At a meeting of state legislators, gambling stakeholders and other industry officials, a collection of the more than 200 attendees audibly laughed when a panelist asked for their thoughts on federal sports betting legislation.
The bill introduced last month in Congress alarmed stakeholders in the fledgling industry, but in the weeks since the bill arrived on Capitol Hill, it’s becoming increasingly apparent the legislation has little traction.
Limited political appetite from congressional lawmakers for a federal framework following the Supreme Court decision to strike down a nationwide ban – as well as the overarching struggle to pass any legislation whatsoever in the increasingly polarized halls of Capitol Hill – continues to mitigate concerns about major action, especially one on the periphery of the minds of the American public.
Still, significant questions remain about the current state-level legalization process and regulation system as eight states currently take legal wagers and more than a dozen prepare to take up bills to do so in the coming months.
The eight states taking legal wagers now having done so with eight distinct tax rates, regulatory schemes and implantation processes, among a host of other varying policies.
Three more jurisdictions are positioned to take wagers sometime this year, having themselves permitted wagers in ways that serve as a microcosm of the nationwide process. The three, Washington D.C. (legislation from the governing city council), Arkansas (voter referendum) and Oregon (legal interpretation of existing statute), could be joined by up to a dozen others before the end of 2019.
In the scramble to pass laws, the stakes for the state-by-state legalization process of a long-time black-market industry estimated at more than $150 billion annually are high for gaming stakeholders as well as would-be gamblers.
”If you get it wrong,” said gaming law expert Marc Dunbar, “especially with this product, they’re going to find it elsewhere.”
The meeting that drew laughs from the crowd of stakeholders helped indicate where these states, and American sports betting as a whole, may be headed.
At the multi-day winter meeting of the National Council of Legislators from Gaming States, a consortium of corporate gaming entities and industry observers made two priorities clear to lawmakers considering sports betting legislation: keep mobility high and taxes low.
Addressing lawmakers at the NCLGS event, American Gaming Association Vice President Sara Slane called mobile, online betting essential for the legal sports betting market.
”Mobile is where the consumer is right now,” Slane said. “The overarching goal in trying to shut down the illegal market and moving those consumers right now that are on the illegal market to the legal, regulated one should be what everyone is trying to achieve.”
Early mobile adopters have already reaffirmed this view.
Nevada and New Jersey, until recently the only states permitting statewide mobile sports betting, rack in hundreds of millions of dollars in bets each month, the majority of which comes from mobile devices. That dwarfs the tens of millions of dollars recorded in other states.
Along with mobile wagering support, Slane shared similar sentiments on tax rate policies with the majority of the event’s speakers.
Nevada has kept its position as the nation’s preeminent gaming destination in large part because of its low tax rate, said state gaming law attorney Kate Lowenthar-Fischer during a Jan. 5 session of the NCLGS meeting. She pointed to a period several decades ago when tax rates increased, which almost forced every sportsbook in the historically small-margin sports betting industry to shut down.
Nevada now still has the nation’s lowest total sports betting rate at 6.75 percent. Five of the seven states taking bets since the Supreme Court struck down the federal ban earlier this year (Delaware, New Jersey, Mississippi, West Virginia and New Mexico) have rates around 10 percent.
Conversely, Pennsylvania and Rhode Island, with effective rates of 36 and 51 percent, respectively, have seen their markets handicapped – even before they took a bet.
Pennsylvania passed a sweeping gambling bill in October 2017 that allowed sports betting once the federal ban was overturned, but the Keystone State wouldn’t place a legal wager until more than six months after the court announced its decision and 13 months after passing its bill. The 36 percent rate, more than three times higher than in neighboring New Jersey, dissuaded would-be operator partners from applying to take bets.
That led to a stalemate that was only broken when the revenue potential in the nation’s fifth-most populated state became too much to pass up. Still, less than half of the state’s eligible facilities have even applied to take sports bets and industry observers worry the market’s potential has been preemptively crippled.
Rhode Island could face a similar fate. Only IGT, which had a long-standing relationship operating the Rhode Island Lottery, applied to be a sports betting operator. The state didn’t take its first bet till late last year, and with more than half of the already small profit margins going back to taxes, the state’s two casinos offering bets will be hard pressed to see any significant financial gain.
This, many at the NCLGS meeting and across the gaming industry, fear will lead the gaming operators to offer unappealing lines – or no lines at all – and send would-be legal players back to the black market.
State gaming officials from both Pennsylvania and Rhode Island are still optimistic about their respective markets’ potential, but representatives at the NCLGS meeting gave a dire warning for the near future.
”If I look in my crystal ball,” Dunbar said, “and in my 25 years in the industry, I’ll tell you this: those with the high tax rates are going to be the ones that don’t have a robust industry in five, ten years.”
Aside from the overall concept of a federal framework, state lawmakers and gaming stakeholders were most concerned for calls from the initial congressional bill for a royalty or data fee to be reallocated back to sports leagues.
Since even before the Supreme Court decision, major American sports leagues had lobbied state legislatures to grant a cut of all sports betting winning back to them. Framed originally as “integrity fees,” the leagues said a one percent cut of revenue was necessary to protect the sanctity of competition and counter nefarious outside influences.
The fees were considered unnecessary and even disingenuous “money grabs” by many state lawmakers who saw that Nevada had offered legal wagering for decades without any detriment to the verisimilitude of sporting events. More subtly, a cut of profits back to the leagues would mean less for gambling providers as well as state tax coffers.
These appeals on integrity gained little traction in statehouses in the wake of the court’s decision and were eventually abounded by the leagues. Instead, the sports groups argued for a data fee of 0.25 percent of winning as compensation for their product and to assure certified statics were presented for gambling interests.
Slane, representing the AGA on behalf of the industry as a whole as well as the positions of the majority at the conference, slammed the integrity fees.
“The more onus on the legal regulated operator, the more difficult it is to move those consumers from an illegal site to the legal regulated one,” Slane said. “So every hit becomes death by 1,000 cuts.”
She also reaffirmed opposition to the data fees. Though private gaming companies have struck financial arrangements with professional sports leagues, including the notable affiliation between the NFL and Caesars, Slane said that should be on an individual basis and not compulsory under state or federal law.
Dan Spillane, a senior vice president with the National Basketball Association, reiterated the leagues’ support for the fees, or “royalties”, again on Jan. 4 during the NCLGS meeting.
Along with the collaborative potential under the federal bill, Spillane argued, the data fees would bolster further partnerships between gambling purveyors and the sporting organizations and give fair compensation for the product the leagues produced that allow them to take bets on in the first place.
”It’s important to recognize that we, the leagues, are major stakeholders here, and to have a voice in the legislative process because we’re the ones that we bare the brunt of the risks sports betting that sports betting creates,” Spillane said. “It makes sense for us to have a seat at the table.”
Though Spillane and Slane, as proxies for their respective sides, largely agreed on many regulatory and responsible gaming provisions during the conference, they remain diametrically opposed on the fee compensation issue, an impasse unlikely to change.
It remains to be seen if fees of any variety will gain traction in statehouses considering legislation, but the conference underscores leagues’ commitment to press the issue – and gaming interest groups to oppose it.
With the ball firmly in the court of state-level lawmakers, and federal legislation an increasingly unlikely reality, the future of sports betting will be settled in state capitals across the country. While the next wave of legalization efforts will almost assuredly follow the varied patchwork of bills passed by earlier adaptors, several key discussion points will remain at the forefront of any legislation – and American sports betting overall.
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