Sports Betting Regulators Advise States To Temper Expectations, Welcome Competition

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Barely six months into the new era of legal sports betting in the U.S., it’s still a little early to project what impact the added option will have on the gambling industry in general.

Or is it?

David Rebuck, the director of the New Jersey Division of Gaming Enforcement, told an audience at a gaming conference in New Orleans on Friday that the month-to-month numbers for the Atlantic City casinos since the first sportsbooks opened in June are rather definitive.

“Always think of these two issues when you are dealing with sports wagering: You have stakeholders who are fearing cannibalization, and you have stakeholders who are fearing competition,” Rebuck flatly said as part of a panel at the National Council of Legislators from Gaming States held at Harrah’s. “Our experience with cannibalization is it doesn’t exist. Our casinos are still doing as well as they did before sports wagering, before mobile wagering. They have not seen a decrease in revenue from traditional games that they offer.

“Now, competition — yes,” Rebuck added. “There are certain technology companies that are new to the market coming in from Europe or from daily fantasy sports that are providing competition to traditional, old-school operators who deal in casinos. That competition is good. We publish revenue numbers every month, and you can draw your own conclusion of who’s got a strong product.”

From the windows to the tables

There is less data available in Pennsylvania, which just recently added sports betting at several casinos, with mobile betting on the way.

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But Kevin O’Toole, the executive director of the Pennsylvania Gaming Control Board, made a point that will be worth following. O’Toole said that in its first week of sports betting, one of the Pennsylvania casinos “had its fifth-highest table game revenue in the past eight years.”

Of course, that is an important part of the calculus for the 60 or so legislators among the more than 250 conference attendees as they weigh the benefits of sports betting. How much in the way of ancillary proceeds can sports betting provide to casinos, to racetracks, or to state lotteries?

O’Toole’s example suggests that at halftime of an Eagles game, for example, perhaps a sports bettor new to a Pennsylvania casino decides to pass the time by trying blackjack, roulette, slots, or other games.

That’s a possibility. But as much as Rebuck and O’Toole pointed the way toward sports betting being helpful without causing much — if any — harm to existing legal gambling options, the larger theme of the three-day conference was to offer advice to legislators still playing catch-up on legal sports betting’s realistic upside.

Sports betting reality check

Representatives of states including Connecticut, Florida, Indiana, Kansas, Massachusetts, Michigan, and Ohio repeatedly were reminded of what sports betting insiders already know: the margins on sports betting for operators are much lower than is often understood.

The reason, of course, is that while the handle — or total amount bet — can seem enormous, that doesn’t necessarily relate at all to what the operator makes. An annual handle of $500 million might produce $25 million or so in revenue for the operator. The states then collect a portion of that in taxes, and the reality is that it’s not enough to singlehandedly solve any state’s budget crisis, nor is the operator revenue enough to measure up to what a few extra rows of slots or table games might generate for a casino.

“I feel as if over the last number of months that I’ve been kind of a buzzkill when it comes to the economics of the sportsbook at these events,” said Kate Lowenthar-Fisher, a Las Vegas-based attorney and chair of the Gaming and Hospitality Practice Group at Dickinson Wright PLLC. “There’s a lot of pie-in-the-sky discussion of how good a sportsbook can be. The numbers you see out there, it’s fantasyland. It’s bizarre what kind of money people think they can make.

“Generally speaking, it’s not a big moneymaker — and books can get killed. There’s a real art to it, not just science. Even if you run the best sportsbook in America, the margin is very, very, very small.”

Lowenthar-Fisher added that books in Las Vegas have tended to hold a 4.5-4.9% advantage, with the rest being returned to winning bettors. The mobile gaming hold tends to be higher, she added.

That reality check was underscored by Florida gaming law attorney Marc Dunbar.

“If you’re even considering sports wagering, it is an amenity. It is not a golden goose, any more than horse racing is to them today,” Dunbar said.

Online or bust

Dunbar added another piece of advice that has not yet fully sunken in for some in this emerging industry, in spite of New Jersey’s tremendous success.

“If you don’t put an iGaming platform with [a law], it’s just not going to work,” Dunbar said. “People aren’t going to just drive to and from the racetrack. You have to really embrace mobile.”

Rebuck gave another reason for legislators to go down that path.

“As a regulator, we love online wagering because we know more about you and can oversee what you are doing more than we can right here in this [New Orleans] casino tonight,” Rebuck said. “More information, more safeguards, more protections.”

Delaware — which was a week ahead of New Jersey in June on offering legal sports betting — does not yet have a mobile option. Kevin DeLucia, chief financial officer at the Delaware Park racino, said the state’s lottery would first have to put out a formal request for proposals. DeLucia said he hoped a provider would be chosen in time for next football season.

Still more advice for legislators

While some states have strict limits on the maximum bets on various forms of gambling, Dunbar advised against that for sports betting.

“Don’t be too paternalistic,” Dunbar said. “Let the sharks play. Let them into the pools. That will help make sure, if you do it for revenue purposes, you get the revenue. Gambling, at its core, is an activity that people should be able to participate in freely, without the hand of govenment telling them, ‘Oh, you can only do $100.'”

Missouri-based gaming law attorney Marc Ellinger said that the May 14 U.S. Supreme Court ruling opening the door for state-by-state sports betting legalization “opened the floodgates to a lot more questions than it did answers.”

“Some states will probably look to Nevada or New Jersey and try to copy their model, only to find it doesn’t quite work that way for their state,” Ellinger said. “So you could wind up with 30 different tax rates and 30 different regulatory schemes.”

The key for states new to sports betting is to ensure that legislators and regulators work together, Ellinger said.

Fisher explained that Nevada has a state gaming control board that is “extremely active, extremely sophisticated, and extremely progressive” when it comes to keeping up with technological advances that may require approval. There also is a gaming commission, with five part-time members, all appointed by the governor, “to represent a cross-section of the industry in Nevada.” The board generally makes a recommendation to the commission to review. Fisher added that the board often recommends omnibus bill proposals that subsequently are passed.

“Nevada always wants to be the leader in what is going on in the industry,” Fisher said, adding that innovators should consider seeking Nevada’s approval first, both because of a willingness to listen to new wrinkles but also because that approval would greatly ease the way for approval elsewhere.

From the Jersey shore to offshore

Keeping in mind the limited level of knowledge of the industry among some lawmakers, several panelists, including Rebuck, had a suggestion for those legislators who might shudder at the idea of their residents betting on sporting events: Have younger aides Google search for illegal websites that are seeking the sports betting dollars of those residents, and then see how quickly the staffer can manage to set up the account and make their first bet.

Andrew Zarnett, a gaming analyst for Deutsche Bank and a fixture as a panelist at the annual East Coast Gaming Congress in Atlantic City, helped put the current environment into perspective.

“I’ve been covering gaming for 25 years, and I would say this is probably the most exciting time to be an analyst,” Zarnett said.

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John Brennan

John Brennan has covered NJ and NY sports business and gaming since 2002 and was a Pulitzer Prize Finalist in 2008, while reporting for The Bergen County Record.

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