Paul's Blog May 28, 2018
“However beautiful the strategy, you should occasionally look at the results.” Winston Churchill
Not surprisingly, there is lots of news about Sports-Betting. I won’t be obsessed about it going forward. But for now, I will try to help curate and synopsize some of the news and articles.
For a one-sentence comment on the status or likely direction of sports-betting legislation in every U.S. state, see article titled: “U.S: the list of states willing to offer legal sports betting -Here followsa state-by-state breakdown of where things stand”
There are various interest groups which want the federal government to impose nation-wide regulatory requirements. Most notably, the professional sports leagues want the federal government to force operators of sports-betting to channel a portion of the sports-betting profit over to the stakeholders of the sport franchises. Some states (like IL) are taking the initiative to accommodate this profit-sharing initiative. Since other states may not be so accommodating, the sports leagues want the federal government to impose a nation-wide requirement for operators to pay the leagues an “integrity fee” for the right to operate sports-betting. They call it an “integrity fee”, but they also claim they are due compensation for use of their intellectual property. State legislators are mobilizing to prevent the federal government from intruding on their state rights to regulate and tax the gambling industry. I am thinking we would all be in agreement that the last thing we want in the Lottery industry is for the federal government to insinuate itself into the business of imposing taxes and other regulatory requirements upon the states and gaming operators which are subject to state laws. Gambling has always been under the purview of states and should continue that way. And the U.S. Supreme Court seems to affirm the authority of individual states over gambling of all kinds.
A big question is how much should sports-betting be taxed. It is estimated that there is $150-to-$400 billion a year wagered on sports. A Las Vegas sportsbook’s “GGR” (gross gaming revenue) is roughly 4.6 percent of the total money wagered. Nevada collects 6.75% tax on that 4.6% GGR. If that model were extrapolated to the entire market at the lower estimate of $150 billion, the GGR before taxes would be $6.9 billion. That X 6.75% tax = $466 million in taxes paid. That’s not much considering the size of this market.
On the other end of the scale is Pennsylvania which is set to apply a 36% tax rate on GGR. Some legislators are even proposing a tax on “handle” which is the gross amount wagered, i.e. the $150 billion to $400 billion. It is assumed by many that if the tax is too high, the consumers will either not play or continue to play on illegal websites that offer a higher payout percentage. That may be true, but Pennsylvania and Maryland casinos do very well indeed in spite of the very high taxes they pay to the state. And the state coffers do much better than the Nevada model delivers to the state of NV. I suppose it depends on what the public policy objective is. If the goal is to enrich private shareholders and provide a foundation that attracts the most consumers and drives the most growth in gambling, the Nevada model works best. If the goal is to channel consumer demand away from illegal operators and over to safe and secure operators, to prioritize responsible gaming and sustainable growth over maximization of short-term revenues, and to channel maximum economic benefit back to the state or good causes, then the Nevada model is not the best. It’s true that a tax that is too high may well be counter-productive. But public policy should not be shaped by private interests which place a higher priority on profit maximization than on public welfare.
And - how will Tribal gaming interests attempt to enter the sports-betting market? It seems to me that it has never been very clear which governmental entities have jurisdiction over conflicts between states and the Tribal interests with sovereign lands located within the border of the states.
The competitive landscape will likely evolve quickly and dramatically in the sports-betting space. For instance, Sports-betting powerhouse PaddyPower/Betfair is acquiring a 61% interest in Fantasy Sports operator FanDuel. Fanduel already has 7 million U.S. players. The combined company hopes to have a sports-betting offer ready in time for the 2018 NFL season.
I am anxious to get back to addressing the bread-and-butter issues that affect lotteries. In today’s “Morning Report”, there are incredibly interesting stories on how technology is transforming retail. Check out articles “The complete guide to AI (Artificial Intelligence) and “Big Data is Merging eCommerce and Brick-and-mortar Retail in Exciting Ways”.
And put Lottery Expo NYC on your calendars to be a part of the discussion on these issues and more. October 22 to 24. See you there!