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Offshore Report : The Insider : Hartley Henderson


Top 10 Gambling Stories of 2017: North America - Part 2

By: Hartley Henderson - exclusive to OSGA.com
Published: Dec 29, 2017

Top 2017 gambling stories



When Donald Trump won the federal election in 2016 and the Republicans dominated in the Senate and House it was clear that 2017 was likely going to be an interesting year for betting in the United States, and it didn't disappoint. This section will deal with the top 5 stories that dominated the news in 2017 and could affect betting in the United States likely for years to come.

5. The changing stance in Pennsylvania and likely growth in online gambling across the U.S.

Heading into 2017 there was a real concern that Sheldon Adelson's Restoration of America's Wire Act (RAWA) bill could hinder any expansion of online gambling in the U.S. Adelson is a huge donor to the Republican Party and gave millions to elect Donald Trump. Moreover, when appointed as Attorney General, Jeff Sessions indicated he was going to look more closely at online gambling laws. But surprisingly that never happened. If anything, interest in gambling expansion has grown and with other larger concerns, Jeff Sessions never had the real opportunity to address the online gambling question.

The biggest change in the United States in 2017 was the number of states that now offer some form of online gambling whether it be lotteries, horse racing or casinos. Three states, Nevada, Delaware and New Jersey offer online casinos and online poker; up to 20 states offer online horse racing; and six states Georgia, Illinois, Michigan, Kentucky, New Hampshire and Pennsylvania offer online lottery sales. As well California, New York and Massachusetts have bills aimed to authorize online gambling and almost 30 states authorize daily fantasy sports (DFS).

Pennsylvania online gamblingBut the one state that has really changed their gambling stance is Pennsylvania. There was a massive standoff between the House and Senate on gambling in the state. The House wanted gambling expansion to help out bars, while the Senate said it had to be only avilable to existing casinos. The House also wanted to open up new gambling avenues, including betting at airports, but the Senate opposed it even suggesting a 54% tax on winnings. In the end they compromised, and in October of this year Pennsylvania passed a new gambling revitalization plan that was signed into law by Governor Tom Wolf.

Under the new plan, all casinos can offer their games online for a fee; 10 of the 12 casinos will be able to run a smaller satellite casino with up to 750 slot machines and 30 table games at a cost starting at $10 million; casinos can offer interactive gambling at airports and truck stops for a nominal fee; and lastly all lottery games are offered online.

This plan is likely to receive a lot of backlash from Adelson who previously threatened to fold the Sands casino in Bethlehem, PA if online gambling ever became a reality in the state, but so far Adelson has not said a word.

Indeed 2018 promises to be a new wave of opportunity for gambling to residents of Pennsylvania and other states who are looking to follow suit.

4. The denial of a DraftKings-Fan Duel Merger

At the end of last year Fan Duel and Draft Kings announced they would merge to survive. Both sites were losing money due to regulatory issues, fines levied against them and new rules requiring them to pay states a fee for operating. Consequently, they decided the best option was to combine resources. This would not only cut down on those expenses, but it would also negate the need for so much advertising. That proposed merger was shot down in June 2017 when the FTC denied the merger claiming it violated anti-monopoly laws, since the two sites make up over 95% of all DFS wagering.

DFS LegislationWith the FTC decision imminent, the sites had four options before them – they could both declare bankruptcy and start up a new site with combined funds; they could operate as is with a survival of the fittest mentality both going all in and the winnings site would grab all the customers of the defunct site; they could continue to operate as two sites but coordinate efforts so that costs are halved; or lastly, they could continue as is, but cut costs as much as possible and be more fiscally responsible.

Other than the last option there was a belief that the FTC would see through any plan to coordinate the two sites and would block those efforts. So it appears the sites have chosen the last option and it is working out. According to recent reports the number of customers at both sites is believed to be up substantially this NFL season even as advertising has decreased and payouts have gone down slightly and FanDuel has decided to follow DraftKing's lead and has begun offering DFS on sports like golf and eSports that they originally refused to offer, believing it violates the UIGEA rules. The fact that DraftKings has not been challenged on their offering of these sports apparently has changed FanDuel management's minds. More importantly states that opted out of DFS are now back in. Most notably New York and Texas now authorize DFS and by all accounts as many as 44 states will have DFS legislation within the next year.

This renewed customer base makes the idea of co-existing sites realistic even as they make payments to the states. And as one employee of DraftKings told me on the Q-T the companies are also learning from their mistakes financially.

"At first we were like kids in a candy store," a DFS source told me, "but we realize all plans and revenue must be reinvested to ensure we remain a going concern. Morale here has improved, and we see a bright future."

3. Fighting between states and Tribal Groups

2017 saw a big divide between states and tribal groups as compacts that were first agreed to when the Indian Gaming Regulation Act (IGRA) was introduced are about to expire. The most noted divide was in Florida where the Seminole Indians have been fighting with the state of Florida over casinos. In 2010 the Seminole Indians signed a 20 year compact with the state which gave the Seminoles the exclusive right to offer slot machines outside of South Florida and the ability to offer banked card games at their casinos until July 31, 2015. At that point, it was expected a new compact relating to banked card games would be made, either extending the exclusive rights to the Seminoles or ending them.

Florida gambling Seminole IndiansFlorida's governor agreed to a deal with the Seminoles in 2015, which would have continued to give the Seminoles exclusive rights to slots and to offer banked card games in exchange for $300 million but the Florida Senate declined to extend the agreement believing they could do better. Gambling was a cash cow and many of the larger cities that felt handcuffed by the agreement wanted the ability to offer slots and banked card games at horse and dog racing tracks to help boost revenues in both gambling areas. The compact ran out and the Senate demanded that the Seminoles cease offering banked card games at their casinos as the compact expired and under law they no longer had an agreement in place. Despite the Senate's demand the Seminoles continued to offer the games and chose to sue the state for breaching agreements under the compact. The Seminoles argued that Florida violated the terms of the 2010 compact by allowing player banked card games at racetracks throughout the state, as well as offering slot machines that emulated banked card games at casinos in South Florida. Under the compact the Seminoles were granted exclusive rights for slots outside of Miami-Dade.

Communities like Tampa, which offered player banked card games, stated they weren't true banked card games because it wasn't the house that won the money but rather a designated player. Unlike house banked card games, where the facility operator is the bank, the designated player games allow a player at the table to be the designated bank. The state okayed these types of games in 2013, but the tribes argued that they were just a façade and were really banked card games in disguise,since the designated player was never involved in the game and many times wasn't even sitting at the table. It was effectively a dummy spot that was "the bank" and the dealer paid out the winning bets. As for the slot machines, these are seen at many casinos throughout the U.S. and appear as live dealer games where a player plays blackjack against the dealer and is paid out accordingly. The state argued it's just a slot machine with a designated payback, but the tribes suggested it was another banked card game in disguise.

In 2016 Florida Judge Robert Hinkle ruled for the tribes and agreed they could keep their banked card games until the end of the compact in 2030, but in 2017 the state's Supreme Court agreed to a constitutional amendment that allowed any communities to offer any form of casino gambling provided residents agreed to it in a referendum. The Seminoles were furious that they would no longer have exclusive rights to offer gambling, although they could at least keep the banked card games at their casinos. To make matters more confusing the state Supreme Court also announced that slot machine expansion could only take place in South Florida.

Ever since that ruling there has been infighting in the state between the tribes, casino groups, the legislature and anti-gambling groups. There is also a proposed referendum which may be put forward in the 2018 midterm elections.  The Florida Voter Approval of Casino Gambling Initiative (Initiative #15-22)  would "provide voters with the exclusive right to decide whether to authorize casino gambling in the State of Florida." The initiative would not apply to pari-mutuel wagering and would not affect the current tribal agreements. If it passes only voters could decide the future of gambling in state counties.

Along with Florida, the Seneca Indians in New York have been fighting with the state over payments for casinos the Seneca Indians run in Western New York. When the compact ran out in 2016 the Seneca Indians stopped making payments to the state, but Governor Andrew Cuomo told the Seneca Indians they were required to do so. The Seneca Indians disagreed claiming that they only need to provide some revenue to the cities like Buffalo and Niagara Falls and not the state. In turn the state is considering revoking the license to the Seneca Indians and in the meantime, has permitted non-tribal casinos in communities where the Seneca Indians do not have exclusive rights, but they believe are in their area of jurisdiction, particularly Hamburg and Batavia. While all this occurs, many cities have yet to be paid any revenue by the Indians or the state and are struggling to make ends meet.

And in California the ongoing infighting between the state and the various Indian tribes over the ability to offer online poker continues ad infinitum without a clear outcome in sight.

2. The massive rise in the price of crypto currencies

bitcoin online gamblingWhen Bitcoin was first developed in 2009 there was an indication that it could be a good option for online betting, if it ever took off. People made tons of money playing Satoshi dice, where they won a fair amount of bitcoin for no real investment, and a few gambling sites were developed. And when I first wrote about Bitcoin in 2011 (they were selling for $3 apiece), there was talk about whether it would revolutionize the industry.

Unfortunately, I never bought in (a decision I still rue today) but for those who did buy bitcoin they quickly saw the value of their coins increase. But not even the most optimistic bitcoin holders could envision what happened in 2017. On December 31, 2016 the price of one bitcoin was worth $961 according to coinmarketcap.com and as of December 17h it was trading at $19,600, an increase of over 1,900% this year alone. And despite some fluctuations it has more or less continued to rise.

Bitcoin not only made regular people overnight millionaires (at least on paper) but it also opened the opportunities  to use the digital currency for sports betting. In its early years only a few bitcoin-only betting sites existed along with Switch Poker, but as the crypto currency gained acceptance many traditional sites bought in as well. U.S. facing gambling sites which looked like they could fold due to the inability of players to fund accounts, suddenly had a new option. The crypto currency is easy to use, is virtually untraceable and most importantly avoids the use of any banks. So, Americans no longer had to fear the FBI or IRS to gamble on their favorite casinos or sporting events. And one gambling site stated that they thrived just by holding onto a stash of bitcoins they bought to ensure they could pay players. In fact, the site made so much money on the increase in price it has been able to offer far more betting options than before, cut their hold and are now considered one of the top betting sites in the industry worldwide. And the owner of Heritage Sports indicated that bitcoin helped move his company to the next level.

But it's not only bitcoin that has exploded. Litecoin has grown by 8,750% in 2017 from $4 to almost $285; Ethereum has grown 11,715% from $8 to over $850; Monero has grown over 3,700% from $10 to $380; and Dash has grown from $11 at the end of 2016 to a high of $1,511 in 2017 or a growth of 13,600%. And other crypto currencies have expanded as well. This rise has convinced sites like Heritage Sports to start accepting Alt currencies (crypto currencies other than bitcoin) and many sites which have cut off U.S. customers in the past have told me they are considering offering a crypto currency funded only alternative to American customers to draw them back in. Without concerns of dealing with banks and the police it makes sense. Of course, if Warren Buffet and others are correct and the crypto currencies are a scam which will go to nothing some day, those sites could end up going bankrupt as well, although there are always options to ensure that doesn't happen.

Indeed, crypto currencies could be the savior of North American facing online gambling sites in the future.

1. The Supreme Court decision to revisit PASPA

In 1992 The Professional and Amatuer Sports Protection Act (PASPA) was passed into law in the United States that banned betting on all sports competitions. The bill, known at the time as The Bradley Bill, named after former NBA star and Senator Bill Bradley, made it illegal for any states to offer sports betting. Nevada was exempted from the law as they already were offering sports betting and Delaware, Oregon and Montana were given a partial exemption since they were all offering some form of sports betting in the form of a lottery or betting pool. New Jersey, which had a thriving gambling market thanks to their Atlantic City casinos, was given the option for one year to opt out of the law, but they never took advantage of that opportunity and consequently were banned from offering sports betting as well. Things went well in New Jersey until the recent recession. A change in disposable income saw many Americans cut back on gambling and casinos, along with racetracks, started to struggle, particularly in New Jersey. As a result, legislators in New Jersey sought to legalize sports betting at casinos and racetracks to bolster attendance and wagering. Governor Chris Christie originally opposed the idea due to political concerns, but once it was clear he would not seek the presidency in 2012 he agreed to support the proposed legislation if New Jersey residents agreed to it in a referendum. The proposal was put forward to the public on November 8th, 2011 to amend the state constitution to allow the legislature to legalize betting on the results of professional, college, and amateur sporting events and offer it at racetracks and casinos. The referendum passed by a 2/3 margin and 13 days later Senators Ray Lesniak and Jeff Van Drew introduced  a bill which passed in the legislature on January 9th, 2012 and was signed into law by Governor Christie on January 17th.

PASPA SCOTUS sports bettingAlmost immediately the major sports leagues challenged the new law in the courts. The NFL, NCAA, NBA, NHL and MLB sued the state claiming their law violated PASPA and the Third Circuit Court of Appeals agreed with the leagues in August 2012, prohibiting New Jersey from enforcing the law by a 2-1 vote. New Jersey appealed to the Supreme Court, but they refused to hear the case.

New Jersey's lawyers examined PASPA more closely and determined that the law only disallowed the state to authorize sports betting, other entities were not excluded. Consequently in 2014 New Jersey passed a new law which allowed the racetracks and casinos to offer sports betting without state involvement. The leagues again appealed to the Third Circuit and once again they ruled for the sports leagues, but a strong dissenting opinion and a lack of enthusiasm by many of the leagues (particularly the NBA) to stop sports betting had many thinking the tides could be changing. New Jersey once again appealed to the Supreme Court in October 2016, which chose to wait on a decision. The election of Donald Trump the next month as president and the appointment of Neal Gorsuch as Supreme Court justice to replace Justice Scalia seemed to tip the scales towards new gambling law recognition and in June 2017 SCOTUS agreed to hear the case. In fact, there was an indication that SCOTUS asked for the case to finally address a law that seemed to violate the constitution. Several states wrote briefs supporting New Jersey and on December 4th, the state's attorney made his case for ,New Jersey, stating that PASPA was unconstitutional because it commands a state to enforce a law that doesn't benefit the state and that they would not enforce if given the choice. The fact that the law also legalizes something in four states to the exclusion of the other 46 was not mentioned although it was implied. The leagues' lawyers refuted the argument because they said that New Jersey could simply lift all prohibitions on sports betting (referred to by analysts as the nuclear option) and that limiting gambling to racetracks and casinos was an indication that they did not really legalize all sports betting, but only wanted it in a way they chose.

The questioning and comments by the justices clearly indicated they are going to rule for New Jersey. Anthony Kennedy, Samuel Alito and Stephen Breyer were strongly in favor of New Jersey's arguments. Neal Gorsuch and John Roberts were also seemingly in favor of New Jersey's points, although they were a bit less enthusiastic and Ruth Bader Ginsberg seemed to be more favorable to the leagues, although she has indicated in the past she strongly opposes preferential treatment in laws. Clarence Thomas said nothing but will almost certainly rule for New Jersey given his federalist support. Only Elena Kagan and Sonia Sotomayor indicated strong support for the sports leagues.

SCOTUS will rule in 2018 and if, as expected, they rule to repeal PASPA, one can look for sports betting to be offered not only in New Jersey but in at least 20-25 states in the year following the law being repealed. The future looks bright for American sports bettors.

Check out the the remaining top 10 gambling stories in North America for 2017 here.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!



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