Experts: Legalized sports betting to have minimal impact on Lake Tahoe
July 13, 2018
STATELINE, Nev. — On June 5, Delaware became the first state to legalize sports wagering after the Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) in May.
Just over one week later, New Jersey Gov. Phil Murphy was the first in line to place bets at the new Monmouth Park Sports Book. He wagered $20 on Germany to win the FIFA World Cup, symbolizing a new era in American gaming.
Mississippi, Rhode Island, West Virginia, Pennsylvania and New York are expected to follow suit this year, if not in 2019, Forbes recently reported.
While the court's ruling appears to have opened the gaming flood gates, experts don't see the expansion hurting Lake Tahoe casinos located in Nevada — the state that long had a monopoly on legal sports gambling.
"Legal" is a key word in assessing the changing gaming landscape.
The American Gaming Association (AGA) estimates that Americans illegally bet about $150 billion on sports annually. Just 3 percent of the roughly $10 billion wagered in March Madness 2018 was placed legally, AGA speculates.
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AGA President and CEO Geoff Freeman said in a March statement that PASPA has played a key role in fostering the illegal sports betting market.
"Our current sports betting laws are so out of touch with reality that we're turning tens of millions of Americans into criminals for the simple act of enjoying college basketball," Freeman said.
Now that the gates are open, states are pushing harder than ever to open sports books on their own turf. California is just one of several states pursuing sports betting legislation, according to the AGA.
What is PASPA?
In 1992, PASPA made single-game sports wagering illegal in all states but Nevada. Some exceptions were made for Oregon, Delaware and Montana where sports lotteries were already in place, but the intention behind the law was to say that while states control provincial gaming, they had no say in sports betting. The ban included casinos on reservations.
Part of why PASPA was overturned was because while it prohibited states from legalizing sports betting operations, it didn't make it illegal. Jennifer Roberts, the associate director of the University of Nevada Las Vegas (UNLV) International Center for Gaming Regulation, said the lack of penalties surrounding the law is part of what made the Supreme Court rule PASPA unconstitutional, because it neither regulated nor criminalized sports wagering for states.
South Shore sports books
The majority of Nevada casinos opt to run their sports books through a third-party provider, William Hill. As one of the world's leading sports betting organizations, the company has 109 sports books in the state, 70 mobile deposit spots and more than 200 7-Eleven locations where betters can fund their account, according to William Hill U.S.
With the exception of Harveys and Harrah's, both owned by Caesars Entertainment, most casinos in and around Tahoe use William Hill.
"There's a couple benefits," said Hard Rock Resort and Casino's Stephanie Griffith, director of casino marketing and player development. "It's very nice to have them here and take the responsibility of staffing, not handling the vig, anything like that. We tell the players that we're not involved in them, so we can have a definite line."
Vigorish, or "the vig" as it's often referred to, is the amount a bookmaker charges to place a bet, similar to a commission. This is how bookmakers secure a profit. The casinos using a third-party don't make a profit on the sports book, but rather on the fee William Hill pays to rent a space in the casino.
Griffith added that the William Hill name draws people in, and said part of what makes sports books in Nevada appealing is the not just the legality, but the security.
"You can do it in real time, because you have your app. Your money is coming through a legal source and you know you're going to get paid," Griffith said.
Casino apps along with William Hill's are now popular methods that work to draw in younger crowds.
Hard Rock's Director of Resort Marketing Brandie Warr said there's a unique social atmosphere that comes with a casino's sports book, which supplements the digital amenities.
Warr said the Tahoe region is a very slot-heavy market, but table games and sports books can serve to keep people entertained and wanting to stay longer. Hard Rock's sports book is adjacent to a number of other activities.
"We have a table games pit right there, so (gamblers) don't just do sports betting," Warr said. "It's also next to our show room, so we get a lot of those groups of young millennials coming in as the new-age gambler."
Sports betting in California?
The AGA estimates that about $40 billion in gaming revenue was lost to illegal practices in 2016, and now that PASPA is overturned, the main incentive for states to legalize sports wagering would be to turn that lost money into tax revenue.
In Nevada, for example, there is a 0.25 percent excise tax on the betting handle. According to the Nevada Gaming Control Board's gaming revenue report, sports wagering in Nevada has grown in the last decade. In 2016, the handle reached $4.51 billion, and 2017 brought in a quarter of a billion dollars in revenue — the highest ever.
However, a 2016 report from the Rockefeller Institute found that although legalized gambling comes with an initial revenue boost, the financial relief is short-term. Profits tend to plateau or decline as states compete for a limited amount of revenue. In the case of sports betting, this means the more states that legalize it, the less tax revenue each will likely walk away with.
California Assemblyman Adam Gray (D-Merced) is pushing for an amendment to allow sports betting in the wake of the Supreme Court ruling. Since 2012, Gray has tried four times to bring sports betting to the Golden State, so that if and when PASPA was overturned sports books could open quickly.
When it comes to Native American casinos, legalization becomes a little more complicated. In 1987, the Supreme Court ruled in favor of Native Americans in California v. Cabazon Band of Mission Indians, which was followed by the Indian Gaming Regulatory Act in 1988.
This resulted in Tribal-State Gaming Compacts, which negotiate the balance of power between state and tribal governments. Now that PASPA is repealed, whether or not a casino is permitted to add a sports book is at the discretion of the compact that tribe has with the state.
There's also the questions posed by the Wire Act of 1961, which made interstate and foreign transfers of sports wagers illegal. Some compacts don't permit sports betting within the tribal boundaries, so state legalization could mean it's still impermissible in the regions these compacts cover.
California is increasingly complex, because the state has eliminated its 11th Amendment protections, which in other states means tribes are prohibited from filing lawsuits given the chance of negotiations in bad faith.
Since the ruling, tribes have shown interest in opening sports books, but it may have to come after supplemental legislative and compact amendments. There's also a financial threat with running a sports book because it's less profitable than other forms of gambling, so the operational and logistical costs could dissuade some casinos.
"I wouldn't say there are disadvantages, I would say there's (misinformation)," Roberts said. "Sports betting is a risk-management type of business so if you don't have experience it can be challenging."
Tribal casinos in proximity to Lake Tahoe have had a direct impact on casino revenues. Sports books are one of the few gambling opportunities that currently sets them apart.
Still the opening of reservation casinos over the last few decades resulted in an unprecedented market shift, according to Carl Ribaudo, president of SMG Consulting in South Lake Tahoe.
Red Hawk Casino, which is operated by the Shingle Springs Band of Miwok Indians outside of Placerville, opened in December 2008 and had a direct impact on the casinos in South Shore. Others like Cache Creek and Jackson Rancheria Casino Resort also contributed to the market shift.
"(Tahoe) used to draw from the Bay Area, but tribal casinos opened closer to those big populations," he said, adding many people opt for the proximity of the casino over the experience of being in Lake Tahoe.
In 2010, The New York Times reported a 40 percent decrease in gambling revenue for Tahoe casinos after tribal casinos started opening around Sacramento and the Bay Area.
However, this doesn't mean South Shore will suffer if sports wagering becomes legal in the same way it did with California competition. Experts said the vast majority of gamblers aren't coming to the lake just to place sports bets.
Griffith doesn't expect sports wagering in California to affect on the Nevada side of the lake, especially considering the legislation could take years.
"Because we're a resort destination and it's going to be a few years, I don't think it's going to affect us very much because people come for the whole experience," Griffith said.
Red Hawk declined to comment on where the casino stands with sports wagering. MontBleu Resort Casino & Spa declined to comment because the casino uses William Hill, and Harrah's and Harveys Lake Tahoe also declined to comment.
Caesars Entertainment did publish a press release after the Supreme Court ruling, which says the company plans to expand its sports books operations as states begin legalizing sports wagering.
Ribaudo said as South Shore has shifted from a gaming market to one focused on the outdoors, gaming has become less of a driver and more of an amenity, meaning it's something people do while they're here, but it's not necessarily why they come.
"We've never been a pure gaming spot, we just don't have the variety other places have," he said. "We've always been different than big markets like Vegas because we're in an outdoor environment."
If anything, regulated sports wagering could dissuade Americans from placing bets illegally and have minimal impact on Nevada's established gaming monopoly. Though sports wagering is not as profitable as other forms of gambling, it has the potential to secure substantial tax revenue for states.
"The issue is it's been done illegally for so many years," Roberts said. "I don't think you'll see a surge in people betting on sports books that weren't already doing it before."