The Future of Sports Betting in Kansas is uncertain just two years into operation

The sports betting landscape in Kansas has recently entered a phase of uncertainty, driven by legislative changes that could fundamentally alter the operational framework of sportsbooks in the state. With a recent budget provision, the future of the six licensed sportsbooks - DraftKings, FanDuel, BetMGM, Caesars Sportsbook, ESPN Bet, and Fanatics - has come into question. We'll examine the implications of these legislative decisions, the current state of the market, and what the future may hold for sports betting enthusiasts in Kansas.

Legislative Changes and Their Impact

In April 2023, Kansas lawmakers approved an amendment to Senate Bill 125, which has significant ramifications for the sports betting industry. This budget provision prohibits the renewal of sportsbook licenses during the fiscal years of 2025 and 2026, creating an environment of uncertainty for operators and bettors alike.

The Amendment Explained

The amendment specifically states that the Kansas Lottery is barred from negotiating or entering into contracts for the management of sports wagering with any lottery gaming facility manager. This means that while current licenses remain valid until August 31, 2027, operators may not be able to renew them once they expire unless new legislation is enacted.

Short-Term vs. Long-Term Effects

Although the immediate impact of this legislative change does not halt sports betting activities, it raises questions about the sustainability of the current market structure. The prohibition on license renewals introduces a deadline, which could potentially result in the cessation of operations for these sportsbooks if no new legal framework is established.

In the short-term and the foreseeable future, bettors can continue to place wagers through any of the six currently operating sportsbooks without interruption. But the long-term future of sports betting in Kansas hangs in the balance, with the potential for significant changes to the regulatory environment and who bettors are able to play with.

Motivations Behind the Decision

The decision to implement this budget provision reflects a broader sentiment among some Kansas lawmakers who are dissatisfied with the current revenue generated from sports betting.  Some legislators perceive the existing tax structure, which imposes a relatively low 10% tax rate on sportsbook revenue, as inadequate for generating sufficient state revenue. This has led to discussions about potentially shifting towards a more restrictive regulatory model to meet the expectations of lawmakers who seek to maximize state revenues from gambling activities.

Future Legislative Actions

As the provision is set to expire on June 30, 2026, Kansas lawmakers will have an opportunity to revisit the issue during the next legislative session. This could lead to either the restoration of license renewals or an extension of the prohibition, perpetuating the uncertainty in the market. No one can even speculate at this point.

Sportsbook Performance 

In 2024, Kansas sportsbooks reported a handle of nearly $1.3 billion and generated nearly $73 million in revenue, roughly a 5.6% hold rate. This performance reflects a huge year-on-year increase in handle but a smaller increase in revenue according to figures from the Kansas Lottery. And for the state share of 10%, Kansas received just less than 7.3 million in tax revenue.

Consumer Sentiment

Despite the legislative uncertainty, consumer interest in sports betting remains strong. Bettors in Kansas continue to engage with the existing platforms, driven by the excitement surrounding sporting events and opportunities for wagering. Polls have shown over 62% approval for sports betting in the state and the ongoing interest in sports betting suggests that, for now, consumers are not deterred by the potential for future changes.

Potential Market Shifts: Single-Operator 

As discussions about the future of sports betting unfold, some lawmakers are contemplating a shift towards a single-operator or limited-operator model, similar to those implemented in other jurisdictions. But this does not come without it's own pitfalls and risks. Historically, single-operator models have been met with skepticism due to their tendency to underperform. For instance, Washington D.C. faced challenges with its monopolistic framework before eventually opening the market to multiple operators. And states with multiple operators have demonstrated higher per-adult revenue compared to those with a single operator, suggesting that competition benefits both consumers and state revenues. 

Industry Reactions

Industry stakeholders have expressed concerns over these potential shifts, arguing that limiting competition could drive consumers toward unregulated offshore betting sites. This not only undermines the integrity of the market but also deprives the state of tax revenues. Many industry experts advocate for maintaining a competitive landscape to ensure consumer protection and maximize state revenue.

The Economic Implications of Sports Betting

The economic implications of sports betting extend beyond immediate revenue generation. They encompass consumer behavior, market dynamics, and the potential for illegal gambling activities.

Economic Contributions

Legal sports betting contributes significantly to state economies through tax revenues and job creation. The current tax rate of 10% in Kansas is among the lowest in the nation, which has attracted operators to the state.

Job Creation: The presence of multiple sportsbooks creates jobs, from customer service to technology development, contributing to the local economy.

Risks of Increased Illegal Gambling

One of the primary concerns associated with restrictive policies is the potential rise in illegal gambling. As regulations tighten, consumers may seek alternative avenues for betting, undermining the legal market.

Consumer Protection: Legal sports betting offers consumer protections that unregulated markets do not, highlighting the importance of maintaining a regulated environment.

The Legislative Landscape: A History of Changes

The legislative history of sports betting in Kansas has been marked by significant changes, reflecting evolving attitudes towards gambling and its regulation.

The Path to Legalization

Kansas legalized sports betting in 2022, following a long debate over the potential benefits and drawbacks of such a move. The initial legislation allowed for up to 12 sportsbooks, each required to partner with one of the state’s four land-based casinos.

Initial Framework: This competitive framework was designed to create a low-tax environment for operators, fostering growth in the industry.
Recent Developments
In recent months, the legislative landscape has shifted dramatically, with lawmakers pushing through provisions that could jeopardize the sustainability of the market. The override of Governor Laura Kelly's veto reflects a growing divide among lawmakers regarding the future direction of sports betting in Kansas.

Veto Override: The successful override of the veto on April 11, 2023, signals a willingness among some lawmakers to pursue policies that may not align with the interests of industry stakeholders.

The Future of Sports Betting in Kansas

As Kansas navigates this uncertain terrain, the future of sports betting remains a topic of intense debate.

Key Considerations

Several factors will influence the trajectory of sports betting in the state, including consumer demand, legislative actions, and the overall economic climate. A robust appetite for sports betting is driving and growing what is a vibrant market at this time, regardless of regulatory changes. But legislators will no doubt be looking at that ultra low 10% tax rate before 2027 rolls around.

Potential Outcomes

The outcomes of the 2026 legislative session will be critical in determining whether Kansas retains its competitive sportsbook model or shifts towards a more restrictive framework. Lawmakers will need to balance the desire for increased revenue with the need to maintain a competitive and consumer-friendly market. 

A Market in Flux

The sports betting market in Kansas is at a crossroads, facing significant challenges and opportunities. The recent budget provisions have introduced uncertainty, but the resilience of the industry and the passion of its consumers suggest that the future holds promise.

As stakeholders monitor developments and engage with lawmakers, the hope is that Kansas can navigate this complex landscape while maintaining a robust and thriving sports betting environment. The next few years will be pivotal, and the decisions made in the coming legislative sessions will shape the future of sports betting in the state for years to come.