Sports Betting in America 2019: Where The Industry Stands Now

Sports Betting in America 2019: Where The Industry Stands Now

Here we are one quarter of the way through 2019, and thus far only a handful of states have made significant progress toward authorizing sports betting. Unexpectedly, one of those states is Montana, where a bill awaits the governor’s signature before sports fans can take part in betting on-site at their local taverns.

The governor’s signature is also all that stands between Iowa residents and sports betting freedom. Indiana is close to reaching a deal that would allow mobile sports betting, and several others are making incremental progress as their sessions wind down.

Hopefully the enthusiasm from these early adopter states is contagious enough to help several on-the-fence states take the next step.

Passing legislation can be a very trying and time-consuming process, especially in states that are still finding their comfort level with gaming issues. While there are still many sports betting bills in the pipeline, and it's far too early to call 2019 a disappointment on that front, we can safely say that there are some major themes developing:

1) More Education on Mobile Sports Betting is Needed

Sports betting has been widely discussed and debated in 35 states this year, but the quality of this discourse has varied tremendously from state to state.

With some notable exceptions, a general lack of established real-world information, combined with a concerning amount of misinformation, has given lawmakers pause about proceeding down this relatively untrodden path (untrodden in America at least). It’s also given anti-gambling groups latitude to engage in all sorts of fear-mongering, such as a recent Tennessee hearing in which opponents stoked fears of gambling in church on Sundays and going so far as comparing it to a Schedule 1 narcotic.

While eight states have approved sports betting, various hiccups - such as a preposterously high tax rate in Pennsylvania, a beleaguered regulation process in West Virginia, and a scandal-laden Washington D.C. process that gives the lottery vendor an online monopoly on sports betting – have left legislators with more questions than reliable evidence of success.

The lone exception, of course, remains New Jersey, which is absolutely blowing away the competition in terms of revenue, innovation and growth. If every other state is a question mark, New Jersey is an exclamation point, and the Garden State remains the only real-world, American example of sports betting success for other states to follow.

Proponents of sports betting aren’t all on the same page. And while that may never be 100% true, it's time for industry and advocacy groups to start finding consensus on the things they can agree on and spreading the word. With 35+ states considering legislation, education is going to take a concerted, centralized effort, and thus far that has simply not coalesced.

2) National Casino Operators Aren’t All-In on Sports Betting, Yet

While New Jersey’s mobile market has taken off like a rocket, not all casino operators have shared in the success. In fact, two operators, DFS-turned sportsbook titans FanDuel and DraftKings have run away with over 80% of the mobile market share in New Jersey, leaving some casino executives concerned that an immediate rollout of sports betting in other states will result in a similar lopsided outcome.

More and more, it looks like some casinos are willing to sit on the sidelines at least one more year, which gives them time to develop and market a product that could conceivably compete with FanDuel and DraftKings.

Casinos are also concerned about their bottom line – sports betting has a much lower profit margin than traditional casino offerings – and some legislation around the country is simply not conducive to a healthy market. High tax rates, licensing fees and regulatory costs, combined with the potential for statutorily-mandated royalties on some pro sports leagues’ games, could combine to make sports betting unprofitable under legislation currently being considered. At this point casinos facing such obstacles in some states may work to kill bad legislation and start over again in 2020 rather than try to eke out a pittance under these difficult conditions.

3) The DOJ’s Wire Act Opinion Has Already Done Considerable Damage, But Clarity May Be Coming

In easily the most inexplicable and unwelcome development of 2019, the Department of Justice saw fit to release an opinion that the Wire Act applies broadly to all forms of online gaming, completely reversing a previous 2011 opinion on the same law. Immediately decried as cronyism on behalf of Republican mega-donor Sheldon Adelson, this opinion has potentially far-reaching implications for not only sports betting, but also iGaming, online poker and even state lotteries.

While the DOJ has yet to undertake any enforcement actions, the pall that this opinion has cast has given legislators and online gaming operators plenty of anxiety about the future. It potentially hinders the progress of online gaming legislation at a pivotal moment of growth.

Fearing the loss of hundreds of millions in annual revenue, the New Hampshire lottery has filed suit against the DOJ, and the DOJ responded by trying to walk back their sweeping declaration by claiming that their opinion doesn’t apply to state lotteries. The judge wasn’t buying it, allowing the suit to proceed. This means that at some point the DOJ will have to defend their position on the merits, but the industry is certainly hoping clarity comes sooner rather than later.

4) The Lottery Wants To Run a Sportsbook

State lotteries are a tremendous source of revenue in 44 states, and perhaps to their detriment, many states are utterly dependent on this influx of cash for vital services like public education. The existing relationship between lottery operators like Scientific Games, IGT and Intralot and state government executives gives these companies a leg up on the competition. Not surprisingly, they want to leverage that into exclusive control over the states’ burgeoning sports betting markets.

Enticing states with outlandishly optimistic revenue projections and promises of seamless convenience, some states like Rhode Island have taken the bait. The Ocean State passed legislation that gives the lottery operator sole control over sports betting. What these lottery operators have failed to disclose is that any sports betting legalization structure that centralizes sports betting into a single operator significantly increases risk to the operator, in this case the state itself, and also fails to capture market share from the illegal outlets that offer superior products and variety.

5) Other Gaming Issues are Complicating Matters

Sports betting on its own may not be the most controversial topic, but very rarely does the legislative process work in a straightforward manner.

This is especially true of gaming issues, where casinos and other interest groups have been working on various legislation for years. Now along comes sports betting legislation as the hot new thing, and everybody wants to ride its coattails to pass their own pet projects like lottery expansion, a new casino or video lottery terminals.

Unfortunately, that’s just the way it goes in most statehouses. Unless you have an overwhelming consensus of legislators and industry stakeholders in lock-step to get something done, it's remarkably easy to upset the apple cart.

6) It’s Not ALL Bad News

While there’s been a fair share of disappointment, states such as Indiana, Iowa, Michigan, Missouri and Illinois all look poised to make a serious run at passing a sports betting bill this year. Massachusetts and New York are taking their time, but sports betting is still on the table in 2019. And even traditionally socially conservative states such as North Carolina are preparing for the future of online gaming by studying the issue and paving a path for mobile sports betting.

While states like Virginia and Kentucky couldn’t get it over the goal line in 2019, their efforts are not entirely in vain. The time spent debating and familiarizing legislators with the issue has softened the ground for next year and could certainly lead to dividends, even if not as soon hoped.

Charles Gillespie is CEO of Group

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