- ▸ Beshear blocks a bill that could have forced DraftKings, FanDuel, and Fanatics to choose between sportsbooks and prediction markets.
- ▸ Lawmakers need just +2 Senate votes and +3 House votes to overturn the veto.
- ▸ An override could trigger a state vs. federal authority battle over prediction markets.
Kentucky Gov. Andy Beshear has vetoed a bill that would have threatened sanctions for gambling licensees who offered prediction markets to people in the state. While the Kentucky legislature could still override his veto, it’s unclear if proponents of the proposal will be able to drum up the requisite support for an override in the short time they have to do so.
Barring that override, Beshear’s decision is likely a welcome one for companies like DraftKings, Fanatics, and FanDuel. The implications for them under the bill could mean months, if not years, in court as well as giving other exchanges a competitive advantage in Kentucky.
Beshear announces veto of HB 904
Beshear affixed his veto to HB 904 on Monday, rejecting the measure that the Republican-controlled legislature sent to him that would have modified several aspects of gaming and related matters in the state. In his explanation for the veto, Beshear stated that he made that decision “because it would authorize two Executive Branch agencies, the Kentucky Lottery Corporation and Kentucky Horse Racing and Gaming Corporation, to file emergency and ordinary administrative regulations without the Governor’s review and signature.”
Beshear stressed that “the governor reviews proposed emergency regulations to ensure they are necessary and meet legal requirements for emergency filing” under the state’s constitution so “authorizing an agency to file an emergency regulation in this manner would prevent the Governor from carrying out his constitutional duties.”
Beshear had no comments on the remainder of the bill’s contents, like its potential impact on prediction markets in Kentucky.
What HB 904 could mean for prediction market operators
The text of the bill as submitted to Beshear would have created restrictions for gambling licensees who also offer prediction markets. In Kentucky, these entities include DraftKings, Fanatics, and FanDuel.
The proposal would have revoked their sports wagering licenses if they continued to provide access to designated contract markets (DCMs) to people in Kentucky. Those companies still could have geofenced to exclude prediction market access in Kentucky while continuing to operate their legal sportsbooks in the state.
With Beshear’s veto, the threat of having to decide how to proceed in Kentucky is averted for DraftKings, Fanatics, and FanDuel. However, there is still a looming possibility of the circumstances materializing.
Gubernatorial override chances for Kentucky gaming bill
HB 904 passed in the Kentucky Senate 24-13 with one abstention and 64-19 with 17 abstentions in the House of Representatives. Like in most other bicameral US states, a gubernatorial veto mandates supermajority (2/3 approval) in both chambers in Kentucky.
If all the votes for HB 904 hold in the House, a veto would need just three more votes from the abstention pool, the members who voted against HB 904, or a combination of the two. In the Senate, the supporters of HB 904 would need two votes to change in their favor to reach the appropriate threshold.
The final votes weren’t particularly partisan, with Democrats and Republicans voting against and for the bill in both bodies. However, the complexity of the bill factors into the situation.
Besides the prediction market restriction, HB 904 would have also elevated the minimum age for legal sports wagering in Kentucky and banned certain types of prop bets. Legislators may push to override Beshear’s veto in the interest of getting those measures encoded into law while accepting the rest of the bill as a necessary means to that end.
The legislature has also been active in restricting the powers of the governor, as Beshear is a Democrat. For example, the Kentucky Supreme Court is currently deciding the fate of similar bills regarding the governor’s emergency powers.
It’s possible that the legislature may seek to override Beshear’s veto of HB 904 simply to further strip him of authority, which is what Beshear referred to in his comments. For that reason, companies like DraftKings, Fanatics, and FanDuel may still want to retain counsel licensed in Kentucky.
An override could spark legal challenges from DraftKings and others
If the legislature overrides HB 904, federal district courts for Kentucky might see new filings. DraftKings, Fanatics, and/or FanDuel might challenge whether the state has the authority to impose penalties upon their businesses for operating a federally regulated exchange platform.
The argument would be novel compared to most other lawsuits challenging state restrictions on prediction markets because Kentucky could tell the court that it is within its rights to determine whether a gambling licensee fits its parameters for eligibility. The argument would be that Kentucky is not attempting to regulate DCMs but gaming within its borders.
However, the plaintiff(s) in such a case might counter that their exchanges are legal under federal law and that revoking gambling licenses in conjunction with those offerings represents a de facto attempt to restrict prediction markets in Kentucky. DraftKings and others might have additional motivation to file challenges to prevent competitors who don’t offer sports wagering products in Kentucky like Kalshi and Polymarket from gaining a larger market share.
The fact that DraftKings and the others’ only choices under the statute would be to either stop offering their prediction exchanges or stop offering their sportsbooks in Kentucky could strengthen their case. For the time being, though, that litigation remains in the realm of the hypothetical.
