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State of independence

Insight | Analysis

The states will do far better out of sports betting if they allow mobile/remote gambling to flourish independent of casino partnerships, writes Whitney Fore

Representatives from DraftKings recently visited the Massachusetts State House to remind a key House legislator of the benefits of mobile-based betting.

Fortunately for DraftKings and other mobile gaming operators, Massachusetts is one of a handful of states that should be relatively open to mobile gambling because there are few casino interests at play that would attempt to restrict the practice. 

States that have never seen gambling or, like Massachusetts, have only recently seen gambling within their borders, are taking up mobile sports betting for the first time in an apparent race for the available profits.

Less apparent, perhaps, is the edge that mobile sportsbook operators will have in those states where gambling – and gambling interests – are not entrenched. And that edge could be beneficial to consumers.

Traditionally, mobile betting has been required to be tied to a land-based casino. But what would happen if mobile/remote gambling was introduced in states where there are no casinos? Or only very recently established casinos?

The logical answer is that any casinos in those states would not lose profits because consumers there have not frequented casinos anyway. In these no-casino or new-casino states, one would expect to see lawmakers being more open to the idea of allowing mobile or remote gambling that is not grounded in a land-based casino relationship, similar to the sentiment found in the United Kingdom.

States that historically have not had casino gambling within their borders are potential hotbeds for casino-independent mobile gaming to flourish. 

Casino partnerships
The traditional casino-dependent model was instituted – largely by casino magnates and their lobbying interests – to avoid cannibalization of casinos’ profits.

That is, casinos were wary that if consumers are allowed to bet entirely through their phones, they will have no desire or need to visit brick-and-mortar casinos, so they required mobile operators to partner with the land-based casino.

Casinos are limited by regulations in how many mobile partnerships they can have, so these partnerships are both expensive and competitive because so many mobile operators must woo so few available casino partners. The precedent for such required casino partnerships has been set in states like New Jersey, Pennsylvania and Delaware.

In states without land-based casinos, there are no lobbying forces pressing legislators to make and keep brick-and-mortar casinos central to the gambling industry.

The majority of the various United States have casinos, though eight do not: Alaska, Hawaii, New Hampshire, South Carolina, Tennessee, Utah, Vermont and Virginia. Additionally, the District of Columbia does not have any casinos.

Some states, such as Massachusetts, have only seen casino gambling within their borders in the past several years. Moreover, despite being relative newcomers to gambling, many of these states have legalized or are attempting to legalize mobile sports betting. As such, these states are forced to face the decision of whether to follow the traditional casino-partnership model or to blaze a new trail. 

Considering these two options in no-casino or new-casino states, if mobile betting was forced to be partnered with casinos in these states, the first casino operator in the state would automatically “inherit” all available gaming in the state, simply by virtue of being first.

Such a result would be neither fair nor consumer-friendly. By contrast, a more mobile/remote-friendly model that does not require such casino partnerships would likely result in more competition between operators for the mobile or remote market share, driving down costs for consumers.

Further, in traditional casino-partnership models, the price of wooing and partnering with a casino is passed on to the consumer. If casino-independent mobile betting were allowed, that would not be the case. 

Protecting the consumer
In its meeting with Massachusetts Representative Ann-Margaret Ferrante, DraftKings official James Chisholm raised another tangible benefit to casino-independent mobile betting: consumer protection.

As Chisholm explained, “Sports betting exists in Massachusetts, it just doesn’t exist legally.”

Enacting legislation that would allow mobile or remote gambling away from the casino floor would disincentivize consumers from gambling through illegal books or sites and instead entice them to gamble through regulated systems that have consumer protections in place.

Further, as Chisholm pointed out, regulated mobile betting enables operators and regulators to better track betting trends and to identify suspected fraud. 

The United States will not change its stance on land-based casino gambling anytime soon, given the power of the casinos over the situation. In most cases, then, mobile operators and consumers alike will have to engage in a process of education and negotiation, as DraftKings is doing, to demonstrate to legislators and casino industry leaders how much of the gambling revenue is coming through mobile/remote gambling.

For example, the New Jersey Division of Gaming Enforcement reported that between August 2018 and February 2019 sports bettors in New Jersey placed nearly 70% of all wagers via mobile devices and the internet. That means that during that time, $1,085,602,400 was bet online, while only $489,893,126 was bet in-person. Those numbers should impress anyone considering mobile gambling. 

For all these reasons, if mobile/remote gambling is allowed to flourish independent of casino partnerships, the resulting scheme will be far and away more consumer-friendly and more profitable in terms of revenues for the various states.

Whitney Fore is an associate at Ifrah Law, a leading gaming law firm globally. Her practice focuses on regulatory and transactional issues for land-based and online gaming clients.