The bill got a confident vote approval from the House of Representatives and the Senate, which is generally enough to win over the incumbent Governor, but not in this case. Governor Beshear practised his right to veto the bill, citing the rights given to the Kentucky Horse Racing and Gaming Corporation and the Kentucky Lottery Corporation to file “emergency and ordinary administrative regulations without the Governor’s review and signature”. Basically, taking away his power to handle any new regulations or emergency actions taken by either gambling authority.

Reason for Vetoing the Bill

The reason for the veto looks straightforward, but there may be more at stake here. The Governor stated that the proposal would restrict him from carrying out duties and allow boards and agencies to impose rules without executive oversight. Boards that, as directly stated in the letter, can impact public safety. It is not so much an accusation here as a tactical move that doesn’t afford the gambling regulators too much freedom.

In theory, these laws could give regulators the right to sign off on gambling rules. Think about more consequential reforms, such as making decisions on betting limits or marketing promotions, which have a direct impact on the market’s revenue and player engagement. A law could be posed as an emergency, and thus requires a quick signature, which the gambling regulator supplies. The Governor wouldn’t be able to exercise their right to review and potentially send the proposed law back to the drawing board.

That is not to say there is a massive standoff between the state government and gambling authorities. They should act in harmony and work to make laws more favorable to players, all while sustaining engagement and state revenue. But there are a few areas where the two bodies may have contrasting opinions.

Relationship Between State Government and Gambling Regulators

When sports betting was initially legalized in Kentucky, the laws were a lot more laid back, and sportsbook regulation seemed simpler. There weren’t nearly as many gray areas, potentially addictive new products, and understanding of responsible gambling was not as detailed as it is now. As it was for many states, and we are really just talking about 3 years here.

As betting markets diversify and expand into new territories, the responsibilities of the state-appointed gambling regulators have only increased. They are expected to interpret the legislation, define the gray areas, and ensure consumers are protected at all times. While they are nothing new, and many predate Kentucky’s legal sports betting sector, certain products have questioned the boundaries of these laws and expectations.

• New types of games/products: DFS Pick’Em games, Microbetting, peer to peer betting
• Impacts on sports integrity: Especially college sports, but scandals have hit major sports like the NBA and MLB too
• Exposure to minors: More studies are emerging about underage gamblers and what sportsbooks do to deter this
• Prediction markets: They have exploded into popularity in America, and the subject of many lawsuits

The state government and gambling regulators have to be on the same page here. Overregulating risks sending customers to the black market, which is more dangerous, and can lose huge income for the state. But affording sportsbooks and alternative betting platforms too much freedom, and it risks the integrity of the sector and of the sports involved.

Regulation of Prediction Markets in Kentucky

The biggest headline grabber of HB 904 was perhaps the raising of the legal gambling age in Kentucky from 18 to 21. But there were many. Banning microbets and specific props is also a bold move, but perhaps the most consequential of all is the proposed regulation of prediction markets.

The goal was to limit their attempts to partner with licensed sportsbooks, as well as to clarify the definition of these products. State authorities struggle with the definition of prediction markets, and this question carries great weight. For if they are financial products, then they really do fall under the oversight of the Federal Government, and can thus operate in all 50 states without adhering to any local gambling laws. And avoid paying any local gambling taxes too. But if they are classified as betting products, as the majority of the US betting public perceives them, then prediction markets can be regulated just like sportsbooks.

Fewer ads, more responsible gambling tools, and limits on the markets that they can provide. These would definitely change the experience of prediction markets and ease the state government’s and regulators’ resolve.

State Governors are, however, more likely to focus on public perception, thinking about long-term policy consistency and look for ways to make prediction markets fit better into the state’s legal gambling scene. State regulators, who issue licences and oversee sportsbooks, would see this as a direct threat to their fully controlled ecosystem, as they cannot license prediction markets and don’t have the authority to pressure them as much. The regulators are more likely to tighten laws on prediction markets and limit their power in the local betting industry.

Is an Override Possible?

The law has been passed back to the lawmakers, who can now vote on whether they will override the Governor’s veto. To be fair here, the support for HB 904 was very strong in both chambers, which is indicative of an override. But we can’t undermine the Governor’s influence here, and overrides are never guaranteed, however many votes approved the bill in the first place.

An override would finalize the proposal and force the Governor’s hand. His veto and the following letter, which cast the spotlight on these emergency powers and administrative rights, are a very good point made by the Governor, and one that may make the lawmakers reconsider the proposal.

But for the time being, the legal gambling age remains 18, all the betting products currently offered at Kentucky sportsbooks are still there, and prediction markets remain a legislative enigma. The legal gambling age, and perhaps microbets, are the most likely candidates to return at some point in the future (if the override is not successful), but prediction markets will continue to remain in no man’s land until one of the many ongoing lawsuits is settled and a decision is made.