Next week the US Supreme Court will hear oral arguments put forward by New Jersey officials to repeal federal PASPA provisions. US gambling expert Chris Grove a Managing Director of Eilers & Krejcik Gaming details three contentious issues that have to be addressed by US betting stakeholders…
The issue of sports betting in the United States has been a dominant topic among global gambling industry stakeholders following the decision of the U.S. Supreme Court to hear a case that could result in an end to a decades-old ban on state-regulated sportsbooks.
There are no shortage of opinions on which way the Court should rule. Less-discussed is an issue of arguably similar importance: How able will regulated sports betting in the U.S. market be able to attract new customers and compete with black-market sites for existing sports bettors?
In my view, the ability of regulated operators to support a healthy market for sports betting will come down to three questions concerning how regulated sports betting is implemented in the U.S., questions that the gambling industry and supporters will want to start shaping the answers to far sooner than later.
Will the tax rate be reasonable?
Sports betting is a unique product that cannot bear the same sort of tax rates frequently applied to slots, table games, or poker. That’s especially true in the U.S., where operators will be subject to a .25 percent federal tax on handle in addition to whatever state taxes are assigned to the product.
The early indications are that lawmakers do not appreciate this reality. In Pennsylvania, one of two states to pass legislation authorizing sports betting should the federal ban be lifted, lawmakers slapped sports betting with a 36 percent tax rate on gross gaming revenue – more than five times the tax rate currently applied in Nevada.
Once sports betting tax rates move past the double-digit threshold, the market is in jeopardy. Operators will have little to no room left for marketing, promotions, and product development, putting them at a distinct disadvantage to black-market sites who operate relatively free of such tax and licensing costs.
If the industry is unable to effectively communicate this reality to politicians, the market for expanded regulated sports betting in the U.S. may be ended before it begins.
How accessible will the product be?
Some consumers are more than willing to travel and jump through other hoops in order to place a sports bet. Most are not. That’s why the issue of accessibility is so critical to the viability of the regulated U.S. sports betting market.
Will regulated sports betting be available online? In some states, certainly. Pennsylvania’s bill authorized online sports betting and the general consensus is that New Jersey sports betting will also be available online. But will it be available online in many, or most, states? That’s a tougher question, especially when you consider the agonizingly slow rollout of regulated online gambling in the U.S. (online casino games are only available in three states, poker in four).
And if the product is available online, will consumers be able to create and fund accounts remotely, or will they have to show up at a physical location to set up their online account, as is currently the case in Nevada?
Too much friction from the consumer point of view on this front will discourage new customers from participating and make it tough for existing customers to leave the illegal sportsbooks that provide them with ready, convenient access.
How robust will the product be?
Regulated sports betting will enjoy some inherent advantages over illegal offerings. It is unlikely, for example, that an illegal sportsbook will ever be able to compete with a high-end, state-of-the-art live sportsbook facility like the one being planned for the Borgata.
But that advantage will only prove compelling to a slice of the potential market. Most customers will care about more fundamental features: The number of available markets, the types of markets, the feature, the available sports, and so on.
Lawmakers and regulators will play a significant role in determining how robust regulated sports betting products are, or aren’t. One example: There’s talk of limiting regulated sports betting to professional sports, an approach that no doubt thrills illegal sportsbook operators who know full well just how much of a betting juggernaut college sports are. Another: If policymakers create too high of a barrier to entry for technology providers, the regulated market could miss out on a significant source of innovation.
The potential for regulated sports betting in the U.S. is significant. But that’s all it is – potential. Without a thoughtful approach that carefully considers the questions outlined above, the U.S. market could easily become a cautionary tale of a great opportunity squandered.
Chris Grove is a Las Vegas-based gambling industry strategist whose research and insights are regularly cited by policymakers and media. A managing director at Eilers & Krejcik Gaming, Grove also publishes industry-focused sites including LegalSportsReport.com and PlayNJ.com.