Lotteries Playing Key Role In State-By-State Sports Betting Rollout

"Tempering the expectations of legislators on revenues is a key," says New Hampshire's Charlie McIntyre
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So you’re a legislator in one of the two dozen states that has yet to legalize sports betting, and after some research you conclude that you want your state lottery to be your regulator.

Sounds almost easy.

But as a quartet of lottery directors explained on a virtual panel at Betting on Sports America last week, the “fun” is just beginning.

That’s because each state where lotteries play a role has a different gambling landscape.

Take New Hampshire, for instance, where lottery czar Charlie McIntyre notes that his agency runs all sorts of gambling in the state — horse racing, bingo, and even card rooms as well as the lottery.

“New Hampshire is very much a ‘control state,'” McIntyre said. “For all liquor sales, if you buy a bottle of vodka — not that I do — you’re buying from a state employee in a state building.”

Granite State legislators elected to bypass competition in sports betting as well. After a series of bids, DraftKings won exclusive rights in the state one year ago and is a 50-50 partner with the lottery in terms of sharing gross gaming revenues from sports betting.

McIntyre added that two DraftKings physical locations opened recently in the state, describing “The Brook” in the Seacoast area as the company’s largest space in the U.S.

Other states take different paths

Delaware’s sports betting scenario is a bit different, with the lottery controlling all gambling except horse racing. Also, state residents have been betting NFL parlays since 2009 due to a quirk in the now-vacated Professional and Amateur Sports Protection Act of 1992 (known as PASPA).

That experience allowed Delaware to get a slight jump on New Jersey, the state that took the fight against PASPA to the U.S. Supreme Court and won in 2018.

Also, in Delaware more than 100 taverns, restaurants, and stores offer the parlay cards. And in another quirk, Delaware doesn’t offer mobile sports betting.

Tennessee, meanwhile, had no legal gambling other than the lottery until a month ago. The Tennessee lottery now has oversight over a competitive field of online sports betting operators, said lottery CEO Rebecca Hargrove — with four currently operating, three more coming by the end of the month, and “I have been told three more will be applying,” Hargrove said.

Finally, the District of Columbia has its own byzantine model that panel moderator and Missouri Lottery Executive Director May Scheve Reardon jokingly compared to infamous IKEA furniture assembly instructions.

“Putting together an IKEA piece of furniture would be a joy compared to deciphering and implementing regulations to support the complex legislation that we had when sports betting was passed in December 2018,” quipped D.C. Lottery Director Beth Bresnahan in response.

The D.C. Lottery both offers its own sports betting product and regulates private operators and their suppliers.

William Hill, the European bookmaking firm, opened a temporary sportsbook at Capital One Arena on July 31, with plans to launch its permanent book next spring.

Bresnahan said that the lottery will roll out its own retail location in mid-2021. But the lottery’s mobile app is not approved for operation in the “federal enclave” of the district, which Bresnahan said takes up about 30 percent of the land, nor within two blocks of the major sports facilities in D.C.

The critical current issue in the district is the COVID-19 pandemic, because in normal times, the number of workers in D.C. each workday exceeds the number of residents. Bresnahan said that the stay-at-home rate among employees in some part of the district is still around 90 percent.

And soon enough — or too soon for D.C., no doubt — neighboring Maryland and Virginia, where many of those employees reside, will be offering their own legal mobile sports betting.

Delaware parlaying wagers into profits

The addition of traditional “straight up” sports betting to an NFL gambler’s menu didn’t have the expected effect in Delaware, lottery director Vernon Kirk said.

“We anticipated a big drop in parlay cards because we figured, ‘Who’s going to bet a three-team parlay when they can bet just one game?'” Kirk said. “Wrong. People just like parlay cards now, and they have stayed loyal to that.”

That’s a questionable financial move by gamblers — but good for Delaware’s bottom line because parlays typically produce double-digit percentage profits, or about double what sportsbooks make on straight-up bets.

As for Delaware’s lack of betting apps, Kirk said, “We get beat up all the time for not having mobile. But if we have it, we’re afraid it’s going to hurt our retailer network.”

Delaware’s tiny size and the ubiquity of locations offering sports betting does create a unique quandary.

“We haven’t quite found the right solution,” Kirk said. “As long as we keep having these ridiculously high [parlay] holds, we can fend off our critics.

“But it’s inevitable that we’re going to have to do mobile. Maybe the idea is to find some way to keep the retailers involved, as well as the casinos” — meaning the three combination racetrack/casinos known as racinos.

‘Show me’ the way, says Missouri lottery executive

Panel moderator Scheve Reardon, whose state of Missouri legislators are on the cusp of debating a number of sports betting bills, asked for advice from the experts.

The consensus was that it might be ideal to have the state lottery both operate and regulate sports betting — whether including private competition or not.

Bresnahan, from the D.C. Lottery, unsurprisingly suggested, “I would say to keep it simple.”

Hargrove, from Tennessee, pointed to anecdotal evidence of a spike in calls to compulsive gambling hotlines around the time of the recent sports betting launch there as reason to ensure that legislation ensures financial support for such assistance (as Tennessee does).

McIntyre does not manage a competitive marketplace, but he had some advice for those states that will.

“I would be wary of revenue estimates because sports betting is such big numbers,” McIntyre said. “Everything is ‘billions and billions.’ Then people say, ‘If a billion dollars is being wagered, why don’t I get like, 10 percent, for $100 million?

“For a lot of our [lottery] products, there are 20 or 30 or 40 percent margins,” McIntyre added. “But sports betting is not that way, so tempering the expectations of legislators on revenues is a key.”

(As an illustration: Just over $800 million was bet in New Jersey in October, a national record for one month. But the hold for the sports betting operators was $58.5 million, with a tax collection for the state of $7.44 million on the $803 million handle.)

New Hampshire’s ‘High Wire Act’

McIntyre also was asked about future iterations of The Wire Act, given that his lottery has taken the federal government to court over the Department of Justice’s reinterpretation in 2018 of a President Obama-era version from just seven years earlier. The new opinion has left unclear whether multi-state online poker compacts and multi-state lotteries are still legal — with even state lotteries possibly in legal jeopardy as well.

“In 2018, the government opined that what was black is now white, what’s up is now down,” McIntyre said of a 59-year-old law championed by then Attorney General Robert F. Kennedy that focused on going after organized crime syndicates’ illegal bookmaking operations.

“The [incoming President Joseph] Biden administration appears to be, well, leaning more towards our way of thinking,” McIntyre said. “The ideal thing could be to reopen The Wire Act, undo the effect it has on states, and rework it toward organized crime.

“The fear is that to open The Wire Act now, via legislation, is to invite chaos. So we haven’t been of that mindset yet. But certainly we fought the law, and we won” at the federal district court trial, pending a First Circuit Court of Appeals ruling.

Cannibal — or complementary product?

As for the common refrain as to whether mobile sports betting and online casino gaming will harm brick-and-mortar casinos, Hargrove of Tennessee replied, “It’s way too early to tell — but my gut tells me it’s a different player.”

Bresnahan of D.C. agreed, adding that “our traditional lottery and iLottery are not cannibalizing each other.” McIntyre said that in New Hampshire, “in our experience [online gambling] has been additive.”

Obviously, lottery bosses will tout the lottery concept for running sports betting as a good one. But when asked why, the group coalesced around the decades of trust that consumers have developed for their lotteries.

“Our citizens know that it is fair if we said it is fair,” Hargrove said.

McIntyre said that “accessibility and transparency” of lotteries is critical for state residents.

“Any citizen in the state can call me,” McIntyre said. “And my email is public. You’re not going to get [Las Vegas Sands owner] Sheldon Adelson’s email, but you can get mine.”

Photo by Stephen Van Horn / Shutterstock.com
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