State legislatures across the country are starting their respective 2022 sessions in January, including at least a dozen (and counting) that are set to at least consider gaming bills. John Pappas, a long-time industry veteran and member of gaming policy advocacy group iDEA Growth, spoke with Wagers.com about what to expect in 2022.
Though we’re all looking ahead to developments in 2022, the biggest news story of the year may have already happened. New York, the most populated state to approve a competitive sports betting market, launched its first four licensed sportsbooks earlier this year with five more on the way. Though New York’s massive population has industry stakeholders excited for its potential, there are major concerns about the state’s regulatory structure as well as a 51 percent tax rate on gross gaming revenue, the highest figure of any competitive market. What are your New York sports betting takeaways?
“So obviously I’m pleased that the largest metro area in the U.S. will now have access to legal sports mobile sports betting. It’s been a long time coming. However, I don’t think anybody involved thought that this would be the best pathway forward from a policy perspective, but it’s the hand we’ve been dealt and I think the selected operators are going to do a tremendous job of maximizing their opportunity in that state.”
“Unfortunately, I don’t think the profitability of the operators was what was top of mind when (then-Gov) Andrew Cuomo pushed for this proposal. I think the state will definitely reap its reward. And I think the companies themselves are going to have to figure out how to manage an exceedingly high tax rate in a relatively competitive market. It would be one thing if one or two operators were paying 51 percent. But when you have nine operators paying 51 percent it’s going to definitely make it more challenging to be successful.”
Sportsbooks’ inability to deduct their tax burdens with free bets and other promotions also presents a challenge to operators, some industry figures believe, while others argue these deductions cripple a government’s ability to effectively collect taxes. As policymakers in states that are both considering sports betting legislation – and, in some cases, evaluating their previous laws- what do you think is the best structure?
“I don’t think the approach is an outright removal of deductions because I do believe there needs to be a ramp-up in every market to allow the new operators a legal entrance to claw back customers from the illegal market. So I think there is an appropriate role for the promo deduction. I think what we may see is them either being capped at certain percentages moving forward or sunsetted out over a set number of years.”
Can these promotions be a way to ultimately help capture the unregulated and offshore market, which in most instances still dwarfs the legal, regulated market?
“No doubt about it. There is very much a robust illegal market out there that continues to not only get play from U.S. consumers but is actively deceiving U.S. consumers into believing that they are legitimate sites. I listen to a variety of different sports-related podcasts and several of those operators even advertise on podcasts. They essentially say they are legal and legitimate when in fact we know they are not. And some are taunting what they would call the “Johnny come lately,” saying they have an advantage over the licensed, regulated sportsbooks that have launched in the past few years. So it’s a real thing and I think the industry needs to think about not only getting customers to come and play on the licensed sites, but also exposing the fact that there are still illegal sites out there and and inform customers on what they need to look for to know that they’re playing on a legal, legitimate platform.”
Though sports betting has been the industry’s focal point in the nearly four years since the Supreme Court struck down the federal wagering ban, iGaming has been a bigger revenue generator on a per-state basis. However, online casino gaming options are only available in six states compared to the more than 30 states that accept legal sports bets or passed laws to do so. What would you tell lawmakers considering iGaming policy?
“There are two ways that lawmakers should be looking at it and the revenue it’s a fair, important one. And particularly when you compare the amount of revenue that’s derived through iGaming versus sports betting it’s almost not comparable to iGaming in the markets where it’s available. It’s outperforming sports betting on the state gaining state tax revenue side three-to-one in most cases. So it is a powerful driver of new revenues for states, but I think, more importantly, it is about protecting the online consumer and, also allowing for the gaming industry to enter into the 21st century. All of these arguments of the illegal market for sports betting and why we need to legalize sports betting apply equally for iCasino games.”
After a frenetic last few years for gaming policy, what are the states you’ll be following in 2022?
“From the iGaming side, I think there’s going be a lot of discussions. I think the most likely candidate to maybe get a bill enacted would be Indiana. But states like Iowa and Illinois and Missouri are all going to be discussing iGaming in 2022. And we think that’s important to get those discussions going and really kind of plowing the fields and plowing the seeds so that we can have some laws in place over the next couple years in these states.”
“Also on the sports betting side, I think there are probably four to five states that I believe are going to be likely candidates to get an online wagering bill done that would also include Missouri, as well as North Carolina and potentially Kansas. We could also see some new online betting coming in a state like Mississippi. Other states are going to say ‘let’s’ put this over to the voters’. Georgia is considering a 2022 ballot measure. And we already know that voters in California are going to have at least one opportunity to vote for sports betting, though whether it’s going to be retail or online remains to be seen. So I think we’re going to see it be another busy year for sure. And that’s not to mention the huge regulatory lift happening in states including Ohio and Louisiana this year, both of which are expected to take their first online sports bets in 2021.”
