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Big returns for sports gambling in Pennsylvania? Don’t bet on it, experts say

May 20, 2018 GMT

Pennsylvania stands to win from the recent U.S. Supreme Court decision opening the way for legal sports betting across the country.

Even with seven pro sports teams in Pittsburgh and Philadelphia and many high-profile college athletic programs, the question remains whether the state will win big.

How much revenue Pennsylvania could pull in is still murky as state lawmakers figure out how sports betting operations will be regulated, experts say.

The American Gaming Association estimates that people nationwide place as much as $150 billion in illegal bets per year. The Super Bowl alone resulted in about $4.5 billion in illegal bets along with $138.5 million in legal wagers, according to AGA estimates.

Pennsylvania readied itself for legal sports betting with a provision in a 2017 gambling expansion law that authorized sports betting as soon as a federal court ruling allowed the state to regulate such bets.

The green light came Monday when the Supreme Court struck down the Professional and Amateur Sports Protection Act, a 1992 federal law that blocked state-regulated sports gambling outside of Nevada.

David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas, cautioned that the impact of revenue made off of legal sports bets could be limited.

“If the public policy goal is, ‘We need to generate funds for the schools,’ well then the number might not be as big as people think it is,” Schwartz said.

Customers in 2017 wagered about $4.9 billion in legal sports bets in Nevada, according to a UNLV report. The sports betting operations, or sports books, made about $249 million after winnings were paid out — about 2.2 percent of the total gambling win and a historic high, according to the report.

In turn, Nevada pulled in about $17 million in tax revenue from legal sports betting last year, according to Fitch Ratings.

Based on those figures, it’s not likely that sports betting will be a major contributor to gross gaming revenue — how much the sports book keeps after winnings are paid out — or state tax revenue, the report said.

“I think it’s way too early to figure out the numbers for it,” said Marcy Block, senior director at Fitch Ratings.

There are too many variables at play as states figure out logistics, such as where and how people will be allowed to place bets, Block said.

Adding online options for placing bets could mean people will be more likely to participate in legal betting structures, he said. But some states might forego remote betting in order to grow existing businesses, offering sports betting as another game or activity at existing casinos.

Tax rates and operator fees also could present challenges for states such as Pennsylvania, according to the Fitch report.

Pennsylvania’s $10 million operator license fee and 36 percent state tax on gross gaming revenue might be too high to attract operators to the legal market, the report suggested.

Nevada, in comparison, imposes up to 6.75 percent state tax on gross gaming revenues, according to the Nevada Gaming Control Board.

“You’re only going to get the tax revenues if you have people who participate,” Block said.

Stephen Ross, director of the Penn State Institute for Sports Law, Policy and Research, presented another fundamental question.

“How do you regulate the game so that you can make as much money as possible without damaging the integrity of the sport?” Ross asked.

He said using Nevada as a legal or regulatory template may create inaccurate comparisons.

“They’re operating in an environment where there’s a huge illegal betting market,” said Ross, who instead pointed to Australia as a model.

Betting there is legal nationwide, and law enforcement, regulators, bookmakers and sports leagues cooperate to keep everything in check, he said.

At this point, it’s up to states to start working out the details.

“It’s almost like the states are writing on a clean slate, and I think if they muck it up, Congress is going to step in,” Ross said.

Jamie Martines is a Tribune-Review staff writer. Reach her at 724-850-2867.