Regional Rivalries Arise in Dash for Sports Gambling Cash

This story was originally published by Stateline, an initiative of The Pew Charitable Trusts.

The Washington, D.C., councilman was in a hurry. As the city council prepared to pass a bill this month legalizing betting on sports, Jack Evans was eyeing states just across the city’s borders—Maryland and Virginia—that could prove stiff competition unless D.C. got established first.

“It’s important for us to get our legislation and our sports gambling up and running so we can be the first in our region and hopefully capture some of the market,” Evans said just prior to the bill’s 11-2 passage.

The council also adopted an emergency measure that allows sports betting to begin as soon as Democratic Mayor Muriel Bowser signs the bill, skipping the review period during which Congress can veto a new D.C. law.

The race to collect bettors’ cash continues as another 20 or so states are poised during their 2019 legislative sessions to approve sports betting. They’re encouraged by some estimates that taxes on legal sports betting could add millions of dollars for their treasuries, though experts urge caution in anticipating that kind of revenue.

Seven states have kicked off sports betting since May 14, when the U.S. Supreme Court overturned the 1992 Professional and Amateur Sports Protection Act, which had effectively banned betting on professional and collegiate sports except in Nevada.

Delaware acted first, authorizing betting to begin June 5 (the governor made the first wager, on a Phillies baseball game, and won). New Jersey followed, June 14. Mississippi, West Virginia (another jurisdiction that competes with nearby D.C.), Pennsylvania, Rhode Island and New Mexico also quickly legalized sports betting.

States on the cusp—where sports legislation was pre-filed or lawmakers have indicated their intention to do so—will begin to consider legislation in January. In addition to Maryland and Virginia, they are Arkansas, California, Connecticut, Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, Montana, New York, Ohio, Oklahoma, Oregon, South Carolina and Tennessee.

Meanwhile, Congress is looking at regulating sports betting. New York Democratic Sen. Charles Schumer and Utah Republican Sen. Orrin Hatch this month introduced a bill that would set minimum standards for states offering sports betting. It would require states to use the data—such as point spreads and betting odds—provided by the sports leagues.

The states that have legalized sports betting each have their own criteria for data, including allowing leagues to provide it.

The federal bill does not include an “integrity fee,” or a cut of the gambling revenue, for sports leagues. The leagues have successfully pushed to include that fee in some of the state measures.

In Washington, D.C., sports wagering would be available at venues such as Nationals Park and Capital One Arena, home to the city’s professional baseball, basketball and hockey teams.

Bettors also would be able to wager at restaurants and liquor stores that purchase a license, or by mobile app within the confines of the city. The D.C. Lottery would oversee the industry, ensuring operators obtain licenses and enforcing rules such as the minimum age requirement, which is 18.

The betting is expected to raise $92 million in revenue over the next four years, according to the city’s chief financial officer. Anticipating the money, the city has designated portions of it for early childhood education and gambling addiction treatment.

Most other states also are dreaming of dollar signs. The American Sports Betting Coalition, an industry group, estimates that Americans illegally wager about $150 billion a year on sports contests. Experts suggest that legal sports betting will cut into—but not eliminate—illegal wagering.

Pennsylvania reported this month that in the first two weeks of sports betting, bettors wagered $1.4 million, generating $500,000 for the casinos and other gambling sites and about $180,000 in state taxes.

In New Jersey, sports bettors wagered $330 million in November, generating $21.2 million for the casinos and other betting venues and $2.45 million in state taxes that month, the state treasurer reported.

Sports betting was so popular on the first weekend it became available in Rhode Island this month that the state’s Senate president told reporters that he was concerned that the long lines stopped people from placing bets on the earliest Sunday football games. Casino officials said they will be adding terminals and self-service kiosks to shorten the lines.

But states should take other factors into account before estimating sports betting revenue, experts said. For example, betting on sports could eat into revenue from other forms of gambling, including lotteries.

And the revenue might prove fickle, said Lucy Dadayan, a senior research associate and an expert on all types of state-sanctioned gambling at the progressive Urban Institute, a Washington-based think tank.

“Sports betting would certainly bring in additional revenue for the states in the short run,” she wrote in an email to Stateline. “However, that revenue is likely to have the same fate as the revenue from other types of gambling: volatile, unreliable, unsustainable, and likely at the expense of lottery revenues.”

She noted that New Jersey, where sports wagering has been legal for six months, already has shown ups and downs, dropping significantly from September to October but then rebounding in November.

“I think states are being highly optimistic in their revenue forecasts for sports betting,” Dadayan wrote. “The early adopter states would certainly see revenue gains in the short run.

“But it’s only a matter of time until legalized sports betting spreads across the nation, and creates inter-state competition, eventually leading to declines in overall revenues from sports betting.”

If states want to compete successfully with the illegal sports gambling market, they need to carefully structure their taxes and regulations, said Chris Grove, managing director at Eilers and Krejcik Gaming, an industry analysis group in California.

“Once your total tax rate starts to drift above 20 percent, you are hampering the ability of operators to invest in marketing and products,” he said. “Once you do that, it’s more difficult for them to compete with illegal operators.”

The D.C. measure calls for taxes of 10 or 20 percent of gross wagering revenue, depending on whether the bets are made in person or online.

Pennsylvania has a total tax rate of 36 percent on sports betting revenue, while West Virginia (10 percent), Mississippi (12 percent) and New Jersey (8.5 to 14.25 percent depending on location) are well below that line. Some states would allot some of the tax revenue to local governments.

“When we are looking at sports betting being regulated in a majority of states,” Grove said in an interview, “I think you’ll see the tax rate settle in that 10 percent to 20 percent range.”