In DC’s rush to legalize sports betting, are the benefits overstated?

WASHINGTON — The rush is on to capitalize on legal sports betting, with Washington poised to join the growing list of states with a regulated market. But how much gold is at the end of this particular rainbow?

The D.C. Council took its second and final vote Tuesday on a bill to legally regulate sports gambling in the District. D.C. is now set to join a list of eight other states that have enacted similar laws since the United States Supreme Court overturned the Professional and Amateur Sports Protection Act in May. Tax revenues from regulated sports betting would help fund early childhood education and cultural programs, with carve outs for problem gambling and small percentage royalty fees to professional sports leagues.

This bill already looks notably different from the one initially discussed at its introduction back in mid-October. Rather than an open market in which many different operators can apply for mobile licenses, the Council elected to use a single, citywide app-based operator platform, with the D.C. Lottery in charge. That both restricts competition and burdens the District with all the risk, a decision that has drawn ire from different sides.

The most vocally opposed was council member David Grosso, I — At Large, who articulated a number of concerns. In particular, sports gambling — like other gambling apparatuses, including the lottery itself — will serve as a regressive tax on the poor, who can least afford the losses.

“I think we shouldn’t necessarily be out in front on this,” Grosso told WTOP Monday. “I just can’t see how it doesn’t have a negative impact.”

A quick glance at the sports betting market appears to reveal an enormous industry just waiting to be corralled. The state of New Jersey recently reported totals of $928 million bet on sports from the time the state’s law went online in mid-June through the end of November. While that’s an eyebrow-raising sum, it comes with several caveats.

New Jersey already had a robust brick-and-mortar casino industry and has long been a gambling destination on the East Coast, giving it a built-in base of gambling dollars unlikely to be matched in other states. The five-and-a-half month stretch also covers the bulk of both the NFL and college football seasons, the most heavily bet sports on the calendar. In New Jersey, football has accounted for 35.3 percent of that total ($328 million). According to a UNLV Center for Gaming Research study published in January, football betting comprised 41.7 percent of all sports bets placed in Nevada between 2010-17.

More significantly, that $928 million in total wagers has only netted $21.2 million in actual post-expense revenue, or roughly 2.28 percent of the total amount wagered.

The fiscal impact statement created by the D.C. Office of the Chief Financial Officer projects some eye-popping tax revenues, totaling $91.74 million over a four-year period. Those are based on projected gross sports wagering revenues of more than $7.6 million for the second half of 2019, then upward of $26 million in 2020, $28.3 million in 2021, and $29.7 million in 2022. Again, those are not total amounts bet, just net revenues.

If, for comparison, we use New Jersey’s 2.28 percent mark as a guide, in order for D.C. to hit those revenue goals it would require gross sports wagering totals in the District of more than $1.14 billion in 2020, $1.24 billion in 2021, and $1.3 billion in 2022.

“I don’t see how the numbers add up,” said Grosso, who noted that they seemed to be based on the “rosiest potential outcome.”

Because of federal laws requiring D.C.’s budget to be balanced, any shortfall from projected taxes will come straight out of the buckets the money is intended for. That potential for disappointment only adds to Grosso’s list of reservations.

“Part of it would be the false promise to all the people who think they are going to get all this revenue,” said Grosso. “How do we explain that to them?”

New Jersey also has an open, competitive market, as opposed to the single operator market the D.C. bill proposes to institute through the lottery. There are dozens of operators who pour roughly one third of their revenue back into marketing and advertising, something that is hardly assured under a single, noncompetitive entity.

“The problem is that it seems like the study hasn’t taken into account the fact that you do not have a captive audience and you have a single provider,” said Jeff Ifrah of iDEA Growth, a 501(c) 3 that promotes growth in the online gaming sector. “This means a huge marketing effort will be required by the single provider operator to attract consumers, grow this market and capture market share from illegal offshore betting operators targeting D.C. residents.”

He believes another nearby state offers a much more realistically comparable market.

“Delaware has a million people, they have a single operator, and they have three casinos,” he said.

A precise view of D.C.’s market is still cloudy. But for comparison, in the stretch from mid-June to the end of October, Delaware took $54.4 million in total sports bets. West Virginia, another new player in the market, totaled just $9 million in two months from mid-August to mid-October.

Complicating matters further is the fact that a heavy percentage of the D.C. market figures to be online. But sports betting regulators can’t advertise on Google, meaning that even those who do seek out sports betting online will continue to be bombarded with links offshore, illegal sites, while not necessarily being aware of the new, regulated betting option.

“If you opened up a pet store tomorrow, just because someone is looking for a dog, how are they going to know to buy it from you?” said Ifrah.

While Ifrah is happy to see D.C. board the legal sports betting train, he is concerned with the details of the rollout.

“If a single model was going to be pursued, I think a little more study and analysis was required,” he said. “There are no casinos in D.C. You don’t really have a land-based industry that you can have a mobile operator partner with … The lottery isn’t really equipped to supervise a sports betting model.”

Ifrah describes the result as something of a shoot-first-and-ask-questions-later approach that he hopes can be open to changes in the future.

“This was the fastest thing they could roll out,” he said.

Two amendments were introduced, and one passed. That amendment was Ward 6 council member Charles Allen’s, which removed the RFK site from brick and mortar gambling locations, a move with potential ramifications for any future users of the site, including an NFL team.

Even if Ward 2 council member Jack Evans — who introduced the bill — pushes for the emergency legislation mechanism, thus avoiding congressional oversight, there may still be further complications from the federal level as well.

Two weeks ago, outgoing Senator Orrin Hatch (R-Utah) introduced a draft of a potential federal oversight bill. Between that and potential bills at the state level for Maryland and/or Virginia in 2019, the only thing certain is that the sports betting landscape will continue to change rapidly for the foreseeable future.

Like WTOP on Facebook and follow @WTOP on Twitter to engage in conversation about this article and others.

© 2018 WTOP. All Rights Reserved. This website is not intended for users located within the European Economic Area.

Federal News Network Logo

More from WTOP

Log in to your WTOP account for notifications and alerts customized for you.

Sign up