The Covid-19 pandemic has forced states to reconsider their policies towards online sports betting. With many states expecting revenue declines in fiscal year 2021, it is high time to consider options – but when it comes to online sports betting, some options are better than others.
During NY’s 2021 State of the State, Governor Andrew Cuomo endorsed legislation to legalize mobile sports wagering in the Empire State. However, the lottery-run monopoly model referenced by Cuomo (as opposed to a casino-tethered model) may impede the market, as well as the state’s long term tax revenue.
The difference is between the state making roughly “50 million dollars a year versus 500 million dollars a year,” one official said, touting the expected revenue potential for the lottery model.
The New York officials are likely looking to New Hampshire as a model. New Hampshire is the most successful lottery-run state. With DraftKings licensed as the sole mobile platform, New Hampshire takes 51% of betting revenue for the state lottery.
While New York may have a similar plan in mind, the situation is very different. With New Jersey next door, a lottery-run monopoly model would be unlikely to work well, as players will inevitably have other options, the monopoly will be undercut.
Comparing The Lottery And Casino Models
The casino-tethered sportsbook model allows multiple platforms to compete for online bettors. This model also allows traditional casinos to partner with mobile sports betting platforms, like DraftKings or FanDuel. With more than one place to bet, platforms are forced to compete for market share by offering players better odds.
States that have chosen the casino-tethered model, like New Jersey, Pennsylvania, and Nevada, have mostly outperformed states opting for the lottery model.
In contrast, the lottery-run model often operates as a monopoly, with one platform being regulated by the state lottery. In states with a pure monopoly, players have no other betting option. This model not only eliminates competition but, as a result, appears to reduce total wagering.
The lottery-run model does, however, boast higher tax rates for the state. States choosing this model bet that higher tax rates won’t scare too many players off, even when Americans wage $150 billion in illegal bets annually.
New York Should Look To Other States
Since PASPA was shot down in 2018, 22 states and the District of Columbia have legalized sports betting in some form. The states utilizing the casino-tethered model have garnered the most tax revenue.
In New Jersey, a state that brought in $43 million in sports-betting tax revenue, 80% of all wagers came from mobile betting. In Indiana during the pandemic, 91% of the total sports betting handle came from mobile wagers, even after the live casinos reopened.
Of the states that have opted for the lottery model, only Oregon and Montana run a true monopoly. Several other states have, or are allowed to have, commercial vendors. This hybrid model, like what the District of Columbia has adopted, sheds light on the problem with a mobile monopoly.
Citing Covid-19, legal issues, and flaws with the GambetDC betting app, officials in D.C. hoped to explain their distorted tax revenue projections. With $263,000 in tax revenue coming from GambetDC (and another $140,000 coming from a live sportsbook at Capital One Arena), officials vastly overestimated the tax revenue potential – which they expected to be $17 million by the end of the fiscal year.
It is revealing that while Capital One Arena brought the city less than half the tax revenue of the GambetDC app, it brought in triple the total wagers. This means that a much larger proportion of all the bets brought in through the mobile app translate to tax revenue. However, due at least in part to the mobile monopoly, the D.C. app garnered a fraction of the wagers they originally forecasted.
On January 11th, the Washington Nationals announced a partnership with BetMGM. The multi-year deal will include the opening of a BetMGM sportsbook in Nationals Park as well as a mobile app, permitted for use around the park. Likewise, the Caesars Sportsbook app just launched in D.C. and will be permitted for use within a two-block radius of the Capital One Arena.
Only time will tell if the addition of these mobile platforms will provide enough competition for D.C. players to bet to the degree they were expected to.
New York Flirts With Disaster
While D.C. seems to have learned from their monopolistic mistake, New York may share their early fate. New York is in danger of failing to see the biggest shortcoming with the lottery-run monopoly model.
Namely, that without proper competition, the mobile sportsbook never gets off the ground. It may be true that states tax at a higher rate under the lottery model, but if the handle is much lower, the overall amount of tax revenue generated will be as well.
Players are incentivized to go play in a state with a better model, to not play at all, or to continue betting how they have been for years, legal or otherwise. There’s a glimmer of hope, though, in the form of a bill that would legalize a casino-focused sports betting market in New York.