Posted: April 5, 2018
An informative hearing on sports betting legislation in Illinois made clear that the horseracing industry is lobbying to be involved, that tax rates must be low enough to maximize benefit, that mobile betting will drive revenue, and that professional leagues intend to continue pushing for a cut of the action.
The hearing, conducted by the Senate Gaming Committee April 3, came in response to multiple bills that have been filed but not acted upon by the state legislature. Illinois, like many states, is preparing for a United States Supreme Court decision in a celebrated New Jersey case challenging the legality of the 1992 Professional and Amateur Sports Protection Act, which banned sports wagering in all but four states.
Chris Grove, who consulted for the West Virginia Lottery on a sports betting bill passed by the West Virginia legislature in March, told the Senate panel the goal for states is to capture the maximum amount of play it can from the black market–but that means offering bets at rates that are comparable. He also said revenue projections are much higher when a state offers both land-based and mobile options for sports betting.
Grove said that based on models in Nevada and the United Kingdom, if Illinois only offered land-based wagering—at casinos and racetracks, for example—it could generate $301 million in revenue per year. If wagering was offered at brick-and-mortar facilities and via mobile devices, revenue could jump to $681 million a year.
Grove noted that black-market sports betting operations offer wagering on credit and don’t pay taxes, “so legal sports books will have serious ground to make up.” He listed five “policy goals” for Illinois: promote competitive pricing, offer the highest number of games possible, offer the most betting options within each game, focus on availability to customers, and educate customers on the value of wagering legally.
Grove said Nevada pays a federal excise tax of 0.25% on sports bets, and he expects that to be the case in other states. “That’s already 5% of revenue before any other state taxes or fees,” he said.
Professional sports teams are lobbying for up to 1% in “integrity fees,” which Grove said can amount to 20% of revenue. That means 25% of revenue would be gone before state taxes and other fees are paid, he said.
As for the mobile component, Grove said that in Nevada, 30% of sports wagering occurs on mobile devices, but that could increase to 70% in the future given the market.
“The importance of mobile will only increase over time,” he said.
Steve Brubaker, a lobbyist for the Illinois Harness Horsemen’s Association who spoke on behalf of other horsemen’s groups, including the Illinois Thoroughbred Horsemen’s Association, has been tracking developments in numerous states regarding sports betting legislation. He said he traveled to Las Vegas on a fact-finding mission and found it very educational.
“Mobile has to be a component of this if we’re going to make this work,” Brubaker said. “The biggest takeaway is that we need to wait a bit and figure this out. There’s a lot we can learn from the few states that have already passed (legislation).”
Brubaker said he toured various sports books in Nevada, and that in Illinois, models for racing outlets would vary among Arlington Park, Fairmount Park, and off-track betting locations. He said a consultancy firm indicated that smaller operations—bars, for instance—with wagering kiosks were some of the most profitable.
Using Grove’s revenue numbers, Brubaker said a 1% integrity fee sought by professional sports leagues on low-margin propositions could siphon revenue of $60 million on the low end and $136 million on the high end. Using the leagues’ numbers, the fee would provide them with $45 million to $102 million per year, he said.
“That’s a lot of money that could be going to support horse racing,” Brubaker said.
Tony Petrillo, General Manager of Arlington Park, told the Senate committee the Illinois racing industry suffers from gaming competition both in state and in neighboring states, and that sports betting—along with table games—”would be an amenity that would create a balance in the state.”
“Any passage of sports betting should include racetracks,” Petrillo said. “There are three tracks operating now, but at one time we had seven. Without creating a balance, I feel it could lead to one or more tracks closing.”
Petrillo said over-taxation would hinder Illinois from competing in the sports betting arena, and that spreading the revenue too thin would put tracks at a disadvantage.
“We already have a silent partner in the horsemen, so we’re taking on a burden no other entities have,” he said. “We wouldn’t want to take on additional partners.”
Hawthorne Race Course President Tim Carey also spoke in favor of racetracks having on-site sports betting operations. He said the Senate “has been very supportive of horse racing in Illinois,” and that it would be a “natural transition” for tracks to take sports bets because they already have the betting infrastructure in place through horse racing.
Dan Spillane, Senior Vice President and Assistant General Counsel for the National Basketball Association, and Bryan Seeley, who heads Major League Baseball’s Department of Investigations, outlined the leagues’ position on an expansion of sports betting. They both focused on protection of integrity.
“The time has come for a different approach to give fans a legal way to bet on sports while protecting integrity,” Spillane said. “We opted to participate and are working with Major League Baseball on a structure. We’re not bystanders. (Sports betting) is a business that deeply impacts our sport.”
Spillane said the NBA and MLB are seeking “a percentage of the amount bet on that leagues’ games,” and that because of the risk of scandals that could damage brands, “our expenses are going to be higher. It’s going to cost us money.”
He said he takes issue with claims that a 1% fee equates to 20% because revenue assumptions are too low. He said the fee would be more in the range of 15%, which he called “a level that is certainly defensible.”
Seeley said sports betting is a “risk to the fundamental nature of our game,” and therefore any legislation should include language that states that gaming regulators must work with MLB on providing wagering data–from all facilities in the U.S. that may take sports bets.
As for data, Seeley said sports betting relies on it, and that non-official data can create different outcomes for various wagers, something MLB opposes for integrity reasons. The indication is MLB and other leagues would charge sports betting providers for their official data.
“We already have partnerships with states, and we view gaming in a similar way,” Seeley said. “Everyone shares an interest in integrity. The key is finding the right balance (for compensation).”
Will Green, Senior Director of Research for the American Gaming Association, which supports sports betting, said states considering sports betting should there be a favorable Supreme Court ruling need to consider the reality of the current black-market environment.
Green said that while at O’Hare International Airport he encountered several men looking at sports betting websites in advance of the NCAA Championship game, and asked them a few questions. He said they laughed when he asked if they wager on sports illegally, and that they would consider wagering legally in Illinois if there was an app available.
Green then asked them that if they bet $50 to win $47 through an illegal bookmaker but would only get $42 back through a legal bet in Illinois. He said the bettors indicated they would use the outlet that provides the most return.
“People are already used to shopping around for the highest payout,” Green said. “Problems arise when stakeholders don’t look at this. The industry (gaming) is concerned about policies that will cut the legs from legal sports betting before it has the ability to walk.”
Green said the “hold”—the amount retained by operators—averages 5%. That’s before payment of the federal excise tax; a state tax; perhaps a lease fee for a sports book; and labor, marketing and data costs. So the true hold may only be 1%, he said, before an integrity fee is added.
“That 1% of the amount wagered would net a sports book out at zero,” Green said. “Many would choose not to operate. The only way the status quo could be worse is (if states) promulgate rules that drive offshore betting.”
Like casino-based Internet gambling, sports betting would be intrastate, not interstate, because of federal law. Pari-mutuel wagering is legal across state lines because of a provision in the federal Interstate Horseracing Act.