Measuring Success

Online casino legalization efforts are stalled and taxes are rising as the industry’s lobbying efforts continue to be ignored by lawmakers.

After several years of successfully advocating for the legalization of daily fantasy sports and sports betting, the gambling industry and its lobbyists are suddenly encountering legislative roadblocks as they make their case for online casinos.

Meanwhile, states are increasing taxes and adding new regulatory burdens, despite the industry’s protestations that it will upend the regulated market and drive customers offshore. At the same time, unregulated (quasi)gambling, such as sweepstakes and prediction markets, is taking root, building brands and databases, with some cautioning that these alternatives are positioning themselves to supplant existing online businesses.

So, how did the industry go from the 2001-2018 New England Patriots to the 2019-2024 version of the team?

There are many theories.

As Chris Grove posted on LinkedIn, missteps in lobbying have burned political capital:

“The industry squandered critical political capital in Illinois trying to advance a misguided sweepstakes ban… and apparently overindulged in the ‘if lawmakers really want more revenue from us, they'll have no choice but to legalize online casino’ Kool-Aid that they're meant to reserve primarily for analysts and investors.

“Meanwhile, we're marching steadily toward an ignominious milestone: Six years since a major population state passed online casino legislation despite the overwhelming success of regulated markets like New Jersey, Michigan, and Pennsylvania.

“Maybe it's time to stop relying on the same, tired, failed online casino lobbying playbook. Or, hey, maybe next year will be different. After all, next year has to be different *eventually* ... right?”

Or as Jake Pollard wrote in the Gaming&Co newsletter, maybe it’s the tactics:

“More broadly, the issue also calls into question the lobbying tactics of gambling companies and whether they really do influence policy or tax rates. Looking at the US, the recent tax increases that have hit online sportsbooks in Illinois, Maryland, and most recently Louisiana have happened despite considerable and lengthy campaigning by industry lobbyists.”

And as I previously wrote, the industry is suffering from self-inflicted wounds. It convinced lawmakers to keep burdens low, but now it touts rosy numbers and increasingly high hold rates to shareholders:

“You can’t tout your rosy outlook and how much market share and revenue you’re generating in earnings calls and then cry poor in front of lawmakers.

“Neither will your customers sympathize with your plight when Jason Robins’s salary (which doesn’t include private jet usage) was $47 million in 2022 and a paltry $20 million in 2023.”

Furthermore, the messaging is falling short. Far too often, whether they’re talking to lawmakers, regulators, tribes, responsible gaming folks, or concerned commercial casino operators, it comes across as condescending (we know better than you) and self-serving (sure, we’ll benefit from this, but it’s still a good policy, trust us).

It’s time for a complete reset. The momentum is all on the side of the anti-online gambling aisle, and repeating the same arguments isn’t going to move the needle.

Two Points of View

The lobbying struggles have been evident for some time.

The industry’s state-by-state lobbying (and distorted view that these are individual fights happening in vacuums) clashes with policymakers’ broader perspective, which assumes what was agreed to in one state — like New York’s 51% tax rate — applies everywhere.

One reason sports betting was pushed through following the PASPA ruling was the national chatter around the topic. Yes, all politics are local, but there is also the zeitgeist, and in May 2018, the climate was clearly in favor of legalized sports betting.

This local-national disconnect has exposed deficiencies in the arguments proponents use. They expected to keep playing the Washington Generals and ran into the 95-96 Chicago Bulls.

The failed 2022 California ballot initiative, as I noted in a previous newsletter, was a turning point, shattering the industry’s aura of invincibility. Since then, it has failed to pass an online casino or sports betting bill in a significant state (and has been shut out in the last two legislative sessions), nearly lost a ballot referendum in Missouri, and has faced tax hikes in multiple jurisdictions.

While the industry has curbed some gray and black market competition, its once-effective playbook of astroturfed support and fearmongering the unregulated markets, which worked so well in the DFS and early sports betting days, hasn’t moved the needle lately.

Work-Life Balance

The problem, as I see it, is that the industry equates success with revenue growth, but lawmakers measure it differently.