DC No-Bid Sports Betting Deal with Intralot All But Finalized

DC No-Bid Sports Betting Deal with Intralot All But Finalized

In a move even government officials admitted was unusual, the Washington D.C. City Council advanced an amendment to its sports betting legalization bill that allows a no-bid contract for current lottery provider Intralot to not only operate wagering in the District, but extend its existing lottery operations.

The proposal passed 7-6. It now goes to a second and final reading before it can come into effect, but the vote in the first reading Feb. 5 all-but assures it will pass, barring an unforeseen development before the second reading at next month’s full Council meeting.

The proposal drew scrutiny from city watchdogs and the gambling industry as well as legacy media outlets such as the Washington Post. City officials had long drawn criticism from observers who questioned their close relationship with D.C.’s lucrative lottery.

Now Intralot will have an extended contract to facilitate the District’s lottery and sports betting without having to face a bid from competitors.

City Council Denies Impropriety

City officials championing the bill repeatedly rebuffed accusations of impropriety In a series of meetings as well as a public hearing on the no-bid contract proposal last week. They said the atypical action to offer a sole-source contract was not influenced by prior relations with Lottery officials but as a necessity to offers sports betting in a timely manner and capitalize on its financial potential.

District CFO Jeff DeWitt, who oversees the D.C. Lottery, testified before the Council that elected officials needed to take the unusual step to deny any outside bids or it would delay sports betting by two years or more.

More significantly, he told the Council that the City would need to agree to an updated, all-encompassing contract with Intralot to provide not just sports betting, but all lottery activities as well. DeWitt said that was because the existing Intralot agreement, set to expire next year, didn’t allow provisions to take sports bets.

He further stated that while the City had originally planned to open bidding on the Lottery contract, the unexpected Supreme Court decision to strike down the federal ban on sports betting earlier this year, which in turn allowed the District to offer wagering, altered the contractual landscape.

A competitive bid process for a lottery provider would take at least 24 months, DeWitt and other City officials said, which would in turn prevent sports betting in the District until a provider was selected.

Several councilmembers remained skeptical during last week’s hearing before the Finance and Revenue committee. They questioned a report conducted by Spectrum Gaming Group as well as the possible detriment of a non-competitive bid. If there’s no competition in the process, some on the Council questioned, how could the City know it was receiving the best possible deal?

DeWitt again dismissed the concerns and promised he would negotiate a strong deal for the District or else he would open up the bidding process if it didn’t meet certain criteria. Along with several councilmembers, including bill sponsor Jack Evans, he also repeatedly stressed the need for quick moves by the Council.

Expediency Stressed by DC

Should D.C. not give Intralot the no-bid contract, it would not only delay the market by 24 or more months but potentially cripple the City’s sports betting market, advocates warned.

Officials pointed to threats from D.C.’s neighbors on both sides of the Potomac. Both Virginia and Maryland have taken up sports betting bills, though neither is a sure bet to pass this year. Each is dealing with complications that could delay or even derail sports betting.

Still, the threat loomed large in the minds of city officials pushing the sole-source contract. Other markets have undoubtedly been hurt by neighboring competition, but it remains to been seen what impact a Maryland and/or Virginia sports betting launch would have on D.C.

No-bid contract supporters had also pushed questionable numbers about the market from since around the time the bill was introduced last year.

The lottery projects holds as high as 20 percent or more, which is not in line with any other sports betting market in the world, which typically average around five percent revenue on bets placed. To reach those lofty projections, the lottery would almost assuredly only be able to offer multi-team parlays or lopsided, non-competitive odds, which in turn could keep players away from the legal market.

D.C. expects significant patronage in its regulated market.

In their appeals to support the expedited procurement process, officials said the projected two-year delay from an open bidding process would cost the city more than $60 million in “economic impact.” That includes taxes on sports betting, which will be used for separate programs to fund violence prevention programs as well as early childhood education, respectively, which advocates stressed were needed as soon as possible.

Though sports betting taxes will undoubtedly help finance these programs, the actual financial influx will likely be significantly less than projected.

For a rough comparison, New Jersey, with a far more robust, established gambling market, has recorded about $1.2 billion in total wagers in its first six months with legal sports betting. Gambling purveyors have kept less than 10 percent of that handle, or around $100 million.

Of that roughly $100 million in casino revenue, only about 10 percent goes back to the state in the form of taxes. While $10 million in new government revenue is undoubtedly still an asset, it is just a sliver of the Garden State’s annual multi-billion dollar budget.

D.C. has far fewer people and gambling options than New Jersey, so anything close to $10 million in a six-month period for the District seems an unachievable figure.

DC Sports Betting Advances - Again

Despite concerns over the sole-source contract, the bill has taken the penultimate step toward fruition. Already signed into law by Mayor Muriel Bowser, all that remains is the contract procurement process. Assuming none of the yes votes on the Council change to no votes by next month’s council meeting, the bill, and the no-bid contract, will come into effect.

If passed in its second reading during the Council’s legislative meeting next month, it will likely take several more months of regulatory tests and approvals, leaving officials hoping for a launch ahead of the 2019 NFL season kick off in September.

When D.C. does take its first bets, it will be conducted almost entirely by the lottery, regardless of its operator partner. The initial bill gave a de facto monopoly to the Lottery, carving limited exemptions for the District’s major sporting venues as well as sports bars, restaurants or other private businesses that negotiate individual contracts.

Those are expected to pale in comparison to the lottery, which will provide mobile wagering as well as the majority of the city’s potential land-based terminals. There are no traditional gaming establishments such as horse tracks or casinos within the District.

Eight states now take legal sports bets following the Supreme Court decision in May last year. Competitive markets with multiple purveyors, such as New Jersey, have proven more lucrative on a per capita basis.

The bill does allow the City to revisit the Lottery’s stranglehold on the market if a competition model is proven more lucrative, but questions remain if the council would ever take that step. The commissioned Spectrum report acknowledges the District never asked for a comparison of a competitive model, but said the Lottery-centric operation would produce greater revenue regardless.

That was more than good enough for the Council, which quickly advanced the original sports betting bill before concerns of the no-bid contract delayed implementation.

Update 3:00 p.m. EST Feb. 6: An earlier version of this article inaccurately stated Spectrum was an affiliate with Intralot. That is incorrect. The two entities have no affiliation.

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