At a hearing of the Illinois House Revenue and Finance, Sales, Amusement and Other Tax Subcommittee on sports betting, run by state Rep. Robert Rita, lawmakers heard testimony from stakeholders including professional leagues, horseman’s groups, racetracks and the state’s lottery vendor. Earlier, a group of legislators, headed by state Rep. Mike Zalewski, filed four amendments to HB 3308, a sports betting shell bill. Amendment 5 was added more recently; it was not on the agenda but sparked the most heated discussion.
The three main amendments all include a $10 million initial licensing fee, renewable at $250,000 every five years, based on a request by Governor J.B. Pritzker, who included $200 million in fees from 20 interactive sports betting licenses in his state budget proposal.
The first amendment, the “Classical New Jersey Model,” though not entirely the same as that state’s model, would tax brick-and-mortar casino sports betting revenue at 15 percent and mobile wagering at 20 percent. Horseracing tracks would have to contract with horsemen’s groups before getting a license and must share in profits for purses.
Tom Swoik, executive director of Illinois Casino Gaming Association, said his group supports online/mobile gaming with remote registration, the ability to bet on college as well as professional sports and a low tax rate. His group opposes any kind of payout to the sports leagues. “Sports betting with internet gaming will bring new revenue to the state. We believe that legalizing sports betting will create a safe environment for the state and bring new revenue. We’d like to see it happen in the state. We’d like to see us and the horse racetracks be able to have sports betting and online sports betting. We believe that Amendment 1 is the best place to start.”
The “Mississippi Model” amendment would prohibit mobile sports wagering except on-site at a casino or racetrack; sports betting also would be allowed at licensed OTBs. Only 10 online operators, affiliated with brick-and-mortar casinos, would be permitted. Horseracing tracks would have to contract with horsemen’s groups before getting licensed and they’d have to share in profits for purses. This amendment also would provide a 0.20 percent royalty on handle to professional sports leagues in exchange for licensees receiving official league data.
Zalewski said, “I think it may be in-person sports betting to start and then mobile will roll out. The brick-and-mortars in this state are going to say, ‘We’ve been here the longest, we’ve vetted, we’ve tested, we’ve been here before, why would you wait here for the online guys, when we’re show ready right now?’ That may be appealing to us as a policy piece. It’s a hybrid, so I think slow beginnings are probably preferred over going too fast. “
Regarding the “Professional Sports Leagues” amendment, Zalewski said, “I don’t think we can have this conversation without bringing in teams and leagues and saying, ‘What are you looking for out of this process?’ The leagues are going to be very much under the microscope of having to prove why they feel entitled to have a piece.” The amendment would offer a 0.25 percent royalty on handle, distributed to sports governing bodies, and would require the use of official league data for in-game bets and sharing anonymous betting data with leagues in real-time. Sports books only could be established at sports venues but mobile betting would be allowed. Revenue would be taxed at 12.5 percent.
National Basketball Association Vice President Dan Spillane also presented testimony about paying the professional leagues a royalty, although currently no state that has legalized sports betting pays a royalty to professional leagues. “No other state does it. The model comes from international situations, but we are early in the process here. We’ve only been engaged in the process since last year, so essentially, it’s Minute 3 of the game. I am hopeful that Illinois will set a precedent about how sports betting should be run.”
Finally, the “Lottery Oversight” amendment would authorize the Illinois Department of the Lottery to oversee all sports wagering operations, including types of wagers and amounts that may be offered at lottery retailers. The amendment would provide an effective 50 percent tax on sports wagering revenue. Zalewski said, “I know there would be a lot of opponents to this idea, but we feel it’s worth having the lottery conversation because we can have one operator pay a large upfront fee. That’s appealing enough to us to have a conversation on what it might look like.”
Nick Papadoglou, of Intralot, the state’s lottery operator, strongly supported the lottery amendment. “We will offer the biggest return to the state. The biggest gaming brand in the state is the state lottery. It carries values like integrity and responsible gaming, and it supports more than 10,000 retailers.”
Then Amendment 5 was brought up. It contains the language: “No sports wagering operator license or internet sports wagering vendor license shall be granted to an applicant that has accepted, that has or had an affiliate that has accepted, or that has officers or directors who are or have been officers or directors of another party that has accepted wagers through the internet in contravention of any United States law, Illinois law or any substantially similar laws of any other jurisdiction before the application date pursuant to a final determination of a court or an unequivocal official pronouncement from a government authority or chief law enforcement officer.”
Paul Gaynor, appearing on behalf of Midwest Gaming & Entertainment LLC, DBA Rivers Casino, said this so-called “bad actors” clause applies to DraftKings and FanDuel, which would have a “duopoly” on sports betting if they are allowed to participate in Illinois. He said both companies in the past have defied the law regarding daily fantasy sports and should not be rewarded for that behavior with operating Illinois sports books.
Gaynor said, “Without language barring bad actors from the licensing process, the proposed legislation would ignore DraftKings’ and FanDuel’s pattern of criminal conduct and reward bad actors that have flaunted state and federal laws and who to this day refuse to comply with the laws. If we allow this to happen in Illinois, DraftKings and FanDuel, under the proposed legislation, would pay $20 million for 85-90 percent of the market, leaving a mere 10-15 percent of the market” for others, referring to the $10 million license application fee in three of the sports betting amendments. “As a result of this lack of competition, Illinois will not receive the maximum tax revenue collections,” Gaynor said.
Zalewski was not amused. He called Gaynor’s statement “silly,” noting DraftKings and FanDuel were being discussed in a hearing specifically designed to present testimony on four amendments that could help lawmakers better understand and clarify their thoughts on sports betting in Illinois.
Also regarding Amendment 5, Mattias Stetz, chief operating officer for Chicago-based Rush Street Interactive, the digital arm of Rush Street Gaming, also commented, “We feel it is very important that the players in Illinois can bet within a safe and correctly regulated environment, and with operators that have a clean track record in the state of Illinois.”
He also noted, “Amendment #5 is also calling for one skin per sports wagering operator. The reason for allowing 1 skin per operator is to create a cross-marketing synergy between the brick-and-mortar casino and the online/mobile operator. A skin that has no direct connection with a brick-and-mortar casino is not incentivized to drive traffic back to the brick-and-mortar location and we feel that this should be an imperative to preserve the massive investments made and future growth in the brick-and-mortar casinos, hence optimizing long-term all gaming revenues and tax revenues for the state.”
The next step, Zalewski said, is committee members will take a “work week” to allow staff to review testimony and revise and refine the amendments. Zalewski said he hopes to move sports betting through the House as quickly as possible to get legislation to Pritzker by late May. Pritzker’s spokeswoman Jordan Abudayyeh said the governor “is pleased that the general assembly is moving forward on a key revenue proposal. He is focused on bringing sports betting off the illicit market and into a legal, regulated space in the wake of the U.S. Supreme Court ruling.”
