Detroit casinos bet on legal sports gambling prior to legalization

by Administrator

Detroit's casinos are making preparations for sports betting — even though it's not legal in Michigan.

The establishments are making investments in support of the activity as they push to cash in on the business in one of America's biggest sports towns. Some estimate sports betting could generate millions in annual tax revenue for the state. Details on how much the state should tax the activity, however, are holding up legalization.

A new sports lounge near the hotel entrance of MGM Grand Detroit is expected to open soon and could serve as a sportsbook should the state legalize the games. Meanwhile, Penn National Gaming Inc., the new operator of the Greektown Casino, has entered into decades-long agreements with four internet gaming operators to bring sports betting to its 41 locations in 19 states; two potentially could operate in Michigan.

"We're envisioning what (sports betting) could look like if it were passed," said Eric Schippers, Penn National senior vice president of public affairs. "Michigan is leaving a lot of money on the table it could be generating in tax revenue and benefits that could be funded from this. There's natural pressure to strike while it's hot. We're hopeful Michigan won't allow itself to get left behind."

Once perceived a leader in efforts to legalize sports betting after the U.S. Supreme Court last year effectively ended a federal prohibition, Michigan now is falling behind its neighbors after Republican former Gov. Rick Snyder vetoed legalization in December. Indiana and Illinois now have passed legal sports gambling, and Ohio is considering it. Ten states already offer it.

Sports betting is not in the internet gaming packageunder consideration by the Michigan Legislature, but Rep. Brandt Iden, R-Oshtemo Township, plans to introduce legislation in the next month that would legalize the activity both online and in brick-and-mortar facilities.

Tax rate

The bill Iden plans to introduce would develop legal sports-betting rules and set a tax rate, which is expected to match the 8% proposed in the internet gaming package.

Gov. Gretchen Whitmer's administration has challenged the 8% tax rate, suggesting instead a tax rate of up to 40% for internet gaming and 15% for sports wagering. A $28 million annual projected loss to Michigan public schools at an 8% rate is based on the belief that the advent of new gaming options would pull business away from the Michigan Lottery and brick-and-mortar casinos, which pay a higher tax rate that supplements the School Aid Fund.

Iden believes much of the estimated $225 million in tax revenue from internet gaming would be new and not taken from existing gamblers already courted through the state’s internet lottery system.

Player profiles indicate the lottery's players and internet gaming participants “are two different individuals or we find they play on everything,” Iden said.

“This is going to be a net revenue win for everyone who participates," he said. “We are in the throes of negotiating the tax rate. There is room to go into the double digits on this, but 40% isn’t even in the realm of possible.”

Although Penn National is open to negotiating the tax rate, sports betting margins are small, said Jeff Morris, the Pennsylvania-based casino and racetrack operator's vice president of public affairs and government relations. On an average $100 bet, $95 goes to the bettors, and the remaining $5 must cover federal and state taxes, operational expenses, marketing and other costs, he said.

"Therefore, a high tax rate can make it unprofitable," Morris said in an email, noting Indiana's tax rate is 9.5%, Iowa's is 7.5% and Nevada's is 6.75%. Pennsylvania's, however, is 36%.

Iden said he’s working with Penn National, Detroit’s other casinos and Michigan’s tribal casinos in the hopes of getting legislation on the books by the end of the year.

“I think they’re going to be an integral part of getting this done,” Iden said of the casinos.

'Shot in the arm'

Penn National acquired in May the operations of Greektown from businessman Dan Gilbert's Jack Entertainment LLC in a $1 billion deal with a New York real estate investment trust. The company envisions a sports-betting venue at Greektown accessible at the street level blocks from Comerica Park and Ford Field.

"We think sports betting at Greektown would be terrific for the property," Schippers said. "There's so much energy there before games. It would be a great shot in the arm for the property and for downtown Detroit."

If sports betting becomes legal in Michigan, Penn National plans to operate at Greektown its own online sportsbook — the primary "skin" under its license. The company is in conversations with well-known sports and media names to brand the sportsbook, Jay Snowden, Penn National's chief operating officer, said during an earnings call last week.

"We believe by retaining control of that primary license," he said, "we control our future."

Under 20-year national agreements, the company also would give two other companies the opportunity to operate sportsbooks in Michigan. Depending on licensing limitations under state law, online gaming operator The Stars Group would have a second skin, and mobile sportsbook theScore Inc. a third.

The Stars Group is paying Penn National $12.5 million and is promising the company revenue share to operate in up to nine states. Penn National is taking a 4.7% equity stake in theScore to operate in up to 11 states.

Iden's bill would allow a casino to have at least two skins, one for internet gaming and another for sports wagering. The possibility of a third skin still is being debated, Iden said.

In addition to professional sports betting, his bill would allow for wagering on college-level games.

Penn National is operational with sports betting or poised to be so in eight states. There, it offers wagering on football, basketball, hockey, soccer, baseball, golf, tennis, auto racing, rugby, cycling, boxing and mixed martial arts, and cricket.

The company first launched sports wagering in September 2018 in West Virginia. Depending on the market, the activity can account for up to 10% of revenues, Schippers said.

"More importantly, it's a great customer acquisition tool that you can reach out to customers that wouldn't normally go to a casino," he said. "Then they might decide to play at the table or have a nice dinner at your restaurant."

Greektown, the smallest of Detroit's three casinos, reported 2018 revenue of more than $335 million. MGM Grand Detroit, the largest, raked in a record-setting more than $619 million in revenue last year.

MGM Resorts International operates 11 sportsbooks and has a mobile app in Nevada and New Jersey, according to its website. It also has signed deals to be the official betting partner of Major League Baseball, the National Basketball Association and the National Hockey League.

Canadian competition

The legalization of sports gambling in Michigan could create greater competition across the Detroit River for Caesars Windsor Hotel & Casino.

The casino, which does offer sports betting, provided nearly $3.9 million in all non-tax gaming revenue during the first quarter of 2019 to the city of Windsor, according to the Ontario Lottery and Gaming Corp. Such funds, however, could be at risk because Canada bans single- and two-game bets, limiting play to three-or-more-game parlays.

Iden said his bill will set rules for single-game bets in Michigan. Caesars Windsor did not respond to requests for comment.

Brian Masse is a New Democratic Party member of Canada's parliament for Windsor West. He previously introduced legislation for the legalization of single-game bets that was voted down, and says he doesn't expect to see any changes soon. Legalization in Michigan and elsewhere in the United States, however, could pressure action.

"Obviously, not being capable of having a product puts you at a disadvantage," Masse said. "It’s hard to quantify what the impact (of legalization in Michigan) would be. It’s not something that would be a preferable situation to be in. It will be a competitive advantage (for Michigan)."

If that's the case, he said, Canadian casinos would have to rely on other methods to attract American visitors such as advertising how the strength of the U.S. dollar goes further there.