SPORTS BETTING NO CURE-ALL
Fitch Reports: State should not expect major gains by changing laws
Legalized sports gambling could be in the cards for Connecticut, but it will not likely be a jackpot of tax revenue for the state, said one of the country’s major credit rating companies.
Tax revenue generated from sports gaming is expected to be “modest,” according to report by Fitch Ratings, as states will have to offer a competitive tax rate in order to “draw participants from existing illegal or informal wagering pools.”
Marcy Block, the leading Fitch analyst for “States Eye Sports Betting as SCOTUS Decision Nears,” said the expected modest tax revenue would have little impact on states’ credit ratings.
“There will be marginal, if any, impact on ratings,” she said.
Fitch released its report on sports betting about a month before the Supreme Court last Monday overturned a 1992 law that prohibited all but four states from allowing wagering on sporting events. New Jersey had fought for years the Professional Amateur Sports Protection Act, or PASPA, as it cited sports gaming as a way to increase tourism and tax revenue for the state.
The court’s 6-3 decision to overturn PASPA cleared the way for states to make their own laws on the issue. Sports betting is already legal in Nevada, Oregon, Montana and Delaware because they had laws in place before 1992.
Block, a prominent analyst of the gaming industry, said she was not surprised by the Supreme Court’s decision. She saw PASPA as “essentially a violation of the Constitution,” in regards to the 10th Amendment. Block added the broad repeal of PASPA charts the easiest course for states going forward.
“That was the cleanest decision they could come to,” she said. “If they had thrown out portions of PASPA, it would have been trickier for states to regulate sports gaming.”
Early action
With New Jersey seemingly getting closer to victory, a handful of states, including New York and Pennsylvania, have pushed forward bills in the past two years to allow for sports gambling in the event PASPA was overturned. Connecticut and several other states have introduced legislation along the same lines in recent sessions.
Connecticut last year passed a House bill that allowed for sports gambling even as federal laws continued to prohibit the practice. This year, Senate Bill 540 added more details to the bill and received a favorable report, but was tabled and did not get a full vote before the session ended. The Connecticut legislative session ended May 9 and the Supreme Court decision came on May 14.
Shortly after the Supreme Court decision was announced, Gov. Dannel P. Malloy released a statement and said he was prepared to call the General Assembly into special session to consider sports betting.
“It is incumbent on us to consider the question of legalized sports betting in a thoughtful way that ensures our approach is responsible, smart and fully realizes the economic potential that this opportunity provides,” Malloy said in his statement.
Malloy has not taken further action on the topic since releasing the statement.
SB-540 passed the Finance, Revenue and Bonding Committee, 31-16, on April 5. The bill would “authorize sports wagering in the state to the extent permitted under federal law.”
State Rep. Steve Harding, R-Brookfield, voted against the bill in committee. He said the state needs to take its time and not rush to legalize sports gambling.
“We need to have a strong public policy discussion on this issue,” he said. “If we are going to make policy, it has to be based on public health and safety, not revenue.”
“The 2000s and 2010s set the stage for gaming. There’s been huge growth in the gaming sector in those decades, which has led to increased interest in sports betting.” Marcy Block, Fitch analyst for “States Eye Sports Betting as SCOTUS Decision Nears”
A spokesman for the state Department of Consumer Protection, which would be charged with licensing sports wagering operators, said the department is “prepared to work closely with the Governor’s Office and legislators regarding next steps.”
Block said each of the states that have laws in place have different processes to manage before allowing sports gambling. Some states have already determined license fees and tax rates, while others have not. What types of sports gambling to allow and where to allow it are other factors states must consider.
“Sports gaming is not tied to casinos — it’s not restricted just to them,” she said. “States can decide how to offer sports gaming.”
The Mashantucket Pequot and Mohegan tribes, which operate casinos in Connecticut, argue that they should have exclusive rights to operate sports wagering in the state due to a revenue-sharing agreement with the state.
Tax rate critical
The Fitch report states that sports wagering may drive incremental visitation to casinos, thereby increasing marginally the revenue paid to the state, but expected tax revenue boons are not realistic.
In Connecticut, SB-540 proposed a 15 percent tax rate, in addition to a $10,000 application fee for operators, which would be renewable annually at $5,000.
Connecticut’s proposed tax and fee structure falls in between that of Pennsylvania and West Virginia. Pennsylvania would charge a $10 million initial operator fee and tax gross gaming revenue at a rate of 34 percent, a structure that Fitch said would deter potential operators.
“West Virginia’s tax rate of 10 percent and much lower licensing fees are expected to generate greater operator interest, in Fitch’s view,” the report reads.
Block added: “Despite the anti-sports betting law being overturned, legalized sports gaming will not add to state coffers unless operators and players participate.” Block said online sports gambling, much of which is done illegally now, could play a significant factor in how much revenue states collect.
“The online perspective is interesting,” she said. “If players shift from illegal online platforms to legal offerings, that could be a big driver.”
Sudden interest
Interest in legalized sports wagering is a relatively new phenomenon. In 1992, when PASPA was enacted, only four states allowed sports gambling. With the proliferation of casinos over the last two decades — particularly in the Northeast and MidAtlantic states — interest in gaming took off.
“The 2000s and 2010s set the stage for gaming,” Block said. “There’s been huge growth in the gaming sector in those decades, which has led to increased interest in sports betting.”