By Byron La Fleur
Inside the Legislator’s Mind covers two large legislation trends in the U.S. in 2019: sports betting and anonymous lottery winner bills. Read about which states are being impacted and what the top minds in the industry think about each topic.
Sports Betting Legislation
Since the Supreme Court repealed the Professional and Amateur Sports Protection Act in May of 2018, legislatures across the country have buzzed about the possibility of legalizing sports betting. Very few were able to act quickly enough in 2018 to set up sports betting, but the 2019 session provided plenty of time for it to be discussed, compromises to be made, and for legislation to be turned into law.
Delaware, Mississippi, New Jersey, New Mexico, Pennsylvania, Rhode Island and West Virginia started sports betting operations in 2018. Arkansas legalized sports betting, and the D.C. City Council passed the Sports Wagering Lottery Amendment Act, but neither was in operation before the end of 2018. The success of sports betting’s revenue justifies legislators’ excitement about a major expansion of gaming. In New Jersey, sports betting generated $94 million in revenue and $10.5 million for the state in its first six months. The state offers a competitive sports betting landscape that allows wagering in land-based casinos and over the internet.
There were multiple lotteries involved with sports betting in 2018. Rhode Island and West Virginia both oversaw sports betting as regulators. Delaware Lottery regulates sports betting for the state casinos and also offers NFL/college football parlays at lottery retailers. Casinos in Delaware can offer all types of wagers on all sports.
The performance has been very good so far. “[Sports betting has performed] much better than anticipated. A lack of regional competition at start-up and a large volume of Parlay Card wagering for football from our sports retailer outlets were the two most significant factors. From July 1st, 2018 through March 17th, 2019, combined casino and retailer handle is $135.8 million with a hold of $23.1 million (17.0%),” said Delaware Lottery Director Vernon Kirk.
The worst month for New England sport betting operators was February. Operators projected that the 2019 Super Bowl—the largest sport betting event in the U.S. and second in the world— would be a much closer match than anticipated. Sports books offer incentives to bettors to pick the weaker team in a given match via spreads in order to balance the amount of money bet on both teams. But the New England Patriots, the favorite of the 2019 Super Bowl, have an incredible track record. So despite the incentives, many people bet on the Patriots. When the Patriots won, many sport books lost. For example, New Jersey operators lost $4.5 million, while Rhode Island operators lost $2.3 million. This risk was referred to often in 2019 legislation discussions.
In 2019, 28 states have offered a total of 70 different bills on sports betting but only a few are advancing successful. The biggest reason for the limited progress so far is the power of opposing interests: lottery, casino, tribal, internet sport books, each trying to get to the biggest slice of the pie.
State lotteries have a great argument for being allowed to participate in sports betting. With a vast intrastate retailer network, they would be able to quickly offer sports betting in even the remotest parts of states. “If [legislature and the Governor] determine the Iowa Lottery is to have a role in sports betting, we have provided testimony to policymakers that the lottery has the ability to offer a limited menu of sports betting wagers (via a parlay system) through our existing network of over 2,400 retail licensees,” stated Iowa Lottery CEO Matt Strawn.
However, other interests have pointed to the risk that would be taken on by the lottery and the state by being an operator. For instance, in Kansas, a state that has seen three separate pieces of sports betting legislation, legislators heard directly from casino interests that it would be bad for the state to let the lottery participate. “We don’t think the state of Kansas should take on that risk,” Whitney Damron, a representative for Hollywood Casino, said. “We don’t think the headline after the Super Bowl should read, ‘Patriots win another Super Bowl, state of Kansas loses $3 million.’”
Similar concerns have been echoed in Iowa, which has seen eight different pieces of legislation. “There’s no risk to the state if the casinos take it over and something happens with the outcome of the Super Bowl or Final Four that wasn’t expected,” Senator Roby Smith said. “Sometimes the books lose a large sum of money, and we don’t want state taxpayers taking that risk.”
While this argument may sound reasonable when looking at a single game, it falls flat when looking at a longer period of time. For instance, New Jersey bookmakers may have lost $4.5 million on the Super Bowl, but they still made $12.72 million in revenue in the month of February. “The Lottery and the state understand there will be losing weeks,” Delaware’s Kirk said.
The type of wager implemented also affects how much risk the state would take on. The operators’ edge in standard straight wager at -110 is 4.5%, which is already good. However, a parlay, like what the Delaware Lottery offers and the Kansas Lottery would offer if given the chance, significantly reduces the risk. The lottery would have a 12.5% edge with a three-game parlay and 31.25% with a four-game parlay. “The edge on a straight wager can be reversed in the bettors’ favor by utilizing statistics and expertise in a sport. However, a double digit house edge can never be overcome in the long run,” Vic Daniello said on VegasInsider.com.
Not all arguments against state lotteries have to do with risk. New Mexico Lottery plans to release a new lottery game tied to sports outcomes. Some representatives in the New Mexico House are not pleased about this, despite sports betting being already offered in some of the tribal casinos. They introduced a bill that would prevent the lottery from offering this game, and it passed the house unanimously. “This is just telling the lottery authority that we created the lottery to do lottery games, not sports betting,” Rep. Matthew McQueen, a sponsor of the bill, said. “They’re trying to expand, and we’re trying to keep them focused on their given authority.”
Another big discussion point in the sports betting debate has to do with the sales channels that will be allowed. Internet sports betting has a larger revenue potential. In New Jersey, mobile sports betting represented 80% of total activity in February 2019.
On March 25 2019, Rhode Island Gov. Gina Raimondo signed a bill that would legalize mobile sports betting. The Rhode Island budget includes $3 million from mobile wagering in fiscal 2019.
Neighboring state Connecticut is also considering sports betting and mobile sports betting: “It’s our position that sports betting should be offered through both brick-and-mortar retailers and online. It’s been stated that policy goals of sports betting are to eliminate the black market and to raise revenue for the state. Convenient access through multiple channels will best achieve the goals,” Connecticut Lottery President & CEO Gregory Smith said.
The Tennessee legislature is currently proposing a sports betting solution that would only allow for mobile sports betting. Previous versions of the Tennessee bill would have allowed for 50 retail locations as well, but that was nixed in later versions.
Not everyone is a fan, though. In March, New York Governor Andrew Cuomo stated he is against allowing internet wagering, despite an estimated $9 billion in illegal sports betting in his state. “Sports betting, first of all, does not make you that much money,” he said on Albany’s WAMC radio. “They raised something like $13 million—$13 million is a rounding error in our state [budget]. I am not a fan . . . of when] you can bet any time from your cellphone.”
Ultimately, the Wire Act will also play a role in the future of online wagering. “Online gaming was authorized by the legislature in the session that ended March 9, 2019,” says West Virginia Lottery Director John Myers. “We asked and received authorization to file emergency legislative rules before June 30, 2020. Due to the DOJ Wire Act Opinion we will not rush to get online gaming in place until there is clear direction on how to move forward without violating federal law.”
Anonymous Winner Legislation
During the 2019 session, state legislatures in Arizona, Arkansas, Illinois, Minnesota, New Jersey and Virginia—and potentially more—have all introduced bills that would allow winners to claim large prizes anonymously. Historically, the industry has been against winner anonymity legislation because it decreases transparency in the winner claims process. “In my opinion, nothing is more important to the lottery industry than integrity and security. If you lose that, you lose the confidence of your players and the industry suffers,” Texas Lottery Executive Director Gary Grief said.
On the other side, the argument for such legislation is that winners of large prizes are harassed by the general public, which the state would like to avoid.
As of this article, anonymous lottery bills have passed in Illinois, New Mexico (Update: this bill was passed, but pocket vetoed by governor) and Virginia, with varying degrees of severity. Virginia Lottery’s anonymity bill allows winners whose prize tops $10 million to claim the prize without publicly disclosing their identity.
“We believe that disclosing winner information increases public confidence in the integrity of our games. However, we recognize that jackpots today routinely reach record-breaking highs, and there are concerns with that aspect of lottery play. There were at least four different winner anonymity proposals considered by the Virginia legislature, and we are pleased that the least restrictive proposal is the one which passed,” Virginia Lottery Executive Director Kevin Hall said.
This legislative trend comes at an interesting time, because the industry has seen two important events over the past five years that could bear on the anonymity argument. The most recent was the Jane Doe v. NH Lottery Commission case. Jane Doe had signed her name to the back of the winning ticket but wished for the ticket not to be released to the public. The judge used a legal analysis called “Right-to-Know” which weighed the privacy interests of Doe versus the public’s interest in disclosure of the document. Ultimately, the court ruled in favor of Doe, noting that “the record clearly shows that lottery winners in general are subject to repeated solicitation, harassment, and even violence.”
The amount of publicity and interest associated with this case was overwhelming. “The story seemed to resonate because there were good arguments on either side of the debate. We tried to balance our own presentation and arguments between understanding Ms. Doe’s desire for anonymity and our legal obligation to be as transparent as possible with the public. In the end, while we were not successful in our legal arguments, we feel like we represented the ideals of integrity and public trust while demonstrating respect for Ms. Doe and those customers who sympathized with her,” John Conforti, Legal Counsel, New Hampshire Lottery, said.
A large focus of the attention was focused on winners being targeted for scams or, worse, violence. The problem is that many winners who face extreme harassment find that it comes not from strangers but from people close to them, who would have likely found out about the winners’ good fortune regardless of a public announcement.
Urooj Khan, an Illinois Lottery winner, is believed to have been murdered by his brother’s wife and father-in-law. The boyfriend of Doris Murray, a Georgia Lottery winner, was charged with her murder. Jeffery Dampier, an Illinois Lottery winner, was murdered by his sister-in-law and her boyfriend. Ibi Roncaioli, a Canadian lotto winner, was murdered by her husband.
Another event may be the most infamous in U.S. lottery industry’s history. In 2017, Eddie Tipton confessed to rigging a random number generator for the Hot Lotto game. He tried to claim the ticket anonymously through an offshore trust company in Belize. The Iowa Lottery denied the claim, and then started an investigation. “Iowa’s ability to question the person who came in to cash the ticket led to the whole house of cards falling apart for Tipton. Without transparency built into the process, Tipton may have gotten away with it,” Maryland Lottery Director Gordon Medenica said.
The industry has spent a lot of resources proving its integrity to the public to address concerns of winners’ privacy versus the need for a transparent process. While the Tipton scandal certainly didn’t help things, the confidence in the lottery still seems resolute. In the Doe v. N.H. Lottery case, Judge J. Temple even said: “…given the structure of the Powerball lottery game, the chance of any corruption or error attributable to the Commission is extremely low in the first instance.”
While trust in the lottery as an institution is certainly a positive, it is important for government officials to remember that trust needs to be constantly earned. When Gov. Andrew Cuomo vetoed a 2018 anonymous winner bill, he said: “The presentations and sharing of certain information provides comfort to the general public that there was an actual winner, and the State was not simply adding all the money to its own coffers.”
Lotteries are trying to solve the problem of anonymity legislation is trying to solve in a different way. Loto-Quebec has a virtual reality program that lets winners experience friends, family and strangers asking for money in various ways and advises them on handling it. “It leaves an imprint on the brain. It sensitizes the user to situations they might encounter and prepares them to react to this situation. It raises awareness by offering possible solutions,” Langlais said. “The scenarios used were developed on the basis of real situations experienced by our winners.”
But the problem might also handle itself. “Over my 26 years in this industry, this is one of those issues that swings like a big pendulum. The pendulum swings in different directions over time, and what I’ve seen over the past few years is that states are currently swinging more and more to allowing prize winners to claim anonymity. All it will take is an incident for one winner that was masked by an anonymity law who turns out to not be an appropriate winner, and that pendulum will come swinging back the other direction,” Texas’ Grief concluded.