Author: David Ross

Arizona small businesses have waited 20 years for gaming to move off the state’s tribal reservations. They looked forward to getting in on the action when sports betting legislation first went before lawmakers in 2019.

Now those business owners say they’re still being left out of what could be a multimillion-dollar new industry.

As always in the sausage-making process of writing laws, it seems some interests get rich, some get by, and some get bypassed.

Under a bill promoted by Governor Doug Ducey, a total of 20 sports betting licenses would be allocated in the state: half to tribes, and half to professional sports franchises. Arizona’s four major professional sports teams would be able to operate sports betting at their venues, at separate retail locations within a quarter mile of the stadiums/arenas, and also online. The remaining licenses would be awarded to sports entities like the PGA Tour and NASCAR.

Arizona tavern owner David Delos says in this case, owners of small bars and taverns, where sports fans gather to cheer on their teams, are the losers.

“We were pretty excited (about the legislation) until about a month ago, when we found out we missed out on any opportunities,” said Delos. He is president of the Arizona Licensed Beverage Association (ALBA), whose members hoped for the right to bid on those licenses.

“There are a lot of moving parts, and many are restrained by compacts,” Delos told GGB News, “but we felt it would be a win-win—the more money we made, the more the state would make.” Delos likes the idea of tracking sports wagers with geofencing apps, so if someone places a bet in a bar, the bar owner gets a percentage of the fee.

ALBA was established in 1936, shortly after the end of Prohibition. Its mission is to “protect retail liquor licenses against unfair legislation.” The group currently represents 500 businesses in the Grand Canyon State, and has a full-time lobbyist, Don Isaacson. He had his work cut out for him in the twisty maze of Arizona’s legislative session, as lawmakers hammered out the bill to expand gaming.

Winning Tribal Support

Ducey submitted his bill after months of negotiating with gaming tribes, which have historically opposed offering sports betting to actual sports teams. In exchange for the tribes’ support, Ducey negotiated amendments to gaming compacts that would give tribes the right to offer new table games and also open an unspecified number of new casinos, including off-reservation gaming halls in the Phoenix metro area.

Two tribal chiefs have publicly supported the bill, and Governor Stephen Lewis of the Gila River Indian Community, which has three casinos, has confirmed that 18 tribes have agreed to the new compact.

“I can say that for my fellow tribal leaders who are at the table, too, we’re happy with the final product, Lewis told the Senate Commerce Committee last month.

Others aren’t so happy. Critics say it’s unfair to give sports teams the right to offer sportsbooks while cutting out small businesses; some say the franchises are Ducey’s political allies. Another major irritant: Ducey isn’t sharing the details of his deal with the tribes, which also have agreed to keep mum under a non-disclosure agreement.

Republican Senator Michelle Urgenti-Rita (l.) of Scottsdale spoke for small business operators when she asked, “Why not (include) a restaurant that wants to take a stab at competing with a license? I’m failing to understand the necessity of the sports team.”

As for sports franchises taking bets on their own games, she said, “It reeks of a conflict of interest.” Her colleague, Senator Tyler Pace agreed. During hearings on the measure, he said, “So I’m playing the game, but I’m also the house for the bet?”

Ducey attorney Anni Foster replied, “That’s sort of correct,” but argued that the teams have the financial backing and experience to operate a “low-margin business.” At the same hearing, ALBA lobbyist Isaacson pleaded for a place in the sun: “Our establishments look for an opportunity to compete as well.”

Sports-betting license holders could contract with online wagering companies such as FanDuel, DraftKings and BetMGM, which naturally back the measure.

‘We Agree, But…’

“We agree with what the governor is trying to do,” Delos told GGB News. “Our disappointment is that there are no opportunities for small business people. We would like to be part of the discussion, and we haven’t been at this point.”

On February 23 a friendly lawmaker, Senator David Gowan, added the provision of keno for business operations at least five miles from Indian casinos, including fraternal or veterans’ organizations, racetracks, off-track betting facilities and newly added by Gowan, “establishments holding a Class 6 liquor license.”

One proposal that’s counterproductive, Delos feels, prohibits keno and digital lottery games “within five miles of a gambling business.”

“In Scottsdale, you have the Talking Stick casino. So ‘within five miles’ of that would take all of Scottsdale out,” he said. “There are some real fairness issues. This bill creates winners and losers, and it seems like small business is the loser.”

Senate Bill 1797 was approved by the committee by a vote of 6-3, but not without ominous rumblings from some senators that they might not be so agreeable on the next go-round. A similar vetting process for a similar bill is happening in the House.

As Delos pointed out, “Covid has destroyed our industry or at least put a dent in it, and we were hoping for a lifeline. We’re open, but we’re open with huge debts, leases we have to pay—those fees haven’t been waived.”

Meanwhile, “Governor Ducey has signed away our right for sportsbooks of any kind. My businesses won’t benefit from it, except my customer would be interested in watching the game in my establishment. We’re written out of that entirely now.”

With the inclusion of keno in the bill, Delos feels his fellow small businesses have a fighting chance. “I think there will be a lot of push and pressing in the next week or two.”

While Fox 10 Phoenix questioned the measure’s “transparency problems” and a columnist in the Austin American-Statesman called it “a massive giveaway to Arizona’s pro sports leagues.” But last week, HB 2772 sailed through its third reading in the state’s House of Representatives, approved by lawmakers 48-12.

If a Washington State sports betting bill is ever passed, Major League Baseball (MLB) has demanded a 0.25 percent royalty (aka “integrity fee”) to “protect the integrity of the game.”

That fee, to be collected from sportsbook operators, not from bettors or the state, would be used to hire more employees and build monitoring systems, according to Marquest Meeks, MLB’s senior counsel for sports betting and investigations, who testified last week before the Washington State Gambling Commission.

“If someone bets $100 on a baseball game, we think we should get a quarter,” Meeks told commissioners. “The royalty is rooted in the fact that you can’t have bets on baseball without baseball.” He claimed that sports betting puts America’s pastime at risk.

100 Years Later, Black Sox Scandal Lives On

This is the 100th year since the infamous “Black Sox” scandal (named after the Chicago White Sox team) seared baseball’s reputation and led to the appointment of the first commissioner of baseball, Kenesaw Mountain Landis. The former judge banned for life the alleged miscreants accused of throwing games for cash—such as the legendary “Shoeless Joe” Jackson portrayed in the film Field of Dreams.

Meeks cited it as an example of what can happen if corruption takes hold. In the 1919 World Series, players schemed to throw games, letting bettors profit from foreknowledge. The scandal wasn’t discovered for a year, and the revelation rocked the public’s confidence in the game.

So far, no state that has legalized sports betting has given any of the national sports leagues a royalty, but the MLB isn’t giving up.

John Thorn, MLB historian, last week published the annual World Series centennial story for the MLB Media Guide. Asked by GGB News how betting might affect the sport, he said, “As a historian my crystal ball works only in reverse; I can tell you what did happen, but not what will.”

Meeks’ PowerPoint also showed a photo of baseball legend Pete Rose, banned for life in 1989 for gambling on the sport. Meeks said, “These scandals aren’t named for the bookies who took Pete Rose’s bets. They’re not named for the influence that corrupted the ‘Black Sox’ players. Instead, the association is attached to the baseball people. We are particularly sensitive to trying to make sure we can root out and avoid corruption before it gets to the point of scandal, because it sticks to baseball for a long time to come.”

For Meeks, the biggest threat to the game is the potential lure for players, coaches or referees to alter the outcome of competitions for profit. “Any event where the ultimate goal is not for players to win or lose based on their merits, we don’t think betting should be permitted,” he said.

If the state allows “in-play betting,” MLB wants sportsbooks operators to be required to use MLB game data and pay for it. This benefits consumers because, said Meeks, “official league data is the only verified and accurate data from the field of play.”

MLB: Ban Some Bets

Meeks called other kinds of data “pirated,” and said the MLB wants to be able to request that certain wagers be banned because they’re easily corruptible. “The example we use a lot is whether the first pitch of the game is going to be a ball or a strike,” Meeks told commissioners. “That’s a discrete event that a single person can control and manipulate, and we think it’s better to prohibit bets on those types of events.”

Commissioner Bud Sizemore reacted to that proposal negatively, saying, “This one I have a little difficulty with… It sounds like you want to be both a regulator and an operator, and that might be a little awkward in implementation.”

Seattle Mariners General Counsel Fred Rivera also presented MLB recommendations on how to “set the foundation for a safe, robust, and transparent sports betting market.” He added, somewhat ominously, “The statutory and regulatory structure has to reflect the fact that the leagues are partners in this process because as a baseline, you cannot offer bets without us putting on the actual games.”

Not coincidentally, Brian Considine, legal and legislative manager for the Washington State Gambling Commission, also made a PowerPoint presentation on “Sports Gambling Sports Integrity.”

He told GGB News it was no coincidence that he and Meeks and Considine gave presentations on sports integrity at the same meeting. “We try to pick a topic every month to educate the commissioners. They had asked a while back to talk about sports integrity and how the commission can fit into it. This is not a new thing for us. We’re fully commissioned as a law enforcement arm. We’ve been investigating illegal sports betting for 45 years.”

Washington Puts Out the Welcome Mat

The major complication for Washington gaming is that it has two flavors: tribal and small commercial cardrooms. “We are co-regulatory partners with the tribes,” said Considine. “Mr. Meeks knows they will have to go to the tribes. We wanted to talk more about what a partnership would look like. If there is match-fixing or something nefarious is happening, what does that partnership look like?”

In that sense, he said, Washington was more welcoming to Major League Baseball than other jurisdictions. “My hope is there is information-sharing. I think (the MLB has) been shut out in some states and not even listened to. We do consider them a stakeholder. We want to hear from them and build that kind of relationship.

“It’s hard to do that if people are in silos. Things are fluid. If we have the good relationship with tribal and federal government and others, then if something pops up we can look at it in unison.”

Tribal gaming in the state accounts for about 85 percent of the total. Plus there are about 40 commercial card clubs. There is also a lottery commission and horse racing commission, which are separate entities.

“When we look at sports gambling, the tribes are largest from a revenue side, with 22 tribes and 29 facilities,” Considine said. “Then you have the card rooms, where recently Maverick Gaming purchased most of the house banked card rooms and became the largest owner operator of card rooms.

“I don’t know if we’d had this kind of consolidation before,” said Considine. “That adds a wrinkle to it.”

Ultimately, the legislature will decide on sports betting, with or without an integrity fee. “Where we provide recommendations is on enforcement side,” said Considine. “We think it’s good to look at current laws and sports fixing laws , making sure the regulations (some of which are many decades old) capture such modern issues as money laundering.”

Washington’s situation as a gaming state is somewhat similar to California and Oklahoma, in that tribal casinos are spread around the state, not just in one part of the state.

“What we continue to see is the saturation of the casino industry,” Considine told GGB News. A market study in 2016 by Spectrum Gaming “found that 90 percent of Washingtonians were within an hour of a casino or cardroom and ninety-eight percent within two hours. That is a unique situation; where in other states it’s more centralized. Ours is more spread out. There’s nothing in Seattle. We have card rooms and casinos out on the peninsula, near the mountains, in the central part of the state, and down the Columbia river. It’s unique in the sense how spread out it is, from large properties and smaller ones that are niche facilities.”

He added, “We don’t know yet what the viability is for a retail sports gaming, but the likelihood is most will be interested if it’s going to make economic sense.”

Schmick: Integrity Fees ‘Muddy the Waters’

HB 1975, the one active sports gambling bill that a House committee approved this year—but which did not advance beyond that—would allow sportsbooks only at tribal casinos.

The author of that bill Rep. Joe Schmick, told GGB News the MLB’s proposed royalty “would muddy the waters, so to speak. In Washington the only places that could currently offer it are Indian casinos. Right now, private businesses would like to offer sports betting, but I don’t think that would be met favorably. All the tribes would have to agree, and if you have baseball and hockey and football all wanting the same thing, it would make it difficult to pass.”

Schmick added, “Unless there is an agreement among all the tribes I think it will be difficult. If the tribes want it, they are going to have to some agreement. If they are split nothing will happen.”

Although mobile sports betting is the hottest form of sports betting in jurisdictions such as New Jersey, Schmick’s HB 1975 does not contemplate online gaming outside of the brick-and-mortar premises of tribal casinos.

“In the conversations we’ve had here at the commission meetings, we know that mobile and internet sports gaming has caught hold, but most of them are not tribal,” said Considine. “There are challenges in seeing how that works. The tribes are big stake holders. They have a lot of influence. If you are going to go online mobile what does that do to current compacts? How does that work in that system?”

And perhaps the biggest question of all: Does mobile sports betting open the door to online gambling?

“Historically,” said Considine, “we’ve been a conservative state on online gambling. (Lawmakers) are not feeling comfortable that they want to run that way. Especially if something happens in 2020, it will be retail and mobile will be authorized for on premise only.”

Although Washington doesn’t have the politics of California and Oklahoma, it has some of the same challenges. But the legislature and to a degree the commission itself works methodically and slowly in rolling things out.

“When we work with our tribal gaming partners we tend to be thoughtful so that we do it right the first time,” said Considine. “We do the same sort of things when we write regulations—and new bills would require new regulations and that’s a public process.”

Even the simplest regulations take at least six months, because the commission only meets 10 times a year. “Things can take time,” said Considine. “Usually a good use of that time is getting out to the stakeholders on the profit gaming side and get their input to make sure it gets done right the first time. If we have to come back it’s doubling the process time.”

The next session runs January 13-March 13, 2020. “If it doesn’t pass during that window it will go to 2021,” he predicted.

In his MLB guide, Thorn wrote about “how eight men on the team betrayed the public trust, and ultimately were banned from baseball for life by Commissioner Kenesaw Mountain Landis.”

A week after the Oregon Lottery’s Scoreboard sports betting app went live, Global Gaming Business News interviewed lottery spokesman Matt Shelby about the first days of sports betting in the Beaver State—the only sportsbook so far to be offered by a state lottery.

It didn’t take long in the interview for Shelby to quash an early report that the Scoreboard sports betting app “crashed” the day before it went live.

“That didn’t happen,” said Shelby. “One of the things we run into is there is a lot of interest in this nationwide. You pair that with a wide array of news aggregators in the gaming industry. What happened is that we had our regular lottery website go down on Tuesday and it was down for about an hour.”

Shelby said the problem “had to do with a Google ad, and had nothing to do with sports betting.” The app on Wednesday, October 16, he said. “There was a ‘journalist’ who took a news report about the website being down for an hour and mashed it together, made assumptions and put an article out. It’s absolutely inaccurate and fairly irresponsible, but that’s life in the internet.”

There have been some problems with the app—such as the fact that users who stray too near one of the state’s nine Indian reservations may not be able to convince the app’s geotracking technology that they are within the legal limits of the state and not actually inside the reservation. Shelby says there’s probably no way around that problem, but anyone can place bets online by computer, even close to a reservation.

Any of those reservations can offer their own forms of sports betting. One of them, the Confederated Tribes of the Siletz Reservation, opened a sports book on August 27 at the Chinook Winds Casino Resort overlooking the Pacific Ocean.

The most recent figures, compiled on Sunday, October 20, indicated that the app had slightly more than 18,000 registrations and just over $1 million wagered. “That includes 59,000 individual bets,” said Shelby. “All of the Top 10 events were NFL and 62 percent were on football—with 10 percent on soccer, 9 percent on basketball, 8 percent baseball, 7 percent hockey and 4 percent other.”

It’s not just the same people betting over and over; the bettors are a wide group. “Of the $1 million, the highest wager was $1,400,” said Shelby. “It was a large number of small bets.”

The two limiting factors in the size of wagers are the person’s ability to pay—the Oregon Lottery doesn’t offer credit—and limits built in by the sport. “We make that determination based on our risk toleration and betting patterns. Some caps are built in by the sport. For instance, the NFL is $5,000. Each sport is different.”

Several weeks ago Shelby said that Oregon was learning from the experiences of other states that have legalized sports betting. GGB News asked what the state has learned.

“We’ve been looking at states that went before us back east, like New Jersey and Delaware, in terms of what sports betting has meant to them, and the handle they’re experiencing,” said Shelby. “We took those trends, extrapolated those trends and applied them to our population in Oregon to get some pretty solid first-year projections. The biggest for us was to preview the public interest.”

Of course, there are major differences in the states, he noted. “Obviously, our population is smaller than New Jersey and we don’t have New York City next door. That was the biggest thing. From a regulatory structure, every state is different, so there were things we had to learn on our own. The Oregon Lottery is the only state-owned lottery that is operating a sportsbook that I’m aware of. We are really the pioneers for the operating model. We’re learning the lessons and people will learn from us.”

The biggest surprise was how busy the app was in the first few days. “We always knew there was a pent-up demand for legal online sports wagering and we knew it was going to be busy. We didn’t know how busy,” said Shelby. “For the first few days it was Black Friday at Best Buy. You had so many people logging in, it slowed the app down and people weren’t able to get on as fast as they wanted. It’s not a fun or a great customer experience.”

This situation is improving, said Shelby: “We are working through that and it’s getting better each day. You see a big push the first days and then it levels out. I think last week everyone was working as hard to get as many people through the process as we could.”

Customers are dealing with live lottery employees, the nature of the beast. As Shelby pointed out, “In order to use the game, you have to establish an account. We have limited this to players 21 and older. We need to ensure that people signing up are who they say they are and we also want it to be as customer-friendly a verification process as possible.”

When customers put in their dates of birth, there’s an automated verification system. If all their information is accurate, matches and is checkable, the player is automatically verified. When anything doesn’t match, it triggers a manual process where patrons work with a human, “and that takes a little longer,” said Shelby. “It’s not as smooth an experience as the automatic, but out of the gate we need to make sure that the people signing up are who they say they are. One of the biggest fears was that online play opened up the risk of underage players.”

The system isn’t perfect, and no one claims it will catch all fraud. “But it guarantees that people who sign up are who they say they are. If you have someone else’s name you have already done identity theft and setting up a sports betting account is the least impactful thing you could be doing within the criminal justice system,” he said.

The biggest difference between Oregon’s Scoreboard and most sportsbooks in other states’ is that the app is not offering any college or university sports betting. “That has to do with internal Oregon politics,” Shelby said. “We are not fundamentally opposed, but we don’t operate in a vacuum. Before we offer betting on collegiate sports, we need to have a conversation with our university system and others within our borders. We haven’t had the time to have those conversations. Right now, we know other states have college betting, but that’s what we felt was the prudent path.”

Shelby anticipates that the number of bettors will grow over time as more people become familiar with the product. That’s why the lottery put off the marketing push until it made it through the launch. In mid-November we will do ad buys specific to sports betting. This isn’t the first time we offered sports betting. We had parlay wagers in the 1990s, so Oregonians have some experience with it. This is a much more robust offering. As people become more familiar the numbers will increase.”

As numbers expand, the lottery will continue to evolve the app. “The nice thing about working in the digital space is that you can always improve. We are hearing what they like and what they don’t like and we are already adding things to improve the customer experience,” said Shelby.

Asked how the lottery protects bettors’ private financial information, Shelby said, “When players sign up and give us that information it stays on servers in Oregon. That access is limited to those people who need access for a business reason, such as for tax purposes. The access is very limited. The servers the information is on were checked not only by our internal lottery but third party vendors. We will continue to do that. One thing that gives us an advantage over illegal bookies is the Lottery has been around since 1985. We aren’t going to do anything to hinder that trust.”

The Scoreboard system requires that everyone sets limits on their betting. “You are required to set a daily, weekly and monthly deposit limit, how much you allow yourself,” said Shelby. “Obviously people can raise that, but there’s a 24-hour waiting period. We do track that. As we get more experience we will be able to know average limits and average bet amounts. We know that we are not going to attract the huge thousands of dollar amounts that are going to Las Vegas regularly or to offshore bookies. When you bet through us you pay taxes on it. We really believe this product is designed to appeal to the vast number who want a convenient way to bet and that’s who we think we are going to get.”

Given that Scoreboard didn’t launch in time for the NFL season as originally planned, did the lottery encounter difficulties integrating the off-the-shelf sports betting app developed by SB Tech with the e-commerce platform the lottery developed in-house?

“I wouldn’t say difficulty. It was a lot of work,” said Shelby. “When we sat down this spring, we put a target on the NFL to launch and we didn’t hit that. We knew the steps we would have to take, and what we misjudged was that our pace was slower than what we had hoped for.”

He added, “That speaks to the number of companies involved in putting this product together for customers. As a state agency, we can’t operate as a bank or hold money in trust. We needed to bring in a banking partner to work with SB Tech. That whole funding mechanism didn’t have a lot to do with sports betting, but we needed to integrate that into the customer experience and had to integrate our in-house system.

“There were a lot of moving pieces and they all fell into place in the end. It just took a little longer than we thought.”