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00:03 Welcome back to News Bar here on Sports Grid.
00:05 Groundbreaking news in the world of sports betting that's seemingly flying
00:08 under the radar here a little bit.
00:10 We'll bring in Matthew Waters for the latest.
00:12 As Matthew, we got the news that the state of Illinois is bumping up their
00:18 tax rate on sports betting to an unprecedented number of 40%,
00:24 which is only 11% less than the state of New York.
00:28 And now higher than Ohio, if I'm not mistaken, and
00:30 higher than Pennsylvania as well.
00:33 The only thing that I would say is, as well, with that little asterisk for
00:36 the time being, because I can only imagine that the states and
00:41 the market share sizes like they are now, remember,
00:43 Illinois is a very high market share.
00:45 Chicago is one of the top media markets in the country, so it makes some sense.
00:49 But I gotta tell you, Philadelphia, not far behind.
00:52 Cleveland, Ohio, not far behind.
00:55 I would guess that precedent is now set and others will follow.
01:00 By the way, thanks for coming on the show.
01:01 [LAUGH] >> Yeah, I always happy to be here,
01:03 Craig, especially when we have a story like this.
01:06 That, yeah, when it comes out that people are raising tax rates,
01:10 it doesn't always get through to the consumer what that can mean.
01:14 And it can have some big implications for sports betting here and
01:18 what that means for consumers in the long run.
01:20 Basically, Illinois, they had the idea of raising it to 35%, a 35% flat tax.
01:27 And luckily for some of the smaller guys,
01:29 that got pared back a little bit in the Senate.
01:31 So now we're looking at a tier that has, if you make less than 30%,
01:36 you're gonna be taxed at 30 million, excuse me, you'll be taxed at 20%.
01:40 That goes all the way up to being taxed at that 40% on your gross revenue
01:44 of 200 million or more for the year.
01:47 There's only two operators that hit that, Craig, and
01:49 obviously that's DraftKings and FanDuel.
01:52 I checked the stock prices before we came on and they're not great, Craig.
01:56 13% down almost for DraftKings at more than double its average daily volume
02:01 already, and FanDuel in the US, they were down close to 7%.
02:07 I believe that puts them near a new low.
02:10 Remember, they just listed on the US not too long ago, but
02:13 still not great for these operators.
02:16 There's a note from Carlo Santorelli at Deutsche Bank that really kind of
02:20 breaks it all out great.
02:22 And you look at what FanDuel paid last year.
02:25 FanDuel paid $68 million in taxes at that 15% tax rate.
02:30 They now would be paying, based on the last 12 months numbers,
02:35 they'd be paying an additional 81.6 million in taxes.
02:39 DraftKings is similar, 66 million in taxes last year.
02:43 If we looked at the last 12 months, another 66 million in taxes on top of
02:49 that based on the new tax rates.
02:51 And so, yeah, you know, Craig, we have to look at what exactly this means for
02:58 Illinois right now, and I know we'll touch on some other states later, but
03:02 like you said, Illinois is huge.
03:04 And they're not even done building out their sports betting market,
03:09 except now I think they are if this goes through.
03:11 Remember, they have some of those online-only licenses that are available
03:16 at 20 million each, which you might be able to make that math work somehow if
03:22 the tax rate was still 15%.
03:25 It's tough now.
03:26 It is going to be tough for these operators to be able to continue to keep
03:31 up their level of investment that they had in the state when you have such a
03:36 jump like this.
03:36 And yeah, of course, it is not up to the state to worry about what the
03:43 companies do, how much money they make, right?
03:46 They agreed to be here, and that's that.
03:51 But it's tough, Craig.
03:54 Now, we haven't seen it yet.
03:55 We have not seen the effect put onto the bettors.
03:59 We have heard in New York, you know, DraftKings said that they may have to
04:04 start to offer worse odds, and that was said last year.
04:07 And we've heard similar things from other companies, but we just haven't
04:12 necessarily seen it.
04:14 We have seen worse odds come through in the ways of different Parley products
04:19 and what they're doing.
04:20 You know, DraftKings obviously now has the Parley product that will allow you
04:24 to lose a leg or two of your Parley, but naturally, you're not getting the same
04:28 kind of odds as a true Parley with that.
04:31 So the operators have been finding ways to find money here or there, but honestly,
04:37 Craig, that was really just making sports betting profitable and, you know,
04:44 attractive for these companies.
04:46 Before PASPA in May 2018, the argument was that these companies made about 5%,
04:54 5 cents on the dollar for every dollar that's bet, and that is trending up
04:59 because of these Parleys.
05:01 And so when you start to see that operators are holding more than what they
05:05 said they would, you know, when they were lobbying for this legislation and
05:10 lobbying for the lower tax rates because it was a low-margin business,
05:15 now the conversation has changed with how they're making business.
05:18 And so I do understand the conversation changing in the legislatures.
05:24 Just have to make sure that you're not damaging or potentially ruining the
05:29 industry in front of you.
05:30 Illinois, yes, big numbers out of Illinois.
05:33 I doubt operators are going to stop operating in Illinois, but will the
05:38 product look different?
05:39 We're getting to the point where it may have to in some of these states that are
05:43 making the move.
05:44 - Yeah.
05:45 And there is a fight going on, by the way.
05:47 It seems like there is this group that's trying to step up and stop the tax rate,
05:52 and there's also a sports betting alliance that is going to try and keep the
05:55 customers in tap too.
05:56 Do you think they have any success with this or this just basically just keeps
05:59 moving?
06:01 - You know, I'm not sure, Craig, because the SBA, the two biggest partners there
06:05 are DraftKings and Fandul.
06:07 So, you know, they are out here pounding the pavement.
06:10 They have pop-ups coming up on their apps in Illinois saying,
06:14 "Email your legislators."
06:16 They're trying to do as much as they can, and it didn't work in Illinois.
06:22 So, I don't know what kind of influence they're going to have moving forward.
06:30 - Let's now get to the main story of the summer, which is wondering whether or not
06:34 we're going to have college player props coming up in the fall.
06:38 College football season, Matt, as you know, is coming up in August here around
06:41 Labor Day.
06:41 It's not that far away.
06:43 You know, different states are taking different sort of stances on this.
06:48 The NCAA president, Charlie Baker, is involved as well.
06:51 What can you tell us the latest in?
06:52 - Yeah, I would encourage anybody interested in this to head over to
06:56 legalsportsreport.com.
06:58 Check out Mike Mazzeo's article on this.
07:00 He does a great job.
07:02 There are a lot of different viewpoints in this article that I simply can't get
07:06 across to you in this one segment.
07:09 But we know that Charlie Baker wants the end of player props around the U.S.
07:16 on college players.
07:17 And it's interesting to hear how that is playing out with some people.
07:23 You have the NCAA managing director of enforcement, Mark Hicks, saying,
07:27 "Yeah, you know, could that move people offshore?
07:31 Yeah, it could.
07:32 But also, we encourage federal law enforcement to go after the
07:35 unregulated black market."
07:37 So the NCAA, in Hicks' point of view, at least is saying, "Well,
07:42 you know, we're not the only ones that could be doing something about this.
07:45 The federal government should be doing something about this."
07:48 Obviously, it's not that easy when it comes to shutting down these black
07:51 market operators, Craig.
07:53 It takes a lot of...it takes money trails, it takes paperwork to find,
07:58 and the offshore guys are really good at not letting that happen.
08:03 One of the other things that I thought was a great quote came from a regulator,
08:09 an unnamed regulator, state regulator, that said, "Do you really think people are
08:13 just going to comply with this and not gamble anymore?
08:16 There's always going to be a-holes on the internet.
08:19 First, we're banning college player props.
08:21 At what point does it stop?"
08:23 So we're not done with this conversation.
08:26 We have had some states, we've had West Virginia, we've had Ohio,
08:29 we've had a couple others step up and say, "Yeah, let's end this."
08:33 But others are saying, "No, we don't want to do that," and others are still just
08:37 up in the air on it.
08:38 We know from Ohio, it was less than 2% of the handle on these college prop
08:43 bets total that the operators had taken.
08:45 So it's not a huge section of the market, but it's tough because you are sending
08:51 people that want to bet on that to the black market.
08:53 And that has to be tough for these regulators to weigh out.
08:57 So it's still a very much so ongoing conversation.
09:01 - Yeah.
09:01 And again, limiting some of the bets could be the possibility for the future
09:05 with these props.
09:06 But again, we got to figure this out.
09:07 We got three months to go.
09:09 All right, Matt, thanks for coming on.
09:10 Great to see you again.
09:11 Have a great rest of your week.
09:13 - Thank you.
09:13 Take care, guys.
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