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Insights from Gaming and Sports Law Expert Daniel Wallach

Daniel Wallach

This week, we spoke to Daniel Wallach, one of the leading voices in the emerging area of sports gambling law, and, in particular, the laws and rules governing sports betting and fantasy sports. Daniel took who took time out of his busy schedule to answer a few questions on the progression of legalized sports betting in the U.S.

About Daniel Wallach

Board Certified in Appellate Practice by The Florida Bar, and AV-Rated (the highest level attainable) by Martindale-Hubbell, Daniel Wallach is a nationally recognized authority on gaming law and sports law, and has counseled professional sports teams, fantasy sports operators, casinos, racetracks, equipment manufacturers and suppliers and other industry participants on a wide spectrum of gaming-related matters.

After the federal ban on sports betting was lifted in May last year there has been a lot of fast movement and we are surprised how quickly the market has reacted. Will we see the sports betting market continue to develop at the same pace in 2019?

WALLACH: I don’t know that the market has moved quickly – it’s more enthusiasm and conversation. New Jersey gets the bold headlines but it’s not indicative of what’s happening nationally. In terms of actual movement, we are still at the beginning, with only 8 states that have sports betting. While New Jersey, Mississippi, West Virginia and Delaware have had some experience at this so far, the other states are still at their nascency and most of the country that would like to have sports betting do yet not have it.

I have an expression for legislation: “Many are called, few are chosen”. It would be considered a success to have even 8-9 states legalize sports betting in an annual legislative section – it does not happen overnight. Gambling is still somewhat a controversial subject and there will be some push-back before the majority of lawmakers approve sports betting.

Only three of the 500 tribal casinos offer sports betting. Do you think that states such as Florida and Connecticut where tribal casinos have a strong influence within the gambling space will mature differently?

WALLACH: No. Because sports betting is considered a form of class 3 gaming. In most situations, the tribal operators cannot operate sports betting unless two things happen: 1) their compacts have to allow it and most tribal compacts do not have an unequivocal entitlement to offer class 3 gaming immediately. Even with appropriate compact language, 2) a legislative enactment from the state is needed. So, the tribal casinos have one additional obstacle in their way that commercial operators do not have.

What do you think will be the biggest challenge for operators entering new, maturing states like Pennsylvania? Will it be licensing, taxes, fees?

WALLACH: Probably a combination of all the above. On one level, the challenge is from a legislative and lobbying perspective – to persuade lawmakers to set tax rates at a reasonable level and not make it unpalatable to operate profitable sportsbook. This is particularly important in states that are taxed at a higher rate. Pennsylvania’s tax rate is 34 percent and the bill introduced in Kentucky last week was 25 percent.

Nonetheless, a sportsbook is an economic driver for other aspects of land-based properties. It attracts more millennials (a desired demographic), and more patrons overall who, in turn, play and participate in other forms of real-money gambling. Visitors also stay at the hotel, eat in the restaurants, and so on. Therefore, even were sports betting to run at a loss for the land-based venues you still need to take into account all other indirect economic benefits that sports betting brings to the table.

A second challenge would be to convince legislators to allow mobile sports betting. Not just within the property but to have the ability to set up and partner with online websites. Mobile is going to be a key economic driver moving forward.

The third challenge that operators face is the competition. While operators currently are doing well in New Jersey, when New York, Pennsylvania, and Ohio and other states become legal, there might be a point when oversaturation is reached.

Finally, what can’t operators do that fantasy sports companies can do? DraftKings and FanDuel and all the other fantasy sport companies can create national, interstate price pools and accept entry fees from players in dozens of states. In a sports betting scenario, those companies that have both fantasy sports and sports betting verticals must operate differently when it comes to sports betting. They cannot accept out-of-state wagers.

In December, you Tweeted a long list of new domains registered by NBC, hinting at their interest of entering the sports betting market. Do you think they are evaluating their options too?

https://twitter.com/WALLACHLEGAL/status/1077294022299922433

WALLACH: No, they can also just be buying an index number so to speak, basically preserving the opportunity. When a company with that level of visibility decides to acquire new domains, people take notice. Maybe it’s innocent or maybe it’s revelatory of what they see in the market and possibly wanting to monetize sports betting in a way that goes beyond just advertising revenue.

For media companies, there are a number of creative ways to make money from sports betting. Companies like TheScore or Bleacher Report are sitting on a gold mine of millions of users. They could become a new kind of operator: the sportsbook brand of a casino, racetrack, or any company that has market access. These type of media companies bring the most important element to the table which is prospective customers in a very precise demographic that sportsbook, casinos and racetracks are looking for. Alternatively, they could become the next affiliate model where they would refer customers on a CPA basis.

What are your predictions for 2019?

WALLACH: I think we will begin to see the NBA and MLB get a royalty in more than one state. I also believe more states will require that betting companies use official league data feeds to determine the outcome of in-play wagers.

While I don’t believe this will happen in every state, the downside of a state-by-state approach to sports betting is a divergence of regulatory schemes. Some will have higher tax rates than others. Some will allow the leagues to be compensated, others will not. Most will have mobile but even within mobile, some regulations will allow customers to sign up for an account at home while other states will require the customer to physically go to a land based gaming venue to open up an account.

Despite the avalanche of bills that are introduced in early 2019, my prediction is that we are probably not going to have more than new 10 states in 2019 enact sports betting regimes, in large part due to the lack of consensus among stakeholders and it is also attributable to the limitations and restrictions opposed by state constitutions.

We would surely like to see 10 more states by the end of 2019!

WALLACH: Thatwould mean that we have 18 states in less than 2 years. That’s progress.

We are looking forward to that development.

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