As cheers echoed across America on May 14th, a US Supreme Court decision (6-3) awarded all 50 states the individual constitutional authority to design and operate their own sports betting programs. New Jersey cheered the loudest, as Atlantic City’s casinos had shouldered most of the legal and financial costs over six years and multiple court losses.
The sports betting battle began when Congress passed The Professional and Amateur Sports Protection Act (PASPA) in 1992. PASPA effectively banned sports wagering in almost every state.
Like earlier legislators who outlawed US alcohol sales a century ago, lawmakers believed prohibition would eliminate crime in sports. Both failed. Alcohol prohibition cultivated a criminal industry of bootleggers and today, an estimated annual $150 billion illegal sports betting market finances international crime rings.
When former CEO/President Geoff Freeman joined the American Gaming Association (AGA) in 2013, he immediately supported a proactive sports betting agenda. Freeman linked legalisation to ultimately dismantling the illegal marketplace.
“The entire industry, including regional Indian tribes, united to repeal PASPA. Rampant illegal wagering made even Nevada realize their monopoly was in name only. We also considered fantasy sports’ growing popularity because people questioned why forming a team on Sundays differed from legal sports betting,” said Freeman.
EXPECTING TRIUMPH
While never a sure bet, experienced New Jersey lawyers likeMonmouth Park racetrack Chairman/CEO Dennis Drazin said his “gut” feeling predicted a Supreme Court victory last spring.
Drazin’s realized his dream when Governor Phil Murphy placed New Jersey’s first sports bet at Monmouth Park on June 14th. Drazin has long advocated for Monmouth Park’s owner, the New Jersey Thoroughbred Horsemen’s Association (NJTHA).
He says, “I attended the Supreme Court hearing in Washington D.C. last December 4th. After hearing the oral arguments and justices’ questions, I knew anyone thinking we’d lose was in another world. I immediately prepared for the decision. I readied an advertising campaign last April and gave media interviews. After all, why not be first to take advantage of the win?”
Since 2013, Monmouth Park has invested $1.5 million to develop an upscale 300-person sports bar. Drazin has worked with William Hill US and, while sports betting was unavailable, he devised a progressive plan.
“We initially offered free play to build a data base. Fantasy sports followed in 2014 and then racing events,” Drazin says.
Following the December 2017 arguments, another $1.5 million investment created a grandstand with capacity for 7,500, added 15 ticket-writing windows, odd boards and television screens. By the time football season begins, Monmouth Park will have spent almost $5 million in total upgrades.
Drazin states, “We could legally open after the May 14 decision, but chose to follow Governor Murphy’s timetable. We launched once he signed the legislation on June 11.”
Monmouth Park is now embroiled in a $150 million law suit against the National Football League (NFL), National Basketball Association (NBA), Major League Baseball (MLB) and National Collegiate Athletic Association(NCAA).
The lawsuit alleges these leagues tried to block New Jersey’s sports betting law. In 2014, the judge mandated the leagues purchase a $3.4 million injunction bond to compensate Monmouth Park for calculated lost revenues if the higher court determined the injunction should not have been issued.
Drazin now calculates damages of $150 million in lost wagering revenues, plus the loss of non-gaming revenue, since 2014. He calls the leagues and the team owners hypocrites for entering into equity ownership positions with the fantasy sports industry while challenging legal sports betting as “threatening” to their games’ integrity.
The leagues filed a legal response in July, but Drazin remains enthusiastic about Monmouth Park’s future. He states, “We’re off to a wonderful start. New Jersey, and the entire country, has a great appetite for sports betting. Since the sports book at the North Jersey Meadowlands complex opened in July, the metro New York’s population and demographics have increased the total volume of revenue in New Jersey.”
MAXIMIZING A SOLID PROGRAM
Legalized sports betting must now develop a thriving, profitable industry. Sports gambling legal expert/Florida attorney Daniel Wallach, of Becker & Poliakoff, considers himself an “enthusiastic observer of the sports betting landscape.”
He says, ” I correctly predicted the Supreme Court decision.This case intrigued me from its inception.”
Wallach urges operators and regulators to offer diverse opportunities that encourage customer participation. Mass exposure and convenience should factor into any casino sports book expansion.
“Mobile and online capabilities should prominently enter into the mix. Operators must make sports betting readily accessible wherever customers live. Facilitating online wagering will maximise operator revenues, increase state tax collections and erode the illegal black market,” says Wallach.
However, despite operator optimism, two key issues pose possible threats. At the June East Coast Gaming Congress (ECGC) in Atlantic City, William Hill US CEO Joseph Asher called the US market a potential “gold mine,” but said high taxes will “kill” its competitiveness. He concluded a state’s individual legislative approach will determine its success.
Union Gaming Securities LLC. analyst John DeCree agreed. He recommended a maximum15 per cent tax rate his July 25th report, warning higher taxes will jeopardize competition and reinforce a black market.
Drazin applauds New Jersey’s fair 8.5 per cent tax for racetracks and land-based casinos, adding a 1.25 per cent racetrack fee for county and local taxes. Internet and mobile gaming pay a 13% rate.
“Compare our rates with neighboring Pennsylvania, which requires an initial $10 million fee and a 36 per cent tax rate. That places an immediate burden on operators,” says Drazin.
Finding sports bookmaking professionals is difficult. DeCree’s report cites a scarcity, but also makes two conclusions. William Hill US is best positioned to quickly launch a single site’s program; SGMS OpenBet is most able to assist major casino companies integrate the full casino operation.
The imposition of integrity fees on revenues is the second major concern. Theoretically, sports betting integrity fees could prevent illegal wagering and match fixing. However, industry members from each side advocate opposite perspectives.
Before exiting the AGA, Freeman voiced his personal disappointment. He said, “The AGA does not begrudge the leagues since they assume the risks. They could be great partners to steer customers from the illegal market. However, their labor negotiation approach is ineffective because trying to squeeze out every last dollar fails to see the big picture.
“Obviously, both sides want integrity. There is enough money to go around so solid conversations should be had. The industry should accept potential league partnerships because short-term thinking stifles cooperation.”
Wallach supports integrity fees, saying: “The leagues are not passive observers. They assume the risk to create the product, which is the foundation for the wagering. Their monitoring and investigative expenses will proportionately increase as sports betting potentially grows to more than 30 states within five years.”
The Interstate Horse Racing Act of 1978 set historical precedent for off-track betting sites. They must compensate the leagues by paying the host track a percentage of all live racing wagers.
“It is a prime example of gaming industry operators paying a rights fee for another company’s content,” Wallach claims.
He emphasizes that because leagues absorb the ultimate business risk, they cannot delegate total oversight to state operators and regulators. Unlike state-licensed operators and officials who institute regulatory jurisdiction within their states’ borders, the leagues’ monitoring and investigative capabilities cross jurisdictions and state lines.
Conversely, Penn National CEO/AGA Chairman Tim Wilmott questions the leagues’ timing, claiming they seek federal integrity fee legislation without considering any impact on states’ rights. He prefers these issues be negotiated as commercial agreements, not legislatively.
UNIQUE TRIBAL ISSUES
Another uncertain component is tribal gaming, which confronts inherent challenges. Wallach says, “Tribes face a distinct competitive disadvantage to commercial gaming interests. They will often need to amend their state compacts to include sports betting. That typically requires multiple levels of government approval, including the US Secretary of the Interior. Compact amendments could delay tribal operations for years while commercial gaming interests may immediately proceed. Sports wagering could cannibalise existing tribal gaming operations within the state.
“Also, the Indian Gaming Regulatory Act (IGRA) could possibly prohibit tribes from accepting online bets, despite other in-state commercial operators being able to accept wagers.”
Tribes who do not support betting are an influential lobbying force in many states. For example, powerful New York and Connecticut tribes have actively opposed in-state sports betting legislation.
In the Midwest, Oklahoma has 39 tribes, 31 signed compacts and 135 casino operations. The Innovative Group reported that during the July Oklahoma Indian Gaming Association (OIGA) trade show, OIGA’s 25 members began evaluating potential return on sports betting development investment, particularly in smaller, rural operations. Most members also oppose integrity fees.
SO, WHAT IS AHEAD?
New Jersey’s first four licensees enjoyed a solid start in late June and generated $16.4 million in revenues. Division of Gaming Enforcement (DGE) Director David Rebuck says most of the 14 potential applicants for land-based and mobile licensees could receive approvals this month before football season.
Following New Jersey’s example, Mississippi finalized its regulations on July 22. MGM opened for bets in Biloxi and Tunica on August 1; Boyd Gaming also anticipates opening in Tunica and Biloxi this month. Elsewhere, Pennsylvania, Rhode Island and West Virginia have either passed legislation or soon will.
After acquiring Pinnacle Entertainment for $2.8 billion in 2017, Wilmott expects Penn National’s business will expand to 20 states this year. By 2023, he predicts 30-35 states will offer sports betting.
Although sports books traditionally earn small profit margins, MGM Senior Vice President and CFO Jorge Perez envisions increased overall revenues. At the ECGC, he said, “We’re all in for sports betting. It attracts new customers who spend money on other amenities.”
