Koch Q&A on KY Fixed-Odds Bill: Predictive Markets ‘Absolutely Cannibalizing’ Other Gambling

[Wandering Eyes]

Last week, Republican Representatives Matthew Koch and Michael Meredith introduced into the Kentucky state legislature a sweeping gambling bill with several key components, including legalized fixed-odds wagering in Kentucky along with efforts to essentially expand and modernize its gambling infrastructure.

Unlike the fluctuating odds that make up pari-mutuel betting, fixed odds is a form of betting in which the payout odds are set and agreed upon at the time the wager is placed. Crucially, they do not change.

Among other aspects of the bill, it requires tracks and tote companies to adopt new modern technologies to streamline and expedite betting cycle times. Right now, tote machines across the country update at varying times, and typically anywhere between 10- and 30-second cycles.

The bill also attempts to essentially decouple wagering providers from the prediction market, which is the ability for bettors to make speculative bets on the outcomes of future events.

On Tuesday, the TDN spoke with Koch about the bill, which goes before the standing committee on licensing and occupations Wednesday morning. The following has been edited for brevity and clarity.

TDN: What are you seeing in this industry that prompted you to write and introduce this bill?

MK: We've been talking about this for 10 years or more. [KY lawmakers] Damon Thayer and Adam Koenig were talking about this many years ago.

Although it's new to Kentucky, it's nothing new to the world of horse racing. We do it in other countries. Monmouth is doing this. West Virginia and Colorado. So, we would actually be the fourth state in the U.S. to do this if we're able to get it there.

A big part of this, I think the bettors love it.

Nothing gets somebody frustrated more than when they place a bet on a horse, it's 4-1. And, you know, at some point in the race they realize, 'Hey, we're going to win, we're going to do it.' And then they look down, the odds have dropped to 2-1 or whatever they've dropped to.

Fixed odds is a way to give the bettors just another avenue to place the wagers. We put it completely on the tracks to make the format on how they're going do it.

Talking with the tracks, there's some fear about what's going to happen with the purse account. And so, we've created an account [the “purse stabilization fund”], for tax dollars to come off and into there.

That way, we can look at it every few months and make sure that we keep the purse account whole, which is obviously very important to me and everybody else in the entire horse industry.

TDN: As a farm owner yourself of Shawhan Place, how do you see what's happening broadly in the industry trickling down and impacting your business?

MK: When I first ran for office, I thought I was running for my district on jobs, roads, schools, right? I never realized that I was going to get up here and be in the fight for the industry, with everything that's going on.

Since I've been up here, we had the HHR [Historic Horse Racing] fight a few years ago, and that has just greenlit so much for this industry. Kentucky is absolutely thriving because of the work we've done, not just with the HHR.

We followed that up with the banning of gray machines. We followed the banning of gray machines with the creation of the Kentucky Horse Racing and Gaming Corporation. We're now in charge of all the gambling in the state of Kentucky. That's like the ultimate protection for the horse industry.

With this bill, I view it as just a continuation of those things.

We need to keep improving. As the markets have evolved, you have predictive markets that are coming on board. Predictive markets, by the way, are absolutely cannibalizing other forms of gambling that are out there.

Fantasy sports is the other piece of this bill, regulating them. They've been out there for a while, but we've never regulated, never taxed them. So, we've got to make sure that we're doing all that while keeping these things operating on as fair a level as we possibly can.

TDN: From an industry standpoint, the fixed-odds component of the bill is obviously the key one. If the bill passes, that doesn't mean wagering companies will have to offer fixed odds. Do you think there's much appetite among tracks and wagering companies in Kentucky to offer fixed odds to their customers?

MK: I think it's fair to say there's hesitation.

I don't really want to speak for them, but I feel like there's just a little nervousness that comes with something new. How are you going to implement it? How are you going to make it work? And how are you going to keep the purse account whole?

So, I think they come with a lot of good questions on how to properly do this. And it's our job to make sure that we do it right.

TDN: Under this legislation, a new “purse stabilization fund” would be supported by a 15% tax on fixed-odds betting conducted on-track, online or via mobile apps. How much do you think this could funnel to the newly established fund?

MK: It's just a matter of how they set it up, when they set it up, etcetera. So, I don't have anything on that yet.

TDN: What have you seen and learned from how other states have rolled out fixed-odds wagering?

MK: That's the advantage. You can always pick and choose what works and what doesn't work. And I think the beauty here is we're giving it to the tracks and we say they 'may'–not shall, it's not a 'shall'–it's a 'may' [to implement fixed odds]. We're putting it in the hands of the tracks to make the decision on what can work for them to implement this.

TDN: In the parts of the bill requiring tote companies to adopt modern technologies to streamline and expedite betting cycle times, how much of that was driven by concerns over the impact of CAW teams?

MK: All of it.

There have been several bills filed in the legislature across the spectrum–people wanting to get rid of the rebates, etcetera. There's a whole line of thought out there about what to do.

But as you know, the CAW [wagering] feeds a lot into the purse account. So, you don't really want to do anything that's going to harm that, right? But at the same time, you have to have the perception for the bettors that they're getting a fair deal–that their odds aren't changing. That kicked off the first part of it, which was fixed odds.

The second part of that is, we learned that there is technology out there that our totes can operate and update faster than every 30 seconds. Right now, that seems to be the average speed these totes are operating.

But we've learned that there is technology out there for these things to operate at a much faster speed than that and give the bettors quicker information.

Look, there's Horseshoe Indianapolis, which has had the Daily Racing Form to project odds. There are things like that. And while that's not any part of this bill, it's kind of the conversation we've had with the tracks. We need to give the bettors the most information that we can, in the fastest way we can.

TDN: You've targeted prediction markets in the bill. How and why do you see the prediction markets as a threat to the horse racing industry?

MK: They're a threat to all gaming, right? Not just racing.

Just look at the Super Bowl. If you go back and look at the numbers, prediction markets ran 10 times the amount of wagering on the Super Bowl than Las Vegas did.

TDN: Tells you everything you need to know right there…

MK: I can't sum it up any clearer than that.

TDN: What other components of this sweeping bill are you keen to highlight?

MK: Another member came to us. If you're in arrears on child support, he didn't think you should be able to [engage in] online gaming. We're working on some of that language to put that in there, so, if you owe child support and it's in arrears, you're not out here blowing that money on gambling. I don't disagree with it. We thought it was a good idea.

Another part, we've increased [the age limit] on sports wagering from 18 to 21. And then, I guess the other big thing we need to highlight is no more proposition bets on Kentucky college athletes.

The reason for that, I was reading one article that said almost 30% of college athletes have already been impacted by this in some negative way, form or fashion.

I don't want to see a young college kid get in trouble because somebody approached them, trying to get them to miss a free throw or whatever because of prop betting. I think it's a way of protecting our young kids that are out there playing NCAA sports right now.

Look, it's not going to happen at your big schools. It's going to happen at a little school. It's going to be a kid that knows he's not going pro[fessional], and something like $10,000 or $20,000 looks like a lot of money to him. We have to have some consumer protections on this.

TDN: Will the standing committee on licensing and occupations be discussing this bill in tomorrow's (Wednesday's) scheduled meeting?

MK: Yes sir, 9:00 a.m.

TDN: And what do you see as the likely path of this bill? Are you going to try to pass it this session?

MK: Well, I hope so, but you never know. We're at that time of session, it's just like a horse race. That's why you run the race, to see how it's going to turn out. But I'd like to think we have a shot.

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