Puerto Rico: Political Storms Could Stall Sports Betting

In possibly one of the final acts of his political career, former Puerto Rican Governor Ricardo Rossello signed legislation to bring legal sports betting to the U.S. territory. But the upheaval he left behind may stall the launch of the industry, which could bring in revenues for the island devastated by Hurricane Maria. Justice Secretary Wanda Vasquez (l.) is the third governor in a week and she might be replaced herself.

Puerto Rico: Political Storms Could Stall Sports Betting

It was only a couple of months ago—April, to be exact—when Puerto Rican Governor Ricardo Rosselló shared his plans for a legal sports betting industry with Global Gaming Business.

In an interview with GGB publisher Roger Gros, Rosselló said he would bring legal sports betting, eSports and online gaming to the tiny commonwealth, set in the Caribbean about 1,000 miles southeast of Florida. He foresaw an industry that would restore jobs and help boost the island’s economy, devastated by Hurricane Maria in 2017.

But the legalization of sports betting may have been the last chapter of Rosselló’s public service career. In July, a series of vulgar text messages sent by the governor to his cronies in government went public. In the messages, he insulted women, homosexuals and U.S. lawmakers, and even ridiculed the suffering of Puerto Ricans in the aftermath of Maria, the Category 5 storm that killed almost 3,000 people.

Rossello apologized, and at first refused to resign. But eventually he bowed to public outrage and stepped down on July 24.

His sports betting legislation is now law, but the turmoil he left behind may stall the games package indefinitely, according to Brendan Bussman, partner and director of government affairs for Global Market Advisors, one of several U.S.-based firms that compiled studies of the nascent market.

“If not for the political forces on Puerto Rico right now, I think you could arguably have sports betting by the Super Bowl,” in February 2020, said Bussman. That timeline will certainly be a challenge, he added, “considering that within the last week, there have been three governors.” Rossello’s hand-picked successor, Pedro Pierluisi, came and went fast, and was replaced by Justice Secretary Wanda Vasquez, who may herself be replaced.

Currently there are 16 casinos in Puerto Rico as well as horserace betting. Betting on professional sports leagues hit the legislative front burner last summer, when the U.S. Supreme Court overturned the Professional and Amateur Sports Protection Act. That move opened the door to legal sports betting for states on the mainland and also in Puerto Rico, a U.S. territory.

Brian Wyman, principal consultant for The Innovation Group, which also conducted a study of the market, told GGB News last week that he has several recommendations for lawmakers who will be charged with building the regulatory framework for the new industry.

“If the goal is a healthy market, the tax rate needs to be in a range that allows operators to invest in their mobile and online platforms, invest and reinvest in their customer base, and invest in things like marketing,” he said. “Really high tax rates inhibit the operators’ ability to do that to the point that some in Europe have bowed out of the market.”

He said a tax rate “in line with Nevada’s” is a good place to start.

“The other thing we recommend: not having a monopolistic marketplace,” as competition spurs reinvestment, fair pricing and innovation, he said.

Rather than cannibalizing casino revenues, the TIG study noted, “sports betting activates a different demographic of customer than traditional slots and table games, and we actually forecast revenue upside from the increased casino visitation.”

Puerto Rico is “quite an attractive market with a big sports culture that’s essentially untapped,” said Wyman. “It’s also a destination market. You can imagine people traveling there for a Super Bowl party, March Madness or the fantasy football draft.”

While sports betting is seldom a revenue bonanza, there’s a reason the industry is spreading quickly across the United States (according to a CNBC report, by this time next year half of the 50 U.S. states may offer legal sports betting). The wagers bring in a new, energetic, and often younger customer base that tends to spend beyond the sportsbook, splurging on booze, food and entertainment, especially during peak sports seasons.

The TIG study forecasts revenues of $11 million to $29 million in fiscal 2019-2020 (the study was completed in March, before the current political upheaval), rising to as high as $87 million in fiscal 2023-24, depending on whether sports betting is allowed at casinos only, on mobile only, or is permitted at casinos, racetracks, OTBs, gallerias and mobile/online.

The GMA study estimates that land-based sports betting could generate $5.4 million in the first year and about $7.4 million by 2022. “I think legislators think, hey, sports betting is going to generate a lot of money, but they’re basing that on the amount people are wagering opposed to what is actually generated off that. Ninety-percent of every dollar goes back to the bettor in the form of payouts; that only leaves about 5 percent. After taxes, operations, marketing and all that, the numbers are small.”

It’s a drop in the bucket given Puerto Rico’s financial straits; in 2017, the government sought bankruptcy relief in federal court, the first time in history that a U.S. state or territory took that step. Lawmakers are working to restructure $120 billion in debt and pension liabilities. Add that to the devastation from Maria, which caused a reported $43 billion in damages.

“Obviously, this is not going to be a panacea for them, but a small piece of the pie,” observed Michael Soll, president of The Innovation Group. “Mostly it boils down to being the right thing for the island, repatriating some of the revenues” lost to black-market betting.

To succeed at all, the product must be compelling enough to draw sports bettors away from illegal bookies, Bussman said. But first the island must sort out its political mess—a process that will take a while.

“I still believe that if they could move forward, things would be able to get up and going in the next six months with the right regulatory structure,” Bussman told GGB. “But I think we’re in a holding pattern until the new governor gets through the turmoil of the last few months. She has a large task ahead of her to clean up the corruption that has occurred and regain the public’s faith in its government.

“I don’t see sports betting moving forward until those items get cleared up.”

Articles by Author: Marjorie Preston

Marjorie Preston is managing editor of Global Gaming Business. She is a writer, editor, author and expat Pennsylvanian who now considers herself a New Jerseyan. Based on Brigantine Island north of Atlantic City, Preston has been writing about the gaming industry since 2007, when she joined the staff of Global Gaming Business as managing editor of Casino Connection.