Thursday, November 3, 2011

States ponder sports betting as source of new revenue

By Pamela M. Prah, Stateline Staff Writer

A 34-year-old New Jersey man beat odds of more than 32,000-to-1 last month when he correctly picked the winners of 15 National Football League games against the point spread on a $5 wager. He collected $100,000.

He couldn’t place such a bet legally in New Jersey, but he could by using the Delaware lottery. Delaware is currently the only state outside Nevada that sanctions betting on the outcome of NFL games. It has a football gambling venture called the “$100,000 Parlay Card,” which it introduced in 2009. Nobody had hit the jackpot on it until now.

With revenues still far below pre-recession levels and demand for services still high, states around the country are looking to tap into the billions of dollars in play with the popularity of Super Bowl wagers and March Madness pools. One of the new entrants may be New Jersey. Voters there will go to the polls November 8 and consider a ballot measure that would legalize sports betting.

Gambling revenue plays a “consistently significant, if relatively small, role in state budgets,” Lucy Dadayan of the Nelson A. Rockefeller Institute of Government wrote in the latest report on gambling revenues. Dadayan found that, on average, gambling money represented 2.4 percent of revenue for states in 2009. But the percentage is much higher for some states. Nevada’s 12.5 percent is the highest in the country; Delaware takes in double the national average at 4.9 percent. New Jersey, without sports betting but with a clutch of Atlantic City casinos, gets 3.5 percent.

Even if New Jersey voters approve the ballot measure next week in hopes of bringing in more revenue, it may be a while before gamblers will be able to bet on NFL games in casinos or the state’s racetracks, as they can in Nevada. That’s because a 1992 federal law, the Professional and Amateur Sports Protection Act, prohibits sports betting except in four states that were grandfathered in because they already had sports wagering programs: Nevada, Delaware, Montana and Oregon.

“While it amends the New Jersey Constitution, this ballot measure will not have any practical effect unless the federal government lifts its ban on sports betting,” said David Redlawsk, the director of a recent Rutgers-Eagleton Poll that showed 58 percent of likely voters supported the measure.

Growth amid recession

As in previous economic downturns, states have been looking to expand gambling in a variety of ways to patch holes in their budgets. Some 10 states went that route in fiscal 2010, including Pennsylvania, which added poker and table games at casinos. This year, lawmakers in Florida, Illinois and Massachusetts have debated whether to build new destination casinos in major cities, such as Chicago and Miami. And Maine will have a repeat vote next week on whether to add slot machines at certain race tracks.

But betting on the big-time sports events is different.

State Senator Raymond Lesniak is pushing the ballot measure in New Jersey because a lawsuit he filed to overturn the federal sports betting restriction was tossed out. He calls sports betting “a tool to help raise needed revenues for our state and our struggling gaming and wagering industry.” Lesniak has vowed to introduce legislation setting up a sports wagering program as soon as voters give their blessing.

Greg Gemignani, who specializes in gaming law at the Nevada law firm of Lionel Sawyer & Collins, says New Jersey is “fighting an uphill battle” to undo the federal ban, especially in light of opposition from the National Football League. In 2009, the league led a successful fight against a bill in Delaware that would have allowed that state to join Nevada in permitting unrestricted betting on individual sports contests.

Instead, Delaware launched the NFL “parlay” games, which involves betting on multiple games. It was free to do that, says Vernon Kirk, acting director of the Delaware Lottery, because the state had experimented with NFL parlay games during the 1970s, before the federal restrictions took effect. The state has several parlay offerings, with the most recent allowing the $100,000 winnings on a $5 wager. The cards are available only at Delaware’s three racetrack casinos.

A piece of the gambling pie

Compared to other kinds of gambling, sports betting doesn’t bring in a ton of tax revenue even where it is legal. But it can be a significant source. Nevada casinos paid $652 million dollars in “percentage fee” taxes to the state’s general fund based on their taxable gaming revenue in fiscal 2011, and sports betting accounted for approximately $10.4 million of this amount — 1.59 percent of the state’s total percentage fee collections, says Michael Lawton of the Nevada Gaming Control Board.

The amount is much smaller in Delaware since the betting is new and limited to parlay games. Sports betting brought in $1.6 million to Delaware’s state budget in its first year, $2.1 million in its second year, and so far this year has generated about $1.25 million, Kirk says. That is a tiny portion of the total take from Delaware’s lottery, which set a record in fiscal 2011, providing $287 million to the general state fund.

Montana does not permit wagers on individual games, but because it too had sports betting prior to 1992, it has been offering “fantasy football” and “fantasy racing” for the past several years. Bettors can create their own fantasy teams based on certain players or drivers. The prize pool depends on how many people play. But the amount of money involved is small. Recent first prize winners in fantasy football have won some $1,600, while the payout for recent winners in fantasy racing totaled about $500. These games brought in less than $10,000 to the state lottery in 2010.

Oregon, the one other state that can legally conduct sports betting, did so until 2007. It ended the practice, in part, because the National Collegiate Athletic Association would not consider locating basketball tournament games there while gambling on any form of sports was permitted.

Spillover effect

The relatively small numbers may make sports wagering may seem immaterial to total gaming revenues, but Lawton in Nevada says the true importance is difficult to quantify. He says sports betting spills over into other revenue generating areas, such as slots, hotel rooms, food and beverages, shows and shopping.

Lawton argues that sports betting is important to his state because it offers gamblers a product no other state can legally offer in as complete a form. “The Super Bowl and March Madness are two of the biggest events in the state,” he says, “and their economic impact is immense. I couldn’t imagine what February and March would be like without them.”

That’s precisely why New Jersey’s Senator Lesniak wants voters to approve the sports betting ballot measure next week and is trying to upend the federal ban. He also is pushing to legalize online gambling, which supporters say could bring much more revenue to the states than sports betting.

But online gambling raises just as many legal and moral issues as sports betting, plus some technical ones. Earlier this year, New Jersey Governor Chris Christie vetoed a bill from Senator Lesniak that would have allowed New Jersey residents to place bets online through websites based in Atlantic City. Christie, a Republican, said voters should have a chance to express themselves on the subject, as well as citing other concerns.

Online gambling is essentially illegal under a 2006 federal law, but supporters hope the size of the federal deficit will prompt Congress to reconsider and make it legal. The American Gaming Association, which has opposed efforts to legalize internet gambling in the past, says it could support its legality now, but only for poker, because that game is based on skill and because new technology would prevent minors from accessing the sites. The AGA figures that allowing online poker could bring in $2 billion a year in tax revenue, mostly for states.

But not all state officials are on board. Maryland Governor Martin O’Malley last month urged the congressional “super committee” charged with deficit reduction to reject online gaming proposals. In Maryland, the Democratic governor wrote, “federalized poker and casino gambling would put at risk the $519 million annually we generate from our state lottery,” jeopardizing the jobs and business of lottery retailers.

No comments: