Regulatory Alarm Bells
New York regulators expressed concerns over DraftKings proposed surcharge, and issued a stern warning to all operators about future proposals.
The Bulletin Board
NEWS: New York regulators were alarmed by DraftKings surcharge proposal and are warning operators against similar future efforts.
BEYOND the HEADLINE: There is a fine line between confidence and hubris.
LEGAL and REGULATORY UPDATES: WY gambling feasibility study; MD proposes promo deduction rule change; Quote of the Week.
NEWS: California Governor signs bill allowing tribes to sue cardrooms.
AROUND the WATERCOOLER: An exclusive offer… for everyone.
STRAY THOUGHTS: When critics are your allies.
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Regulators “Alarmed” by DraftKings Proposed Surcharge
Remember the short-lived DraftKings surcharge? The idea is dead and buried, but remnants of the proposal are still lingering in the air.
Take, for instance, New York State Gaming Commission Chair Brian O'Dwyer, who said he “looked with great alarm” at the proposed surcharge on winning bets from DraftKings during a recent regulatory meeting.
Per Geoff Zochodne of Covers.com:
“I view that proposal as both misleading and detrimental to the consumer. I am, of course, pleased that the proposal has been withdrawn, and I remind all our licensees, however, that this commission is committed to protecting the consuming public and that any proposal such as the one advanced by DraftKings will be subject to the strictest scrutiny, and if appropriate, be rejected.”
It’s very likely regulators will need to put on their scrutiny glasses, considering DraftKings CEO Jason Robins has intimated the company will simply move on to Plan B, C, D, and so on.
“I don't think that, in perpetuity, it will make sense for anybody to completely just eat any tax increase that happens anywhere,” Robins told attendees at the Bank of America's Gaming and Lodging Conference in early September.
DraftKings chief rival, FanDuel, appears to be charting a different course. Not only did it dismiss the idea of following DraftKings' lead on the surcharge, but during the company’s investors’ day presentation, Flutter executives continually mentioned the company’s scale advantage, which makes it better prepared to deal with change.
“[Over the last four years] We've grown revenues by 7% on a compound basis and grown our average monthly players by 14% each year… And we've achieved that growth despite significant changes in tax and regulation across many of our markets,” Daniel Taylor, the CEO of Flutter International, said during the presentation. “Our ability to weather these storms and weather these changes is a function of the scale advantages we have… and that's why we've continued to grow while many others have faltered.”
“What I'd add is the experience we have of operating in different markets around the world gives us the confidence that we've got levers to pull in the event that there are some tax changes, whether that's the experience we've seen in Australia or the U.K., but there were tax changes,” Flutter CEO Peter Jackson said.
“If you're the scale player in the market, you have many more levers to pull to offset some of those tax changes,” Jackson said in response to a question on taxes. “And you'll find that some of the smaller players have to make their products appealing, push the prices up, and reduce their generosity, so we'll often capture extra share to help further compensate for some of those impacts.”
Beyond the Headline: The Fine Line Between Confidence and Hubris
For several months, I’ve cautioned that some forces in the industry don’t understand that the tide has turned, a feeling that pre-dates the surcharge fight.
“The surcharge appears to be a case of DraftKings still thinking it’s the biggest, baddest person on the block that will win every fight when the reality is it has been KO’ed in its last two (California and Illinois) and is hurtling toward a third consecutive defeat in Massachusetts.
“During the DraftKings Q1 earnings call, CEO Jason Robins downplayed the possibility that Illinois would go through with the tax rate increase: “I expect that maybe there’ll be one or two here and there that look to do that, but I don’t think many of them will… And my expectation is that we’ll be able to convince them that it’s not a good policy decision.”
“It’s the fighter who is past their prime but still thinks they have one more shot at the title, but the fight is unwinnable.”
Robins apparently still believes this to be true, given his comments at the aforementioned Bank of America's Gaming and Lodging Conference, as relayed by Covers.com:
“All of us sort of got together and said, ‘OK, this didn't go the way we thought, let's take a look at why, let's figure out how we can do better next time. So I think our playbook for combating these types of things is going to be significantly better this coming legislative season.”
This sounds exactly like the statements I quoted above that Robins made before Illinois raised the tax rate.
“We decided to throw it out there, see what the reaction from customers was, see what the reaction from state governments was, and after analyzing that, determined it wasn't the right thing at this time.
“But, I do think that the way we went about it, I'm very proud of because I think it was disciplined and well thought through. And in the end, we were able to get the information and feedback from the market we needed without actually costing ourselves anything.”
Ignoring the “well-thought-through” statement, there is most certainly a cost. The surcharge has fallen off the radar, but it will be brought up as tax conversations play out, and based on FanDuel Investors Day, analysts will continue to ask questions.
“… But I also have heard arguments on the other side that, hey, this is probably going to only be confined to a handful of states. Maybe there'll be a few more. But really, there's not a long list of candidates of states that we think are highly likely to raise taxes. So we'll have to see.”
This is not a theory I would want to test.
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Legal and Regulatory Updates: WY Feasibility Study; MD Proposes Promo Deduction Rule Change; Quote of the Week
Spectrum to conduct gambling study for Wyoming: Spectrum Gaming Group has been contracted by the Wyoming Gaming Commission and State Legislature to create a "statewide study of gaming in Wyoming, including the structure of historic horse race wagering, skill-based amusement games, and online sports wagering." the bigger component, which Wyoming flirted with at the end of its 2024 legislative session, will be the authorization or prohibition of interactive gaming, an appropriate regulatory structure, and potential tax revenue. “This topic may result in legislation introduced in the 2025 General Session,” according to the press release.
Maryland looks to end promotional deductions: A proposed regulatory rule change would close the door on promotional deductions in Maryland. Currently, new operators can deduct promotional credits from their tax obligations for the first 12 months. After the first 12 months, promotional deductions are capped at “20% of total sports wagering proceeds that the sports wagering licensee generated in the prior fiscal year.” If approved, the new rule would make it far more difficult for new operators to enter and compete in the market (see quote below).
Quote of the Week: “As a company interested in entering the regulated OSB market in Maryland, this is concerning language. A fair compromise would be to allow all licensees to deduct free bets from revenue for the first 24 months of operation.” ~ Alex Kane, CEO of Sporttrade (a newsletter sponsor)
CA Gov. Signs Bill Allowing Tribes to Sue Cardrooms
At the tail-end of the legislative session, the California legislature passed a bill granting California tribes one-time standing to sue cardrooms they believe are illegally offering traditional house-banked card games like blackjack and baccarat. That bill had been sitting on Gov. Gavin Newsom’s desk since September 11.
On Saturday, Newsom signed the legislation giving California tribes access to state courts to sue cardrooms into law. And in the words of Heath Ledger’s Joker, “And here we… go!”
The backstory on SB 549 can be found here, along with previous coverage on STTP detailing cardroom opposition and tribal support.
Tribes have cried foul since regulator Bob Lytle introduced a very controversial rule change that authorized a rotating player-banked deal just before he went to work for a California cardroom.
A Capitol Weekly column offers a good explanation of how the current situation came to be and Lytle’s role. You can also find a near-decade-old explainer of player-banked games in California written by yours truly here.
Cardrooms and the municipalities they support have expressed concerns that, win or lose, the upcoming legal fight will tax their resources and cause some cardrooms to close their doors.
As Cal Matters reports:
“Card rooms responded to the bill’s introduction last year with a massive lobbying blitz. That included a single card room, Hawaiian Gardens Casino in Los Angeles County, spending $9.1 million on lobbying last year alone. It was the second-highest amount reported to state regulators that year. Only the international oil giant, Chevron Corp., spent more.”
“Cities, including San Jose, argue that if the card rooms stop offering the disputed table games, it could force the municipalities to cut police, fire and other city services because their budgets are propped up by the taxes and fees that the card rooms pay local governments.
“For example, nearly two-thirds of the budget for the small city of Hawaiian Gardens and almost half for the city of Commerce, both in Los Angeles County, come from local card rooms.”
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Around the Watercooler
Social media conversations, rumors, and gossip.
And bad mistakes, I’ve made a few…
An Underdog (a newsletter sponsor) VIP Host apparently sent the entire Underdog database an offer meant for a select few, and the company decided to turn the mistake into a promotion.
So what was the offer?
Stray Thoughts
I’m always dumbfounded by people or organizations that make enemies out of people or organizations that are 99% aligned over a trifle.
In the same vein, if you’re in a room and no one disagrees with you, you’re in the wrong room. As George S. Patton said, “If everyone is thinking alike, then someone isn't thinking.”