Sports­books may avoid some states

USA TODAY US Edition - - FRONT PAGE - A.J. Perez

One New Jersey race­track set Me­mo­rial Day as the target date to ac­cept the state’s first bets af­ter the Supreme Court rul­ing that cleared the way for sports gam­bling na­tion­wide.

The es­ti­mated $150 bil­lion a year il­le­gal sports gam­bling in­dus­try, how­ever, isn’t go­ing away any­time soon. One need only look to Penn­syl­va­nia — one of a hand­ful of states that passed leg­is­la­tion in an­tic­i­pa­tion of the de­ci­sion to over­turn the Pro­fes­sional and Am­a­teur Sports Pro­tec­tion Act (PASPA) — to see a ma­jor rea­son why.

“There is a huge black mar­ket that pays zero tax,” said Greg Car­lin, CEO of Rush Street Gam­ing, whose com­pany op­er­ates two casi­nos in Penn­syl­va­nia. “If le­gal sports bet­ting is go-

ing to be a reg­u­lated and suc­cess­ful busi­ness, the tax rates can’t be so high that it makes it im­pos­si­ble to com­pete with the black mar­ket.”

Penn­syl­va­nia is seek­ing a

$10 mil­lion li­cens­ing fee, along with a state tax of 34% on gam­ing revenue. By com­par­i­son, Ne­vada — the only state be­fore Mon­day that had le­gal­ized, state-sanc­tioned bet­ting — pays 6.75% to the state. All states must pay a fed­eral ex­cise tax, which equates to about an­other 5%.

It’s a sticker price that has given mul­ti­ple com­pa­nies pause, in­clud­ing two that op­er­ate gam­bling es­tab­lish­ments in the state: Rush Street (Rivers Casino in Pitts­burgh and Sugar House Casino in Philadel­phia) and Penn Na­tional Gam­ing (Hol­ly­wood Casino in Grantville).

“We haven’t made a fi­nal de­ter­mi­na­tion on whether to pur­sue sports bet­ting in Penn­syl­va­nia,” Jeff Mor­ris, vice pres­i­dent of pub­lic af­fairs and govern­ment re­la­tions at Penn Na­tional Gam­ing, said in an email. “In ad­di­tion to the high ap­pli­ca­tion and an­nual li­cens­ing fees, the chal­lenge will be try­ing to make the 34% tax rate work — this would be the high­est tax rate in the world on sports bet­ting. For com­par­i­son, West Vir­ginia recently passed a sports bet­ting law at a 10% tax rate, which is the range most states are con­sid­er­ing.”

New Jersey is ex­pected to tax gam­ing revenue be­tween

8%-10%, and Mis­sis­sippi, an­other state that could launch sports gam­bling in the com­ing week, will have a tax of 8%.

Car­lin said Rush Street Gam­ing “hasn’t made a de­ci­sion” to launch sports bet­ting un­der the cur­rent terms, though he didn’t rule out jump­ing into the mar­ket to keep a com­pet­i­tive ad­van­tage if oth­ers de­cide to pounce.

“There could be cir­cum­stances that we would get in, even if it means we aren’t go­ing to make any money and pos­si­bly lose money,” Car­lin said. “We are still as­sess­ing costs and mak­ing pro­jec­tions. We want to see the reg­u­la­tions are com­pleted.”

Penn­syl­va­nia Gam­ing Con­trol Board spokesper­son Doug Har­bach said that likely won’t hap­pen un­til next month at the ear­li­est. Har­bach said the agency has had con­ver­sa­tions with po­ten­tial sports gam­ing op­er­a­tors, though it’s too soon to con­clude how many, or if any, will agree to the cur­rent fee and tax rates.

Sports law at­tor­ney David S. We­in­stein said some gam­bling com­pa­nies openly ques­tion­ing whether to open lo­ca­tions in states with high tax rates could just be “lob­by­ing.”

“This is free money for the states,” said We­in­stein, for­mer as­sis­tant U.S. At­tor­ney and a part­ner at Hin­shaw & Cul­bert­son. “Be­fore Mon­day, they got no revenue from sports gam­bling. If no­body wants to come in and pay the tax rates the leg­is­la­tors set, they could say, ‘Fine. You don’t want to pay it. We will just run it our­selves.’ ”

While sports gam­ing is seen as the next fron­tier for many states to boost their cof­fers, those within the in­dus­try fre­quently point out that it’s a low-mar­gin busi­ness.

The Amer­i­can Gam­ing As­so­ci­a­tion, the lob­by­ing arm for casi­nos, es­ti­mates that sports­books in Ne­vada make about 5% af­ter taxes and ex­penses. Some sports­books — such as Wil­liam Hill, which op­er­ates more than 100 lo­ca­tions in the state — are more prof­itable, ac­cord­ing to a study by Deutsche Bank re­leased in March.

Wil­liam Hill will run what is ex­pected to be the first sports­book to open in the post-PASPA era at Mon­mouth Park Race­track in Ocean­port, N.J.

The com­pany was founded by its name­sake in Bri­tain more than 80 years ago when sports bet­ting was il­le­gal in the UK, and the gam­ing gi­ant came to the USA in 2012 wait­ing for what oc­curred in Washington on Mon­day.

“I think that was one of the rea­sons they bought my busi­ness,” said Joe Asher, who be­came CEO of Wil­liam Hill U.S. af­ter the ac­qui­si­tion of his Ne­vada gam­ing oper­a­tion (Lucky’s Race & Sports Books) and two oth­ers six years ago.

“The idea was to buy these three sports­books, com­bine them and make it into prof­itable busi­ness that would position it­self to take ad­van­tage of the mar­ket when sports bet­ting be­came le­gal in the U.S., whether that was 2013, 2015, 2018 or 2025. We didn’t know when it was go­ing to hap­pen, but we knew one day it would hap­pen.”

Along with taxes, an­other com­pli­cat­ing fac­tor is a 1% in­tegrity fee the sports leagues are seek­ing in many states. That would come out of the “han­dle,” the to­tal amount taken in by a sports­book for a bet — not on the revenue gen­er­ated.

No state has passed leg­is­la­tion that would in­clude such a fee, though bills un­der con­sid­er­a­tion in Illi­nois, Kansas, In­di­ana and New York do in­clude it.

“I’ve been try­ing to get the word out be­cause 1% seems like a nice, small num­ber,” Asher said. “Re­ally, that 1% would equate to about 20% of the rev­enues.”

The end re­sult could be that states seek­ing higher taxes and agree­ing to in­tegrity fees could end up with the same tax revenue on sports gam­bling as they had be­fore the Supreme Court ruled: None.

JOHN LOCHER/AP

Start­ing and run­ning sports­books in some states could be an ex­pen­sive propo­si­tion.

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