Oregon Sports Betting Losses Show Problem With Monopolies

Oregon Sports Betting Losses Show Problem With Monopolies
© USA Today

The Oregon Lottery projects a net loss of more than $5 million from its sports betting service during its first fiscal year of operation, reaffirming the downside of sole-source sportsbooks. It sends a clear warning to the dozen or so states considering sports betting about the dangers of a monopoly.

If projections hold, Oregon would be the first state to lose money on sports betting during its first fiscal year.

“Obviously sports betting has smaller margins than other games and this can happen and inevitably will happen on the occasional month, maybe even quarter,” John Holden, Oklahoma State University assistant professor, told Gambling.com. “But this isn't close.

“This is not ‘we took some bad losses.’ This is just mismanagement, from the look of things. This is not a sort of a bookmaking issue. It’s ‘No, we didn't do the math right.’ ”

Oregon’s struggles come as states with competitive marketplaces thrive. Pennsylvania sportsbooks and New Jersey sportsbooks see more than $300 million a month in handle, and can generate between $20 and $40 million in revenue during that same time frame.

Even younger markets in less populated states such as Iowa have seen significantly higher monthly revenues. Iowa, with a smaller population than Oregon and a similar sports betting launch date, saw an average of $31 million a month in handle and $4 million in revenue during its first three months of operation. Even with expenses, Iowa sports betting saw a net gain.

The critical difference: Iowa has multiple competing mobile sportsbook vendors, including popular names such as William Hill. Oregon only has one legal online betting option, which is branded as Oregon Lottery Scoreboard.

Oregon is not alone among lottery-run, sole source sports betting markets – nor is it immune to the struggles of those models.

New Hampshire, which chose DraftKings as a lone vendor after the company offered 51% of gross gaming revenue in exchange for exclusivity in the state, saw outages along its border with Maine during the early days of its launch. As the lone legal provider, these technical glitches effectively ended the regulated market until they were resolved.

Farther down I-95, Rhode Island also has a lottery-run, lone provider. With only one option, and an in-person registration requirement, Rhode Island sports betting signups continue to fall below expectations.

The trio of lottery-managed states is a reminder of the perils of a solitary operator. None of the dozen or so states considering sports betting legislation this year is seriously considering such a model, but these struggles nevertheless reaffirm the need for a competitive marketplace with multiple operators.

Memo Details Struggles

A memo from Oregon Lottery Director Barry Pack to the Oregon Lottery Commissioners warned Oregon Scoreboard would suffer a net loss of $5.3 million during Fiscal Year 2020, which began July 1, 2019 and ends June 30, 2020. That memo estimates roughly $10.8 million in revenue on $178 million in handle, but after an estimated $16.1 million in expenses including vendor charges to operator SBTech, advertising and employee salaries, the final total results in a net loss.

Even those figures may come up short. The lottery reported roughly $45 million in handle during October, November and December 2019, its first three months in operation, generating close to $3 million in revenue. Should that average of $15 million a month in revenue and $1 million hold, Oregon would only see $135 million in handle and $9 million in revenue over the course of FY 2020.

Despite reported operating hiccups, Oregon saw a boost from wagers on Super Bowl LIV, which generated more than $150,000 by itself. It will likely see revenue increases as more players leave illegal bookmakers and offshore sites to wager with Scoreboard.

But it will have to do so without the NFL, which traditionally sees the largest handle of any league, or college football in the coming months. Scoreboard doesn’t offer bets on college sports, so that means it also won’t accept wagers on the upcoming NCAA Men’s Basketball tournament, one of the most lucrative events of the betting calendar.

Even if Oregon hits its revised projections, it will almost assuredly fall short of its initial estimates. The lottery projected $332.8 million in handle and $26.6 million in revenue, which after $20 million in expenses would still net the lottery only $6.3 million.

Lottery Disadvantages

Lottery-only models have enticed lawmakers — and the lotteries themselves — because a sole-source, government-run purveyor means all proceeds go directly to government coffers. The problem is that a non-competitive marketplace typically generates far less gross handle than a taxed, competitive one, which leads to less money for the government.

The American Gaming Association estimates roughly $150 billion is wagered on sports in American each year, and even with 20 states taking bets now or set to do so, the vast majority of that is wagered illegally. The biggest contributors are the hundreds of unregulated, offshore sites, which allow anyone with a smartphone and internet access to place bets. Legal operators, including Scoreboard, help attract would-be offshore users, but are still just a small fraction of the overall betting market.

“There’s a ton of competition, it’s just offshore. You may have a legal, regulated monopoly but there’s a lot of people who don’t know better or don’t care,” Holden said. “They’re going to continue to bet offshore because that’s what’s happened for the last 25 years.”

With millions of players already familiar with their preferred offshore site (and many not even fully understanding the legality of that offering), it takes something more than just having a site to attract players. It’s part of the reason daily fantasy titans DraftKings and FanDuel have done so well capturing the sports betting market. They are both household names after years of advertising.

Startups like Scoreboard can’t compete effectively against the multi-billion dollar black market, at least not yet, and especially when it is the state’s only legal online entity.

Possible Solutions

The obvious way to boost revenue would be to open the market. That’s also the most difficult.

Oregon was one of four states with an exemption under the federal sports betting ban, which the Supreme Court struck down in May 2018 and allowed individual states to take bets within their own borders. Oregon didn’t have single-game wagering, but instead a parlay card option that allowed Oregonians to wager on multiple NBA and NFL. “Sports Action” was discontinued in 2007, under pressure form professional leagues and the NCAA, but it laid the framework for single-game betting in Oregon.

That background combined with the financial influence of the lottery, the state’s second-largest source of revenue, made it the logical choice to oversee sports bets. Instead of a more robust legislative solution to create a competitive market, state officials pushed a regulatory framework to allow the lottery to take sports wagers. The difficulty to create a more expansive framework, plus the significant role the lottery plays in the state budget, make a dramatic alteration politically unlikely for the foreseeable future.

To help bolster revenues, officials may seek to allow betting on college sports, which requires consent from lawmakers, the governor and universities. That too would be a difficult hill to climb.

If or when that happens, it would come down to the lottery to turn around its revenues. Officials asked commissioners last month to allocate $660,000 for sponsorships with the NBA’s Portland Trail Blazers, MLS’ Portland Timbers, the WHL’s Portland Winterhawks and the NWSL’s Portland Thorns and another $53,000 for additional promotional materials. It remains to be seen if that’s enough to attract a significant chunk of the billions wagered in the black market.

Eligible Oregon residents and guests can bet on professional and college sports at several Native American casinos, but those only allow in-person bets on casino property. Washington lawmakers have advanced legislation that would also allow Native American tribes to take bets, opening another possible betting avenue for Oregonians, many of whom drive to their northern neighbor daily. That could be good news for sports bettors, but more bad news for Oregon’s financial bottom line.

Still, the biggest burden is the self-imposed monopoly. As the market matures and players become more familiar with Scoreboard, Oregon sports betting won’t likely be in the red for long. That in mind, the initial struggles, especially compared to other young markets, is another warning sign about the perils of a sole-source operator. Oregon may be years away from a second regulated mobile sports betting site, but these disappointing early figures must make officials think again about the wagering monopoly.

“There’s a growing theme of states trying to reinvent the wheel when it comes to sports betting and doing so unsuccessfully,” Holden said.