Division of the Budget
Landon State Office Building Phone: (785) 296-2436
900 SW Jackson Street, Room 504 larry.campbell@ks.gov
Topeka, KS 66612 Division of the Budget http://budget.kansas.gov
Larry L. Campbell, Director Laura Kelly, Governor


February 20, 2019


The Honorable Bud Estes, Chairperson
Senate Committee on Federal and State Affairs
Statehouse, Room 136-E
Topeka, Kansas 66612
Dear Senator Estes:
SUBJECT: Fiscal Note for SB 98 by Senate Committee on Federal and State Affairs
In accordance with KSA 75-3715a, the following fiscal note concerning SB 98 is
respectfully submitted to your committee.
SB 98 would amend the state’s Expanded Lottery Act. Current law allows for the first
2,200 electronic gaming machines to be allocated and then a bidding process to place the remaining
600 machines occurs at a later date. The current bidding process allows lottery gaming facility
managers to bid to prevent the placement of additional machines at racetrack gaming facilities.
The bill would allow the Kansas Lottery to allocate the entire 2,800 authorized electronic gaming
machines to be placed at racetrack gaming facilities; however, each racetrack gaming facility
would be required to have at least 400 machines and no more than 1,200 machines. Each horse or
greyhound racetrack would be required to conduct a minimum number of races in order to operate
electronic gaming machines. The gaming facility located in the northeast gaming zone would no
longer be required to conduct greyhound racing, but it still would be required to conduct horse
racing before it could operate electronic gaming machines.
The bill would change the distribution of net electronic gaming machine revenue from the
racetrack gaming facility located in the northeast gaming zone. The amount of revenue distributed
to the racetrack gaming facility manager would increase from 25.0 percent to 61.5 percent (62.5
percent if the facility is located in a city) in the first and second year of operation of a facility that
is not located in a city, 59.5 percent (60.5 percent if the facility is located in a city) in the third year
of operation of a facility that is not located in a city, and to 57.5 percent (58.5 percent if the facility
is located in a city) in the fourth year and future years of operation of a facility that is not located
in a city. The amount of revenue that goes to the Live Horse Racing Purse Supplement Fund
would increase from 7.0 percent to 10.0 percent in the first and second year of operation, 12.0
percent in the third year of operation, and to 14.0 percent in the fourth year and future years of
operation. The bill would also create the Kansas Horse Council Fund and provide 0.5 percent of
the revenues for the development, promotion, and representation of the equine industry in Kansas.
To balance out these increases, a corresponding reduction in revenues is in the bill. The
state’s share in the Expanded Lottery Act Revenues Fund would be reduced from 40.0 to 22.0
The Honorable Bud Estes, Chairperson
Page 2—SB 98

percent; the 7.0 percent share going to the Live Greyhound Racing Purse Supplement Fund would
be eliminated; and the 15.0 percent share of gaming revenues that is to be used for gaming expenses
of the racetrack gaming facility manager would also be eliminated. Under current law, the 15.0
percent share of revenues can be used for any gaming expenses, subject to the agreement between
the Kansas Lottery and the facility. The bill has the potential to reduce the amount of revenue that
would go to the city and county from 3.0 percent to 2.0 percent depending on whether the racetrack
gaming facility is located in a city. The county would receive the full 3.0 percent of revenues if
the facility is not located in a city within the northeast gaming zone. If the facility is located in a
city, then the city and county would each receiving 1.0 percent. The current 2.0 percent share
going to the Problem Gambling and Addictions Grant Fund and 1.0 percent share of revenue that
goes to the Kansas Horse Fair Racing Benefit Fund would remain unchanged.
The bill would also remove the earning caps on the Live Horse Racing Purse Supplement
Fund in the northeast gaming zone. Under current law, the amount of electronic gaming machine
revenue that is to be transferred to this fund is limited to an average of $3,750 per machine. This
earnings cap would remain at the other gaming zones. The bill would eliminate some of the
restrictions on simulcasting and would allow county fair associations to operate simulcasting for
additional days. The bill would also require gaming facility managers to pay for the gaming related
expenses of the Kansas Lottery and would make other technical corrections to the Kansas
Expanded Lottery Act.
SB 98 would not require additional staffing or expenditures by the Kansas Racing and
Gaming Commission, the Kansas Lottery, or any other state agency unless a contract with a
racetrack gaming facility manager is approved by the Kansas Lottery and a background
investigation is approved by the Kansas Racing and Gaming Commission. Racetracks would first
be required to obtain a parimutuel license from the Kansas Racing and Gaming Commission before
they could negotiate with the Kansas Lottery for a contract to operate electronic gaming machines.
The proposed changes to the distribution of gaming facility revenue could provide an incentive for
the Woodlands Racetrack in Kansas City to negotiate a contract with the Kansas Lottery in order
to reopen that facility with electronic gaming machines.
The Attorney General’s Office indicates the bill has the potential to significantly increase
litigation costs starting in FY 2020. However, the Office did not provide an estimate of the
additional litigation costs or how long the estimated litigation costs would continue from
enactment from the bill, or if the bill would require the hiring of outside counsel.
The Kansas Lottery indicates that existing casino managers may file lawsuits claiming that
the bill infringes on their rights under the terms of the original Kansas Expanded Lottery Act and
their contracts with the State of Kansas. Casino managers entered into a contract with the state to
manage the casinos under a certain set of statutorily and contractual terms. To have those terms
changed mid-contract may result in litigation from casino managers to possibly recover damages
or other losses from the state. Litigation would likely be decided by the courts. The amount of
monetary damages that could be awarded by the courts is unknown. It is also unknown if any
possible damages would include the refunding of $61.0 million in privilege fees that has already
been collected from the four selected casino managers or if the damages would include any interest
payments.
The Honorable Bud Estes, Chairperson
Page 3—SB 98

The Kansas Lottery indicates that it would need to hire between two and three new
employees for each new gaming facility that would open as a result of this bill. However, without
knowing the size of the proposed facility and when the facility would open, the Kansas Lottery is
unable to make a precise estimate of its gaming related expenses. The Kansas Lottery indicates
that when it has negotiated contracts with gaming facility managers, it has required that all of its
gaming related expenses be reimbursed by the manager. Direct gaming expenses are billed directly
to the specific gaming facility manager and indirect expenses are prorated to all managers.
The Kansas Racing and Gaming Commission indicates it would need approximately $1.8
million and 21.00 FTE positions for each parimutuel racetrack that reopens for the annual costs to
regulate both the racing and gaming activities. Start-up costs of approximately $450,000 per
facility would also be needed for expenses, such as background investigations, licensing
equipment, software licenses, computer equipment, furniture and supplies, and other expenses that
would be associated with reopening each facility. Funding for regulating racing activities has
primarily come from the transfer of parimutuel tax receipts to the State Racing Fund. The
appropriations bill each year provides the authority for the Kansas Racing and Gaming
Commission to bill each facility for all costs related to regulating racing activity. Current law
requires the racetrack gaming facility manager to be responsible for the Commission’s costs for
regulating gaming activity at each racetrack.
The Department for Aging and Disability Services indicates that additional gaming
facilities would likely increase demand for services provided by its Problem Gambling Program.
The Department indicates that the amount of additional spending would be dependent on the
number of additional gaming facilities and would be proportional to current spending levels for
problem gambling and addiction services. The Department also has concerns that additional
gaming facilities and changes to the share of gaming facility revenues that is distributed to the
Problem Gambling and Addictions Grant Fund would not provide adequate funding to support its
Problem Gambling Program.
A reliable estimate of the gaming facility revenue that might be generated as a result of SB
98 cannot be made without a detailed market study, which would include an estimate as to when
the gaming facility would be operational, the location of the gaming facility, the size of the gaming
facility, and if the new gaming facility would impact revenues from existing gaming facilities.
Any fiscal effect associated with SB 98 is not reflected in The FY 2020 Governor’s Budget Report.

Sincerely,

Larry L. Campbell
Director of the Budget
cc: Stephen Durrell, Lottery
Brandi White, Racing & Gaming Commission
Willie Prescott, Office of the Attorney General
Cody Gwaltney, Aging & Disability Services


Statutes affected:
As introduced: 74-8741, 74-8744, 74-8746, 74-8747, 74-8836