Should New Jersey Lessen its Expectations on Sports Betting?

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Published on:
Jan/28/2018

ATLANTIC CITY, N.J. (Associated Press) — Atlantic City is dreaming of vast new riches that might come its way if the U.S. Supreme Court legalizes sports betting here and across the nation, but some analysts say the state might do well to curb its enthusiasm a bit.

While acknowledging that any new money would be a help, these analysts caution cite the level of business that sports betting generates in Nevada, the only state where single-game wagering is currently legal. Even with most of the country to itself in terms of the sports betting market, Nevada gets only a minuscule portion of overall state gambling revenue from such bets.

The Supreme Court will decide by June whether to overturn a federal law banning sports betting in all but four states that met a 1991 deadline to approve it: Delaware, Montana, Nevada and Oregon.

In a recent research report, Moody's Investors Service noted that "to date, legal sports winnings have been fairly slim."

In Nevada, sports betting accounts for just 2 percent of statewide gambling revenue. Over the past 12 months, casinos won $215.3 million on sports bets, for a win percentage of 4.8 percent.

"From this win, the operators must pay taxes and expenses of operating the business, resulting in a very low profit margins and a small percent of overall earnings," the company wrote.

In New Jersey, Moody's estimated sports betting could initially bring in $108 million, or about 4 percent of New Jersey's annual gambling revenue.

In contrast, internet gambling brought in $245.6 million last year in New Jersey, or more than 9 percent of the state's gambling revenue.

Last week, Atlantic City casino and elected officials lamented the loss of sports betting revenue they would have expected to garner with the local team, the Philadelphia Eagles, in the Super Bowl.

City Councilman Marty Small called it "a lost opportunity" and predicted the casino hotels would have been sold out for Super Bowl weekend. While not offering specific dollar estimates, some casino executives said the big game would have driven significant new customer visitation to the resort in order to bet on it, stay in hotels, and to eat, drink and gamble in casinos.

Numerous Eagles fans interviewed last week said they would flock to Atlantic City to place legal bets on their heroes, if only they had the opportunity, including some who haven't been to the seaside gambling resort in years.

Many gambling stakeholders cite market size figures that estimate the volume of betting that will occur if sports betting is legalized, said Brendan Bussmann, director of government affairs with Global Market Advisers, a Las Vegas casino consulting firm. Such estimates substantially overstate the size of the sports betting opportunity for casinos because only 5 to 7 percent of the amount bet is held by operators as revenue, he said.

"This low level of hold, combined with low profit margins, make the industry relatively delicate," he said. If prohibitively high tax rates are imposed by states, "a market will not be able to attract operators, as there will be little to no money to be made."

He cited the 34 percent tax rate (plus an additional 2 percent local cut) set by Pennsylvania on sports betting revenue as an example, saying "34 percent of zero is still zero if no one enters the market."

Global Market predicts that, with sports betting legal across the country, New Jersey would rank third by 2023 in terms of sports betting revenue with a minimum of $237.8 million. That would trail California at $295 million, and Nevada at $283.3 million. Those are low-end estimates, with high-end estimates reaching over $1 billion in California, $354 million in Nevada and $297 million in New Jersey.

But Moody's also expects sports betting to help brick-and-mortar casinos earn money from renting rooms and selling food and drinks to customers — things Atlantic City casino officials are already anticipating doing.

- Wayne Parry, Associated Press

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