Fees Reach Unprecedented Level In New Illinois Sports Betting Proposals

Written By Matthew Kredell on May 8, 2019
Illinois sports betting

Rep. Michael Zalewski filed two amendments to Illinois sports betting legislation ahead of Wednesday’s subcommittee hearing.

The amendments, which replace the five proposals previously discussed in the state, would establish licensing and tax fees unprecedented in the US sports betting market.

While H 3308 served as Zalewski’s sports betting bill in earlier discussions, the amendments shift the focus to H 1260. This week, Zalewski took over as primary sponsor of the bill, which will apparently be the new IL sports betting vehicle.

One change from previous proposals is that neither amendment requires in-person registration for mobile wagering.

At Wednesday’s hearing in the House Sales, Amusement and Other Taxes Subcommittee, stakeholders expressed having issues with much of the language in the two amendments.

Amendment 1: All-inclusive for in-state stakeholders

The first proposed amendment authorizes Illinois sports betting for riverboat casinos, horse racing tracks, off-track betting (OTB) parlors, video gaming operators and the lottery. Key elements include:

  • Riverboats can operate a sportsbook in their facility and use either one online skin or one brick-and-mortar sportsbook in any location, including a sports stadium.
  • Horse tracks can host a sportsbook and use one online skin or have a sportsbook in three of their authorized OTBs.
  • Video gaming operators can place sportsbooks in 10% of licensed establishments and operate one online skin.
  • All master license fees are $10 million or 5% of net terminal income, adjusted gross receipts or total handle — whichever is greater. Skin licenses are $5 million each. Adding a sports stadium, Off-track betting or other brick-and-mortar location is another $5 million.
  • The tax rate is 25% of adjusted sports wagering receipts.
  • The lottery can allow parlay wagering in 2,500 retail locations. The initial license fee is $30 million, and the tax rate is 100% of sports wagering receipts.

Amendment 2: Separate online licenses

The second option does not include the lottery but does allow for companies such as DraftKings Sportsbook and FanDuel Sportsbook to get their own licenses at a higher cost, with the possibility of a bad-actor delay. The amendment also gives in to sports leagues demands on integrity fees and data. Key elements include:

  • Seven brick-and-mortar licenses for $15 million each to go to the first seven applicants among the state’s riverboats, horse tracks and video gaming terminal operators.
  • Three online licenses are available for $20 million each.
  • $5 million for a skin license.
  • Tax rate of 25% on annual adjusted gross receipts with funds going evenly to the State Construction Account Fund, Pension Stabilization Fund and Common School Fund.
  • Horse tracks must pay 2% of AGR to the Horse Racing Purse Fund.
  • An integrity fee of 0.2% on handle paid to the sports leagues.
  • In-game wagers require the use of official league data if desired by the sports league.
  • Prohibits betting on collegiate sporting events taking place in Illinois.
  • Prohibits any entity that participated in unlawful gambling operations from receiving any type of sports wagering license for a period of three years.

Illinois stakeholders push back on license and tax fees

Tom Swoik of the Illinois Casino Gaming Association, representing nine of the 10 riverboat casinos in the state, pointed out that Iowa recently passed sports betting legislation with a 7.5 percent tax rate and Indiana with a 9.5 percent tax, along with licensing fees that topped out at $100,000.

“I’m not saying we need to be as low as Iowa or Indiana necessarily, but when you’re talking three-to-four times more, it just seems outrageous,” Swoik said.

Zalewski expressed concern about the legislature’s ability to raise the tax rate if it starts too low and questioned if the Illinois industry could sustain a higher tax rate because its gaming market and population centers are more dense than Iowa and Indiana.

Swoik responded that the higher rate could force consumers to go to the neighboring states or the black market to place bets.

“It’s all about what the odds are,” Swoik said. “If we’re paying three-to-four times more in taxes, we’re going to have to offer lower odds.”

Other stakeholders who pointed to the taxes and fees as being too high included Steve Brubaker, representing the Illinois Harness Horsemen’s Association, and Ivan Fernandez, executive director of the Illinois Gaming Machines Operators Association.

Sports betting restrictions limit operator revenue potential

Stakeholders also mentioned limitations, or lack thereof, that make paying the requested fees and taxes prohibitive.

Swoik noted that all his members want to offer mobile, which in Amendment 1 would prevent them from putting a sportsbook in a Chicago stadium.

Horse racing industry lobbyist Robert Molaro lamented that horse tracks have to give up an online skin in order to put sportsbooks at three OTBs.

Fernandez and Dan Clausner of the Illinois Beverage Association stated that it’s problematic for them to be picking winners and losers among their customers with only 10 percent of VGT operators allowed to have sports betting.

Swoik said he could see operators paying $15 million for a license if they are limited to seven brick-and-mortar and three online licenses such as in the second amendment. He scoffed at operators paying $10 million per license under the first proposal, which he attested could have more than 3,000 locations offering sports betting in the state with the lottery, VGT and OTB participation.

Sports leagues offer marketing support in return for royalty

The professional sports leagues used to call their ask for a percentage of all bets placed on their games an integrity fee to be used to ensure the integrity of their games. They have long since changed the name to royalty.

At Wednesday’s hearing, they rebranded the royalty as a partnership that would give them a financial incentive to drive up the amount of money bet in Illinois. They also really like pie metaphors.

“I think there’s a lot we can do in terms of opening up the levers of marketing, helping consumers in Illinois understand what are legal sportsbooks versus illegal sportsbooks and encouraging them to bet legally,” said Bryan Seely of Major League Baseball. I think there’s a number of things we can do to try to grow the pie for everyone.”

Scott Kaufman-Ross, representing the NBA, warned that it’s better for all operators to be required to use official league data so that the league will have an incentive to grow revenue for everyone.

“If we were in a situation where we only had a partnership with one operator, then we’d only be incentivized to grow their revenue,” Kaufman-Ross said. “Having a royalty that applies to all sports betting in the state will incentivize the leagues to lean in and grow the pie for everyone.”

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Matthew Kredell

Matthew started his career as a sportswriter at the Los Angeles Daily News, where he covered the NFL, Kobe-Shaq three-peat, Pete Carroll’s USC football teams, USC basketball, pro tennis, Kings hockey and fulfilled his childhood dream of sitting in the Dodgers’ dugout. His reporting on efforts to legalize sports betting began in 2010, when Playboy Magazine flew him to Prague to hang out with Calvin Ayre and show how the NFL was pushing US money overseas by fighting expansion of regulated sports betting across the country. A USC journalism alum, Matt also has written on a variety of topics for Men’s Journal, Los Angeles magazine, LA Weekly and ESPN.com.

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