Among the issues legislators are revisiting in the 2023 General Assembly session are two aspects of gambling in the commonwealth: Whether to allow Kentuckians to bet on athletic events, and whether to regulate so-called gray games or outright ban them.
At first glance, gray games look like electronic slot machines: A player puts in their money, pushes a button, and waits to see if they win. But proponents argue they are more than games of chance.
“People have to play the game, they have to have some kind of skill: mental acuity, hand-eye coordination, whatever you want to call it,” says Bob Heleringer, a Louisville attorney and lobbyist for game maker Prominent Technologies. “Their skill is what determines whether or not they win.”
Thousands of these games are already in use in Kentucky, primarily in convenience stores, bars and restaurants, truck stops, and fraternal clubs. They are called gray games because they operate in a gray area of state law. Heleringer argues the machines are legal under current statute because they are games of skill. He says if they were already illegal, police would confiscate the games already in circulation and arrest the business owners that host them.
But opponents of the machines contend the machines are games of chance, which current Kentucky law does not allow.
“It’s undisputed that these particular games... have not been authorized by the legislature,” says Mark Guilfoyle, executive director of Kentuckians Against Illegal Gambling. “They’re currently illegal under Kentucky law because they undoubtedly involve an element of chance.”
House Bill 594, sponsored by Rep. Killian Timoney (R-Nicholasville) would make these games illegal and create a civil penalty of $25,000 per machine for those owning the games.
House Bill 525, sponsored by Rep. Steven Doan (R-Erlanger) would create a Kentucky Gaming Commission to regulate the machines and levy a 6 percent tax on the gross profits from the games. Of the proceeds, 40 percent would go into the state’s General Fund, and the rest would be divided among local city and county governments where the games are located, first responders and law enforcement, and to pay administrative costs.
The debate over the bills is shaping into something of a David and Goliath fight, pitting the state’s equine industry and heavy hitters like Churchill Downs, which don’t want the machines reducing their profits from their historical horse racing games, versus small business owners and fraternal groups who say they need the profits from these games to stay afloat.
Berea minister Kent Gilbert of the Kentucky Council of Churches says his members aren’t against gambling, but they don’t want to see any expansion beyond what is currently legal in the commonwealth: parimutuel wagering on horse races, charitable gaming like church bingos, and the Kentucky Lottery. Gilbert says legalizing gray games would create thousands of mini casinos around the state, increase gambling addiction, and provide minors with unsupervised access to the machines. He also says there are better ways for the state to support its small businesses.
“Gambling is not an antidote,” says Gilbert. “What we really need is comprehensive, fair, equitable taxation and regulation of other industries that make it possible for middle-class businesses and small, mom-and-pop enterprises to thrive.”
Heleringer says it’s unusual for businesses like the gray game maker he represents to want to be regulated and taxed. He contends that’s part of what makes them a good corporate citizen.
“We’re involved in communities, we’re not preying on children, we’re not devastating neighborhoods,” says Heleringer. “This is a little game at a convenience store.”
Guilfoyle, who is a board member for the Kentucky Chamber of Commerce, which also opposes gray games, says he fears the businesses that host these games could become “magnets of crime” for gangs that vandalize the machines to steal the money inside. He also says he appreciates the plight of small business owners, but he contends they may not realize how HB 525 could impact them.
“There’s a lot of risk involved if this goes forward for the small businesses, and I don’t think they’ve really thought about it,” says Guilfoyle. “They’re going to be subject to a mound of regulations.”
Gray games manufacturer Pace-O-Matic is also concerned about crime, according to Michael Barley, chief public affairs officer for the Georgia-based company. He says Pace-O-Matic has a full-time staff of former members of law enforcement who help business owners secure their machines and properly regulate their use. He contends large casinos and so-called “racinos” operated by racetrack facilities that host historical horse racing [HHR] games pay far less in taxes and are far more dangerous than a convenience store with a gray game.
“The mecca of crime is the HHR facility in Louisville,” says Barley. “There’s no other big venue there that even gets close to the amount of crime.”
Proposed Legislation on Sports Wagering
The 2018 United States Supreme Court decision to overturn the federal Professional and Amateur Sports Protection Act allowed states to legalize and regulate wagering on athletic events. So far, three dozen states and the District of Columbia have done so, including six of the seven states that surround Kentucky.
In Frankfort, lawmakers have tried multiple times in recent years to pass a sports betting bill through the General Assembly. In last year’s session, the House approved such a bill by a 58 to 30 vote, but the measure then died in the Senate.
This year, Rep. Michael Meredith, a Republican from Oakland, is taking another swing at legalization with House Bill 551.
“There’s $1 billion being bet in Kentucky in the illegal and unregulated marketplaces,” says Meredith. “This bill will put regulation to that and create a consumer protection for those folks that are already betting.”
Under the measure, existing horse racing tracks could get a license to take sports bets at their physical locations or through an online platform they operate. (Earlier proposals would’ve allowed other facilities such as the Kentucky Speedway in Sparta to take the bets, but that provision has been eliminated from Meredith’s bill.) The state Horse Racing Commission, which already oversees parimutuel wagering and HHR games in the commonwealth, would be given the authority to license sports wagering facilities and regulate the betting.
Under HB 551, sports bets placed at racetracks would be taxed at 9.75 percent of adjusted gross revenues. Online wagers would be taxed at 14.25 percent. Those collections will help the racing commission fund their extra duties, with the rest going towards the unfunded liabilities in the state pension systems.
Advocates of sports wagering say polling indicates that two-thirds of Kentuckians think it should be allowed.
“I believe that sports betting is a natural extension of our history and tradition of betting on horses in Kentucky,” says Sen. Damon Thayer (R-Georgetown). “Even people who don’t want to make a sports bet want to know when we’re going to pass it because they think it’s something we should have.”
The senator says studies show the state could collect $22 million a year from sports wagering, but he thinks the actual proceeds would be far greater.
Opponents argue that just because something is popular with the public or could generate millions in revenue doesn’t mean it’s good policy. Richard Nelson, founder and executive director of the Commonwealth Policy Center, fears sports wagering would mainstream a vice, corrupt sports, and accelerate addictive gambling, especially among lower-income Kentuckians.
“There are a lot of things that we can legalize and bring new tax revenue. But the question is, is it good for society?” says Nelson. “Instead of the state promoting and opening the door to predatory gambling operations, the state should be a firewall to any industry that comes in and that would prey on its people.”
Even a Kentucky Legislative Research Commission study from 2008 confirms that gamers are more likely to be lower-income individuals, according to Kent Gilbert of the Kentucky Council of Churches. He agrees with Nelson that the state should provide hard-working Kentuckians with greater opportunities to lift themselves up instead of promoting get-rich-quick dreams.
“This is not the sound basis of good state policy,” says Gilbert.
Thayer downplays the concerns of opponents, saying there are social costs to most human activities and that the regulations will keep corruption out of sports. Meredith adds that his bill makes it a Class C felony to tamper with a sporting event. He says the measure also includes penalties for players, referees, and other people directly involved with a game who bet on their own event.
Meredith and Thayer agree that the state should fund prevention and treatment programs for gambling addiction. But they say that should be done through separate legislation and funded by proceeds from all the legal forms of gambling in the commonwealth, not just sports wagering should it be approved.
