A Sports Betting Proposal Heads to the Vermont Legislature | Politics | Seven Days | Vermont's Independent Voice

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A Sports Betting Proposal Heads to the Vermont Legislature

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Published December 7, 2022 at 10:00 a.m.


SEAN METCALF
  • Sean Metcalf

The governor supports it. A study committee recommends lawmakers legalize it. And all of Vermont's neighbors have already embraced it.

Nevertheless, legal sports betting faces uncertain odds in the Green Mountains, as some Democratic lawmakers in the House remain skeptical that such a major expansion of state-permitted gambling is worth the risk.

The recommendations of a nine-member study committee — which were essentially finalized on Tuesday — may change some minds. The committee spent this fall investigating sports betting and agreed early on to recommend legalizing the fast-growing pastime. But members also endorsed restrictions that could allay legislators' fears, such as making transactions online only as opposed to in person; daily and weekly wager limits; and payment by cash and debit card only — no credit cards. The committee also recommended a bidding process among betting companies that want to operate in the state to maximize the government's share of the take.

With millions of dollars in tax revenue on the table, there will be intense pressure on lawmakers to at least consider legalization. Since the U.S. Supreme Court cleared the way in 2018, legal sports betting has grown into a $7 billion industry. (It's estimated that illegal sports bets represent another $3.8 billion, according to the American Gaming Association).

To date, 36 states and Washington, D.C., have approved online or in-person betting, or passed laws allowing such betting in the future. That includes New York and all New England states except Vermont.

The state Senate supports legalizing it and has passed bills that have gone nowhere due to a "low-key standoff" with the House on the issue, according to Sen. Phil Baruth (D/P-Chittenden).

"We feel like the delay has gone on long enough," said Baruth, who will serve as Senate president pro tempore this coming session.

Lawmakers with doubts about legalization are concerned that it will lead to new gambling addictions and inflict financial devastation on those who can least afford it. House Speaker Jill Krowinski (D-Burlington) has said enabling sports betting isn't on her priority list. Nor is Rep. Tom Stevens (D-Waterbury) a fan of the proposal. Stevens chairs the House committee with jurisdiction over the Department of Liquor and Lottery, which would oversee sports betting.

"Do we want to bring casino gaming into every single Vermont home? Because that's what a proposal for sports betting is," he said. He promised to give the issue a fair hearing but made it clear he'll have tough questions for proponents.

"We're going to have to take a look at [the legalization proposal] with a microscope and make sure it's the right thing for the state," Stevens told Seven Days last week.

The state's Sports Betting Study Committee held its final meeting on Tuesday; its report to lawmakers is due on December 15.

At the meeting, Sen. Kesha Ram Hinsdale (D-Chittenden) said she understands the risk of a spike in problem gambling and feels she and her colleagues on the committee tackled the issue head-on.

"I think we have the right commissioner and the right infusion of revenue to actually be able to address problem gambling in a way that we haven't had before," Ram Hinsdale said.

At the moment, Vermonters can drive to casinos in New York or to sports betting lounges in New Hampshire, but they cannot place legal sports bets on their phones or computers in Vermont. That's because online betting platforms contain safeguards that require them to confirm bettors' identities, addresses and physical locations. The apps use sophisticated geolocation software to ensure that bets are placed only where they are legal.

In states where betting on sports is allowed, the use of online gaming apps has grown far more rapidly than in-person betting. And, given how rural Vermont is, the study committee has recommended initially allowing betting online only, not at retail locations, which can be expensive to maintain.

The panel made that decision after hearing testimony in October from Charlie McIntyre, executive director of the New Hampshire Lottery. The Granite State's three retail sports betting locations are popular with some high rollers but contribute just 20 percent of the state's gambling revenue, while consuming about three-quarters of his staff's monitoring and enforcement time, he said.

"I don't feel like it's something to chase right now," Rep. Matt Birong (D-Vergennes), a member of the study committee, said to his colleagues about betting parlors.

Instead, the committee recommended that the state issue licenses to between two and six online-only sports betting operators selected through a competitive bidding process.

A key goal of the committee is to maximize the state's gambling revenue, but figuring out how to do that has been a matter of robust debate. New Hampshire and New York require operators to turn over 51 percent of their gross revenue. In both cases, the states' take has exceeded projections. New Hampshire, which selected a single online sports betting operator, expected about $10 million in annual tax revenue but took in $24 million last year and expects $30 million next year, McIntyre told the committee.

New York allowed nine operators to begin taking bets in January and instantly became the largest sports betting market in the nation. The state government netted $544 million in the first 10 months.

But a recent series of stories in the New York Times about the tactics used by the gaming industry to expand sports betting noted that most states are not meeting their optimistic revenue projections. One reason: The industry has been able to insert language into gaming bills that allows betting operations to deduct promotional expenses from the gross revenue that is taxed.

Such deductions, including advertising and offers for "free bets" meant to get people hooked on sports betting, significantly lowered the tax revenue some states received, the Times found.

One story noted that in Kansas, where lobbyists plied legislators with cigars and whiskey, the state took in less than $271,000 in taxes this fall on $350 million in bets, due at least in part to deduction language inserted into legislation at the last minute.

Liquor and Lottery Commissioner Wendy Knight, who chairs the Vermont study committee, said she read the Times pieces with great interest but also with a sense of gratitude for what she considers Vermont's transparent legislative process.

"Vermont is not Kansas," she said. "None of us on the committee, to my knowledge, have received cigars or bottles of whiskey."

They have, however, received suggestions from the industry's lobbyists about how to word a legalization law.

One of the industry's largest online gaming platforms, DraftKings, hired Montpelier-based lobbying firm MMR in 2020 to represent it at the Statehouse. Then, in 2021, DraftKings joined forces with two other large online sportsbooks, FanDuel and BetMGM, to form the Sports Betting Alliance. That group hired MMR in January of this year and has paid the firm nearly $30,000 thus far, according to disclosure records.

Chris Rice, president and founding partner at MMR, attended some of the study committee meetings and shared with Knight proposed language for a tax rate much lower than in New Hampshire or New York. His proposal called for a 20 percent cut for the state if there were five or six gaming operators and 22 percent if there were three or four operators. Rice declined to discuss his work for his client.

Andrew Winchell, director of government affairs for FanDuel, told the committee in October that Vermont should keep its tax rate low to ensure that the payouts offered to gamblers are generous enough to lure them away from the illegal, untaxed offshore gambling market.

If tax rates are too high, states can "stunt the market" and the big-name betting companies will choose not to participate, Winchell said. Arkansas, which has an effective 51 percent tax rate on operators, saw just $1 million in gross gaming revenue in August, while Tennessee, which has a tax rate of 20 percent, had gaming revenue of $27 million in that same period, he told the committee.

He argued that if Vermont set a lower tax rate, it would bring in more high-quality operators, such as FanDuel and DraftKings. That would lead to more total betting and an overall higher tax haul for the state, Winchell said. He also asserted that putting the tax rate in statute is important because it gives operators certainty about what to expect.

"I didn't buy that argument, nor did anyone else on the committee," Knight told Seven Days.

A competitive bidding process during which operators say what percentage they are willing to pay in taxes is the best way to ensure that the state can respond nimbly to the fast-moving market and maximize its revenue, she said.

Graham Campbell, an analyst with the state's Joint Fiscal Office, told the committee that tax rates on sports betting vary widely, with most falling between 10 and 51 percent. Depending on the number of operators and the tax rate, the state could expect between $1.5 million and $4.8 million in the first year, and $1.3 million and $10.6 million in the second year.

The higher revenue estimates assume several operators and a tax rate of 50 percent. But Campbell warned that attracting several operators to a small state with no casinos and no professional sports teams might prove a challenge if tax rates were too high.

Meanwhile, responsible-gaming advocates urged the committee to ensure that if Vermont allows sports betting, it addresses the harm it could cause for people with gambling problems. Brianne Doura-Schawohl, a lobbyist for the D.C.-based National Council on Problem Gambling, told the committee that an estimated 11,600 Vermonters, or 2.2 percent of the adult population, are problem gamblers. The state spends just 23 cents per person on services for them, she said.

"Research is very clear that any time you introduce a new form of gambling in a jurisdiction, you ... will increase the number of problems," she told the committee.

To address such concerns, the committee is recommending that a portion of the state's revenues be dedicated to a Responsible Gaming Special Fund that would provide public education and gambling addiction assistance.

The committee, however, left the exact amount up to lawmakers. The same went for whether there should be age restrictions (18 or 21?) or limits on the types of sports that people can bet on, such as basketball, horse racing or NASCAR.

"Our job was to come up with the framework," Knight said. "These are policy decisions that the legislature needs to make."

The study committee recommended measures to ensure that gamblers don't lose their shirts, including banning the use of credits cards on the betting platforms. (Only cash or debit cards would be allowed.) Other recommendations: daily and weekly wager limits; mandatory pop-up notifications that remind gamblers how long they've been playing; and a way for players to block themselves from using the platform for a period of time.

Such protections don't exist in the illegal market, which is one of the reasons Gov. Phil Scott — despite the questions raised in the Times articles — still supports legalization, according to his spokesperson, Jason Maulucci.

"We know that Vermonters are already participating in the market, and without bringing it aboveboard, there is very little consumer protection in place," Maulucci said.

Birong, who, like Stevens, sits on the House Committee on General, Housing, and Military Affairs, said he decided to support legalization when he realized the arguments for doing so were essentially the same as the reasons for legalizing cannabis sales.

But he thinks that, as with cannabis, Vermont can learn from the mistakes of other states and, in doing so, sidestep many of the pitfalls.

"I am not naïve to the fact that we are opening up the door to something that has a dark side," he said.

The original print version of this article was headlined "Risky Business"