Tribal Gaming

Tribal Gaming

Online Elephant In The Room

Native American tribes considering expansion into sports betting have a few things to weigh up, writes Suzanne Perilloux Leckert. There’s not only profitability and the risk of opening up hard-won compacts to consider but also the growing weight of evidence that without online, it may not be worth the fight

Since my last article for iGB North America in August 2018, sports betting fervor in the United States has only increased. To date, 32 states (probably more by the time this article is published) have either legalized sports betting or introduced legislation to do so. Efforts to legalize igaming had largely fizzled out across the country until the Supreme Court overturned PASPA in May 2018. Online and mobile gaming have since gotten swept up in this flurry of legislation and regulations to permit sports betting. As the largest competitor to legal sports betting in the US has been the illegal online market, it seems only logical that legal sports betting should include an online component to be competitive. However, there remains political resistance to the inclusion of online and mobile in legal sports betting. Both commercial gaming operators and Native American tribes must engage in the political system, and sports betting without online may not be worth the fight.

TRANSLATING WAGERS INTO REVENUES

According to the American Sports Betting Coalition (an entity of the American Gaming Association), $58bn is wagered on NFL and college football games in the US annually. At a 5% hold rate, this translates into $2.9bn in gross gaming revenues (versus $71.5bn in gross gaming revenues generated by casinos in the US annually).

If all of these football wagers were captured by existing gaming facilities, it would impact gaming revenues by only 3 or 4%. For a facility generating $100m in GGR annually, this would mean an additional $3m or $4m at best—and then only assuming there is an online component.

Let’s look at the New Jersey example for commercial casinos. NJ Online Gambling estimates that New Jersey will pull in $4.2bn in total sports wagers (not just football) for 2019. If this is true, and hold percentages even out to 5%, that translates into $210m in GGR for a market that generates approximately $2.8bn in GGR from casinos. Most of New Jersey’s sports bets, about 70% so far, are placed online or on mobile devices, leaving only $63m in sports betting revenues generated at brick-and-mortar facilities—a bump of about 2% to the properties before you factor in online and mobile (or related bumps to slot and table play).

For states that have permitted only on-site sports wagering without an online or mobile component such as Rhode Island and Mississippi, we are seeing actual revenues falling far short of initial projections. This is likely because estimates of the current sports betting market include wagers on the illegal off-shore sites, and brick-and-mortar facilities aren’t on an equal footing with those easily accessible sites.

POTENTIAL SUCCESS INDICATORS

Mobile and online wagering makes up approximately 56% of all sports bets in the United Kingdom (even though there are almost 9,000 retail outlets, or one for every 7,337 residents), and approximately 70% of all sports bets in New Jersey (even though there are 11 facilities that have brick-and-mortar sportsbooks). However, what works in the UK and New Jersey won’t necessarily work in Kansas or Louisiana or California. The demographics of a market and the psychographic characteristics of its population could indicate where online and mobile sports betting have the greatest potential to: a) be passed in legislation/regulation; and b) generate the greatest revenues.

The relative success of sports betting, and in particular mobile sports betting, in New Jersey can be explained by proximity and population. Proximity in that in addition to its in-state population, New Jersey’s neighbors have large populations with high income levels, above average sports viewership, above average participation in fantasy sports, and above average comfort with using their mobile devices for financial transactions (see map graphics overleaf, source: ESRI ArcGIS). Proximity, in that these neighboring states did not offer legal sports betting until very recently (PA just commenced taking bets at brick-and-mortar sportsbooks, with online coming soon; New York is still ironing out regulations, and mobile seems unlikely in the near term). I’ve personally witnessed the real-time geolocation of online bets placed in New Jersey (shout out to GeoComply), with strong concentrations nearest the New York and Pennsylvania borders. You’ve heard the stories about New Yorkers taking the ferry across during their lunch breaks to place a bet—and the data backs that up.

The New Jersey market has strong indicators for sports betting success, but more than that it has very strong indicators for mobile and online sports betting success. No wonder online and mobile sports betting has been lucrative there. But not every state is New Jersey.

ON-SITE OR ONLINE?

There are currently so many variations of sports betting in the United States that legal online and mobile platforms could get lost in the political process. For years, we only had legal sportsbooks in Nevada, Oregon, Delaware and Montana (although operations were severely limited or non-operational everywhere but Nevada). Bettors largely relied on their illegal “bookies” to place bets, often with hefty price tags and the risks associated with criminal activity. With the spread of internet access, so prospered illegal onshore and offshore betting sites. While sites based in the US have largely been shut down, the offshore market still thrives. Today, state governments are considering legalizing sports betting in multiple forms: on-site at existing commercial, tribal and racetrack casinos; at offtrack betting parlors; at video poker truck stops, bars and restaurants with electronic gaming; at lottery retailers; at standalone betting shops and on mobile within casinos, as well as online and mobile channels within state borders via sportsbooks licensed to casinos, lotteries or even independent license holders (such as DraftKings and FanDuel in Massachusetts). Of the states proposing legalized sports betting, only a handful have included online and mobile in their legislation.

Consider that sports bets are often made right up until the start of games—and sometimes during games. For brick-and-mortar facilities, especially tribal facilities located in remote locations, this is a distinct disadvantage. If obstacles such as time, distance and general hassle are in the way, players are less likely to make their wagers at a particular facility. Without the ability to capture remote and online play, the revenue potential of sports betting is expected to be significantly less. If sports betting is limited to brick-andmortar facilities, then is it even worth certain properties offering it, or for Native American tribes to open their compacts with the states to allow it?

NJ residents’ above average use of mobile payments and TV sports viewership (source: ESRI ArcGIS)

WHO’S DOING WHAT?

While sports betting by commercial operators is garnering a lot of attention, many tribes are proceeding with caution and viewing sports betting through the lens of protecting sovereignty and the hard-fought gaming compacts that have brought so much to Indian Country. In California, some tribes are beginning to push for sports betting, but a statewide vote would be necessary in 2020 and there is no consensus on what could or would be included.

Arizona’s tribes are awaiting the passage of legislation that would permit land-based sports betting within their casinos, but not online.

Other major tribal gaming states such as Oklahoma and Florida have not introduced sports betting legislation, and many tribes appear cool to the idea unless a monopoly is granted and/or existing compacts are protected. Unique among tribes are those in New Mexico that have been able to open brick-and-mortar sportsbooks without opening their compacts or waiting for legislation, as their current compacts allow them to offer any Class III game.

The Mississippi Band of Choctaw Indians are currently the only Native American tribe to have mobile sports betting, yet theirs is limited to onsite wagering—in the casino, hotel, restaurants and areas of the main property. According to a presentation by Tommy Shepherd of Jones Walker at March’s International Masters of Gaming Law’s Spring Conference in New Orleans, online and mobile sports betting are not permitted at the property’s waterpark or golf course due to the family-oriented nature of the waterpark, the relatively low number of patrons at the golf course at any given time, and the capital costs of erecting towers in these areas. It wasn’t deemed cost efficient or appropriate for these locations.

However, the online yet onsite component of sports betting at a property like the Mississippi Choctaw’s Pearl River Resort is largely an amenity of convenience— an extension of the on-site sportsbook. To truly compete with the off-shore sites, legal online sports betting sites must be just as accessible as their illegal counterparts, with players able to place their bets from anywhere they have internet access. Offering a safe and secure environment for wagering, legal online sportsbooks in the United States could put a nail in the coffin of off-shore sites.

LEGAL ISSUES

A state permitting or not permitting online and mobile sports betting within its borders is not, however, the end of the matter. According to gaming industry attorney Kevin Quigley of Foley Quigley Law, “The business of betting or wagering hasn’t been adequately defined in the age of mobile sports betting.”

The Department of Justice’s January 2019 memorandum opinion, which reversed its previous interpretation of the federal Wire Act (18 U.S.C. § 1084(a)), has only confused matters further. This opinion could result in the prosecution of operators who use a “wire communication facility” for “bets or wagers”, “information assisting in the placing of bets or wagers on any sporting event or contest”, or even “a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers.” While the wagering and odds-setting activities could easily be confined within a state’s borders, what about payment processing? Or cell phone and internet signals that bounce out of state lines regardless of whether the person stays in-state or not? While this opinion is sure to be tested in the courts, and many states appear to be disregarding it when proposing online and mobile sports betting legislation, it certainly has the potential to dampen the prospects of the newly emerging legal market—both tribal and commercial. Legal clarity will be necessary for this market to develop fully.

BENEFITS VS. COSTS

Operators, suppliers and state and tribal leaders need to weigh the potential risks and benefits to permitting online and mobile sports betting. Successful sports betting will necessarily be legal and regulated, easily accessible, and with access to potentially lucrative markets. Without access to players via online and mobile channels, sportsbooks could be expected to capture less than half of potential wagers, resulting in significantly lower gaming and tax revenues. For sports betting in the United States to reach its true potential, online and mobile wagering is a necessary component, but one that is less than certain at this point. There are two questions for Native American tribes: 1. Does sports betting (mobile or not) represent a profitable business; and 2. Is the level of potential profitability attractive enough for tribes to risk opening up hard-won compacts? Tribes’ answers to these questions will differ based on the specifics on their situation but tribal gaming operations across the country are currently engaged in assessing the potential associated with sports betting. As we have shown here, the revenue potential from sports betting will vary from region to region based on legislation and the psychographics of its market population.


SUZANNE PERILLOUX LECKERT, AICP, is a founding partner of the newly formed Convergence Strategy Group, and has provided strategic planning and analytical services to gaming, leisure, commercial, tribal and public partners since 2003.