bookmakers of long standing laugh at politicians and clowns
Three hours after the U.S. Supreme Court issued a ruling on May 14 that struck down a federal law prohibiting states from authorizing sports betting, officials at New Jersey’s Monmouth Park said at a hastily arranged press conference that the track would begin taking sports bets within two weeks, with the “possibility we could be ready sooner,” said Dennis Drazin, the head of the track.
On Monday, that two weeks will have come and gone. And Monmouth Park will not have offered a single sports bet, nor does it plan to for several more weeks.
Monmouth’s expectation of a fast rollout has been tempered by the realization that the state needs to dot its “i”s and cross its “t”s before the track and other gambling facilities can move forward. The state legislature is expected to take up a bill regarding regulation of sports betting in the first week of June, with votes on the bill tentatively scheduled for June 7.
“We should be ready to go on June 8,” Drazin says now. “But when you are dealing with a legislature, there could be some unexpected bumps in the road.”
In other words, everyone hold your horses.
Across the United States, following the Supreme Court ruling, advocates for sports wagering – which could have a significant impact on the racing industry, for better or worse – have said that the sea change unleashed by the decision will lead to the rapid expansion of sports wagering. But as New Jersey’s example is proving, enthusiasm for new wagering opportunities is giving way to the realization that the process is not nearly as simple as many have projected.
The Supreme Court ruling, which was based on a violation of a constitutional principle that prohibits Congress from dictating policies to states, did not legalize sports wagering. It merely gave states the power to authorize the practice. New Jersey, the lead plaintiff in the Supreme Court case, had already authorized sports wagering, by referendum and legislation, giving the state the legal foundation to go ahead with its plans.
“Legally, there’s nothing in place preventing us from opening,” Drazin said this week.
But still they wait.
As in New Jersey, delays in many states will be procedural, tinged with the usual political realities that surround a controversial topic. In California, legislators face a June 28 deadline to ratify a bill that would place a constitutional amendment on the ballot this November. California officials have already said that the deadline is likely to pass without a bill, which makes the 2020 ballot the earliest an amendment could appear. In New York, Gov. Andrew Cuomo, a Democrat, has said that legislation is needed before going forward, and that won’t happen until next year at the earliest.
But there also are much larger forces in play.
Foremost among them is the effort by national sports leagues to shape policies regarding gambling on their sports. Already, the NFL has stated it will seek federal legislation requiring bet-takers to provide the NFL with 1 percent of gross revenues earned from bets on the league’s games, a so-called “integrity fee.” The league has a proponent in Sen. Orrin Hatch, the Utah Republican who was one of the original sponsors of the act struck down by the Supreme Court, the 1992 Professional and Amateur Sports Protection Act.
“At stake here is the very integrity of sports,” Hatch said on the day after the Supreme Court ruling was released.
A release from Hatch’s office said that the legislation sought by the NFL will “establish fundamental standards for sports betting that will uphold the integrity of the game, protect consumers, safeguard against underage and problem gambling, and help states who [sic] choose not to permit sports betting within their borders.”
NFL Commissioner Roger Goodell said the league is seeking federal legislation that will “protect our content and intellectual property from those who attempt to steal or misuse it.”
The effort by the leagues to establish a fiduciary right to betting revenue – whether through legislation, negotiation, or litigation to define its “intellectual property” in relation to sports bets – will have an outsized effect on the future direction of sports betting. The fee the NFL and other leagues are seeking represents a significant portion of a bookmaker’s typical margin under the existing business model in Las Vegas.
The leagues are not the only entities looking for a share. States are likely to seek a tax over and above that paid by businesses on normal profits, as is customary for gambling activities outside of Nevada. In Pennsylvania, for example, the state legislature authorized sports betting in 2017 on the condition that federal law allowed for the practice, but it also slapped a $10 million licensing fee on bookmakers and approved a 34 percent tax rate on the revenue. It’s not expected that any bookmakers are going to attempt to enter the market in Pennsylvania until there’s far more clarity on the leagues’ bargaining power and the structure of potential federal regulation.
The American Gaming Association, which represents gambling interests on both the state and federal level, has already seemed to acknowledge that it expects the existing business model of legal bookmaking to change as a result of the desire by leagues and states to get a finger in the pie. It released a statement this week stating that “smart, efficient regulation” would generate “new revenues for states, sports leagues, and broadcasters.”
That creates a problem for bookmakers seeking to enter the market. If the business model of newly licensed bookmakers has to change to account for more entities receiving a cut of the revenue, legal bookmaking will be more expensive for customers than illegal bookmaking, where the standard 10 percent vigorish will remain in place. If legal bookmakers aren’t capturing a large share of the illegal market, that will lead to pressure for a crackdown on the black market.
So where does racing fit into all of this? Already, some racing companies, such as Churchill Downs Inc. and Paddy Power Betfair, the owner of TVG and an exchange-wagering operation in New Jersey, have struck deals with other companies seeking to leverage their existing operations and customer databases for entry into the legal bookmaking business. But beyond the merger and acquisition news, details about how and where they plan to do that remain unclear.
The hope of many in the racing industry is that the sport’s facilities will be favored in state legislatures as licensed bookmaking locations, but it’s anyone’s guess whether that will lead to substantial inflows to a struggling industry. At Monmouth Park, New Jersey’s horsemen lease the track from the state, so any revenue flowing to the track from sports betting will benefit racing. But that is not the case at many other tracks, which will have to compete with other non-racing lobbying groups to gain favored status as licensed locations from state legislatures.
The bottom line for the racing industry is this – the sport’s constituencies will be only one of a number of groups seeking to get in on the act or get a piece of the action, and it will by no means be one of the most powerful of those groups. With critical questions unresolved on many issues, just finding a seat at the table might be a victory, at least at first.
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