Welcome

Virus Deals Colorado Sports Betting a Weak Opening Hand

May 1, 2020, 8:46 AM

Betting on the NFL, the NBA, Major League Baseball, the NHL and other sports is scheduled to become legal Friday in Colorado, and with it a new 10% tax on net gaming proceeds.

But legalization is beginning with a whimper in the Covid-19 pandemic, with no major live sporting events and all of the state’s casinos shuttered. With that, revenue from the new tax will be a tiny fraction of what was projected, given that sportsbook operators are relying on Taiwanese baseball, Chinese table tennis, Belarussian soccer, and competitive darts out of New South Wales, along with a smattering of other events.

State officials and sports gambling providers say they hope major sports events will come back soon, but it isn’t clear when that might happen.

“There’s not much to bet on, and there won’t be any in-house betting because the casinos are closed,” Floyd Ciruli of Ciruli Associates, a pollster and elections consultant in Denver who followed the development of sports betting in the state closely, said Tuesday in a phone interview.

‘Not on the Radar Screen’

Ciruli said the sports betting industry might have been better off delaying the start, given the circumstances. “All we talk about today is the pandemic, and the sports pages are two pages,” he said. “It’s not on people’s radar screen.”

A ballot measure (Proposition DD) narrowly approved by voters in November 2019 legalized sports betting in Colorado, authorized the new tax, and created funding streams for state regulation of betting and gambling addiction programs.

Funding also was aimed at a new “hold harmless” fund that will redistribute some gambling tax revenue to casinos if they suffer financially from a shift in betting to sports at the expense of games such as slots, cards, craps, and roulette.

Any remaining revenue from the new tax was to supplement funding for the 2015 Colorado Water Plan, designed to address the state’s future water needs, protect the environment, sustain viable and productive agriculture, and offset the effects of drought and climate change.

A pre-election analysis of the proposition by the Colorado Legislative Council projected that the tax, which will be assessed on net betting proceeds, would generate annual revenue of about $16 million in its first five years, up to a maximum of $29 million a year.

Scaled Back

Those estimates were scaled back hard in November after the Division of Gaming chopped its sports betting license fees from $125,000, the maximum established by the General Assembly, to no more than $2,000 for master licenses to be held by casinos and $1,200 for internet operators, according to a division memo. The division said the initial fee was much higher than casinos would be likely to pay.

That sent revenue estimates plummeting to between $1.5 million and $1.7 million in the 2021 fiscal year beginning July 1—below the threshold for funds to be transferred to the Colorado Water Plan after other priorities are funded. Now, with Covid-19 hampering the start of sports betting, those figures will be even weaker, officials said, although exact numbers aren’t yet available.

“All the things going on right now have completely thrown any of these predictions out the window,” Dan Hartman, director of the Division of Gaming, said in an interview.

Casinos Only

Only casinos are eligible to hold a master license to conduct sports betting. A master license authorizes the holder to contract with an operator to offer sports betting on site or with an internet operator to offer online wagers, Hartman said.

Casinos were putting the finishing touches on their sports betting facilities when the contagion hit, prompting Gov. Jared Polis (D) on March 17 to shut down all casinos in the state’s three legal gaming towns of Black Hawk, Central City, and Cripple Creek. That means sports betting in the state will launch 100% online with roughly four to six operators who have contracts with a casino holding a master license, Hartman said.

In 2019 about $13 billion was wagered on sports, generating roughly $118 million in state and local tax revenue, according to the American Gaming Association. Covid-19 is expected to slash sports betting by 80-90%, nearing 100% depending on the location, Max Bichsel, vice president of Gambling.com Group, said in a phone interview Tuesday.

“It’s unprecedented, but the upside is looking strong when baseball, basketball, and other professional and college sports return,” he said. “In lieu of that, fans are wagering on exotic events like Russian handball and Chinese table tennis. There are lots of ways to fill the void, but nothing that can fill the void of a March Madness or an Opening Day.”

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com

To read more articles log in. To learn more about a subscription click here.