The fact that state lotteries across the U.S. seem to be making a stronger-than-expected play for market share in the burgeoning legal, regulated sports business industry has been met with surprise by some casino and other gaming executives.
You know who has noticed that? State lottery officials.
Maryland Lottery Director Gordon Medenica and Kansas counterpart Stephen Durrell remarked on that situation at the Sports Betting USA gaming industry event in Manhattan on Wednesday.
“It’s interesting that in the U.S., as soon as sports betting [beyond Nevada] became a possibility, it was immediately seen as something primarily for the casino business – and lotteries became some sort of a second thought,” Medenica said. “But I think that now that new regulatory schemes are developing in individual states, we’ll see the natural progression of the lottery’s role.
“The notion of having multiple business lines under a regulatory umbrella is not new,” added Medenica, whose state has not yet joined more than a dozen others in legalizing sports betting yet. “We deal with casinos, we have fantasy sports under us, charitable gaming, and so forth. To us, sports betting is a natural additional business line.”
Lotteries and sports betting around the world
Medenica added that an estimated 70% of all legal sports betting in the world is managed by lottery companies.
Durrell of Kansas – whose state runs four commercial casinos but also is not yet live on sports betting – said: “We view sports wagering, lottery, and gaming as just one big entertainment ball. We’re fighting for entertainment dollars that people otherwise might be using instead of going to the movies or out to dinner.
“So I think of that as one industry, and get disturbed when there are sort of potshots taken at each other – either casinos taking a shot at lotteries, or lotteries taking a shot at casinos, because it’s unnecessary and it confuses the issue. We’re all trying to row in the same direction.”
Another panelist, Intralot executive Dr. Nick Papadoglou — whose company has been chosen to run the pending sports betting operation in Washington, D.C. via a much-debated process — joined in the sentiment.
“Why is there a question about whether lotteries can do it?” Papadoglou asked, adding of the rivalry with casino operators, “Trying to pick on each other is not going to do any good in the long run.”
Medenica said that some casino industry sentiment that “lottery managers are not capable of running a sportsbook” is missing the point. He said that multi-national gambling operators such as Intralot, Scientific Games, or IGT wind up doing the heavy lifting for the lotteries once a vendor agreement is reached.
With longtime gaming industry lobbyist and moderator William Pascrell III sometimes playing devil’s advocate, Medenica in particular took on some prevailing assumption about U.S. lotteries.
One was the notion that the lottery increasingly is just for elderly citizens.
“The lottery tends to be played by about 75% of the adult population, so by definition the demographics of the lottery are going to be similar to the demographics of the state,” Medenica said. “There’s a big difference between the lottery business and the casino business, which has I think a much narrower player profile and to a smaller segment of the population – but we don’t need to make those arguments.”
Perhaps the key points of wariness among those in the sports betting industry – including sports bettors themselves – is that lotteries are not built to handle the level of competitiveness present among, for example, more than a dozen mobile sports betting companies vying for market share in New Jersey.
Medenica and Papadoglou countered that obtaining vending contracts with state lotteries is itself a challenge – Medenica called such bidding “brutally competitive.”
The idea that lottery officials only will allow one partner per state also was questioned by Medenica, who said state legislators are free to pursue different models that might produce multiple winners vying for consumer dollars.
Still, the core question is whether an entity like a state lottery – which with its main products usually maintains takeout rates even higher than in horse racing – could adapt to the low-margin reality of sports betting.
But Medenica and Durrell said that they are well aware of that issue.
“The most important thing is that we have to be competitive, because we need to take share from the illegal markets that don’t pay taxes and don’t contribute to the state,” Medenica said, explaining that it is not lottery directors who could create issues.
“The dilemma as a state agency will be convincing lawmakers how to make the bets competitive,” Medenica said. “To do that, you have to have low taxes – and we recognize that. It’s a cautionary tale for lawmakers. I like to say, ‘Sports betting is a land rush – it’s not a gold rush.
“Legislators get ‘bug eyes’ about how this [new sports betting revenue] is going to solve all their problems, and it’s not. So it’s about managing expectations so we can be successful. We know this is a single-digit margin business with great volatility.”
Added Durrell: “We absolutely don’t want to overtax, or take a larger percentage than necessary because we don’t want to encourage someone into staying illegal.”
Sports betting/lottery partner states
Delaware is the sports betting/lottery pioneer, having experimented with multi-team parlay betting on NFL games in 1976 and thus gaining an exemption for that in the now-deceased Professional and Amateur Sports Protection Act of 1992. A decade ago, Delaware finally revived the highly-profitable NFL parlays – and last summer, the state was just days ahead of New Jersey as the first to offer traditional Vegas-style sports betting outside of Nevada.
Oregon sports bettors just got the green light in that state for lottery-managed wagering with its “Scoreboard” app via SB Tech. Rhode Island (which has a deal with William Hill) and West Virginia (William Hill, DraftKings, FanDuel ) have their operations underway, and New Hampshire’s lottery recently awarded DraftKings and Intralot with the right to run its state sports betting offerings.
On Tuesday, five New Hampshire cities voted to permit retail sports betting locations to be sited there while four other cities — including Nashua and Concord — did not.