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The legalization of sports betting on a state-by-state basis has created plenty of winners (see our previous article). It would be great if everyone could be a winner, but that just ain’t so.
Legal sports betting has its losers, too. Some of them are already becoming apparent even though we have only just celebrated the first anniversary of the US Supreme Court decision that made it all possible.
We identified the big winners as the citizens of gaming states Nevada and New Jersey and the former daily fantasy sports (DFS) operators DraftKings and FanDuel.
The winners can all agree with our selection; however, the losers are more likely to debate the issue. Choosing losers is not more political than choosing winners; it’s harder. What criterion creates a loser? Winners can be easy to see, but losers disappear into the crowd.
The three big losers, in our opinion, are the black market; states that should have sports betting legislation; and the casino operators that have already missed their chance.
Losers: the states
Any state that fails to legalize sports betting is leaving its citizens exposed to the black market. It also loses the tax revenues from gambling taxes, business taxes and employment taxes on the industry.
Sports betting stays underground, and the revenues flow offshore or to organized crime.
Three states leap to the fore when looking for the biggest losers: California, Illinois and New York. Almost a year after New Jersey started raking in sports betting revenues, these three big states haven’t taken in a cent.
Illinois
There are only a few days left in the current Illinois legislative session. Rep. Mike Zalewski is putting forward one last amendment to try to get the House to agree on an IL sports betting bill.
As soon as the amendment is added, Zalewski wants to push his H1260 bill through committee immediately. His optimism is irable, but there has been nothing heard in the Senate on the issue, and the chances of Illinois getting legal sports betting soon are almost zero. (However, ahead of the May 31 deadline, plenty of lawmakers are fighting for the age of the bill, so it could still happen and become a huge win for the state.)
There’s lots of argument about whether FanDuel and DraftKings should be allowed to apply for licenses. Both ignored a nonbinding 2015 opinion by the state attorney general to continue to offer DFS in the state.
Their opponents want them to suffer a period in the “penalty box” before launching sports betting under a legal framework.
Illinois is the sixth largest state in the US, by population, and its state finances are in the worst position of any state.
The international rating agency Moody’s rates the state’s bonds only one notch above “junk.” Investment bank JP Morgan has estimated that the state needs to spend 50% of its entire tax take to fund state retiree pensions and medical care commitments.
No state needs extra gaming taxes more than Illinois. So, of course, the politicians can’t agree to take them.
Illinois is the state that is losing the most from not legalizing sports betting and IL online gambling — not the most money, but the money is more valuable to Illinois than to any other state.
New York
New York is, by far, larger than Illinois. The fourth largest in the union, by population, New York’s finances are not in as dire a position as Illinois, but it is in an equally ridiculous situation.
New York has had sports betting legislation on the books since 2013.
I’ll say that again. New York has had the legislation it needs to begin legal sports betting at its licensed casinos since 2013. All it needed was the Supreme Court decision to overturn PASPA, and New York was ready to go. But it hasn’t.
Only on Jan 28 this year, almost eight months after the Supreme Court decision, did the New York State Gaming Commission approve preliminary rules and regulations.
And these don’t include mobile sports betting, which s for around 80% of the handle in neighboring New Jersey.
Sen. Joseph Addabbo Jr., chair of the Senate Racing, Wagering and Gaming Committee is confident that the existing laws allow at least some mobile sports betting. The only provisions necessary are that the servers must be located at the casinos and customers must in-person for s at the casinos.
These aren’t great provisions, but they are better than nothing.
So, for not implementing sports betting when everything was in place to do so, we award New York the title of being one of the biggest losers.
California
California has 37 million residents. Legal California sports betting revenues would be enormous if the state could get its act together and the legislation.
Assemblyman Adam Gray has played a valiant role in trying to get an initiative in the legislature or even a constitutional amendment on the ballot. He’s had no success. The most recent ballot initiative fizzled without collecting a single signature.
Meanwhile, California sports bettors are busy funding offshore sportsbooks without any legal protection.
The big hold-up is the tribal gaming interests. The California Nations Indian Gaming Association opposes any expansion of gambling in CA. Steve Stallings, the group’s chairman, told the Washington Examiner that the group is already in dispute with state-licensed card rooms and doesn’t want to add sports betting to their list of difficulties.
“We feel like protecting the industry in California is more important,” said Stallings.
Well, the industry is shooting itself in the foot, and the state’s citizens are paying the price. California is our third-biggest state loser.
Losers: The operators
As we’ve pointed out, around 80% of modern-day sports betting happens online. And, which casino group is viscerally opposed to online gambling? The Las Vegas Sands Corporation.
The Las Vegas Sands Corporation
Sands Chairman Sheldon Adelson is the most vocal funder of anti-online gambling lobbying in the US.
The Sands owns two properties in Nevada, the Palazzo and Venetian and the Sands Bethlehem in Pennsylvania.
Amusingly enough, the Sands Bethlehem has applied for online gambling licenses in Pennsylvania. This must cause Adelson some distress, but it is part of an agreement with Wind Creek Hospitality, which is buying the casino for $1.3 billion.
The June meeting of the Pennsylvania Gaming Control Board (PGCB) will probably approve the transfer of ownership to the PCI (Poarch Creek Indians) Gaming Authority. In the meantime, Adelson is the proud owner of online gambling licenses in Pennsylvania.
Not only has the Sands lost most of the opportunity from legal sports betting by not ing online gambling in PA, but it has also got a very red face.
Winamax
Winamax is a name that is almost entirely unfamiliar in the US. And that situation looks set to continue because Winamax has no casino partners in any of the states that have legalized sports betting.
Before the rise of online gaming regulation in the US, Europe was busy regulating its own markets. In , PokerStars and Winamax—and Winamax won.
Winamax is the fourth largest online poker site in the world when measured by cash game traffic. It has expanded to the Spanish market, but still maintains its incredible position with a presence in only two markets.
The French company sent feelers out to the US market, by way of a free-to-play game several years ago, but is conspicuous by its absence now that sports betting is legal. Winamax even beat PokerStars to launch nationally regulated sports betting in , so its absence is surprising.
The US sports betting market is now occupied by European online gaming giants ranging from Paddy Power Betfair; from 888 to the Kindred Group. The one big European online player without a US presence is Winamax.
For now, we list Winamax as a big loser. However, a lot of states have sports betting legislation on the horizon. Don’t be surprised if the Winamax name pops up somewhere over the next few years.
The black market
Nevada sports betting handle is hitting new highs almost every month. New Jersey’s handle reached more than $2.6 billion in the 10 months of reported revenues.
This isn’t all new money. Much of it is money that would have been spent on sports betting at offshore sites: the black market.
Now it has been repatriated to the USA. Once customers have left their preferred black market sites, it’s extremely difficult for the operators to get them back.
The black market can’t legally in the US. It can’t run TV spots or put up advertising hoardings. When the black market loses customers to state-regulated sites, it hurts them in the long term, not just the short term.
More than 80% of the US online sports betting market at least by population remains in states without active legal sports betting. This is changing, but the good news is that the black market has probably lost around 10-20% of its US market already.
In states with very high sports betting taxes, such as Pennsylvania, the black market will hang on to maybe 40% of its customers. Insensible states, which pitch tax rates in the sweet spot, 80-90% of black market customers will switch to the legal offer.
These estimates are based on the European experience, as evidenced in various studies.
Either way, the black market is a big loser today, and it’s going to be an even bigger loser in the future.
Finally, a sports betting loser we can all celebrate.
