Gaming update: Gray machines' fate sealed, legal sports betting odds promising

The fate of so-called “gray machines” is all but sealed after the Senate voted to ban the gaming devices Tuesday afternoon 29-6.

“Gray machines” are considered “skill-based games” by supporters and unregulated, untaxed slot machines by detractors. They took advantage of a loophole in Kentucky’s gambling laws when they were set up in Kentucky with no government authorization or oversight.

During committee, supporters of the ban argued that gray machines pose a threat to the equine industry and charitable gaming revenue. Detractors said that the ban was a blatant reinforcement of a horse track monopoly on gaming.

Six Republicans opposed the ban on the Senate floor—Shelley Funke Frommeyer, R-Alexandria; Jason Howell, R-Murray; Christian McDaniel, R-Ryland Heights; Stephen Meredith, R-Leitchfield; and Adrienne Southworth, R-Lawrenceburg.

Now, House Bill 594 goes to Gov. Andy Beshear, who has not indicated whether or not he would sign it into law.

On the other side of the gaming spectrum, a bill to legalize sports wagering is headed to the Senate floor.

Wednesday morning’s Senate Licensing & Occupations Committee meeting felt a bit like déjà vu. The only agenda item was House Bill 551, Rep. Michael Meredith’s bill to legalize, regulate and tax sports wagering in Kentucky.

Meredith, R-Oakland, gave the same speech he’s previously given in House committees and the House floor, arguing that legalizing sports betting would capture the revenue of an industry that already illegally exists within the Commonwealth and legally exists in six of seven of Kentucky’s border states.

HB551 passed the House late Monday night 63-34, exceeding the 60-vote threshold needed to pass a revenue-raising bill in a non-budget year. A few key changes to the bill were also approved, including:

• 2.5% of the sports wagering tax revenue will go toward a newly established problem gaming fund to protect those who face gambling addictions;
• The provision making people register in person, at a track, in order to legally bet in-person or online was removed to make it easier for Kentuckians to leave illegal betting behind for legal wagering;
• “Bad actors” who don’t follow racing commission rules can have their occupational licenses suspended.

Rep. Al Gentry, D-Louisville, said that while gambling addiction is real, it is “overblown,” and the 2.5% for the problem gaming fund will set money aside to address addiction issues that has never been set aside before.

Rep. Josh Calloway, R-Irvington, voted against the bill and introduced several failed floor amendments that Meredith called “unfriendly.” One would have prevented people betting from using credit cards and another would have raised the legal betting age from 18 to 21.

“I will never ever, ever stop fighting for Kentuckians and fighting for things that have the availability to destroy people’s lives,” Calloway said. “I firmly believe that this is one of them and it’s so hard to control.”

A February 2022 poll found that 65% of Kentuckians supporting legalizing sports wagering, Meredith said. When the poll told respondents that the money would go toward the state’s pension fund, approval jumped to 74%.

Another study, conducted by Commonwealth Economics in 2020, estimated that $2.3 to $2.4 billion would be bet annually in a Kentucky sports wagering program, excluding online poker and fantasy sports.

An analysis by the Legislative Research Commission estimates that this would bring in over $23 million in annual tax and licensing revenue.

“We’re talking $23 million in tax revenue for something that our constituents all want,” said Rep. Matt Koch, R-Paris, who testified in support of the bill alongside Meredith during the Senate committee meeting.

Familiar groups came to oppose the bill, including the Family Foundation. Executive Director David Walls said that it was hypocritical for the General Assembly to ban gray machines while voting to “turn every iPhone in Kentucky into a digital casino that kids will have access to.”

“Government-promoted gambling, including commercialized sports wagering, will only further harm Kentuckians while bringing destructive cost to our families, communities across the Commonwealth, more broken families, increased addictions and divorce and other social costs,” Walls said.

The committee voted to move the bill to the Senate floor 9-1, with Chairman John Schickel, R-Union, as the sole no vote. However, several other senators voted yes while expressing concerns with the bill.

Sen. Amanda Mays Bledsoe, R-Lexington, said she voted for the bill to put Kentuckians on equal footing. 40% of Kentuckians live in a county that borders a legal sports betting state, and Bledsoe said she was looking out for the other 60%. But she does not like the precedent it sets.

“I also don’t think doing something to make money is good public policy,” she said. “So I’m not a fan of it. Just to say we’re going to raise some revenues and pay off some pension—good things—that’s not justification for me to say yes.”

Sen. Damon Thayer, R-Georgetown, voted for the bill, and as Senate majority floor leader, will have the power to bring it for a floor vote.

“We can’t stop people from doing things that are bad for them,” Thayer said. “There are a lot of behaviors out there that, done in excess, are bad for people. But my constituents want this. The people of Kentucky want this. It’s time that we give them the choice, the God-given free will to engage in legal sports betting.”

If Senate leadership decides to bring HB551 to the floor, it will be on the final two days of session, March 29 or 30, since there is not enough time for the bill to get the required three readings before the 10-day veto period beginning Friday, March 17.